G.R. No.

194201

November 27, 2013

SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,

vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS CITY JOSE C.
CORALES, Respondents.
1

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking to partially set aside the Decision, 2 dated 30 March 2010, and the
Resolution,3 dated 13 October 2010, of the Court of Appeals (CA) in CA-G.R. CV No.
91250. The challenged Decision dismissed the appeal of herein respondent Philippine
National Bank (respondent bank) and affirmed the decision of the Regional Trial Court
(RTC), Branch 84, Batangas City with the modification that the interest rate to be applied by
respondent bank on the principal loan obligation of petitioners Spouses Bayani H. Andal and
Gracia G. Andal (petitionersspouses) shall be 12% per annum, to be computed from
default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from [respondent bank] in
the amount ofP21,805,000.00, for which they executed twelve (12) promissory notes x x x
[undertaking] to pay [respondent bank] the principal loan with varying interest rates of 17.5%
to 27% per interest period. It was agreed upon by the parties that the rate of interest may be
increased or decreased for the subsequent interest periods, with prior notice to [petitionersspouses], in the event of changes in interest rates prescribed by law or the Monetary Board
x x x, or in the banks overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in favor of
[respondent bank] a real estate mortgage using as collateral five (5) parcels of land
including all improvements therein, all situated in Batangas City and covered by Transfer
Certificate of Title (TCT) Nos. T-641, T-32037, T-16730, T-31193 and RT 363 (3351) of the
Registry of Deeds of Batangas City, in the name of [petitioners-spouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their loan obligation,
otherwise the former will declare the latters loan due and demandable. On July 17, 2001,
[petitioners-spouses] paid P14,800,000.00 to [respondent bank] to avoid foreclosure of the
properties subject of the real estate mortgage. Accordingly, [respondent bank] executed a
release of real estate mortgage over the parcels of land covered by TCT Nos. T-31193 and
RT-363 (3351). However, despite payment x x x, [respondent bank] proceeded to foreclose
the real estate mortgage, particularly with respect to the three (3) parcels of land covered by
TCT Nos. T-641, T-32037 and T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent bank]
emerging as the highest and winning bidder. Accordingly, on August 30, 2002, a certificate

of sale of the properties involved was issued. [Respondent bank] consolidated its ownership
over the said properties and TCT Nos. T-52889, T-52890, and T-52891 were issued in lieu
of the cancelled TCT[s] x x x. This prompted [petitioners-spouses] to file x x x a complaint
for annulment of mortgage, sheriffs certificate of sale, declaration of nullity of the increased
interest rates and penalty charges plus damages, with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to religiously pay
their loan obligation to [respondent bank], but the exorbitant rate of interest unilaterally
determined and imposed by the latter prevented the former from paying their obligation.
[Petitioners-spouses] also alleged that they signed the promissory notes in blank, relying on
the representation of [respondent bank] that they were merely proforma [sic] bank
requirements. Further, [petitioners-spouses] alleged that the unilateral increase of interest
rates and exorbitant penalty charges are akin to unjust enrichment at their expense, giving
[respondent bank] no right to foreclose their mortgaged properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the allegations in the
complaint. x x x [respondent bank] alleged that: the penalty charges imposed on the loan
was expressly stipulated under the credit agreements and in the promissory notes; although
[petitioners-spouses] paid to [respondent bank]P14,800,000.00 on July 10, 2001, the former
was still indebted to the latter in the amount of P33,960,633.87; assuming arguendo that the
imposition was improper, the foreclosure of the mortgaged properties is in order since
[respondent banks] bid in the amount of P28,965,100.00 was based on the aggregate
appraised rates of the foreclosed properties. x x x4
After trial, the RTC rendered judgment5 in favor of petitioners-spouses and against
respondent bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in accordance with
Article 2209 of the Civil Code effective the next 30, 31 and 180 days respectively from the
date of the twelve (12) promissory notes x x x covered by the real estate x x x mortgages, to
be applied on a declining balance of the principal after the partial payments
of P14,800,00.00 (paid July 17, 2001) and P2,000,000.006 (payments of P300,000.00 on
October 1, 1999, P1,800,000.00 as [of] December 1, 1999, P700,000.00 [on] January 31,
2000) per certification of [respondent bank] to be reckoned at (sic) the dates the said
payments were made, thus the corrected amounts of the liability for principal balance and
the said 6% charges per annum shall be the new basis for the [petitioners-spouses] to make
payments to the [respondent bank] x x x which shall automatically extinguish and release
the mortgage contracts and the outstanding liabilities of the [petitioners-spouses];
[respondent bank] shall then surrender the new transfer certificates of title x x x in its name
to the [c]ourt x x x, [c]anceling the penalty charges.
xxxx

3. Declaring as illegal and void the foreclosure sales x x x, the Certificates of Sales and the
consolidation of titles of the subject real properties, including the cancellation of the new
Transfer Certificates of Title x x x in the name of the [respondent] bank and reinstating
Transfer Certificates of Title Nos. T-641, T-32037 and T-16730 in the names of the
[petitioners-spouses]; the latter acts to be executed by the Register of Deeds of Batangas
City.7
The foregoing disposition of the RTC was based on the following findings of fact:
As of this writing the [respondent] bank have (sic) not complied with the said orders as to
the interest rates it had been using on the loan of [petitioners-spouses] and the monthly
computation of interest vis a vis (sic) the total shown in the statement of account as of Aug
30, 2002. Such refusal amounts to suppression of evidence thus tending to show that the
interest used by the bank was unilaterally increased without the written consent of the
[petitioners-spouses]/borrower as required by law and Central Bank Circular No. 1171. The
latter circular provides that any increase of interest in a given interest period will have to be
expressly agreed to in writing by the borrower. The mortgaged properties were subject of
foreclosure and were sold on August 30, 2002 and the [respondent] banks statement of
account as of August 30, 2002 x x x shows unpaid interest up to July 17, 2001
of P12,695,718.99 without specifying the rate of interest for each interest period of thirty
days. Another statement of account of [respondent bank] x x x as [of] the date of foreclosure
on August 30, 2002 shows account balance ofP20,505,916.51 with a bid price
of P28,965,100.00 and showing an interest of P16,163,281.65. Again, there are no details of
the interest used for each interest period from the time these loans were incurred up to the
date of foreclosure. These statements of account together with the stated interest and
expenses after foreclosure were furnished by the [respondent] bank during the court
hearings. The central legal question is that there is no agreement in writing from the
[petitioners-spouses]/borrowers for the interest rate for each interest period neither from the
data coming from the Central Bank or the cost of money which is understood to mean the
interest cost of the bank deposits form the public. Such imposition of the increased interest
without the consent of the borrower is null and void pursuant to Article 1956 of the Civil
Code and as held in the pronouncement of the Supreme Court in several cases and C.B.
Circular No. 1191 that the interest rate for each re-pricing period under the floating rate of
interest is subject to mutual agreement in writing. Art. 1956 states that no interest is due
unless it has been expressly stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the
creditor/mortgagee, belongs to the class of potestative condition which is null and void
under Art. 1308 of the New Civil Code. The fulfillment of a condition cannot be left to the
sole will of [one of] the contracting parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure sale for a higher
amount than what is legally due is likewise null and void because under the Civil Code, a

mortgage may be foreclosed only to enforce the fulfillment of the obligation for whose
security it was constituted (Art. 2126, Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of interest since no
interest may be collected based on the stipulation that is null and void and legally inexistent
and unenforceable. x x x. Since the interest imposed is illegal and void only the rate of 6%
interest per month shall be imposed as liquidated damages under Art. 2209 of the Civil
Code.
It is worth mentioning that these forms used by the bank are pre- printed forms and
therefore contracts of adhesion and x x x any dispute or doubt concerning them shall be
resolved in favor of the x x x borrower. This (sic) circumstances tend to support the
contention of the [petitioners-spouses] that they were made to sign the real estate
mortgages/promissory notes in blank with respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses] property and any
foreclosure thereof is illegal, unreasonable and void, since [petitioners-spouses] are not and
cannot be considered in default for their inability to pay the arbitrarily, illegally, and
unconscionably adjusted interest rates and penalty charges unilaterally made and imposed
by [respondent] bank.
The [petitioners-spouses] submitted to the court certified copies of the weighted average of
Selected Domestic Interest Rates of the local banks obtained from the Bangko Sentral ng
Pilipinas Statistical Center and it shows a declining balance of interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate was ever used
to increase or decrease the interest rates charged upon the [petitioners-spouses] mortgage
loan for the 30 day re- pricing period subsequent to the first 30 days from [the] dates of the
promissory notes. These documents submitted being certified public documents are entitled
to being taken cognizance of by the court as an aid to its decision making. x x x. 8
Respondent bank appealed the above judgment of the trial court to the CA. Its main
contention is that the lower court erred in ordering the re-computation of petitionersspouses loans and applying the interest rate of 6% per annum. According to respondent
bank, the stipulation on the interest rates of 17.5% to 27%, subject to periodic adjustments,
was voluntarily agreed upon by the parties; hence, it was not left to the sole will of
respondent bank. Thus, the lower court erred in reducing the interest rate to 6% and in

setting aside the penalty charges, as such is contrary to the principle of the obligatory force
of contracts under Articles 1315 and 1159 of the Civil Code. 9
The CA disposed of the issue in the following manner:
We partly agree with [respondent banks] contention.
Settled is the rule that the contracting parties are free to enter into stipulations, clauses,
terms and conditions as they may deem convenient, as long as these are not contrary to
law, morals, good customs, public order or public policy. Pursuant to Article 1159 of the Civil
Code, these obligations arising from such contracts have the force of law between the
parties and should be complied with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly stipulated in the
promissory notes the rate of interest to be applied to the loan obtained by the latter from the
former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest rates stated in the
promissory notes since the latter voluntarily signed the same. However, we find more
credible and believable the version of [petitioners-spouses] that they were made to sign the
said promissory notes in blank with respect to the rate of interest and penalty charges, and
subsequently, [respondent] bank filled in the blanks, imposing high interest rate beyond
which they were made to understand at the time of the signing of the promissory notes.
xxxx
The signing by [petitioners-spouses] of the promissory notes in blank enabled [respondent]
bank to impose interest rates on the loan obligation without prior notice to [petitionersspouses]. The unilateral determination and imposition of interest rates by [respondent] bank
without [petitioners-spouses] assent is obviously violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code x x x.

were on equal footing with [respondent bank] as far as the subject loan agreements are
concerned. That may be true insofar as entering into the original loan agreements and
mortgage contracts are concerned. However, that does not hold true when it comes to the
unilateral determination and imposition of the escalated interest rates imposed by
[respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed different rates in
the twelve (12) promissory notes: interest rate of 18% in five (5) promissory notes; 17.5% in
two (2) promissory notes; 23% in one (1) promissory note; and 27% in three (3) promissory
notes. Obviously, the interest rates are excessive and arbitrary. Thus, the foregoing interest
rates imposed on [petitioners-spouses] loan obligation without their knowledge and consent
should be disregarded, not only for being iniquitous and exorbitant, but also for being
violative of the principle of mutuality of contracts.
However, we do not agree with the trial court in fixing the rate of interest of 6%. It is wellsettled that when an obligation is breached and consists in the payment of a sum of money,
i.e., loan or forbearance of money, the interest due shall be that which may have been
stipulated in writing. In the absence of stipulation, the rate of interest shall be 12% interest
per annum to be computed from default, i.e., from judicial or extra-judicial demand and
subject to the provisions of Article 1169 of the Civil Code. Since the interest rates printed in
the promissory notes are void for the reasons above-stated, the rate of interest to be applied
to the loan should be 12% per annum only.10
The CA, consequently, dismissed respondent banks appeal and affirmed the decision of the
trial court with the modification that the rate of interest shall be 12% per annum instead of
6%. Respondent bank filed a Motion for Reconsideration of the CA decision. Petitionersspouses, on the other hand, filed a comment praying for the denial of respondent banks
motion for reconsideration. They also filed an "Urgent Manifestation" 11 calling the attention of
the CA to its respective decisions in the cases of Spouses Enrique and Epifania Mercado v.
China Banking Corporation, et. al. (CA-GR CV No. 75303) 12 and Spouses Bonifacio Caraig
and Ligaya Caraig v. The Ex-Officio Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No.
76029).13
According to petitioners-spouses, in Spouses Mercado v. China Banking, the Special
Seventh Division of the CA held that where the interest rate is potestative, the entire interest
is null and void and no interest is due.

xxxx
[Respondent banks] act converted the loan agreement into a contract of adhesion where
the parties do not bargain on equal footing, the weaker partys participation, herein
[petitioners-spouses], being reduced to the alternative to take it or leave it. [Respondent]
bank tried to sidestep this issue by averring that [petitioners-spouses], as businessmen,

On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff of RTC,
Batangas City, the then Ninth Division of the CA ruled that under the doctrine of operative
facts, no interest is due after the auction sale because the loan is paid in kind by the auction
sale, and interest shall commence to run again upon finality of the judgment declaring the
auction sale null and void.14

The CA denied respondent banks Motion for Reconsideration for lack of merit. It likewise
found no merit in petitioners-spouses contention that no interest is due on their principal
loan obligation from the time of foreclosure until finality of the judgment annulling the
foreclosure sale. According to the CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the subject
promissory notes after finding that the same are iniquitous and exorbitant, and for being
violative of the principle of mutuality of contracts. Nevertheless, in Equitable PCI Bank v. Ng
Sheung Ngor, the Supreme Court ruled that because the escalation clause was annulled,
the principal amount of the loan was subject to the original or stipulated interest rate of
interest, and that upon maturity, the amount due was subject to legal interest at the rate of
12% per annum. In this case, while we similarly annulled the escalation clause contained in
the promissory notes, this Court opted not to impose the original rates of interest stipulated
therein for being excessive, the same being 17.5% to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing Corporation v.
Spouses Cesario Gravador and Norma De Vera, et. al. that stipulations authorizing the
imposition of iniquitous or unconscionable interest are contrary to morals, if not against the
law. x x x. The nullity of the stipulation on the usurious interest does not, however, affect the
lenders right to recover the principal of the loan. The debt due is to be considered without
the stipulation of the excessive interest. A legal interest of 12% per annum will be added in
place of the excessive interest formerly imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the imposition by this
Court of a 12% rate of interest per annum on the principal loan obligation of [petitionersspouses], computed from the time of default, is proper as it is consistent with prevailing
jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division of this Court in
CA-G.R. CV No. 75303 and in CA-G.R. No. 76029 are final and executory, the same merely
have persuasive effect but do not outweigh the decisions of the Supreme Court which we
are duty-bound to follow, conformably with the principle of stare decisis.
The doctrine of stare decisis enjoins adherence to judicial precedents.1wphi1 It requires
courts in a country to follow the rule established in a decision of the Supreme Court thereof.
That decision becomes a judicial precedent to be followed in subsequent cases by all courts
in the land. The doctrine of stare decisis is based on the principle that once a question of
law has been examined and decided, it should be deemed settled and closed to further
argument.15 (Emphasis supplied.)
Petitioners-spouses are now before us, reiterating their position that no interest should be
imposed on their loan, following the respective pronouncements of the CA in the Caraig and
Mercado Cases. Petitioners-spouses insist that "if the application of the doctrine of
operative facts is upheld, as applied in Caraig vs. Alday, x x x, interest in the instant case

would be computed only from the finality of judgment declaring the foreclosure sale null and
void. If Mercado vs. China Banking Corporation x x x, applying by analogy the rule on void
usurious interest to void potestative interest rate, is further sustained, no interest is due
when the potestative interest rate stipulation is declared null and void, as in the instant
case.16
Our Ruling
We dismiss the appeal.
We cannot subscribe to the contention of petitioners-spouses that no interest should be due
on the loan they obtained from respondent bank, or that, at the very least, interest should be
computed only from the finality of the judgment declaring the foreclosure sale null and void,
on account of the exorbitant rate of interest imposed on their loan.
It is clear from the contract of loan between petitioners-spouses and respondent bank that
petitioners-spouses, as borrowers, agreed to the payment of interest on their loan
obligation. That the rate of interest was subsequently declared illegal and unconscionable
does not entitle petitioners-spouses to stop payment of interest.1wphi1 It should be
emphasized that only the rate of interest was declared void. The stipulation requiring
petitioners-spouses to pay interest on their loan remains valid and binding. They are,
therefore, liable to pay interest from the time they defaulted in payment until their loan is
fully paid.
It is worth mentioning that both the RTC and the CA are one in saying that "[petitionersspouses] cannot be considered in default for their inability to pay the arbitrary, illegal and
unconscionable interest rates and penalty charges unilaterally imposed by [respondent]
bank."17 This is precisely the reason why the foreclosure proceedings involving petitionersspouses properties were invalidated. As pointed out by the CA, "since the interest rates are
null and void, [respondent] bank has no right to foreclose [petitioners-spouses] properties
and any foreclosure thereof is illegal. x x x. Since there was no default yet, it is premature
for [respondent] bank to foreclose the properties subject of the real estate mortgage
contract."18
Thus, for the purpose of computing the amount of liability of petitioners-spouses, they are
considered in default from the date the Resolution of the Court in G.R. No. 194164
(Philippine National Bank v. Spouses Bayani H. Andal and Gracia G. Andal) which is the
appeal interposed by respondent bank to the Supreme Court from the judgment of the CA
became final and executory. Based on the records of G.R. No. 194164, the Court denied
herein respondent banks appeal in a Resolution dated 10 January 2011. The Resolution
became final and executory on 20 May 2011.19
In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of the
Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in accordance with the

ruling of the Supreme Court in the recent case of Dario Nacar v. Gallery Frames and/or
Felipe Bordey, Jr.,20 effective 1 July 2013, the rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per annum.
Accordingly, the rate of interest of 12% per annum on petitioners-spouses obligation shall
apply from 20 May 2011 the date of default until 30 June 2013 only. From 1 July 2013
until fully paid, the legal rate of 6% per annum shall be applied to petitioners-spouses
unpaid obligation.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of the Court of
Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the MODIFICATION that the 12%
interest per annum shall be applied from the date of default until 30 June 2013 only, after
which date and until fully paid, the outstanding obligation of petitioners-spouses shall earn
interest at 6% per annum. Let the records of this case be remanded to the trial court for the
proper computation of the amount of liability of petitioners Spouses Bayani H. Andal and
Gracia G. Andal, in accordance with the pronouncements of the Court herein and with due
regard to the payments previously made by petitioners-spouses.
SO ORDERED.
G.R. No. 107569 November 8, 1994
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS, REMEDIOS JAYME-FERNANDEZ and AMADO
FERNANDEZ, respondents.
Petitioner bank seeks the review of the decision, dated October 15, 1992, of the Court of
Appeals 1 in CA G.R. CV No. 27195, the dispositive portion of which reads as follows:
WHEREFORE, the judgment appealed from is hereby SET ASIDE
and a new one is entered ordering defendant-appellee PNB to reapply the interest rate of 12% per annum to plaintiffs-appellants'
(referring to herein private respondents) indebtedness and to
accordingly take the appropriate charges from plaintiffs-appellants'
(private respondents') payment of P81,000.00 made on December 26,
1985. Any balance on the indebtedness should, likewise, be charged
interest at the rate of 12%per annum.
SO ORDERED.
The parties do not dispute the facts as laid down by respondent court in its impugned
decision, viz.:

On April 7, 1982, (private respondents) as owners of a NACIDAregistered enterprise, obtained a loan under the Cottage Industry
Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB)
in the amount of Fifty Thousand (P50,000.00) Pesos, as evidenced by
a Credit Agreement. Under the Promissory Note covering the loan, the
loan was to be amortized over a period of three (3) years to end on
March 29, 1985, at twelve (12%) percent interest annually.
To secure the loan, (private respondents) executed a Real Estate
Mortgage over a 1.5542-hectare parcel of unregistered agricultural
land located at Cambang-ug, Toledo City, which was appraised by the
PNB at P1,062.52 and given a loan value of P531.26 by the Bank. In
addition, (private respondents) executed a Chattel Mortgage over a
thermo plastic-forming machine, which had an appraisal value of
P8,800 and a loan value of P4,400.00.
The Credit Agreement provided inter alia, that
(a) The BANK reserves the right to increase the
interest rate within the limits allowed by law at
any time depending on whatever policy it may
adopt in the future; Provided, that the interest
rate on this accommodation shall be
correspondingly decreased in the event that the
applicable maximum interest is reduced by law
or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall
take effect on the effectivity date of the increase
or decrease in the maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate of
interest, at any time without notice, beyond the stipulated rate of 12%
but only "within the limits allowed by law."
The Real Estate Mortgage contract likewise provided that
(k) INCREASE OF INTEREST RATE: The rate
of interest charged on the obligation secured by
this mortgage as well as the interest on the
amount which may have been advanced by the
MORTGAGE, in accordance with the provision
hereof, shall be subject during the life of this
contract to such an increase within the rate

allowed by law, as the Board of Directors of the

MORTGAGEE may prescribe for its debtors.
On February 17, 1983, (private respondents) were granted an
additional NACIDA loan of Fifty Thousand (P50,000.00) Pesos by the
PNB, for which (private respondents) executed another Promissory
Note, which was to mature on April 1, 1985. Other than the date of
maturity, the second promissory note contained the same terms and
stipulations as the previous note. The parties likewise executed a new
Credit Agreement, changing the amount of the loan from P50,000.00
to P100,000.00, but otherwise preserving the stipulations contained in
the original agreement.
As additional security for the loan, (private respondents) constituted
another real estate mortgage over 2 parcels of registered land, with a
combined area of 311 square meters, located at Guadalupe, Cebu
City. The land, upon which several buildings are standing, was
appraised by the PNB to have a value of P40,000.00 and a loan value
of P28,000.00.
In a letter dated August 1, 1984, the PNB informed (private
respondents) "that the interest rate of your CIGLF loan account with
us is now 25% per annum plus a penalty of 6% per annum on past
dues." The PNB further increased this interest rate to 30% on October
15, 1984; and to 42% on October 25, 1984.
The records show that as of December 1985, (private respondents)
had an outstanding principal account of P81,000.00 of which
P18,523.14 was credited to the principal, P57,488.89 to the interest,
and the rest to penalty and other charges. Thus, as of said date, the
unpaid principal obligation of (private respondent) amounted to
P62,830.32.
Thereafter, (private respondents) exerted efforts to get the PNB to readopt the 12% interest and to condone the present interest and
penalties due; but to no avail. 2 (Citations omitted.)
On December 15, 1987, private respondents filed a suit for specific performance against
petitioner PNB and the NACIDA. It was docketed as Civil Case No. CEB-5610, and raffled
to the Regional Trial Court, 7th Judicial Region, Cebu City, Br. 7. 3 Private respondents
prayed the trial court to order:
1. The PNB and NACIDA to issue in (private respondents') favor, a
release of mortgage;

2. The PNB to pay pecuniary consequential damages for the

destruction of (private respondents') enterprise;
3. The PNB to pay moral and exemplary damages as well as the costs
of suit; and
4. Granting (private respondents') such other relief as may be found
just and equitable in the premises. 4
On February 26, 1990, the trial court dismissed private respondents' complaint in Civil Case
No. CEB-5610. On October 15, 1992, the Court of Appeals reversed the dismissal with
respect to petitioner bank, and disallowed the increases in interest rates.
Petitioner bank now contends that "respondent Court of Appeals committed grave error
when it ruled (1) that the increase in interest rates are unauthorized; (2) that the Credit
Agreement and the Promissory Notes are not the law between the parties; (3) that CB
Circular No. 773 and CB Circular
No. 905 are not applicable; and (4) that private respondents are not estopped from
questioning the increase of rate interest made by petitioner." 5
The petition is bereft of merit.
In making the unilateral increases in interest rates, petitioner bank relied on the escalation
clause contained in their credit agreement which provides, as follows:
The Bank reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may
adopt in the future and provided, that, the interest rate on this
accommodation shall be correspondingly decreased in the event that
the applicable maximum interest rate is reduced by law or by the
Monetary Board. In either case, the adjustment in the interest rate
agreed upon shall take effect on the effectivity date of the increase or
decrease in maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.)
No. 1684 which further amended Act No. 2655 ("The Usury Law"), as amended, thus:
Section 2. The same Act is hereby amended by adding a new section
after Section 7, to read as follows:
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance
of money, goods or credits may stipulate that the rate of interest
agreed upon may be increased in the event that the applicable

maximum rate of interest is increased by law or by the Monetary

Board; Provided, That such stipulation shall be valid only if there is
also a stipulation in the agreement that the rate of interest agreed
upon shall be reduced in the event that the applicable maximum rate
of interest is reduced by law or by the Monetary
Board; Provided further, That the adjustment in the rate of interest
agreed upon shall take effect on or after the effectivity of the increase
or decrease in the maximum rate of interest.

We cannot countenance petitioner bank's posturing that the escalation clause at bench
gives it unbridled right tounilaterally upwardly adjust the interest on private respondents'
loan. That would completely take away from private respondents the right to assent to an
important modification in their agreement, and would negate the element of mutuality in
contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545
(1991) we held
. . . The unilateral action of the PNB in increasing the interest rate on
the private respondent's loan violated the mutuality of contracts
ordained in Article 1308 of the Civil Code:

Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to prescribe
the maximum rates of interest for loans and certain forbearances. Pursuant to such
authority, the Monetary Board issued Central Bank (C.B.) Circular No. 905, series of 1982,
Section 5 of which provides:

Art. 1308. The contract must bind both

contracting parties; its validity or compliance
cannot be left to the will of one of them.

Sec. 5. Section 1303 of the Manual of Regulations (for Banks and

Other Financial Intermediaries) is hereby amended to read as follows:

In order that obligations arising from contracts may have the force or
law between the parties, there must be mutuality between the parties
based on their essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void . . . . Hence,
even assuming that
the . . . loan agreement between the PNB and the private respondent
gave the PNB a license (although in fact there was none) to increase
the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement with
the character of a contract of adhesion, where the parties do not
bargain on equal footing, the weaker party's (the debtor) participation
being reduced to the alternative "to take it or leave it" . . . . Such a
contract is a veritable trap for the weaker party whom the courts of
justice must protect against abuse and imposition. (Citation omitted.)

Sec. 1303. Interest and Other Charges. The

rate of interest, including commissions,
premiums, fees and other charges, on any loan,
or forbearance of any money, goods or credits,
regardless of maturity and whether secured or
unsecured, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law,
as amended.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan
or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated. However, contrary to the stubborn insistence
of petitioner bank, the said law and circular did not authorize either party to unilaterally raise
the interest rate without the other's consent.
It is basic that there can be no contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. If this assent is wanting on the part of the one
who contracts, his act has no more efficacy than if it had been done under duress or by a
person of unsound mind. 6
Similarly, contract changes must be made with the consent of the contracting parties. The
minds of all the parties must meet as to the proposed modification, especially when it affects
an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid
that the rate of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any
binding effect.

Private respondents are not also estopped from assailing the unilateral increases in interest
rate made by petitioner bank. No one receiving a proposal to change a contract to which he
is a party, is obliged to answer the proposal, and his silence per se cannot be construed as
an acceptance. 7 In the case at bench, the circumstances do not show that private
respondents implicitly agreed to the proposed increases in interest rate which by any
standard were too sudden and too stiff.
IN VIEW THEREOF, the instant petition is DENIED for lack of merit, and the decision of the
Court of Appeals in CA-G.R. CV No. 27195, dated October 15, 1992, is AFFIRMED. Costs
against petitioner.
SO ORDERED.

G.R. No. 113926 October 23, 1996

SECURITY BANK AND TRUST COMPANY, petitioner,
vs.
REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and
LEILA VENTURA,respondents.
Questions of law which are of first impression are sought to be resolved in this case: Should
the rate of interest on a loan or forbearance of money, goods or credits, as stipulated in a
contract, far in excess of the ceiling prescribed under or pursuant to the Usury Law, prevail
over Section 2 of Central Bank Circular No. 905 which prescribes that the rate of interest
thereof shall continue to be 12% per annum? Do the Courts have the discretion to arbitrarily
override stipulated interest rates of promissory notes and stipulated interest rates of
promissory notes and thereby impose a 12% interest on the loans, in the absence of
evidence justifying the imposition of a higher rate?
This is a petition for review on certiorari for the purpose of assailing the decision of
Honorable Judge Fernando V. Gorospe of the Regional Trial Court of Makati, Branch 61,
dated March 30, 1993, which found private respondent Eusebio liable to petitioner for a sum
of money. Interest was lowered by the court a quo from 23% per annum as agreed upon the
parties to 12% per annum.
The undisputed facts are as follows:
On April 27, 1983, private respondent Magtanggol Eusebio executed Promissory Note No.
TL/74/178/83 in favor of petitioner Security Bank and Trust Co. (SBTC) in the total amount
of One Hundred Thousand Pesos (P100,000.00) payable in six monthly installments with a
stipulated interest of 23% per annum up to the fifth installment. 1

1) PN No. TL/74/748/83 P16,665.00 as of September

1983.
2) PN No. TL/74/1296/83 P83,333.00 as of August 1983.
3) PN No. TL/74/1991/83 P65,000.00 as of August 1983.
Upon the failure and refusal of respondent Eusebio to pay the aforestated balance payable,
a collection case was filed in court by petitioner SBTC. 5 On March 30, 1993, the court a
quo rendered a judgment in favor of petitioner SBTC, the dispositive portion which reads:
WHEREFORE, premises above-considered, and plaintiff's claim
having been duly proven, judgment is hereby rendered in favor of
plaintiff and as against defendant Eusebio who is hereby ordered to:
1. Pay the sum of P16,655.00, plus interest of 12% per annum starting
27 September 1983, until fully paid;
2. Pay the sum of P83,333.00, plus interest of 12% per annum starting
28 August 1983, until fully paid;
3. Pay the sum of P65,000.00, plus interest of 12% per annum starting
31 August 1983, until fully paid;
4. Pay the sum equivalent to 20% of the total amount due and payable
to plaintiff as and by way of attorney's fees; and to
5. Pay the costs of this suit.
SO ORDERED. 6

On July 28, 1983, respondent Eusebio again executed Promissory Note No. TL/74/1296/83
in favor of petitioner SBTC. Respondent bound himself to pay the sum of One Hundred
Thousand Pesos (P100,000.00) in six (6) monthly installments plus 23% interest per
annum. 2
Finally, another Promissory Note No. TL74/1491/83 was executed on August 31, 1983 in the
amount of Sixty Five Thousand Pesos (P65,000.00). Respondent agreed to pay this note in
six (6) monthly installments plus interest at the rate of 23% per annum. 3
On all the abovementioned promissory notes, private respondent Leila Ventura had signed
as co-maker. 4
Upon maturity which fell on the different dates below, the principal balance remaining on the
notes stood at:

On August 6, 1993, a motion for partial reconsideration was filed by petitioner SBTC
contending that:
(1) the interest rate agreed upon by the parties during the signing of
the promissory notes was 23%per annum;
(2) the interests awarded should be compounded quarterly from due
date as provided in the three (3) promissory notes;
(3) defendants Leila Ventura should likewise be held liable to pay the
balance on the promissory notes since she has signed as co-maker
and as such, is liable jointly and severally with defendant Eusebio
without a need for demand upon her. 7

Consequently, an Order was issued by the court a quo denying the motion to grant the rates
of interest beyond 12% per annum; and holding defendant Leila Ventura jointly and
severally liable with co-defendants Eusebio.
Hence, this petition.
The sole issue to be settled in this petition is whether or not the 23% rate of interest per
annum agreed upon by petitioner bank and respondents is allowable and not against the
Usury Law.
We find merit in this petition.
From the examination of the records, it appears that indeed the agreed rate of interest as
stipulated on the three (3) promissory notes is 23% per annum. 8 The applicable provision of
law is the Central Bank Circular No. 905 which took effect on December 22, 1982,
particularly Sections 1 and 2 which state: 9
Sec. 1. The rate of interest, including commissions, premiums, fees
and other charges, on a loan or forbearance of any money, goods or
credits, regardless of maturity and whether secured or unsecured, that
may be charged or collected by any person, whether natural or
judicial, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.
Sec. 2. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall continue to be twelve
per cent (12%) per annum.
CB Circular 905 was issued by the Central Bank's Monetary Board pursuant to P.D. 1684
empowering them to prescribe the maximum rates of interest for loans and certain
forbearances, to wit:
Sec. 1. Section 1-a of Act No. 2655, as amended, is hereby amended
to read as follows:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the
maximum rate of interest for the loan or renewal thereof or the
forbearance of any money, goods or credits, and to change such rate
or rates whenever warranted by prevailing economic and social
conditions: Provided, That changes in such rate or rates may be
effected gradually on scheduled dates announced in advance.

In the exercise of the authority herein granted, the Monetary Board

may prescribe higher maximum rates for loans of low priority, such as
consumer loans or renewals thereof as well as such loans made by
pawnshops, finance companies and other similar credit institutions
although the rates prescribed for these institutions need not
necessarily be uniform. The Monetary Board is also authorized to
prescribed different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries. 10
The court has ruled in the case of Philippine National Bank v. Court of Appeals 11 that:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow
contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously stipulated.
All the promissory notes were signed in 1983 and, therefore, were already covered by CB
Circular No. 905. Contrary to the claim of respondent court, this circular did not repeal nor in
anyway amend the Usury Law but simply suspended the latter's effectivity.
Basic is the rule of statutory construction that when the law is clear and unambiguous, the
court is left with no alternative but to apply the same according to its clear language. As we
have held in the case of Quijano v.Development Bank of the Philippines: 12
. . . We cannot see any room for interpretation or construction in the
clear and unambiguous language of the above-quoted provision of
law. This Court had steadfastly adhered to the doctrine that its first
and fundamental duty is the application of the law according to its
express terms, interpretation being called for only when such literal
application is impossible. No process of interpretation or construction
need be resorted to where a provision of law peremptorily calls for
application. Where a requirement or condition is made in explicit and
unambiguous terms, no discretion is left to the judiciary. It must see to
it that is mandate is obeyed.
The rate of interest was agreed upon by the parties freely. Significantly, respondent did not
question that rate. It is not for respondent court a quo to change the stipulations in the
contract where it is not illegal. Furthermore, Article 1306 of the New Civil Code provides that
contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy. We find no valid reason for the respondent court a quo to impose a
12% rate of interest on the principal balance owing to petitioner by respondent in the

presence of a valid stipulation. In a loan or forbearance of money, the interest due should be
that stipulated in writing, and in the absence thereof, the rate shall be 12% per
annum. 13 Hence, only in the absence of a stipulation can the court impose the 12% rate of
interest.
The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein
are binding between them. Respondent Eusebio, likewise, did not question any of the
stipulations therein. In fact, in the Comment filed by respondent Eusebio to this court, he
chose not to question the decision and instead expressed his desire to negotiate with the
petitioner bank for "terms within which to settle his obligation." 14
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo, is hereby
AFFIRMED with the MODIFICATION that the rate of interest that should be imposed be
23% per annum.
G.R. No. 141811

November 15, 2001

FIRST METRO INVESTMENT CORPORATION, petitioner,

vs.
ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q.
SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO * M.
LADORES, VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents.
Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals2 dated
November 8, 1999 in CA-G.R. CV No. 53328 reversing the Decision 3 of the Regional Trial
Court of Pasig City, Branch 159 dated June 2, 1994 in Civil Case No. 39224. Essentially, the
Court of Appeals found and declared that the fees provided for in the Underwriting and
Consultancy Agreements executed by and between petitioner First Metro Investment Corp.
(FMIC) and respondent Este del Sol Mountain Reserve, Inc. (Este del Sol) simultaneously
with the Loan Agreement dated January 31, 1978 were mere subterfuges to camouflage the
usurious interest charged by petitioner FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan
of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos
(P7,385,500.00) to finance the construction and development of the Este del Sol Mountain
Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal. 4
Under the terms of the Loan Agreement, the proceeds of the loan were to be released on
staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum
based on the diminishing balance. The loan was payable in thirty-six (36) equal and
consecutive monthly amortizations to commence at the beginning of the thirteenth month
from the date of the first release in accordance with the Schedule of Amortization. 5 In case
of default, an acceleration clause was, among others, provided and the amount due was
made subject to a twenty (20%) percent one-time penalty on the amount due and such
amount shall bear interest at the highest rate permitted by law from the date of default until

full payment thereof plus liquidated damages at the rate of two (2%) percent per month
compounded quarterly on the unpaid balance and accrued interests together with all the
penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus
attorney's fees equivalent to twenty-five (25%) percent of the sum sought to be recovered,
which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of
a lawyer were hired.6
In accordance with the terms of the Loan Agreement, respondent Este del Sol executed
several documents7 as security for payment, among them, (a) a Real Estate Mortgage
dated January 31, 1978 over two (2) parcels of land being utilized as the site of its
development project with an area of approximately One Million Twenty-Eight Thousand and
Twenty-Nine (1,028,029) square meters and particularly described in TCT Nos. N-24332
and N-24356 of the Register of Deeds of Rizal, inclusive of all improvements, as well as all
the machineries, equipment, furnishings and furnitures existing thereon; and (b) individual
Continuing Suretyship agreements by co-respondents Valentin S. Daez, Jr., Manuel Q.
Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M.
De Vera, Jr. and Felipe B. Sese, all dated February 2, 1978, to guarantee the payment of all
the obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five
Hundred Thousand Pesos (P7,500,000.00) each. 8
Respondent Este del Sol also executed, as provided for by the Loan Agreement, an
Underwriting Agreement on January 31, 1978 whereby petitioner FMIC shall underwrite on
a best-efforts basis the public offering of One Hundred Twenty Thousand (120,000)
common shares of respondent Este del Sol's capital stock for a one-time underwriting fee of
Two Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the
Underwriting Agreement provided that for supervising the public offering of the shares,
respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of Two
Hundred Thousand Pesos (P200,000.00) per annum for a period of four (4) consecutive
years. The Underwriting Agreement also stipulated for the payment by respondent Este del
Sol to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five
Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive years.
Simultaneous with the execution of and in accordance with the terms of the Underwriting
Agreement, a Consultancy Agreement was also executed on January 31, 1978 whereby
respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to
render general consultancy services.9
In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for
the amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the underwriting fee of
petitioner FMIC in connection with the public offering of the common shares of stock of
respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred
Thousand Pesos (P200,000.00) as supervision fee for the year beginning February, 1978, in
accordance to the Underwriting Agreement.10 The said amounts of fees were deemed paid
by respondent Este del Sol to petitioner FMIC which deducted the same from the first
release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in accordance with
a revised Schedule of Amortization, it appeared to have incurred a total obligation of Twelve
Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight
Centavos (P12,679,630.98) per the petitioner's Statement of Account dated June 23,
1980,11 to wit:

Centavos (P3,188,630.75) was deducted therefrom, that is, for the publication fee for the
publication of the Sheriff's Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos
STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE, INC.
(P4,964.00); for Sheriff's fees for conducting the foreclosure proceedings, Fifteen Thousand
AS OF JUNE 23, 1980
Pesos (P15,000.00); and for Attorney's fees, Three Million One Hundred Sixty-Eight
Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The
remaining balance of Five Million Eight Hundred Eleven Thousand Three Hundred SixtyNine Pesos and Twenty-Five Centavos (P5,811,369.25) was applied to interests and penalty
charges and partly against the principal, due as of June 23, 1980, thereby leaving a balance
PARTICULARS
of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and
Seventy-Three Centavos (P6,863,297.73) on the principal amount of the loan as of June 23,
1980.13
Total amount due as of 11-22-78 per revised amortization schedule dated 1-3-78

Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to 2-22-79 (92 days)

Balance

One time penalty of 20% of the entire unpaid obligations under Section 6.02 (ii) of
Loan Agreement

Past due interest under Section 6.02 (iii) of loan Agreement:

@ 19% p.a. from 2-22-79 to 11-30-79 (281 days)
@ 21% p.a. from 11-30-79 to 6-23-80 (206 days)

Other charges publication of extra judicial foreclosure of REM made on 5-23-80 &
6-6-80

Total Amount Due and Collectible as of June 23, 1980

Failing to secure from the individual respondents, as sureties of the loan of respondent Este
del Sol by virtue of their continuing surety agreements, the payment of the alleged
deficiency balance, despite individual demands sent to each of them, 14 petitioner instituted
on November 11, 1980 the instant collection suit 15 against the respondents to collect the
alleged deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred
Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at
twenty-one (21%) percent per annum from June 24, 1980 until fully paid, and twenty-five
(25%) percent thereof as and for attorney's fees and costs.
In their Answer, the respondents sought the dismissal of the case and set up several special
and affirmative defenses, foremost of which is that the Underwriting and Consultancy
Agreements executed simultaneously with and as integral parts of the Loan Agreement and
which provided for the payment of Underwriting, Consultancy and Supervision fees were in
reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del
Sol to camouflage the usurious interest being charged by petitioner FMIC. 16
The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former
Senior Vice-President, Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an
Account Manager of its Account Management Group, as well as documentary evidence. On
the other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and
Perfecto Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for
the respondents.
After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants, ordering defendants jointly and severally to pay to plaintiff the
amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until
the entire amount is fully paid, plus the amount equivalent to 25% of the total
amount due, as attorney's fees, plus costs of suit.
Defendants' counterclaims are dismissed, for lack of merit.

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage
on June 23, 1980.12At the public auction, petitioner FMIC was the highest bidder of the
mortgaged properties for Nine Million Pesos (P9,000,000.00). The total amount of Three
Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five

Finding the decision of the trial court unacceptable, respondents interposed an appeal to the
Court of Appeals. On November 8, 1999, the appellate court reversed the challenged
decision of the trial court. The appellate court found and declared that the fees provided for

in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the
excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este
del Sol; and that the stipulated penalties, liquidated damages and attorney's fees were
"excessive, iniquitous, unconscionable and revolting to the conscience," and declared that
in lieu thereof, the stipulated one time twenty (20%) percent penalty on the amount due and
ten (10%) percent of the amount due as attorney's fees would be reasonable and suffice to
compensate petitioner FMIC for those items. Thus, the appellate court dismissed the
complaint as against the individual respondents sureties and ordered petitioner FMIC to pay
or reimburse respondent Este del Sol the amount of Nine Hundred Seventy-One Thousand
Pesos (P971,000.00) representing the difference between what is due to the petitioner and
what is due to respondent Este del Sol, based on the following computation: 17

Add: 20% one-time

Penalty
Attorney's fees

P7,382,500.00

1,476,500.00
900,000.00

Less: Proceeds of foreclosure Sale

a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY

AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT
FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE
CONSIDERED AS A SINGLE CONTRACT.
b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS
ARE "MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST
CHARGED" BY THE PETITIONER.

d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD

WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID
TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE
VALIDITY OF THE UNDERWRITING AND CONSULTANCY AGREEMENTS.

B. DUE TO [RESPONDENT ESTE DEL SOL]

Total amount due Este

THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT

IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE
COURT WHEN IT:

c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S

WITNESSES ON THE SERVICES PERFORMED BY PETITIONER.

Deficiency

Return of usurious interest in the form of:

Underwriting fee
Supervision fee
Consultancy fee

Petitioner moved for reconsideration of the appellate court's adverse decision. However, this
was denied in a Resolution18 dated February 9, 2000 of the appellate court.
Hence, the instant petition anchored on the following assigned errors: 19

A: DUE TO THE [PETITIONER]

Principal of Loan

The appellee is, therefore, obliged to return to the appellant Este del Sol the
difference of P971,000.00 or (P1,730,000.00 less P759,000.00).

P 200,000.00
200,000.00
1,330,000.00

e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS DUE

TO EACH PARTY AFTER THE FORECLOSURE SALE", AS SHOWN IN PP. 3435 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE
OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN
STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT
REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND
ATTORNEY'S FEES AS SUPPOSEDLY "EXCESSIVE, INIQUITOUS AND
UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii] THE
UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES
AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO CAMOUFLAGE
THE USURIOUS INTEREST CHARGED" UPON THE RESPONDENT ESTE BY
PETITIONER.

f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND

THUS THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE
PETITIONER.
Petitioner essentially assails the factual findings and conclusion of the appellate court that
the Underwriting and Consultancy Agreements were executed to conceal a usurious loan.
Inquiry upon the veracity of the appellate court's factual findings and conclusion is not the
function of this Court for the Supreme Court is not a trier of facts. Only when the factual
findings of the trial court and the appellate court are opposed to each other does this Court
exercise its discretion to re-examine the factual findings of both courts and weigh which,
after considering the record of the case, is more in accord with law and justice.
After a careful and thorough review of the record including the evidence adduced, we find
no reason to depart from the findings of the appellate court.
First, there is no merit to petitioner FMIC's contention that Central Bank Circular No. 905
which took effect on January 1, 1983 and removed the ceiling on interest rates for secured
and unsecured loans, regardless of maturity, should be applied retroactively to a contract
executed on January 31, 1978, as in the case at bar, that is, while the Usury Law was in full
force and effect. It is an elementary rule of contracts that the laws, in force at the time the
contract was made and entered into, govern it. 20 More significantly, Central Bank Circular
No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the
latter's effectivity.21 The illegality of usury is wholly the creature of legislation. A Central Bank
Circular cannot repeal a law. Only a law can repeal another law.22 Thus, retroactive
application of a Central Bank Circular cannot, and should not, be presumed. 23
Second, when a contract between two (2) parties is evidenced by a written instrument, such
document is ordinarily the best evidence of the terms of the contract. Courts only need to
rely on the face of written contracts to determine the intention of the parties. However, this
rule is not without exception.24 The form of the contract is not conclusive for the law will not
permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to
show that a written document though legal in form was in fact a device to cover usury. If
from a construction of the whole transaction it becomes apparent that there exists a corrupt
intention to violate the Usury Law, the courts should and will permit no scheme, however
ingenious, to becloud the crime of usury.25
In the instant case, several facts and circumstances taken altogether show that the
Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal
scheme employed by petitioner FMIC to conceal and collect excessively usurious interest,
and these are:
a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is
the same date of the Loan Agreement.26 Furthermore, under the Underwriting Agreement
payment of the supervision and consultancy fees was set for a period of four (4) years 27 to
coincide ultimately with the term of the Loan Agreement. 28 This fact means that all the said
agreements which were executed simultaneously were set to mature or shall remain
effective during the same period of time.

b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of
an underwriting agreement29 and specifically mentioned that such underwriting agreement is
a condition precedent30 for petitioner FMIC to extend the loan to respondent Este del Sol,
indicating and as admitted by petitioner FMIC's employees, 31 that such Underwriting
Agreement is "part and parcel of the Loan Agreement." 32
c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three
Hundred Thirty Thousand Pesos (P1,330,000.00)33 as consultancy fee despite the clear
provision in the Consultancy Agreement that the said agreement is for Three Hundred
Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years and
that only the first year consultancy fee shall be due upon signing of the said consultancy
agreement.34
d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred
Thousand Pesos (P200,000.00), and one Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00), respectively, were billed by petitioner to respondent Este del Sol on
February 22, 1978,35 that is, on the same occasion of the first partial release of the loan in
the amount of Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos
(P2,382,500.00).36 It is from this first partial release of the loan that the said corresponding
bills for Underwriting, Supervision and Constantly fees were conducted and apparently paid,
thus, reverting back to petitioner FMIC the total amount of One Million Seven Hundred
Thirty Thousand Pesos (P1,730,000.00) as part of the amount loaned to respondent Este
del Sol.37
e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell
any share of stock of respondent Este del Sol and much less to supervise such a syndicate,
thus failing to comply with its obligation under the Underwriting Agreement. 38 Besides, there
was really no need for an Underwriting Agreement since respondent Este del Sol had its
own licensed marketing arm to sell its shares and all its shares have been sold through its
marketing arm.39
f) Petitioner FMIC failed to comply with its obligation under the Consultancy
Agreement,40 aside from the fact that there was no need for a Consultancy Agreement,
since respondent Este del Sol's officers appeared to be more competent to be consultants
in the development of the projected sports/resort complex. 41
All the foregoing established facts and circumstances clearly belie the contention of
petitioner FMIC that the Loan, Underwriting and Consultancy Agreements are separate and
independent transactions. The Underwriting and Consultancy Agreements which were
executed and delivered contemporaneously with the Loan Agreement on January 31, 1978
were exacted by petitioner FMIC as essential conditions for the grant of the loan. An
apparently lawful loan is usurious when it is intended that additional compensation for the
loan be disguised by an ostensibly unrelated contract providing for payment by the borrower
for the lender's services which are of little value or which are not in fact to be rendered, such
as in the instant case.42 In this connection, Article 1957 of the New Civil Code clearly
provides that:
Art. 1957. Contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury shall be void. The borrower may
recover in accordance with the laws on usury.

In usurious loans, the entire obligation does not become void because of an agreement for
usurious interest; the unpaid principal debt still stands and remains valid but the stipulation
as to the usurious interest is void, consequently, the debt is to be considered without
stipulation as to the interest.43 The reason for this rule was adequately explained in the case
of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises 44 where this Court held:
In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil
Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed
void, since it is the only one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the lender's right
to receive back the principal amount of the loan. With respect to the debtor, the amount paid
as interest under a usurious agreement is recoverable by him, since the payment is deemed
to have been made under restraint, rather than voluntarily.45
This Court agrees with the factual findings and conclusion of the appellate court, to wit:
We find the stipulated penalties, liquidated damages and attorney's fees,
excessive, iniquitous and unconscionable and revolting to the conscience as they
hardly allow the borrower any chance of survival in case of default. And true
enough, ESTE folded up when the appellee extrajudicially foreclosed on its
(ESTE's) development project and literally closed its offices as both the appellee
and ESTE were at the time holding office in the same building. Accordingly, we
hold that 20% penalty on the amount due and 10% of the proceeds of the
foreclosure sale as attorney's fees would suffice to compensate the appellee,
especially so because there is no clear showing that the appellee hired the
services of counsel to effect the foreclosure, it engaged counsel only when it was
seeking the recovery of the alleged deficiency.
Attorney's fees as provided in penal clauses are in the nature of liquidated damages. So
long as such stipulation does not contravene any law, morals, or public order, it is binding
upon the parties. Nonetheless, courts are empowered to reduce the amount of attorney's
fees if the same is "iniquitous or unconscionable." 46 Articles 1229 and 2227 of the New Civil
Code provide that:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty,
shall be equitably reduced if they are iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six
Hundred Thirty Pesos and Seventy-Five Centavos (93,188,630.75) for the stipulated
attorney's fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the
date of the auction sale on June 23, 1980, is manifestly exorbitant and unconscionable.

Accordingly, we agree with the appellate court that a reduction of the attorney's fees to ten
(10%) percent is appropriate and reasonable under the facts and circumstances of this
case.
Lastly, there is no merit to petitioner FMIC's contention that the appellate court erred in
awarding an amount allegedly not asked nor prayed for by respondents. Whether the exact
amount of the relief was not expressly prayed for is of no moment for the reason that the
relief was plainly warranted by the allegations of the respondents as well as by the facts as
found by the appellate court. A party is entitled to as much relief as the facts may warrant 47
In view of all the foregoing, the Court is convinced that the appellate court committed no
reversible error in its challenged Decision.
WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the
Court of Appeals is AFFIRMED. Costs against petitioner.
G.R. No. 131622 November 27, 1998
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,
vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G.
GONZALES, JR. doing lending business under the trade name and style "GONZALES
CREDIT ENTERPRISES", respondents.
The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised
Rules of Court, seeking to set aside the decision of the Court of Appeals, 1 and its resolution
denying reconsideration, 2 the dispositive portion of which decision reads as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby-ordered to pay the plaintiff: the sum of
P500,000.00, plus 5.5% per month interest and 2% service charge per
annum effective July 23, 1986, plus 1% per month of the total amount
due and demandable as penalty charges effective August 23, 1986,
until the entire amount is fully paid.
The award to the plaintiff of P50,000.00 as attorney's fees is affirmed.
And so is the imposition of costs against the defendants.
SO ORDERED. 3
The Court required the respondents to comment on the petition, 4 which was filed on April 3,
1998, 5 and the petitioners to reply thereto, which was filed on May 29, 1998. 6 We now
resolve to give due course to the petition and decide the case.

The facts of the case, as found by the Court of Appeals in its decision, which are considered
binding and conclusive on the parties herein, as the appeal is limited to questions of law, are
as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and
Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged
in the money lending business under the name "Gonzales Credit Enterprises", in the
amount of P50,000.00, payable in two months. Veronica gave only the amount of
P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one
month at 6% per month. Servando and Leticia executed a promissory note for P50,000.00,
to evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on Janaury 19, 1986. They received only
P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the
amout of P300,000.00, maturing in one month, secured by a real estate mortgage over a
property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney
in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia
executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a
month, or on July 11, 1986. However, only the sum of P275.000.00, was given to them out
of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing their indebtedness to a total of
P500,000.00, payable on August 23, 1986. They executed a promissory note, reading as
follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to
the order of VERONICA R. GONZALES doing business in the

business style of GONZALES CREDIT ENTERPRISES, Filipino, of

legal age, married to Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the
sum of PESOS . . . FIVE HUNDRED THOUSAND . . . (P500,000.00)
Philippine Currency with interest thereon at the rate of 5.5 PER CENT
per month plus 2% service charge per annum from date hereof until
fully paid according to the amortization schedule contained herein.
(Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due,
all the other installments together with all interest accrued shall
immediately be due and payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the
amount due and demandable as penalty charges in the form of
liquidated damages until fully paid; and the furthersum of TWENTY
FIVE PER CENT (25%) thereof in full, without deductions as
Attorney's Fee whether actually incurred or not, of the total amount
due and demandable, exclusive of costs and judicial or extra judicial
expenses. (Emphasis supplied).
I, WE further agree that in the event the present rate of interest on
loan is increased by law or the Central Bank of the Philippines, the
holder shall have the option to apply and collect the increased interest
charges without notice although the original interest have already
been collected wholly or partially unless the contrary is required by
law.
It is also a special condition of this contract that the parties herein
agree that the amount of peso-obligation under this agreement is
based on the present value of the peso, and if there be any change in
the value thereof, due to extraordinary inflation or deflation, or any
other cause or reason, then the peso-obligation herein contracted
shall be adjusted in accordance with the value of the peso then
prevailing at the time of the complete fulfillment of the obligation.
Demand and notice of dishonor waived. Holder may accept partial
payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this
note.
IN CASE OF JUDICIAL Execution of this obligation, or any part of it,
the debtors waive all his/their rights under the provisions of Section
12, Rule 39, of the Revised Rules of Court.

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus
interests and penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales,
filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint
for collection of the full amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando
alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and
Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually
received the amount and benefited therefrom; that the loan was secured by a real estate
mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.
In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel
alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in
favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the
interest rate is excessive at 5.5% per month with additional service charge of 2% per
annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25%
of the amount due is unconscionable, illegal and excessive, and that substantial payments
made were applied to interest, penalties and other charges.

3. Ordering the defendants to pay the plaintiffs, jointly and severally,

the amount of P285,000.00 plus 12% interest per annum and 1% per
month as penalty from July 11, 1986, until the whole amount is fully
paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the
amount of P50,000.00 as attorney's fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants. 8
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all
the unpaid loans of the defendants, is the law that governs the parties. They further argued
that Circular No. 416 of the Central Bank prescribing the rate of interest for loans or
forbearance of money, goods or credit at 12% per annum, applies only in the absence of a
stipulation on interest rate, but not when the parties agreed thereon.

After due trial, the lower court declared that the due execution and genuineness of the four
promissory notes had been duly proved, and ruled that although the Usury Law had been
repealed, the interest charged by the plaintiffs on the loans was unconscionable and
"revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil]
Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is
12% per annum." 7

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury
Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of
Circular No. 905, the lender and borrower could agree on any interest that may be charged
on the loan". 9 The Court of Appeals further held that "the imposition of 'an additional amount
equivalent to 1% per month of the amount due and demandable as penalty charges in the
form of liquidated damages until fully paid' was allowed by
law". 10

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion
of which reads as follows:

Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing
that of the Regional Trial Court, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered, as

follows:
1. Ordering the defendants Servando Franco and Leticia Medel, jointly
and severally, to pay plaintiffs the amount of P47,000.00 plus 12%
interest per annum from November 7, 1985 and 1% per month as
penalty, until the entire amount is paid in full.
2. Ordering the defendants Servando Franco and Leticia Y. Medel to
plaintiffs, jointly and severally the amount of P84,000.00 with 12%
interest per annum and 1% per cent per month as penalty from
November 19, 1985 until the whole amount is fully paid;

WHEREFORE, the appealed judgment is hereby MODIFIED such that

defendants are hereby ordered to pay the plaintiffs the sum of
P500,000.00, plus 5.5% per month interest and 2% service charge per
annum effective July 23, 1986, plus 1% per month of the total amount
due and demandable as penalty charges effective August 24, 1986,
until the entire amount is fully paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed.
And so is the imposition of costs against the defendants.
SO ORDERED. 11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said
decision. By resolution dated November 25, 1997, the Court of Appeals denied the
motion. 12

1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No.
134-M-90, involving the same parties.
No pronouncement as to costs in this instance.

Hence, defendants interposed the present recourse via petition for review on certiorari. 13
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the
question presented is whether or not the stipulated rate of interest at 5.5% per month on the
loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In
other words, is the Usury Law still effective, or has it been repealed by Central Bank
Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No.
116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. 13 However, we
can not consider the rate "usurious" because this Court has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the
interest ceilings prescribed by the Usury Law 14 and that the Usury Law is now "legally
inexistent". 15
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the
Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular
can not repeal a law. Only a law can repeal another law." 17 In the recent case ofFlorendo
vs. Court of Appeals 18, the Court reiterated the ruling that "by virtue of CB Circular 905, the
Usury Law has been rendered ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon." 19
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by
the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to
morals ("contra bonos mores"), if not against the law. 20 The stipulation is void. 21 The courts
shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if
they are iniquitous or unconscionable. 22
Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather,
we agree with the trial court that, under the circumstances, interest at 12% per annum, and
an additional 1% a month penalty charge as liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of
Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997.
Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9,

G.R. No. 192986

January 15, 2013

ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B. OLAGUER, Petitioners,

vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman, GOVERNOR
ARMANDO M. TETANGCO, JR., and its incumbent members: JUANITA D. AMATONG,
ALFREDO C. ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE
and CESAR V. PURISIMA, Respondents.
Petitioners, claiming that they are raising issues of transcendental importance to the public,
filed directly with this Court this Petition for Certiorari under Rule 65 of the 1997 Rules of
Court, seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB),
replacing the Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No.
7653, has no authority to continue enforcing Central Bank Circular No. 905, 1 issued by the
CB-MB in 1982, which "suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock
corporation organized to engage in pro bono concerns and activities relating to money
lending issues. It was incorporated on July 9, 2010, 2 and a month later, it filed this petition,
joined by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed by the
Usury Law. Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may fix the
maximum rates of interest which banks may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum
rates of interest which banks may charge for different types of loans and for any other credit

operations, or may fix the maximum differences which may exist between the interest or
rediscount rates of the Central Bank and the rates which the banks may charge their
customers if the respective credit documents are not to lose their eligibility for rediscount or
advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or lending
operations of the banks shall apply only to future operations and not to those made prior to
the date on which the modification becomes effective.
In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the
Board may also fix the maximum rates that banks may pay to or collect from their customers
in the form of commissions, discounts, charges, fees or payments of any sort. (Underlining
ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684,
giving the CB-MB authority to prescribe different maximum rates of interest which may be
imposed for a loan or renewal thereof or the forbearance of any money, goods or credits,
provided that the changes are effected gradually and announced in advance. Thus, Section
1-a of Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates
of interest for the loan or renewal thereof or the forbearance of any money, goods or credits,
and to change such rate or rates whenever warranted by prevailing economic and social
conditions: Provided, That changes in such rate or rates may be effected gradually on
scheduled dates announced in advance.
In the exercise of the authority herein granted the Monetary Board may prescribe higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well
as such loans made by pawnshops, finance companies and other similar credit institutions
although the rates prescribed for these institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribe different maximum rate or rates for different
types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries. (Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB Circular No.
905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its
General Provisions, removed the ceilings on interest rates on loans or forbearance of any
money, goods or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a
loan or forbearance of any money, goods, or credits, regardless of maturity and whether
secured or unsecured, that may be charged or collected by any person, whether natural or
juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law,
as amended. (Underscoring and emphasis ours)

The Circular then went on to amend Books I to IV of the CBs "Manual of Regulations for
Banks and Other Financial Intermediaries" (Manual of Regulations) by removing the
applicable ceilings on specific interest rates. Thus, Sections 5, 9 and 10 of CB Circular No.
905 amended Book I, Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by
removing the ceilings for interest and other charges, commissions, premiums, and fees
applicable to commercial banks; Sections 12 and 17 removed the interest ceilings for thrift
banks (Book II, Subsections 2303, 2349); Sections 19 and 21 removed the ceilings
applicable to rural banks (Book III, Subsection 3152.3-c); and, Sections 26, 28, 30 and 32
removed the ceilings for non-bank financial intermediaries (Book IV, Subsections 4303Q.1
to 4303Q.9, 4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof, Section
135, reads:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and 132 of
this Act, Republic Act No. 265, as amended, the provisions of any other law, special
charters, rule or regulation issued pursuant to said Republic Act No. 265, as amended, or
parts thereof, which may be inconsistent with the provisions of this Act are hereby repealed.
Presidential Decree No. 1792 is likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to this Court to secure a
writ of certiorari, petitioners contend that the transcendental importance of their Petition can
readily be seen in the issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the
statutory or constitutional authority to prescribe the maximum rates of interest for
all kinds of credit transactions and forbearance of money, goods or credit beyond
the limits prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular
No. 905, which removed all interest ceilings and thus suspended Act No. 2655 as
regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB
Circular No. 905.5
Petitioners attached to their petition copies of several Senate Bills and Resolutions of the
10th Congress, which held its sessions from 1995 to 1998, calling for investigations by the
Senate Committee on Banks and Financial Institutions into alleged unconscionable
commercial rates of interest imposed by these entities. Senate Bill (SB) Nos. 37 6 and
1860,7 filed by Senator Vicente C. Sotto III and the late Senator Blas F. Ople, respectively,

sought to amend Act No. 2655 by fixing the rates of interest on loans and forbearance of
credit; Philippine Senate Resolution (SR) No. 1053, 8 10739 and 1102,10 filed by Senators
Ramon B. Magsaysay, Jr., Gregorio B. Honasan and Franklin M. Drilon, respectively, urged
the aforesaid Senate Committee to investigate ways to curb the high commercial interest
rates then obtaining in the country; Senator Ernesto Maceda filed SB No. 1151 to prohibit
the collection of more than two months of advance interest on any loan of money; and
Senator Raul Roco filed SR No. 114411 seeking an investigation into an alleged cartel of
commercial banks, called "Club 1821", reportedly behind the regime of high interest rates.
The petitioners also attached news clippings 12 showing that in February 1998 the banks
prime lending rates, or interests on loans to their best borrowers, ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684,
the CB-MB was authorized only to prescribe or set the maximum rates of interest for a loan
or renewal thereof or for the forbearance of any money, goods or credits, and to change
such rates whenever warranted by prevailing economic and social conditions, the changes
to be effected gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized
the CB-MB to lift or suspend the limits of interest on all credit transactions, when it issued
CB Circular No. 905. They further insist that under Section 109 of R.A. No. 265, the
authority of the CB-MB was clearly only to fix the banks maximum rates of interest, but
always within the limits prescribed by the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was promulgated without the
benefit of any prior public hearing, is void because it violated Article 5 of the New Civil Code,
which provides that "Acts executed against the provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their validity."
They further claim that just weeks after the issuance of CB Circular No. 905, the benchmark
91-day Treasury bills (T-bills),13 then known as "Jobo" bills14 shot up to 40% per annum, as a
result. The banks immediately followed suit and re-priced their loans to rates which were
even higher than those of the "Jobo" bills. Petitioners thus assert that CB Circular No. 905 is
also unconstitutional in light of Section 1 of the Bill of Rights, which commands that "no
person shall be deprived of life, liberty or property without due process of law, nor shall any
person be denied the equal protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to
Section 109 of R.A. No. 265, and therefore, in view of the repealing clause in Section 135 of
R.A. No. 7653, the BSP-MB has been stripped of the power either to prescribe the
maximum rates of interest which banks may charge for different kinds of loans and credit
transactions, or to suspend Act No. 2655 and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.

A. The Petition is procedurally infirm.

The decision on whether or not to accept a petition for certiorari, as well as to grant due
course thereto, is addressed to the sound discretion of the court. 15 A petition for certiorari
being an extraordinary remedy, the party seeking to avail of the same must strictly observe
the procedural rules laid down by law, and non-observance thereof may not be brushed
aside as mere technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal
exercising judicial or quasi-judicial functions. 17 Judicial functions are exercised by a body or
officer clothed with authority to determine what the law is and what the legal rights of the
parties are with respect to the matter in controversy. Quasi-judicial function is a term that
applies to the action or discretion of public administrative officers or bodies given the
authority to investigate facts or ascertain the existence of facts, hold hearings, and draw
conclusions from them as a basis for their official action using discretion of a judicial
nature.18
The CB-MB (now BSP-MB) was created to perform executive functions with respect to the
establishment, operation or liquidation of banking and credit institutions, and branches and
agencies thereof.19 It does not perform judicial or quasi-judicial functions. Certainly, the
issuance of CB Circular No. 905 was done in the exercise of an executive function.
Certiorari will not lie in the instant case. 20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given question."
In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that "every
action must be prosecuted or defended in the name of the real party in interest," who is "the
party who stands to be benefited or injured by the judgment in the suit or the party entitled
to the avails of the suit." Succinctly put, a partys standing is based on his own right to the
relief sought.21
Even in public interest cases such as this petition, the Court has generally adopted the
"direct injury" test that the person who impugns the validity of a statute must have "a
personal and substantial interest in the case such that he has sustained, or will sustain
direct injury as a result."22 Thus, while petitioners assert a public right to assail CB Circular
No. 905 as an illegal executive action, it is nonetheless required of them to make out a
sufficient interest in the vindication of the public order and the securing of relief. It is
significant that in this petition, the petitioners do not allege that they sustained any personal
injury from the issuance of CB Circular No. 905.
Petitioners also do not claim that public funds were being misused in the enforcement of CB
Circular No. 905. In Kilosbayan, Inc. v. Morato, 23 involving the on-line lottery contract of the
PCSO, there was no allegation that public funds were being misspent, which according to

the Court would have made the action a public one, "and justify relaxation of the
requirement that an action must be prosecuted in the name of the real party-in-interest." The
Court held, moreover, that the status of Kilosbayan as a peoples organization did not give it
the requisite personality to question the validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for bringing this suit. It
does not detract from the high regard for petitioners as civic leaders to say that their interest
falls short of that required to maintain an action under the Rule 3, Sec. 2. 24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good Government, 25 it was held
that no question involving the constitutionality or validity of a law or governmental act may
be heard and decided by the court unless there is compliance with the legal requisites for
judicial inquiry, namely: (a) that the question must be raised by the proper party; (b) that
there must be an actual case or controversy; (c) that the question must be raised at the
earliest possible opportunity; and (d) that the decision on the constitutional or legal question
must be necessary to the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the requirements before
taxpayers, voters, concerned citizens, and legislators can be accorded a standing to sue,
viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or
that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the
election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.
While the Court may have shown in recent decisions a certain toughening in its attitude
concerning the question of legal standing, it has nonetheless always made an exception
where the transcendental importance of the issues has been established, notwithstanding
the petitioners failure to show a direct injury.27 In CREBA v. ERC,28the Court set out the
following instructive guides as determinants on whether a matter is of transcendental
importance, namely: (1) the character of the funds or other assets involved in the case; (2)

the presence of a clear case of disregard of a constitutional or statutory prohibition by the

public respondent agency or instrumentality of the government; and (3) the lack of any other
party with a more direct and specific interest in the questions being raised. Further, the
Court stated in Anak Mindanao Party-List Group v. The Executive Secretary 29 that the rule
on standing will not be waived where these determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the implementation of
CB Circular No. 905. Neither were borrowers who were actually affected by the suspension
of the Usury Law joined in this petition. Absent any showing of transcendental importance,
the petition must fail.
More importantly, the Court notes that the instant petition adverted to the regime of high
interest rates which obtained at least 15 years ago, when the banks prime lending rates
ranged from 26% to 31%,30 or even 29 years ago, when the 91-day Jobo bills reached 40%
per annum. In contrast, according to the BSP, in the first two (2) months of 2012 the bank
lending rates averaged 5.91%, which implies that the banks prime lending rates were lower;
moreover, deposit interests on savings and long-term deposits have also gone very low,
averaging 1.75% and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be approaching
0%.1wphi1 In the auctions held on November 12, 2012, the rates of 3-month, 6-month and
1-year T-bills have dropped to 0.150%, 0.450% and 0.680%, respectively.32 According to
Manila Bulletin, this very low interest regime has been attributed to "high liquidity and strong
investor demand amid positive economic indicators of the country." 33
While the Court acknowledges that cases of transcendental importance demand that they
be settled promptly and definitely, brushing aside, if we must, technicalities of
procedure,34 the delay of at least 15 years in the filing of the instant petition has actually
rendered moot and academic the issues it now raises.
For its part, BSP-MB maintains that the petitioners allegations of constitutional and statutory
violations of CB Circular No. 905 are really mere challenges made by petitioners concerning
the wisdom of the Circular. It explains that it was in view of the global economic downturn in
the early 1980s that the executive department through the CB-MB had to formulate policies
to achieve economic recovery, and among these policies was the establishment of a
market-oriented interest rate structure which would require the removal of the governmentimposed interest rate ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has
long been recognized and upheld in many cases. As the Court explained in the landmark
case of Medel v. CA,36 citing several cases, CB Circular No. 905 "did not repeal nor in

anyway amend the Usury Law but simply suspended the latters effectivity;" 37 that "a CB
Circular cannot repeal a law, [for] only a law can repeal another law;" 38 that "by virtue of CB
Circular No. 905, the Usury Law has been rendered ineffective;" 39 and "Usury has been
legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower
may agree upon."40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc. 41 cited in DBP v.
Perez,42 we also belied the contention that the CB was engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but
simply suspended the latters effectivity. The illegality of usury is wholly the creature of
legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law.
x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement authorized the PNB
to unilaterally increase the rate of interest to 25% per annum, plus a penalty of 6% per
annum on past dues, then to 30% on October 15, 1984, and to 42% on October 25, 1984.
The Supreme Court invalidated the rate increases made by the PNB and upheld the 12%
interest imposed by the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan
or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated. x x x. 45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely
upheld the parties freedom of contract to agree freely on the rate of interest. It cited Article
1306 of the New Civil Code, under which the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any money, goods, or
credits, regardless of maturity and whether secured or unsecured, that may be charged or
collected by any person, whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended." It does not purport to
suspend the Usury Law only as it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the
new BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No.
7653, which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653
did not reenact a provision similar to Section 109 of R.A. No. 265.

A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by
banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops, finance companies and similar
credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or
rates for different types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No.
7653, merely supplemented it as it concerns loans by banks and other financial institutions.
Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so
stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because laws are
presumed to be passed with deliberation and full knowledge of all laws existing pertaining to
the subject.46 An implied repeal is predicated upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws. Thus, in the absence of an express
repeal, a subsequent law cannot be construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy exists in the terms of the new and old
laws.47 We find no such conflict between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to
raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and
an iniquitous deprivation of property, repulsive to the common sense of man. It has no
support in law, in principles of justice, or in the human conscience nor is there any reason
whatsoever which may justify such imposition as righteous and as one that may be
sustained within the sphere of public or private morals. 50
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck
down for being contrary to morals, if not against the law.51 Indeed, under Article 1409 of the
Civil Code, these contracts are deemed inexistent and void ab initio, and therefore cannot
be ratified, nor may the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lenders
right to recover the principal of a loan, nor affect the other terms thereof. 52 Thus, in a
usurious loan with mortgage, the right to foreclose the mortgage subsists, and this right can

be exercised by the creditor upon failure by the debtor to pay the debt due. The debt due is
considered as without the stipulated excessive interest, and a legal interest of 12% per
annum will be added in place of the excessive interest formerly imposed, 53following the
guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,54 regarding the manner of computing legal interest:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

indemnities in the concept of damage arising from the breach or a delay in the performance
of obligations in general," with the application of both rates reckoned "from the time the
complaint was filed until the [adjudged] amount is fully paid." In either instance, the
reckoning period for the commencement of the running of the legal interest shall be subject
to the condition "that the courts are vested with discretion, depending on the equities of
each case, on the award of interest." 57 (Citations omitted)
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

SO ORDERED.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.

Iniquitous and unconscionable stipulations on interest rates, penalties and attorneys fees
are contrary to morals. Consequently, courts are granted authority to reduce them equitably.
If reasonably exercised, such authority shall not be disturbed by appellate courts.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.55 (Citations omitted)

The assailed Resolution denied petitioners Motion for Reconsideration.

The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals,

56

as follows:

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper,
and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments
involving such loan or forbearance of money, goods, or credit, while the 6% per annum
under Art. 2209 of the Civil Code applies "when the transaction involves the payment of

G.R. No. 149004

April 14, 2004

RESTITUTA M. IMPERIAL, petitioner,

vs.
ALEX A. JAUCIAN, respondent.

The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the July
19, 2000 Decision2 and the June 14, 2001 Resolution3 of the Court of Appeals (CA) in CAGR CV No. 43635. The decretal portion of the Decision is as follows:
"WHEREFORE, premises considered, the appealed Decision of the Regional
Trial Court, 5th Judicial Region, Branch 21, Naga City, dated August 31, 1993, in
Civil Case No. 89-1911 for Sum of Money, is hereby AFFIRMED in toto."4

The dispositive portion of the August 31, 1993 Decision, promulgated by the Regional Trial
Court (RTC) of Naga City (Branch 21) and affirmed by the CA, reads as follows:
"Wherefore, Judgment is hereby rendered declaring Section I, Central Bank
Circular No. 905, series of 1982 to be of no force and legal effect, it having been
promulgated by the Monetary Board of the Central Bank of the Philippines with
grave abuse of discretion amounting to excess of jurisdiction; declaring that the
rate of interest, penalty, and charges for attorneys fees agreed upon between
the parties are unconscionable, iniquitous, and in violation of Act No. 2655,
otherwise known as the Usury Law, as amended; and ordering Defendant to pay
Plaintiff the amount of FOUR HUNDRED SEVENTY-EIGHT THOUSAND, ONE
HUNDRED NINETY-FOUR and 54/100 (P478,194.54) PESOS, Philippine
currency, with regular and compensatory interests thereon at the rate of twenty-

eight (28%) per centum per annum, computed from August 31, 1993 until full
payment of the said amount, and in addition, an amount equivalent to ten (10%)
per centum of the total amount due and payable, for attorneys fees, without
pronouncement as to costs."5

3. Exhibit F for loan of P50,000.00 on January 12, 1988, with face

value of P82,000.00;
4. Exhibit G for loan of P100,000.00 on January 13, 1988, with face
value of P164,000.00;

The Facts
The CA summarized the facts of the case in this wise:
"The present controversy arose from a case for collection of money, filed by Alex
A. Jaucian against Restituta Imperial, on October 26, 1989. The complaint
alleges, inter alia, that defendant obtained from plaintiff six (6) separate loans for
which the former executed in favor of the latter six (6) separate promissory notes
and issued several checks as guarantee for payment. When the said loans
became overdue and unpaid, especially when the defendants checks were
dishonored, plaintiff made repeated oral and written demands for payment.
"Specifically, the six (6) separate loans obtained by defendant from plaintiff on
various dates are as follows:
(a) November 13, 1987
(b) December 28, 1987
(c) January 6, 1988
(d) January 11, 1988
(e) January 12, 1988
(f) January 13, 1988

Total
"The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the amount
released to defendant because said face value already include[d] the interest
from date of note to date of maturity. Said promissory notes, which indicate the
interest of 16% per month, date of issue, due date, the corresponding guarantee
checks issued by defendant, penalties and attorneys fees, are the following:
1. Exhibit D for loan of P40,000.00 on December 28, 1987, with
face value of P65,000.00;
2. Exhibit E for loan of P50,000.00 on January 11, 1988, with face
value of P82,000.00;

5. Exhibit H This particular promissory note covers the second

renewal of the original loan ofP50,000.00 on November 13, 1987,
which was renewed for the first time on March 16, 1988 after certain
payments, and which was renewed finally for the second time on
January 4, 1988 also after certain payments, with a face value
of P56,240.00;
6. Exhibit I This particular promissory note covers the second
renewal of the original loan ofP30,000.00 on January 6, 1988, which
was renewed for the first time on June 4, 1988 after certain payments,
and which was finally renewed for the second time on August 6, 1988,
also after certain payments, with [a] face value of P12,760.00;
"The particulars about the postdated checks, i.e., number, amount, date, etc., are
indicated in each of the promissory notes. Thus, for Exhibit D, four (4) PB
checks were issued; for Exhibit E four (4) checks; for Exhibit F four (4) checks;
for Exhibit G four (4) checks; for Exhibit H one (1) check; for Exhibit I one (1)
check;
"The arrangement between plaintiff and defendant regarding these guarantee
checks was that each time a check matures the defendant would exchange it
with cash.
"Although, admittedly, defendant made several payments, the same were not
enough and she always defaulted whenever her loans mature[d]. As of August
16, 1991, the total unpaid amount, including accrued interest, penalties and
attorneys fees, [was] P2,807,784.20.
"On the other hand, defendant claims that she was extended loans by the plaintiff
on several occasions, i.e., from November 13, 1987 to January 13, 1988, in the
total sum of P320,000.00 at the rate of sixteen percent (16%) per month. The
notes mature[d] every four (4) months with unearned interest compounding every
four (4) months if the loan [was] not fully paid. The loan releases [were] as
follows:
(a) November 13, 1987

P 50,000.00

(b) December 28, 1987

40,000.00

(c) January 6, 1988

30,000.00

(d) January 11, 1988

50,000.00

Ruling of the Court of Appeals

(e) January 12, 1988

(f) January 13, 1988

On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on
the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982.
Nonetheless, the appellate court affirmed the judgment of the trial court, holding that the
latters clear and detailed computation of petitioners outstanding obligation to respondent
was convincing and satisfactory.

Total
"The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid
including the usurious interests of 16% per month, this is the reason why these
were not included in the complaint.

Hence, this Petition.7

The Issues

"Defendant alleges that all the above amounts were released respectively by
checks drawn by the plaintiff, and the latter must produce these checks as these
were returned to him being the drawer if only to serve the truth. The above
amount are the real amount released to the defendant but the plaintiff by
masterful machinations made it appear that the total amount released
was P462,600.00. Because in his computation he made it appear that the true
amounts released was not the original amount, since it include[d] the
unconscionable interest for four months.

Petitioner raises the following arguments for our consideration:

"1. That the petitioner has fully paid her obligations even before filing of this case.
"2. That the charging of interest of twenty-eight (28%) per centum per annum
without any writing is illegal.

"Further, defendant claims that as of January 25, 1989, the total payments made
by defendants [were] as follows:

"3. That charging of excessive attorneys fees is hemorrhagic.

"4. Charging of excessive penalties per month is in the guise of hidden interest.

a. Paid releases on November 13, 1987 ofP50,000.00 and January 6,

1988 ofP30,000.00 these two items were not included in the complaint
affirming the fact that these were paid

"5. The non-inclusion of the husband of the petitioner at the time the case was
filed should have dismissed this case."8

b. Exhibit 26 Receipt
The Courts Ruling

c. Exhibit 8-25 Receipt

d. Exhibit 27 Receipt
Total

The Petition has no merit.

P

Less:

Excess Payment
"Defendant contends that from all perspectives the above excess payment
of P121,780.00 is more than the interest that could be legally charged, and in fact
as of January 25, 1989, the total releases have been fully paid.
"On 31 August 1993, the trial court rendered the assailed decision." 6

First Issue:
Computation of Outstanding Obligation

Arguing that she had already fully paid the loan before the filing of the case, petitioner
alleges that the two lower courts misappreciated the facts when they ruled that she still had
an outstanding balance of P208,430.
This issue involves a question of fact. Such question exists when a doubt or difference
arises as to the truth or the falsehood of alleged facts; and when there is need for a
calibration of the evidence, considering mainly the credibility of witnesses and the existence
and the relevancy of specific surrounding circumstances, their relation to each other and to
the whole, and the probabilities of the situation. 9

It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal
by certiorari under Rule 45 of the Rules of Court, as this remedy is generally confined to
questions of law.10 The jurisdiction of this Court over cases brought to it is limited to the
review and rectification of errors of law allegedly committed by the lower court. As a rule, the
latters factual findings, when adopted and affirmed by the CA, are final and conclusive and
may not be reviewed on appeal.11
Generally, this Court is not required to analyze and weigh all over again the evidence
already considered in the proceedings below.12 In the present case, we find no compelling
reason to overturn the factual findings of the RTC -- that the total amount of the loans
extended to petitioner was P320,000, and that she paid a total of onlyP116,540 on twentynine dates. These findings are supported by a preponderance of evidence. Moreover, the
amount of the outstanding obligation has been meticulously computed by the trial court and
affirmed by the CA. Petitioner has not given us sufficient reason why her cause falls under
any of the exceptions to this rule on the finality of factual findings.
Second Issue:
Rate of Interest
The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167
percent per month or 14 percent per annum; and the stipulated penalty charge, from 5
percent to 1.167 percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between the parties, the lower courts
should have imposed the rate of 12 percent per annum only.
The records show that there was a written agreement between the parties for the payment
of interest on the subject loans at the rate of 16 percent per month. As decreed by the lower
courts, this rate must be equitably reduced for being iniquitous, unconscionable and
exorbitant. "While the Usury Law ceiling on interest rates was lifted by C.B. Circular No.
905, nothing in the said circular grants lenders carte blanche authority to raise interest rates
to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets."13

Penalties and Attorneys Fees

Article 1229 of the Civil Code states thus:
"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.17 What may be iniquitous and unconscionable in
one may be totally just and equitable in another. In the present case, iniquitous and
unconscionable was the parties stipulated penalty charge of 5 percent per month or 60
percent per annum, in addition to regular interests and attorneys fees. Also, there was
partial performance by petitioner when she remitted P116,540 as partial payment of her
principal obligation of P320,000. Under the circumstances, the trial court was justified in
reducing the stipulated penalty charge to the more equitable rate of 14 percent per annum.
The Promissory Note carried a stipulation for attorneys fees of 25 percent of the principal
amount and accrued interests. Strictly speaking, this covenant on attorneys fees is different
from that mentioned in and regulated by the Rules of Court. 18 "Rather, the attorneys fees
here are in the nature of liquidated damages and the stipulation therefor is aptly called a
penal clause."19 So long as the stipulation does not contravene the law, morals, public order
or public policy, it is binding upon the obligor. It is the litigant, not the counsel, who is the
judgment creditor entitled to enforce the judgment by execution.
Nevertheless, it appears that petitioners failure to comply fully with her obligation was not
motivated by ill will or malice. The twenty-nine partial payments she made were a
manifestation of her good faith. Again, Article 1229 of the Civil Code specifically empowers
the judge to reduce the civil penalty equitably, when the principal obligation has been partly
or irregularly complied with. Upon this premise, we hold that the RTCs reduction of
attorneys fees -- from 25 percent to 10 percent of the total amount due and payable -- is
reasonable.
Fifth Issue:

In Medel v. CA,14 the Court found the stipulated interest rate of 5.5 percent per month, or 66
percent per annum, unconscionable. In the present case, the rate is even more iniquitous
and unconscionable, as it amounts to 192 percent per annum. When the agreed rate is
iniquitous or unconscionable, it is considered "contrary to morals, if not against the law.
[Such] stipulation is void."15
Since the stipulation on the interest rate is void, it is as if there were no express contract
thereon.16 Hence, courts may reduce the interest rate as reason and equity demand. We
find no justification to reverse or modify the rate imposed by the two lower courts.
Third and Fourth Issue:

Non-Inclusion of Petitioners Husband

Petitioner contends that the case against her should have been dismissed, because her
husband was not included in the proceedings before the RTC.
We are not persuaded. The husbands non-joinder does not warrant dismissal, as it is
merely a formal requirement that may be cured by amendment. 20 Since petitioner alleges
that her husband has already passed away, such an amendment has thus become moot.
WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED

8/27/2003

123,375.65

1,050.20

9/28/2003

128,435.56

1,435.51

141,518.34

8,491.10

10/28/2003
11/28/2003
G.R. No. 175490

September 17, 2009

ILEANA DR. MACALINAO, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
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 Resolution2 denying petitioners motion for reconsideration.

12/28/2003
1/27/2004

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
The Facts
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
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the
SOA. If the last day fall on a Saturday, Sunday or a holiday, the last day for the payment
credit card facilities of respondent Bank of the Philippine Islands (BPI). 3 Petitioner
automatically becomes the last working day prior to said payment date. However,
Macalinao made some purchases through the use of the said credit card and defaulted in
notwithstanding the absence or lack of proof of service of the SOA of the Cardholder, the
paying for said purchases. She subsequently received a letter dated January 5, 2004 from
latter shall pay any and all charges made through the use of the CARD within thirty (30)
respondent BPI, demanding payment of the amount of one hundred forty-one thousand five
days from date or dates thereof. Failure of the Cardholder to pay the charges made through
hundred eighteen pesos and thirty-four centavos (PhP 141,518.34), as follows:
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
Statement Date
Previous Balance
Purchases (Payments)
Penalty Interest
balance thereof remaining unpaid after the payment due date indicated on the monthly
10/27/2002
94,843.70
559.72Statement 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
11/27/2002
98,465.41
(15,000)
any change on the prevailing market rates, BCC shall have the option to adjust the rate of
12/31/2002
86,351.02
30,308.80
259.05interest 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
1/27/2003
119,752.28
618.23such 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
2/27/2003
124,234.58
990.93Cardholder. A CARD with outstanding balance unpaid after thirty (30) days from original
billing statement date shall automatically be suspended, and those with accounts unpaid
3/27/2003
129,263.13
(18,000.00)
298.72after 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
4/27/2003
115,177.90
644.26whatever 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
5/27/2003
119,565.44
(10,000.00)
402.95
aforementioned , pay the following liquidated damages and/or fees (a) a collection fee of
6/29/2003
113,540.10
8,362.50 (7,000.00)
323.5725% 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
7/27/2003
118,833.49
608.07without 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.)1avvphi1

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.

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 Islands vs. 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.101avvphi1
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:

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.

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:

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 recomputation 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.

11/27/2002

94,843.70

(15,000)

79,843.70

798.44

798.44

12/31/2002

79,843.70

30,308.80

110,152.50

1,101.53

1,101.53

1/27/2003

110,152.50

110,152.50

1,101.53

1,101.53

2/27/2003

110,152.50

110,152.50

1,101.53

1,101.53

3/27/2003

110,152.50

92,152.50

921.53

921.53

4/27/2003

92,152.50

92,152.50

921.53

921.53

5/27/2003

92,152.50

(10,000.00)

82,152.50

821.53

821.53

6/29/2003

82,152.50

8,362.50 (7,000.00)

83,515.00

835.15

835.15

7/27/2003

83,515.00

83,515.00

835.15

835.15

8/27/2003

83,515.00

83,515.00

835.15

835.15

9/28/2003

83,515.00

83,515.00

835.15

835.15

10/28/2003

83,515.00

83,515.00

835.15

835.15

11/28/2003

83,515.00

83,515.00

835.15

835.15

12/28/2003

83,515.00

83,515.00

835.15

835.15

1/27/2004

83,515.00

83,515.00

835.15

835.15

83,515.00

14,397.26

14,397.2
6

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.

(18,000.00)

TOTAL

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 recomputation 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:

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.

Statement
Date
10/27/2002

Previous
Balance
94,843.70

Purchases
(Payments)

Balance
94,843.70

Interest
(1%)
948.44

SO ORDERED.
G.R. No. 200868

November 12, 2012

ANITA A. LEDDA, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

While she filed a Pre-Trial Brief, Ledda and her counsel failed to appear during the
continuation of the Pre-Trial. Hence, the trial court allowed BPI to present its evidence exparte.

The Case

In its Decision of 4 June 2009, the trial court ruled in favor of BPI, thus:

This petition for rebiew1 assails the 15 July 2011 Decision2 and 9 February 2012
Resolution3 of the Court of Appeals in CA-G.R. CV No. 93747. The Court of Appeals
partially granted the appeal filed by petitioner Anita A. Ledda (Ledda) and modified the 4
June 2009 Decision4 of the Regional Trial Court, Makati City, Branch 61. The Court of
Appeals denied the motion for reconsideration.

WHEREFORE, premises duly considered, the instant "Complaint" of herein plaintiff Bank of
the Philippine Islands (BPI) is hereby given DUE COURSE/GRANTED.

The Facts
This case arose from a collection suit filed by respondent Bank of the Philippine Islands
(BPI) against Ledda for the latters unpaid credit card obligation.
BPI, through its credit card system, extends credit accommodations to its clientele for the
purchase of goods and availment of various services from accredited merchants, as well as
to secure cash advances from authorized bank branches or through automated teller
machines.
As one of BPIs valued clients, Ledda was issued a pre-approved BPI credit card under
Customer Account Number 020100-9-00-3041167. The BPI Credit Card Package, which
included the Terms and Conditions governing the use of the credit card, was delivered at
Leddas residence on 1 July 2005. Thereafter, Ledda used the credit card for various
purchases of goods and services and cash advances.
Ledda defaulted in the payment of her credit card obligation, which BPI claimed in their
complaint amounted to P548,143.73 per Statement of Account dated 9 September
2007.5 Consequently, BPI sent letters6 to Ledda demanding the payment of such amount,
representing the principal obligation with 3.25% finance charge and 6% late payment
charge per month.
Despite BPIs repeated demands, Ledda failed to pay her credit card obligation constraining
BPI to file an action for collection of sum of money with the Regional Trial Court, Makati City,
Branch 61. The trial court declared Ledda in default for failing to file Answer within the
prescribed period, despite receipt of the complaint and summons. Upon Leddas motion for
reconsideration, the trial court lifted the default order and admitted Leddas Answer Ad
Cautelam.

Accordingly, judgment is hereby rendered against herein defendant ANITA A. LEDDA and in
favor of the plaintiff.
Ensuably, the herein defendant ANITA A. LEDDA is hereby ordered to pay the herein plaintiff
Bank of the Philippine Islands (BPI) the following sums, to wit:
1. Five Hundred Forty-Eight Thousand One Hundred Forty-Three Pesos and Seventy-Three
Centavos (P548,143.73) as and for actual damages, with finance and late-payment charges
at the rate of three and one-fourth percent (3.25%) and six percent (6%) per month,
respectively, to be counted from 19 October 2007 until the amount is fully paid;
2. Attorneys fees equivalent to twenty-five percent (25%) of the total obligation due and
demandable, exclusive of appearance fee for every court hearing, and
3. Costs of suit.
SO ORDERED.7 (Emphasis in the original)
The Ruling of the Court of Appeals
The Court of Appeals rejected Leddas argument that the document containing the Terms
and Conditions governing the use of the BPI credit card is an actionable document
contemplated in Section 7, Rule 8 of the 1997 Rules of Civil Procedure. The Court of
Appeals held that BPIs cause of action is based on "Leddas availment of the banks credit
facilities through the use of her credit/plastic cards, coupled with her refusal to pay BPIs
outstanding credit for the cost of the goods, services and cash advances despite lawful
demands."
Citing Macalinao v. Bank of the Philippine Islands, 8 the Court of Appeals held that the
interest rates and penalty charges imposed by BPI for Leddas non-payment of her credit
card obligation, totalling 9.25% per month or 111% per annum, are exorbitant and
unconscionable. Accordingly, the Court of Appeals reduced the monthly finance charge to
1% and the late payment charge to 1%, or a total of 2% per month or 24% per annum.

The Court of Appeals recomputed Leddas total credit card obligation by deducting
P226,000.15, representing interests and charges, from P548,143.73, leaving a difference of
P322,138.58 as the principal amount, on which the reduced interest rates should be
imposed.
The Court of Appeals awarded BPI P10,000 attorneys fees, pursuant to the ruling in
Macalinao.
The dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, premises considered, the appeal is PARTLY GRANTED, and accordingly
the herein assailed June 4, 2009 Decision of the trial court is hereby MODIFIED, ordering
defendant-appellant Anita Ledda to pay plaintiff-appellee BPI the amount of Php322,138.58,
with 1% monthly finance charges from date of availment of the plaintiffs credit facilities, and
penalty charge at 1% per month of the amount due from the date the amount becomes due
and payable, until full payment. The award of attorneys fees is fixed at Php10,000.00.
SO ORDERED.9 (Emphasis in the original)
The Issues
Ledda raises the following issues:
1. Whether the Court of Appeals erred in holding that the document containing
the Terms and Conditions governing the issuance and use of the credit card is
not an actionable document contemplated in Section 7, Rule 8 of the 1997 Rules
of Civil Procedure.
2. Whether the Court of Appeals erred in applying Macalinao v. Bank of the
Philippine Islands instead of Alcaraz v. Court of Appeals 10 as regards the
imposition of interest and penalty charges on the credit card obligation.
3. Whether the Court of Appeals erred in awarding attorneys fees in favor of BPI.
The Ruling of the Court
The petition is partially meritorious.
I.
Whether the document containing the
Terms and Conditions is an actionable document.

Section 7, Rule 8 of the 1997 Rules of Civil Procedure provides:

SEC. 7. Action or defense based on document. Whenever an action or defense is based
upon a written instrument or document, the substance of such instrument or document shall
be set forth in the pleading, and the original or a copy thereof shall be attached to the
pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may
with like effect be set forth in the pleading.
Clearly, the above provision applies when the action is based on a written instrument or
document.
In this case, the complaint is an action for collection of sum of money arising from Leddas
default in her credit card obligation with BPI. BPIs cause of action is primarily based on
Leddas (1) acceptance of the BPI credit card, (2) usage of the BPI credit card to purchase
goods, avail services and secure cash advances, and (3) non-payment of the amount due
for such credit card transactions, despite demands. 11 In other words, BPIs cause of action is
not based only on the document containing the Terms and Conditions accompanying the
issuance of the BPI credit card in favor of Ledda. Therefore, the document containing the
Terms and Conditions governing the use of the BPI credit card is not an actionable
document contemplated in Section 7, Rule 8 of the 1997 Rules of Civil Procedure. As such,
it is not required by the Rules to be set forth in and attached to the complaint.
At any rate, BPI has sufficiently established a cause of action against Ledda, who admits
having received the BPI credit card, subsequently used the credit card, and failed to pay her
obligation arising from the use of such credit card. 12
II.
Whether Alcaraz v. Court of Appeals,
instead of Macalinao v. BPI, is applicable.
Ledda contends that the case of Alcaraz v. Court of Appeals, 13 instead of Macalinao v. Bank
of the Philippine Islands14 which the Court of Appeals invoked, is applicable in the
computation of the interest rate on the unpaid credit card obligation. Ledda claims that
similar to Alcaraz, she was a "pre-screened" client who did not sign any credit card
application form or terms and conditions prior to the issuance of the credit card. Like
Alcaraz, Ledda asserts that the provisions of the Terms and Conditions, particularly on the
interests, penalties and other charges for non-payment of any outstanding obligation, are
not binding on her as such Terms and Conditions were never shown to her nor did she sign
it.
We agree with Ledda. The ruling in Alcaraz v. Court of Appeals 15 applies squarely to the
present case. In Alcaraz, petitioner there, as a pre-screened client of Equitable Credit Card
Network, Inc., did not submit or sign any application form or document before the issuance
of the credit card. There is no evidence that petitioner Alcaraz was shown a copy of the

terms and conditions before or after the issuance of the credit card in his name, much less
that he has given his consent thereto.
In this case, BPI issued a pre-approved credit card to Ledda who, like Alcaraz, did not sign
any credit card application form prior to the issuance of the credit card. Like the credit card
issuer in Alcaraz, BPI, which has the burden to prove its affirmative allegations, failed to
establish Leddas agreement with the Terms and Conditions governing the use of the credit
card. It must be noted that BPI did not present as evidence the Terms and Conditions which
Ledda allegedly received and accepted.16 Clearly, BPI failed to prove Leddas conformity
and acceptance of the stipulations contained in the Terms and Conditions. Therefore, as the
Court held in Alcaraz, the Terms and Conditions do not bind petitioner (Ledda in this case)
"without a clear showing that x x x petitioner was aware of and consented to the provisions
of such document."17
On the other hand, Macalinao v. Bank of the Philippine Islands, 18 which the Court of Appeals
cited, involves a different set of facts. There, petitioner Macalinao did not challenge the
existence of the Terms and Conditions Governing the Issuance and Use of the BPI Credit
Card and her consent to its provisions, including the imposition of interests and other
charges on her unpaid BPI credit card obligation. Macalinao simply questioned the legality
of the stipulated interest rate and penalty charge, claiming that such charges are iniquitous.
In fact, one of Macalinaos assigned errors before this Court reads: "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." 19 Therefore, there is evidence that
Macalinao was fully aware of the stipulations contained in the Terms and Conditions
Governing the Issuance and Use of the Credit Card, unlike in this case where there is no
evidence that Ledda was aware of or consented to the Terms and Conditions for the use of
the credit card.
Since there is no dispute that Ledda received, accepted and used the BPI credit card issued
to her and that she defaulted in the payment of the total amount arising from the use of such
credit card, Ledda is liable to pay BPI P322,138.58 representing the principal amount of her
unpaid credit card obligation.20
Consistent with Alcaraz, Ledda must also pay interest on the total unpaid credit card amount
at the rate of 12% per annum since her credit card obligation consists of a loan or
forbearance of money.21 In Eastern Shipping Lines, Inc. v. Court of Appeals, 22 the Court
explained:
1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

We reject Leddas contention that, since there was no written agreement to pay a higher
interest rate, the interest rate should only be 6%. Ledda erroneously invokes Article 2209 of
the Civil Code.23 Article 2209 refers to indemnity for damages and not interest on loan or
forbearance of money, which is the case here. In Sunga-Chan v. Court of Appeals, 24 the
Court held:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper,
and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments
involving such loan or forbearance of money, goods, or credit, while the 6% per annum
under Art. 2209 of the Civil Code applies "when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance
of obligations in general," with the application of both rates reckoned "from the time the
complaint was filed until the adjudged amount is fully paid." In either instance, the reckoning
period for the commencement of the running of the legal interest shall be subject to the
condition "that the courts are vested with discretion, depending on the equities of each case,
on the award of interest. (Emphasis supplied)
In accordance with Eastern Shipping Lines, Inc., the 12% legal interest shall be reckoned
from the date BPI extrajudicially demanded from Ledda the payment of her overdue credit
card obligation. Thus, the 12% legal interest shall be computed from 2 October 2007, when
Ledda, through her niece Sally D. Gancea,25 received BPIs letter26 dated 26 September
2007 demanding the payment of the alleged overdue amount of P548,143.73.
III.
Whether the award of attorneys fees is proper.
Ledda assails the award of attorneys fees in favor of BPI on the grounds of (1) erroneous
reliance by the Court of Appeals on the case of Macalinao and (2) failure by the trial court to
state the reasons for the award of attorneys fees.
Settled is the rule that the trial court must state the factual, legal or equitable justification for
the award of attorneys fees.27 The matter of attorneys fees cannot be stated only in the
dispositive portion of the decision.28The body of the courts decision must state the reasons
for the award of attorneys fees.29 In Frias v. San Diego-Sison,30 the Court held:
Article 2208 of the New Civil Code enumerates the instances where such may be awarded
and, in all cases, it must be reasonable, just and equitable if the same were to be granted.
Attorneys fees as part of damages are not meant to enrich the winning party at the expense
of the losing litigant. They are not awarded every time a party prevails in a suit because of
the policy that no premium should be placed on the right to litigate. The award of attorneys
fees is the exception rather than the general rule.1wphi1 As such, it is necessary for the
trial court to make findings of facts and law that would bring the case within the exception
and justify the grant of such award. The matter of attorneys fees cannot be mentioned only

in the dispositive portion of the decision. They must be clearly explained and justified by the
court in the body of its decision. On appeal, the CA is precluded from supplementing the
bases for awarding attorneys fees when the trial court failed to discuss in its Decision the
reasons for awarding the same. Consequently, the award of attorneys fees should be
deleted.1wphi1
In this case, the trial court failed to state in the body of its decision the factual or legal
reasons for the award of attorneys fees in favor of BPI. Therefore, the same must be
deleted.
WHEREFORE, we GRANT the petition IN PART. Petitioner Anita A. Ledda is ORDERED to
pay respondent Bank of the Philippine Islands the amount of .P322, 138.58, representing
her unpaid credit card obligation, with interest thereon at the rate of 12% per annum to be
computed from 2 October 2007, until full payment thereof. The award of attorney's fees is
DELETED for lack of basis.

Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty Centavos

(P367,457.80).
Upon failure of petitioners to exercise their right of redemption, a certificate of sale was
issued on 5 September 1997 by Sheriff Rolando A. Borja. TCT No. 23180 was cancelled
and in its stead, TCT No. 29338 was issued in the name of respondents.
Despite the issuance of the TCT, petitioners continued to occupy the said house and lot,
prompting respondents to file a petition for writ of possession with the RTC docketed as
Special Proceedings (SP) No. 98-1665. On 23 March 1999, RTC Judge Ernesto A. Miguel
issued an Order4 for the issuance of a writ of possession.
On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage and the
consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC.
Petitioners consigned the amount of Two Hundred Fifty-Seven Thousand One Hundred
Ninety-Seven Pesos and Twenty-Six Centavos (P257,197.26) with the RTC.

SO ORDERED.
G.R. Nos. 150773 & 153599 September 30, 2005
SPOUSES DAVID B. CARPO & and RECHILDA S. CARPO, Petitioners,
vs.
ELEANOR CHUA and ELMA DY NG, Respondent.
Before this Court are two consolidated petitions for review. The first, docketed as G.R. No.
150773, assails theDecision1 of the Regional Trial Court (RTC), Branch 26 of Naga City
dated 26 October 2001 in Civil Case No. 99-4376. RTC Judge Filemon B. Montenegro
dismissed the complaint2 for annulment of real estate mortgage and consequent foreclosure
proceedings filed by the spouses David B. Carpo and Rechilda S. Carpo (petitioners).
The second, docketed as G.R. No. 153599, seeks to annul the Court of
Appeals Decision3 dated 30 April 2002 in CA-G.R. SP No. 57297. The Court of Appeals
Third Division annulled and set aside the orders of Judge Corazon A. Tordilla to suspend the
sheriffs enforcement of the writ of possession.
The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they borrowed
from Eleanor Chua and Elma Dy Ng (respondents) the amount of One Hundred SeventyFive Thousand Pesos (P175,000.00), payable within six (6) months with an interest rate of
six percent (6%) per month. To secure the payment of the loan, petitioners mortgaged their
residential house and lot situated at San Francisco, Magarao, Camarines Sur, which lot is
covered by Transfer Certificate of Title (TCT) No. 23180. Petitioners failed to pay the loan
upon demand. Consequently, the real estate mortgage was extrajudicially foreclosed and
the mortgaged property sold at a public auction on 8 July 1996. The house and lot was
awarded to respondents, who were the only bidders, for the amount of Three Hundred

Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon motion on 3
August 1999, enjoining the enforcement of the writ of possession. In an Order5 dated 6
January 2000, the RTC suspended the enforcement of the writ of possession pending the
final disposition of Civil Case No. 99-4376. Against this Order, respondents filed a petition
for certiorari and mandamus before the Court of Appeals, docketed as CA-G.R. SP No.
57297.
During the pendency of the case before the Court of Appeals, RTC Judge Filemon B.
Montenegro dismissed the complaint in Civil Case No. 99-4376 on the ground that it was
filed out of time and barred by laches. The RTC proceeded from the premise that the
complaint was one for annulment of a voidable contract and thus barred by the four-year
prescriptive period. Hence, the first petition for review now under consideration was filed
with this Court, assailing the dismissal of the complaint.
The second petition for review was filed with the Court after the Court of Appeals on 30 April
2002 annulled and set aside the RTC orders in SP No. 98-1665 on the ground that it was
the ministerial duty of the lower court to issue the writ of possession when title over the
mortgaged property had been consolidated in the mortgagee.
This Court ordered the consolidation of the two cases, on motion of petitioners.
In G.R. No. 150773, petitioners claim that following the Courts ruling in Medel v. Court of
Appeals6 the rate of interest stipulated in the principal loan agreement is clearly null and
void. Consequently, they also argue that the nullity of the agreed interest rate affects the
validity of the real estate mortgage. Notably, while petitioners were silent in their petition on
the issues of prescription and laches on which the RTC grounded the dismissal of the

complaint, they belatedly raised the matters in their Memorandum. Nonetheless, these
points warrant brief comment.

not contrary to law, morals, good customs, public order, or public policy. In the ordinary
course, the codal provision may be invoked to annul the excessive stipulated interest.

On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not commit any
grave abuse of discretion when it issued the orders dated 3 August 1999 and 6 January
2000, and that these orders could not have been "the proper subjects of a petition for
certiorari and mandamus". More accurately, the justiciable issues before us are whether the
Court of Appeals could properly entertain the petition for certiorari from the timeliness
aspect, and whether the appellate court correctly concluded that the writ of possession
could no longer be stayed.

In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the
standards set in the above-cited cases, this stipulation is similarly invalid. However, the RTC
refused to apply the principle cited and employed in Medel on the ground that Medel did not
pertain to the annulment of a real estate mortgage, 15 as it was a case for annulment of the
loan contract itself. The question thus sensibly arises whether the invalidity of the stipulation
on interest carries with it the invalidity of the principal obligation.

We first resolve the petition in G.R. No. 150773.

Petitioners contend that the agreed rate of interest of 6% per month or 72% per annum is so
excessive, iniquitous, unconscionable and exorbitant that it should have been declared null
and void. Instead of dismissing their complaint, they aver that the lower court should have
declared them liable to respondents for the original amount of the loan plus 12% interest per
annum and 1% monthly penalty charge as liquidated damages, 7 in view of the ruling
in Medel v. Court of Appeals.8
In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum
was so iniquitous or unconscionable as to render the stipulation void.
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by
the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to
morals ("contra bonos mores"), if not against the law. The stipulation is void. The Court shall
reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they
are iniquitous or unconscionable.9
In a long line of cases, this Court has invalidated similar stipulations on interest rates for
being excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,10 we
annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan.
In Imperial v. Jaucian,11 we reduced the interest rate from 16% to 1.167% per month or 14%
per annum. In Ruiz v. Court of Appeals,12 we equitably reduced the agreed 3% per month or
36% per annum interest to 1% per month or 12% per annum interest. The 10% and 8%
interest rates per month on a P1,000,000.00 loan were reduced to 12% per annum
in Cuaton v. Salud.13 Recently, this Court, in Arrofo v. Quino,14 reduced the 7% interest per
month on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum.
There is no need to unsettle the principle affirmed in Medel and like cases. From that
perspective, it is apparent that the stipulated interest in the subject loan is excessive,
iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle
embodied in Article 1306 of the Civil Code, contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are

The question is crucial to the present petition even if the subject thereof is not the
annulment of the loan contract but that of the mortgage contract. The consideration of the
mortgage contract is the same as that of the principal contract from which it receives life,
and without which it cannot exist as an independent contract. Being a mere accessory
contract, the validity of the mortgage contract would depend on the validity of the loan
secured by it.16
Notably in Medel, the Court did not invalidate the entire loan obligation despite the
inequitability of the stipulated interest, but instead reduced the rate of interest to the more
reasonable rate of 12% per annum. The same remedial approach to the wrongful interest
rates involved was employed or affirmed by the Court in Solangon,Imperial, Ruiz, Cuaton,
and Arrofo.
The Courts ultimate affirmation in the cases cited of the validity of the principal loan
obligation side by side with the invalidation of the interest rates thereupon is congruent with
the rule that a usurious loan transaction is not a complete nullity but defective only with
respect to the agreed interest.
We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious
loan is wholly null and void both as to the loan and as to the usurious interest. 17 However,
this Court adopted the contrary rule,
as comprehensively discussed in Briones v. Cammayo:18
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any
event, the debtor in a usurious contract of loan should pay the creditor the amount which he
justly owes him, citing in support of this ruling its previous decisions in Go
Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44
Phil. 739.
....

Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the
standing jurisprudence of this Court on the question under consideration was clearly to the
effect that the Usury Law, by its letter and spirit, did not deprive the lender of his right to
recover from the borrower the money actually loaned to and enjoyed by the latter. This
Court went further to say that the Usury Law did not provide for the forfeiture of the capital in
favor of the debtor in usurious contracts, and that while the forfeiture might appear to be
convenient as a drastic measure to eradicate the evil of usury, the legal question involved
should not be resolved on the basis of convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs.
Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held
that when a contract is found to be tainted with usury "the only right of the respondent
(creditor) . . . was merely to collect the amount of the loan, plus interest due thereon."
The view has been expressed, however, that the ruling thus consistently adhered to should
now be abandoned because Article 1957 of the new Civil Code a subsequent law
provides that contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury, shall be void, and that in such cases "the borrower may
recover in accordance with the laws on usury." From this the conclusion is drawn that the
whole contract is void and that, therefore, the creditor has no right to recover not even his
capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated,
and the view referred to in the preceding paragraph is adequately answered, in Angel Jose,
etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a
creditor in a usurious contract may or may not recover the principal of the loan, and, in the
affirmative, whether or not he may also recover interest thereon at the legal rate, We said
the following:
". . . .
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious
interest, may the creditor recover the principal of the loan? (2) Should attorney's fees be
awarded in plaintiff's favor?"
Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . .
Since, according to the appellants, a usurious loan is void due to illegality of cause or
object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party
can bring action against each other. Said rule, however, appellants add, is modified as to
the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the
borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to
the lender, no exception is made to the rule; hence, he cannot recover on the contract. So
they continue the New Civil Code provisions must be upheld as against the Usury

Law, under which a loan with usurious interest is not totally void, because of Article 1961 of
the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other
special laws, so far as they are not inconsistent with this Code."
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the
same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for
departing from previous interpretation that, as provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not totally void only as to the interest.
. . . [a]ppellants fail to consider that a contract of loan with usurious interest consists
of principal and accessory stipulations; the principal one is to pay the debt; the
accessory stipulation is to pay interest thereon.
And said two stipulations are divisible in the sense that the former can still stand
without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the
principal debt shall extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of
interest likewise renders a nullity the legal terms as to payments of the principal debt.
Article 1420 of the New Civil Code provides in this regard: "In case of a divisible
contract, if the illegal terms can be separated from the legal ones, the latter may be
enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest;
hence, being separable, the latter only should be deemed void, since it is the only
one that is illegal.
....
The principal debt remaining without stipulation for payment of interest can thus be
recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the
debt earns interest from the date of the demand (in this case from the filing of the
complaint). Such interest is not due to stipulation, for there was none, the same being void.
Rather, it is due to the general provision of law that in obligations to pay money, where the
debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code).
The court a quo therefore, did not err in ordering defendants to pay the principal debt with
interest thereon at the legal rate, from the date of filing of the complaint." 19
The Courts wholehearted affirmation of the rule that the principal obligation subsists despite
the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all of
which the main obligation was upheld and the offending interest rate merely corrected.

Hence, it is clear and settled that the principal loan obligation still stands and remains valid.
By the same token, since the mortgage contract derives its vitality from the validity of the
principal obligation, the invalid stipulation on interest rate is similarly insufficient to render
void the ancillary mortgage contract.
It should be noted that had the Court declared the loan and mortgage agreements void for
being contrary to public policy, no prescriptive period could have run. 20 Such benefit is
obviously not available to petitioners.
Yet the RTC pronounced that the complaint was barred by the four-year prescriptive period
provided in Article 1391 of the Civil Code, which governs voidable contracts. This conclusion
was derived from the allegation in the complaint that the consent of petitioners was vitiated
through undue influence. While the RTC correctly acknowledged the rule of prescription for
voidable contracts, it erred in applying the rule in this case. We are hard put to conclude in
this case that there was any undue influence in the first place.

In all these proceedings starting from the foreclosure, followed by the issuance of a
provisional certificate of sale; then the definite certificate of sale; then the issuance of TCT
No. 29338 in favor of the defendants and finally the petition for the issuance of the writ of
possession in favor of the defendants, there is no showing that plaintiffs questioned the
validity of these proceedings. It was only after the issuance of the writ of possession in favor
of the defendants, that plaintiffs allegedly tendered to the defendants the amount
of P260,000.00 which the defendants refused. In all these proceedings, why did plaintiffs
sleep on their rights?22
Clearly then, with the absence of undue influence, petitioners have no cause of action. Even
assuming undue influence vitiated their consent to the loan contract, their action would
already be barred by prescription when they filed it. Moreover, petitioners had clearly slept
on their rights as they failed to timely assail the validity of the mortgage agreement. The
denial of the petition in G.R. No. 150773 is warranted.
We now resolve the petition in G.R. No. 153599.

There is ultimately no showing that petitioners consent to the loan and mortgage
agreements was vitiated by undue influence. The financial condition of petitioners may have
motivated them to contract with respondents, but undue influence cannot be attributed to
respondents simply because they had lent money. Article 1391, in relation to Article 1390 of
the Civil Code, grants the aggrieved party the right to obtain the annulment of contract on
account of factors which vitiate consent. Article 1337 defines the concept of undue
influence, as follows:
There is undue influence when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice. The following
circumstances shall be considered: the confidential, family, spiritual and other relations
between the parties or the fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial distress.
While petitioners were allegedly financially distressed, it must be proven that there is
deprivation of their free agency. In other words, for undue influence to be present, the
influence exerted must have so overpowered or subjugated the mind of a contracting party
as to destroy his free agency, making him express the will of another rather than his
own.21 The alleged lingering financial woes of petitioners per se cannot be equated with the
presence of undue influence.
The RTC had likewise concluded that petitioners were barred by laches from assailing the
validity of the real estate mortgage. We wholeheartedly agree. If indeed petitioners
unwillingly gave their consent to the agreement, they should have raised this issue as early
as in the foreclosure proceedings. It was only when the writ of possession was issued did
petitioners challenge the stipulations in the loan contract in their action for annulment of
mortgage. Evidently, petitioners slept on their rights. The Court of Appeals succinctly made
the following observations:

Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January 2000
could no longer be questioned in a special civil action for certiorari and mandamus as the
reglementary period for such action had already elapsed.
It must be noted that the Order dated 3 August 1999 suspending the enforcement of the writ
of possession had a period of effectivity of only twenty (20) days from 3 August 1999, or
until 23 August 1999. Thus, upon the expiration of the twenty (20)-day period, the
said Order became functus officio. Thus, there is really no sense in assailing the validity of
this Order, mooted as it was. For the same reason, the validity of the order need not have
been assailed by respondents in their special civil action before the Court of Appeals.
On the other hand, the Order dated 6 January 2000 is in the nature of a writ of injunction
whose period of efficacy is indefinite. It may be properly assailed by way of the special civil
action for certiorari, as it is interlocutory in nature.
As a rule, the special civil action for certiorari under Rule 65 must be filed not later than sixty
(60) days from notice of the judgment or order.23 Petitioners argue that the 3 August
1999 Order could no longer be assailed by respondents in a special civil action for certiorari
before the Court of Appeals, as the petition was filed beyond sixty (60) days following
respondents receipt of the Order. Considering that the 3 August 1999 Order had
become functus officio in the first place, this argument deserves scant consideration.
Petitioners further claim that the 6 January 2000 Order could not have likewise been the
subject of a special civil action for certiorari, as it is according to them a final order, as
opposed to an interlocutory order. That the 6 January 2000 Order is interlocutory in nature
should be beyond doubt. An order is interlocutory if its effects would only be provisional in
character and would still leave substantial proceedings to be further had by the issuing court

in order to put the controversy to rest.24 The injunctive relief granted by the order is definitely
final, but merely provisional, its effectivity hinging on the ultimate outcome of the then
pending action for annulment of real estate mortgage. Indeed, an interlocutory order hardly
puts to a close, or disposes of, a case or a disputed issue leaving nothing else to be done
by the court in respect thereto, as is characteristic of a final order.
Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we
cannot agree with petitioners who insist that it may be assailed only through an appeal
perfected within fifteen (15) days from receipt thereof by respondents. It is axiomatic that an
interlocutory order cannot be challenged by an appeal,

It is true that the imposition of an unconscionable rate of interest on a money debt is

immoral and unjust and the court may come to the aid of the aggrieved party to that
contract. However, before doing so, courts have to consider the settled principle that the law
will not relieve a party from the effects of an unwise, foolish or disastrous contract if such
party had full awareness of what she was doing.
This Petition for Review on Certiorari1 assails the Decision2 dated August 24, 2005 of the
Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed the Decision dated March
10, 20033 of the Regional Trial Court (RTC), Branch 22, Cebu City in Civil Case No. CEB22867. Also assailed is the
Resolution dated March 8, 2006 denying the motion for reconsideration.

but is susceptible to review only through the special civil action of certiorari. 25 The sixty (60)day reglementary period for special civil actions under Rule 65 applies, and respondents
petition was filed with the Court of Appeals well within the period.
Accordingly, no error can be attributed to the Court of Appeals in granting the petition for
certiorari and mandamus. As pointed out by respondents, the remedy of mandamus lies to
compel the performance of a ministerial duty. The issuance of a writ of possession to a
purchaser in an extrajudicial foreclosure is merely a ministerial function. 26
Thus, we also affirm the Court of Appeals ruling to set aside the RTC orders enjoining the
enforcement of the writ of possession.27 The purchaser in a foreclosure sale is entitled as a
matter of right to a writ of possession, regardless of whether or not there is a pending suit
for annulment of the mortgage or the foreclosure proceedings. An injunction to prohibit the
issuance or enforcement of the writ is entirely out of place. 28
One final note. The issue on the validity of the stipulated interest rates, regrettably for
petitioners, was not raised at the earliest possible opportunity. It should be pointed out
though that since an excessive stipulated interest rate may be void for being contrary to
public policy, an action to annul said interest rate does not prescribe. Such indeed is the
remedy; it is not the action for annulment of the ancillary real estate mortgage. Despite the
nullity of the stipulated interest rate, the principal loan obligation subsists, and along with it
the mortgage that serves as collateral security for it.
WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against
petitioners.
SO ORDERED.
G.R. No. 172139

December 8, 2010

JOCELYN M. TOLEDO, Petitioner,

vs.
MARILOU M. HYDEN, Respondent.

Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the College
Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent Marilou M.
Hyden (Marilou). The transactions are briefly summarized below:
1) August 15, 1993
2) April 21, 1994
3) October 2, 1995

P 30,000.00
100,000.00
30,000.00

4) October 9, 1995

30,000.00

5) May 22, 1997

TOTAL AMOUNT OF LOAN

with 6% monthly in

100,000.00 with 7% monthly intere

P 290,000.00 4

From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously paying
Marilou the stipulated monthly interest by issuing checks and depositing sums of money in
the bank account of the latter. However, the total principal amount of P290,000.00 remained
unpaid. Thus, in April 1998, Marilou visited Jocelyn in her office at CAP in Cebu City and
asked Jocelyn and the other employees who were likewise indebted to her to acknowledge
their debts. A document entitled "Acknowledgment of Debt" 5 for the amount of P290,000.00
was signed by Jocelyn with two of her subordinates as witnesses. The said amount
represents the principal consolidated amount of the aforementioned previous debts due on
December 25, 1998. Also on said occasion, Jocelyn issued five checks to Marilou
representing renewal payment of her five previous loans, viz:
Check No. 0010761 dated September 2, 1998
Check No. 0010762 dated September 9, 1998
Check No. 0010763 dated September 15, 1998
Check No. 0010764 dated September 22, 1998
Check No. 0010765 dated September 25, 1998

.........
.........
.........
.........
.........
TOTAL

P 30,000.0
30,000.0
30,000.0
100,000.0
100,000.0
P 290,000.0

In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the amount
of P30,000.00 and replaced the same with six checks, in staggered amounts, namely:

No pronouncement as to costs.
SO ORDERED.8

Check No. 0010494 dated July 2, 1998

Check No. 0010495 dated August 2, 1998
Check No. 0010496 dated September 2, 1998
Check No. 0010497 dated October 2, 1998
Check No. 0010498 dated November 2, 1998
Check No. 0010499 dated December 2, 1998

.........
.........
.........
.........
.........
.........
TOTAL

After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered the stop
payment on the remaining checks and on October 27, 1998, filed with the RTC of Cebu City
a complaint6 against Marilou for Declaration of Nullity and Payment, Annulment, Sum of
Money, Injunction and Damages.
Jocelyn averred that Marilou forced, threatened and intimidated her into signing the
"Acknowledgment of Debt" and at the same time forced her to issue the seven postdated
checks. She claimed that Marilou even threatened to sue her for violation of Batas
Pambansa (BP) Blg. 22 or the Bouncing Checks Law if she will not sign the said document
and draw the above-mentioned checks. Jocelyn further claimed that the application of her
total payment of P528,550.00 to interest alone is illegal, unfounded, unjust, oppressive and
contrary to law because there was no written agreement to pay interest.

On March 26, 2003, Jocelyn filed an Earnest Motion for Reconsideration, 9 which was denied
by the trial court in its Order10 dated April 29, 2003 stating that it finds no sufficient reason to
disturb its March 10, 2003 Decision.
Ruling of the Court of Appeals
On appeal, Jocelyn asserts that she had made payments in the total amount
of P778,000.00 for a principal amount of loan of only P290,000.00. What is appalling,
according to Jocelyn, was that such payments covered only the interest because of the
excessive, iniquitous, unconscionable and exorbitant imposition of the 6% to 7% monthly
interest.
On August 24, 2005, the CA issued its Decision which provides:
WHEREFORE, premises considered, the Decision dated March 10, 2003 and the Order
dated April 29, 2003, of the Regional Trial Court, 7th Judicial Region, Branch 22, Cebu City,
in Civil Case No. CEB-22867 are herebyAFFIRMED. No pronouncement as to costs.
SO ORDERED.11

On November 23, 1998, Marilou filed an Answer with Special Affirmative Defenses and
Counterclaim alleging that Jocelyn voluntarily obtained the said loans knowing fully well that
the interest rate was at 6% to 7% per month. In fact, a 6% to 7% advance interest was
already deducted from the loan amount given to Jocelyn.

The Motion for Reconsideration12 filed by Jocelyn was denied by the CA through its
Resolution13 dated March 8, 2006.
Issues

Ruling of the Regional Trial Court

The court a quo did not find any showing that Jocelyn was forced, threatened, or intimidated
in signing the document referred to as "Acknowledgment of Debt" and in issuing the
postdated checks. Thus, in its March 10, 2003 Decision the trial court ruled in favor of
Marilou, viz:
WHEREFORE, premised on the foregoing, the Court hereby declares the document
"Acknowledgment of Debt" valid and binding. PLAINTIFF is indebted to DEFENDANT [for]
the amount of TWO HUNDRED NINETY THOUSAND (P290,000.00) PESOS since
December 25, 1998 less the amount of EIGHTEEN THOUSAND NINE HUNDRED
(P18,900.00) PESOS, equivalent to the three checks made good (P6,625.00 dated 07-021998;P6,300.00 dated 08-02-1998; and P5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount of TWO
HUNDRED SEVENTY ONE THOUSAND ONE HUNDRED (P271,100.00) PESOS due on
December 25, 1998 with a 12% interest per annum or 1% interest per month until such time
that the said amount shall have been fully paid.

Hence, this petition raising the following issues:

I.
Whether the CA gravely erred when it held that the imposition of interest at the
rate of six percent (6%) to seven percent (7%) is not contrary to law, morals,
good customs, public order or public policy.
II.
Whether the CA gravely erred when it failed to declare that the "Acknowledgment
of Debt" is an inexistent contract that is void from the very beginning pursuant to
Article 1409 of the New Civil Code.
Petitioners Arguments

Jocelyn posits that the CA erred when it held that the imposition of interest at the rates of
6% to 7% per month is not contrary to law, not unconscionable and not contrary to morals.
She likewise contends that the CA erred in ruling that the "Acknowledgment of Debt" is valid
and binding. According to Jocelyn, even assuming that the execution of said document was
not attended with force, threat and intimidation, the same must nevertheless be declared
null and void for being contrary to law and public policy. This is borne out by the fact that the
payments in the total amount of P778,000.00 was applied to interest payment alone. This
only proves that the transaction was iniquitous, excessive, oppressive and unconscionable.
Respondents Arguments
On the other hand, Marilou would like this Court to consider the fact that the document
referred to as "Acknowledgment of Debt" was executed in the safe surroundings of the
office of Jocelyn and it was witnessed by two of her staff. If at all there had been coercion,
then Jocelyn could have easily prevented her staff from affixing their signatures to said
document. In fact, petitioner had admitted that she was the one who went to the tables of
her staff to let them sign the said document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by Jocelyn is not excessive under the circumstances
of this case.
In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law ceiling
on interest effective January 1, 1983, parties to a loan agreement have wide latitude to
stipulate interest rates. Nevertheless, such stipulated interest rates may be declared as
illegal if the same is unconscionable.14 There is certainly nothing in said circular which
grants lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets. 15 In fact, in Medel v. Court
of Appeals,16 we annulled a stipulated 5.5% per month or 66% per annum interest with
additional service charge of 2% per annum and penalty charge of 1% per month on
a P500,000.00 loan for being excessive, iniquitous, unconscionable and exorbitant.

In this case, however, we cannot consider the disputed 6% to 7% monthly interest rate to be
iniquitous or unconscionable vis--vis the principle laid down in Medel. Noteworthy is the
fact that in Medel, the defendant-spouses were never able to pay their indebtedness from
the very beginning and when their obligations ballooned into a staggering sum, the creditors
filed a collection case against them. In this case, there was no urgency of the need for
money on the part of Jocelyn, the debtor, which compelled her to enter into said loan
transactions. She used the money from the loans to make advance payments for
prospective clients of educational plans offered by her employer. In this way, her sales
production would increase, thereby entitling her to 50% rebate on her sales. This is the
reason why she did not mind the 6% to 7% monthly interest. Notably too, a business
transaction of this nature between Jocelyn and Marilou continued for more than five years.
Jocelyn religiously paid the agreed amount of interest until she ordered for stop payment on
some of the checks issued to Marilou. The checks were in fact sufficiently funded when she
ordered the stop payment and then filed a case questioning the imposition of a 6% to 7%
interest rate for being allegedly iniquitous or unconscionable and, hence, contrary to morals.
It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the
same carried with it an interest rate of 6% to 7% per month, yet she did not complain. In
fact, when she availed of said loans, an advance interest of 6% to 7% was already deducted
from the loan amount, yet she never uttered a word of protest.
After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to 7%
per month and paying for the same, Jocelyn cannot now go to court to have the said interest
rate annulled on the ground that it is excessive, iniquitous, unconscionable, exorbitant, and
absolutely revolting to the conscience of man. "This is so because among the maxims of
equity are (1) he who seeks equity must do equity, and (2) he who comes into equity must
come with clean hands. The latter is a frequently stated maxim which is also expressed in
the principle that he who has done inequity shall not have equity. It signifies that a litigant
may be denied relief by a court of equity on the ground that his conduct has been
inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in
issue." 17
We are convinced that Jocelyn did not come to court for equitable relief with equity or with
clean hands. It is patently clear from the above summary of the facts that the conduct of
Jocelyn can by no means be characterized as nobly fair, just, and reasonable. This Court
likewise notes certain acts of Jocelyn before filing the case with the RTC. In September
1998, she requested Marilou not to deposit her checks as she can cover the checks only the
following month. On the next month, Jocelyn again requested for another extension of one
month. It turned out that she was only sweet-talking Marilou into believing that she had no
money at that time. But as testified by Serapio Romarate, 18 an employee of the Bank of
Commerce where Jocelyn is one of their clients, there was an available balance
of P276,203.03 in the latters account and yet she ordered for the stop payments of the
seven checks which can actually be covered by the available funds in said account. She
then caught Marilou by surprise when she surreptitiously filed a case for declaration of
nullity of the document and for damages.
The document "Acknowledgment of Debt" is valid and binding.
Jocelyn seeks for the nullification of the document entitled "Acknowledgment of Debt" and
wants this Court to declare that she is no longer indebted to Marilou in the amount
of P290,000.00 as she had already paid a total amount of P778,000.00. She claims that

said document is an inexistent contract that is void from the very beginning as clearly
provided for by Article 140919 of the New Civil Code.
Jocelyn further claims that she signed the said document and issued the seven postdated
checks because Marilou threatened to sue her for violation of BP Blg. 22.
Jocelyn is misguided. Even if there was indeed such threat made by Marilou, the same is
not considered as threat that would vitiate consent. Article 1335 of the New Civil Code is
very specific on this matter. It provides:
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is
employed.
xxxx
A threat to enforce ones claim through competent authority, if the claim is just or
legal, does not vitiate consent. (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.
As can be seen from the records of the case, Jocelyn has failed to prove her claim that she
was made to sign the document "Acknowledgment of Debt" and draw the seven Bank of
Commerce checks through force, threat and intimidation. As earlier stressed, said document
was signed in the office of Jocelyn, a high ranking executive of CAP, and it was Jocelyn
herself who went to the table of her two subordinates to procure their signatures as
witnesses to the execution of said document. If indeed, she was forced to sign said
document, then Jocelyn should have immediately taken the proper legal remedy. But she
did not. Furthermore, it must be noted that after the execution of said document, Jocelyn
honored the first three checks before filing the complaint with the RTC. If indeed she was
forced she would never have made good on the first three checks.
It is provided, as one of the conclusive presumptions under Rule 131, Section 2(a), of the
Rules of Court that, "Whenever a party has, by his own declaration, act or omission,
intentionally and deliberately led another to believe a particular thing to be true, and to act
upon such belief, he cannot, in any litigation arising out of such declaration, act or omission,
be permitted to falsify it." This is known as the principle of estoppel.
"The essential elements of estoppel are: (1) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and, (3) knowledge, actual or constructive, of the real facts." 20
Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of Debt" in April
1998 and two of her subordinates served as witnesses to its execution, knowing fully well
the nature of the contract she was entering into. Next, Jocelyn issued five checks in favor of
Marilou representing renewal payment of her loans amounting toP290,000.00. In June

1998, she asked to recall Check No. 0010761 in the amount of P30,000.00 and replaced
the same with six checks, in staggered amounts. All these are indicia that Jocelyn treated
the "Acknowledgment of Debt" as a valid and binding contract.1avvphi1
More significantly, Jocelyn already availed herself of the benefits of the "Acknowledgment of
Debt," the validity of which she now impugns. As aptly found by the RTC and the CA,
Jocelyn was making a business out of the loaned amounts. She was actually using the
money to make advance payments for her prospective clients so that her sales production
would increase. Accordingly, she did not mind the 6% to 7% interest per month as she was
getting a 50% rebate on her sales.
Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
"Acknowledgment of Debt." "[A] party to a contract cannot deny the validity thereof after
enjoying its benefits without outrage to ones sense of justice and fairness." 21 "It is a long
established doctrine that the law does not relieve a party from the effects of an unwise,
foolish or disastrous contract, entered into with all the required formalities and with full
awareness of what she was doing. Courts have no power to relieve parties from obligations
voluntarily assumed, simply because their contracts turned out to be disastrous or unwise
investments."22
WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 79805 dated August 24, 2005 affirming the Decision
dated March 10, 2003 of the Regional Trial Court, Branch 22, Cebu City, in Civil Case No.
CEB-22867 is AFFIRMED.
SO ORDERED.
G.R. No. 183360

September 8, 2014

ROLANDO C. DE LA PAZ,* Petitioner,

vs.
L & J DEVELOPMENT COMPANY, Respondent.
"No interest shall be due unless it has been expressly stipulated in writing." 1
This is a Petition for Review on Certiorari 2 assailing the February 27, 2008 Decision3 of the
Court of Appeals (CA) in CA-G.R. SP No. 100094, which reversed and set aside the
Decision4 dated April 19, 2007 of the Regional Trial Court (RTC), Branch 192, Marikina City
in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in all respects the
Decision5 dated June 30, 2006 of the Metropolitan Trial Court (MeTC), Branch 75, Marikina
City in Civil Case No. 05-7755, which ordered respondent L & J Development Company
(L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its principal obligation
of P350,000.00, plus 12% interest per annumreckoned from the filing of the Complaint until
full payment of the obligation.

Likewise assailed is the CAs June 6, 2008 Resolution 6 which denied Rolandos Motion for
Reconsideration.
Factual Antecedents
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property
developer with Atty. Esteban Salonga (Atty. Salonga) as its President and General Manager.
The loan, with no specified maturity date, carried a 6% monthly interest, i.e., P21,000.00.
From December 2000 to August 2003, L&J paid Rolando a total
ofP576,000.007 representing interest charges.
8

As L&J failed to pay despite repeated demands, Rolando filed a Complaint for Collection of
Sum of Money with Damages against L&J and Atty. Salonga in his personal capacity before
the MeTC, docketed as Civil Case No. 05-7755. Rolando alleged, amongothers, that L&Js
debtas of January 2005, inclusive of the monthly interest, stood at P772,000.00; that the 6%
monthly interest was upon Atty. Salongas suggestion; and, that the latter tricked him into
parting with his money without the loan transaction being reduced into writing.
In their Answer,9 L&J and Atty. Salonga denied Rolandos allegations. While they
acknowledged the loan as a corporate debt, they claimed that the failure to pay the same
was due to a fortuitous event, that is, the financial difficulties brought about by the economic
crisis. They further argued that Rolando cannot enforce the 6% monthly interest for being
unconscionable and shocking to the morals. Hence, the payments already made should be
applied to the P350,000.00 principal loan.
During trial, Rolando testified that he had no communication with Atty. Salonga prior to the
loan transaction but knew him as a lawyer, a son of a former Senator, and the owner of L&J
which developed Brentwood Subdivision in Antipolo where his associate Nilo Velasco (Nilo)
lives. When Nilo told him that Atty. Salonga and L&J needed money to finish their projects,
heagreed to lend them money. He personally met withAtty. Salonga and their meeting was
cordial.
He narrated that when L&J was in the process of borrowing the P350,000.00 from him, it
was Arlene San Juan (Arlene), the secretary/treasurer of L&J, who negotiated the terms and
conditions thereof.She said that the money was to finance L&Js housing project. Rolando
claimed that it was not he who demanded for the 6% monthly interest. It was L&J and Atty.
Salonga, through Arlene, who insisted on paying the said interest as they asserted that the
loan was only a short-term one.
Ruling of the Metropolitan Trial Court
The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so ruling, it
ratiocinated that since L&J agreed thereto and voluntarily paid the interest at suchrate from
2000 to 2003, it isalready estopped from impugning the same. Nonetheless, for reasons of

equity, the saidcourt reduced the interest rate to 12% per annumon the remaining principal
obligation of P350,000.00. With regard to Rolandos prayer for moral damages, the MeTC
denied the same as it found no malice or bad faith on the part ofL&J in not paying the
obligation. It likewise relieved Atty. Salonga of any liability as it found that he merely acted in
his official capacity in obtaining the loan. The MeTC disposed of the case as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff,
Arch. Rolando C. Dela Paz, and against the defendant, L & J Development Co., Inc., as
follows:
a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount
of Three Hundred Fifty Thousand Pesos (P350,000.00) representing the principal
obligation, plus interest at the legal rate of 12% per annum to be computed from
January 20, 2005, the date of the filing of the complaint, until the whole obligation
is fully paid;
b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount
of Five Thousand Pesos (P5,000.00) as and for attorneys fees; and
c) to pay the costs of this suit.
SO ORDERED.11
Ruling of the Regional Trial Court
L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from December 2000
to March 2003, it paid monthly interest of P21,000.00 based on the agreed-upon interest
rate of 6%monthly and from April 2003 to August 2003, interest paymentsin various
amounts.13 The total of interest payments made amounts toP576,000.00 an amount which
is even more than the principal obligation of P350,000.00
L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the
12% per annumlegal interest should have been applied from the time of the constitution of
the obligation. At 12% per annum interest rate, it asserted that the amount of interestit ought
to pay from December 2000 to March 2003 and from April 2003 to August 2003, only
amounts to P105,000.00. If this amount is deducted from the total interest paymentsalready
made, which is P576,000.00, the amount of P471,000.00 appears to have beenpaid over
and above what is due. Applying the rule on compensation, the principal loan
of P350,000.00 should be set-off against the P471,000.00, resulting in the complete
payment of the principal loan.

Unconvinced, the RTC, inits April 19, 2007 Decision, 14 affirmed the MeTC Decision, viz:
WHEREFORE, premises considered, the Decision appealed from is hereby AFFIRMED in
all respects, with costs against the appellant.
SO ORDERED.15
Ruling of the Court of Appeals
Undaunted, L&J went to the CA and echoed its arguments and proposed computation as
proffered before the RTC.
In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC Decision.
The CA stressed that the parties failedto stipulate in writing the imposition of interest on the
loan. Hence, no interest shall be due thereon pursuant to Article 1956 of the Civil
Code.17 And even if payment of interest has been stipulated in writing, the 6% monthly
interest is still outrightly illegal and unconscionable because it is contrary to morals, if not
against the law. Being void, this cannot be ratified and may be set up by the debtor as
defense. For these reasons, Rolando cannot collect any interest even if L&J offered to pay
interest. Consequently, he has to return all the interest payments of P576,000.00 to L&J.
Considering further that Rolando and L&J thereby became creditor and debtor of each
other, the CA applied the principle of legal compensation under Article 1279 of the Civil
Code.18 Accordingly, it set off the principal loan ofP350,000.00 against the P576,000.00 total
interest payments made, leaving an excess of P226,000.00, which the CA ordered Rolando
to pay L&J plus interest. Thus:
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay
to the petitioner the amount of P226,000.00,plus interest of 12% per annumfrom the finality
of this decision.
Costs of suit to be paid by respondent Dela Paz.
SO ORDERED.19
In his Motion for Reconsideration,20 Rolando argued thatthe circumstances exempt both the
application of Article 1956 and of jurisprudence holding that a 6% monthly interest is
unconscionable, unreasonable, and exorbitant. He alleged that Atty. Salonga, a lawyer,
should have taken it upon himself to have the loan and the stipulated rate of interest
documented but, by way of legal maneuver, Atty. Salonga, whom he fully trusted and relied
upon, tricked him into believing that the undocumented and uncollateralized loan was
withinlegal bounds. Had Atty. Salonga told him that the stipulated interest should be in

writing, he would have readily assented. Furthermore, Rolando insisted that the 6% monthly
interest ratecould not be unconscionable as in the first place, the interest was not imposed
by the creditor but was in fact offered by the borrower, who also dictated all the terms of the
loan. He stressed that in cases where interest rates were declared unconscionable, those
meant to be protected by such declaration are helpless borrowers which is not the case
here.
Still, the CA denied Rolandos motion in its Resolution 21 of June 6, 2008.
Hence, this Petition.
The Parties Arguments
Rolando argues that the 6%monthly interest rateshould not have been invalidated because
Atty. Salonga took advantage of his legal knowledge to hoodwink him into believing that no
document was necessaryto reflect the interest rate. Moreover, the cases anent
unconscionable interest rates that the CA relied upon involve lenders who imposed the
excessive rates,which are totally different from the case at bench where it is the borrower
who decided on the high interest rate. This case does not fall under a scenariothat enslaves
the borrower or that leads to the hemorrhaging of his assets that the courts seek to prevent.
L&J, in controverting Rolandos arguments, contends that the interest rate is subject of
negotiation and is agreedupon by both parties, not by the borrower alone. Furthermore,
jurisprudence has nullified interestrates on loans of 3% per month and higher as these rates
are contrary to moralsand public interest. And while Rolando raises bad faithon Atty.
Salongas part, L&J avers thatsuch issue is a question of fact, a matter that cannot be
raised under Rule 45.
Issue
The Courts determination of whether to uphold the judgment of the CA that the principal
loan is deemed paid isdependent on the validity of the monthly interest rate imposed. And in
determining such validity, the Court must necessarily delve into matters regarding a) the
form of the agreement of interest under the law and b) the alleged unconscionability of the
interest rate. Our Ruling
The Petition is devoid of merit.
The lack of a written stipulation to pay interest on the loaned amount disallows a creditor
from charging monetary interest.
Under Article 1956 of the Civil Code, no interest shall bedue unless it has been expressly
stipulated in writing. Jurisprudence on the matter also holds that for interest to be due and

payable, two conditions must concur: a) express stipulation for the payment of interest; and
b) the agreement to pay interest is reduced in writing.
Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no
interest is due. The collection of interest without any stipulation in writing is prohibited by
law.22
But Rolando asserts that his situation deserves an exception to the application of Article
1956. He blames Atty. Salonga for the lack of a written document, claiming that said lawyer
used his legal knowledge to dupe him. Rolando thus imputes bad faith on the part of L&J
and Atty. Salonga. The Court, however, finds no deception on the partof L&J and Atty.
Salonga. For one, despite the lack of a document stipulating the payment of interest, L&J
nevertheless devotedly paid interests on the loan. It only stopped when it suffered from
financial difficulties that prevented it from continuously paying the 6% monthly rate. For
another,regardless of Atty. Salongas profession, Rolando who is an architect and an
educated man himself could have been a more reasonably prudent person under the
circumstances. To top it all, he admitted that he had no prior communication with Atty.
Salonga. Despite Atty. Salonga being a complete stranger, he immediately trusted him and
lent his company P350,000.00, a significant amount. Moreover, as the creditor,he could
have requested or required that all the terms and conditions of the loan agreement, which
include the payment of interest, be put down in writing to ensure that he and L&J are on the
same page. Rolando had a choice of not acceding and to insist that their contract be put in
written form as this will favor and safeguard him as a lender. Unfortunately, he did not. It
must be stressed that "[c]ourts cannot follow one every step of his life and extricate him
from bad bargains, protect him from unwise investments, relieve him from one-sided
contracts,or annul the effects of foolish acts. Courts cannotconstitute themselves guardians
of persons who are not legally incompetent." 23
It may be raised that L&J is estopped from questioning the interest rate considering that it
has been paying Rolando interest at such ratefor more than two and a half years. In fact, in
its pleadings before the MeTCand the RTC, L&J merely prayed for the reduction of interest
from 6% monthly to 1% monthly or 12% per annum. However, in Ching v. Nicdao, 24 the daily
payments of the debtor to the lender were considered as payment of the principal amount of
the loan because Article 1956 was not complied with. This was notwithstanding the debtors
admission that the payments made were for the interests due. The Court categorically
stated therein that "[e]stoppel cannot give validity to an act that is prohibited by law or one
thatis against public policy."
Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a
loan is unconscionable, regardless of who between the parties proposed the rate.

Indeed at present, usury has been legally non-existent in view of the suspension of the
Usury Law25 by Central Bank Circular No. 905 s. 1982.26 Even so, not all interest rates
levied upon loans are permitted by the courts as they have the power to equitably reduce
unreasonable interest rates. In Trade & Investment Development Corporation of the
Philippines v. Roblett Industrial Construction Corporation, 27 we said:
While the Court recognizes the right of the parties to enter into contracts and who are
expectedto comply with their terms and obligations, this rule is not absolute. Stipulated
interest rates are illegal if they are unconscionable and the Court is allowed to temper
interest rates when necessary. In exercising this vested power to determine what is
iniquitous and unconscionable, the Court must consider the circumstances of each case.
What may be iniquitous and unconscionable in onecase, may be just in another. x x x 28
Time and again, it has been ruled 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.29 The Court,
however, stresses that these rates shall be invalidated and shall be reduced only in cases
where the terms of the loans are open-ended, and where the interest rates are applied for
an indefinite period. Hence, the imposition of a specific sum of P40,000.00 a month for six
months on aP1,000,000.00 loan is not considered unconscionable. 30
In the case at bench, there is no specified period as to the payment of the loan. Hence,
levying 6% monthly or 72% interest per annumis "definitely outrageous and
inordinate."31 The situation that it was the debtor who insisted on the interest rate will not
exempt Rolando from a ruling that the rate is void. As this Court cited in Asian Cathay
Finance and Leasing Corporation v. Gravador,32 "[t]he imposition of an unconscionable rate
of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and
unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man."33 Indeed, "voluntariness does notmake the
stipulation on [an unconscionable] interest valid." 34
As exhaustibly discussed,no monetary interest isdue Rolando pursuant to Article
1956.1wphi1 The CA thus correctly adjudged that the excess interest payments made by
L&J should be applied to its principal loan. As computed by the CA, Rolando is bound to
return the excess payment of P226,000.00 to L&J following the principle of solutio indebiti. 35
However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1,
2013,36 the interest imposed by the CA must be accordingly modified. The P226,000.00
which Rolando is ordered to pay L&J shall earn an interest of 6% per annumfrom the finality
of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R.
SP No. 100094 is hereby AFFIRMED with modification that petitioner Rolando C. De La Paz

is ordered to pay respondent L&J Development Company the amount of ,P226,000.00, plus
interest of 6o/o per annum from the finality of this Decision until fully paid.

SO ORDERED.