RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs.

ALFA RTW MANUFACTURING

CORPORATION, BA FINANCE CORPORATION, NORTH AMERICAN GARMENTS
CORPORATION, JOHNNY TENG, RAMON LEE, ANTONIO LACDAO, RAMON LUY and ALFA
INTEGRATED TEXTILE MILLS, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the decision of the Court of Appeals in CA-G.R. C.V. No. 42293.
On March 12, 1982, Rizal Banking Corporation (RCBC) filed with the Regional Trial Court of Makati, Branch
145, Civil Case No. 2624 for a sum of money against Alfa RTW Manufacturing Corporation, Johnny Teng, Ramon
Lee, Antonio Lacdao, Ramon Luy and Alfa Integrated Textile Mills. Asserting a superior right over the property
involved in the suit, North Atlantic Garments Corporation filed a complaint in intervention. BA Finance
Corporation, claiming as mortgagee of the same property, filed an answer in intervention. After hearing, the trial
court rendered judgment on August 19, 1991, the dispositive portion[1] of which reads:
WHEREFORE, judgment is rendered in favor of plaintiff as follows:
1. Ordering all defendants to pay, jointly and severally, to plaintiff the amount of Eighteen Million Nine
Hundred Sixty-one Thousand Three Hundred Seventy-two Pesos and Forty-three Centavos
(P18,961,372.43), Philippine Currency, (inclusive of interest, service charges, litigation expenses and
attorneys fees), with interest thereon at the legal rate from February 15, 1988 until fully paid. The
proceeds from the sale of defendant Alfas ready to wear apparel, in the sum of P73,133.70, should be
deducted from the principal obligation of P18,961,372.43;
2. Declaring that the respective liens of intervenors BA Finance Corporation and North American
Garments Corporation over the properties attached by the sheriff are inferior to that of plaintiff.
3. Ordering defendants and intervenors to pay the proportionate costs.
"SO ORDERED.
On appeal, the Court of Appeals affirmed with modification[2] the RTC decision, thus:
WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED, with the modification that
instead of P18,961,372.43, all the defendants are hereby ordered to pay, jointly and severally to plaintiff the amount
of P3,060,406.25, Philippine Currency, inclusive of stipulated interest, service charges, litigation expenses and
attorneys fees, with interest thereon at the legal rate from February 15, 1988, until fully paid.
"All other disquisitions of the trial court are hereby AFFIRMED.
"SO ORDERED.
In this petition, RCBC questions the Court of Appeals decision insofar as it modified the RTC decision by
decreasing the award in its favor from P18,961.372.43 to P3,060,406.25. In assailing the Court of Appeals decision,
petitioner RCBC raises a question of law, that is, whether or not the Court of Appeals can deviate from the
provisions of the contract between the parties, which contract is the law between them.
The facts as summarized by the Court of Appeals are:
From the records of the case, it appears that defendant Alfa RTW Manufacturing Corporation (Alfa RTW), on
separate instances, had applied for and was granted by the plaintiff Rizal Commercial Banking Corporation (RCBC)
four Letters of Credit (RO-80/2487, RO-80/2789, RO-80/D-1795 and RO-81/D-1800 marked as Exhibits A, D, G,
and J, respectively) to facilitate its purchase of raw materials for its garments business. Upon such letters of credit,
corresponding bills of exchange (Exhibits B, E, H, and K) of various amounts were drawn, and charged to the
account of said defendants.
The defendant Alfa RTW, in turn, had executed four Trust Receipts (Exhibits C, F, I and L), stipulating that it had
received in trust for the plaintiff bank the goods and merchandise described therein, and which were purchased with
the drawings upon the letters of credit.
When the obligations upon the said commercial documents became due, the plaintiff demanded payment of the
defendants undertakings, citing two documents allegedly executed by the individual defendants Johnny Teng,
Ramon Lee, Antonio D. Lacdao and Ramon Uy and Alfa Integrated Textile Mills Inc. (Alfa ITM), labeled
Comprehensive Surety Agreements (Exhibits N and M) dated September 8, 1978 and October 10, 1979.
Under such Comprehensive Surety Agreements, it was essentially agreed that for and in consideration of any
existing indebtedness to plaintiff bank of defendant Alfa RTW and/or in order to induce the plaintiff bank at any
time thereafter to make loans or advances or increases thereof or to extend credit in any other manner to or for the
account of defendant, Alfa ITM and the signatory officers agreed to guarantee in joint and several capacity the
punctual payment at maturity to plaintiff bank of any and all such indebtedness and/or other obligations and also any

and all indebtedness of every kind which was then or may thereafter become due or owing to plaintiff bank by the
defendant Alfa RTW, together with any and all expenses of collection, etc., provided, however, that the liability of
individual defendants and defendant Alfa Integrated Textile Mills, Inc. thereunder shall not exceed the sum of
P4,000,000.00 and P7,500,000.00 and such interest as may accrue thereon and expenses as may be incurred by
plaintiff bank. (p. 4, Complaint)
Petitioner RCBC contends that the Court of Appeals erred in awarding to it the minimal sum of P3,060,406.25
instead of P18,961,372.43 granted by the trial court.
The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals
via Rule 45 of the 1997 Rules of Civil Procedure, as amended, is limited to reviewing errors of law. Findings of fact
of the latter court are conclusive, except in a number of instances. In Siguan vs. Lim[3] this Court enumerated those
instances when the factual findings of the Court of Appeals are not deemed conclusive, to wit: (1) when the
conclusion is a finding grounded entirely on speculations, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when the Court of Appeals,
in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both the
appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioners main and reply briefs are not disputed by the respondent; and (10) when the findings of
fact are premised on the supposed absence of evidence and contradicted by the evidence on record.
In the case at bar, exception No. 6 is present. Here, the Court of Appeals made findings contrary to the
admissions of the parties. We refer to the terms and conditions agreed upon by petitioner RCBC and respondent
borrowers in the Trust Receipts[4] and the Comprehensive Surety Agreements. [5]
Significantly, the validity of those contracts is not being questioned. It follows that the very terms and
conditions of the same contracts become the law between the parties.
Herein lies the reversible error on the part of the Court of Appeals. When it ruled that only P3,060,406.25
should be awarded to petitioner RCBC, the Appellate Court disregarded the parties stipulations in their contracts of
loan, more specifically, those pertaining to the agreed (1) interest rates, (2) service charges and (3) penalties in case
of any breach thereof.[6] Indeed, the Court of Appeals failed to apply this time-honored doctrine:
That which is agreed to in a contract is the law between the parties. Thus, obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith. [7]
The Court cannot vary the terms and conditions therein stipulated unless such stipulation is contrary to law, morals,
good customs, public order or public policy.[8]
In relation to the determination and computation of interest payments, this Court, in Eastern Shipping Lines,
Inc. vs. Court of Appeals,[9] through Mr. Justice Jose C. Vitug, held:
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on
the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the
following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
Damages of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest, in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.. (Emphasis supplied).
The case now before us involves an obligation arising from a letter of credit-trust receipt transaction. Under
this arrangement, a bank extends to a borrower a loan covered by the letter of credit, with the trust receipt as security
of the loan.[10] A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except thru utilization, as collateral, of the merchandise imported or purchased. [11]
In contracts contained in trust receipts, the contracting parties may establish agreements, terms and conditions
they may deem advisable, provided they are not contrary to law, morals or public order.[12]In the case at bar, there are
specific amounts of interest, service charges and penalties agreed upon by the parties. Pertinent provisions in the
four (4) trust receipts (TR. No. 1909, TR. No. 1932, TR. No. 1732, and TR No. 2065)[13] read:
All obligations of the undersigned under this Trust Receipt shall bear interest at the rate of sixteen per centum (16%)
per annum plus service charge of two per centum (2%) per annum from the date of the execution of this Trust
Receipt until paid. It is expressly agreed and understood that regardless of the maturity date hereof, I/we hereby
authorize the said Bank to correspondingly increase the interest of this Trust Receipt to the extent allowed by law
without notice to me/us whenever the Central Bank of the Philippines raises the interest on borrowings of Banks or
the interest provided for in the Usury Law, or whenever , in the sole judgment of the holder of this Trust Receipt is
warranted by the increase in money market rates or by similar events.
Without prejudice to the criminal action that may be brought by the Bank against the entrustee by reason of default
or breach of this Trust Receipt, I/we agree to pay a penalty and/or liquidated damages equivalent to six per
centum (6%) per annum of the amount due and unpaid.
In the event of the bringing of any action or suit by you or any default of the undersigned hereunder: I/we shall on
demand pay you reasonable attorneys and other fees and cost of collection, which shall in no case be less than
ten per centum (10%) of the value of the property and the amount involved by the action or suit.
If there are two or more signatories on this Trust Receipt, our obligations hereunder shall in all cases be joint and
several.
Applying the above-quoted rules of thumb in the computation of interest, as enunciated by this Court in
Eastern Shipping Lines, Inc., [14] the principal amount of loans corresponding to each trust receipt must earn an
interest at the rate of sixteen percent (16%) per annum [15] with the stipulated service charge of two percent (2%) per
annum on the loan principal or the outstanding balance thereof, [16] from the date of execution until finality of this
Decision.[17] A penalty of six percent (6%) per annum of the amount due and unpaid must also be imposed computed
from the date of demand (in this case on March 9, 1982),[18] until finality of Judgment.[19] The interest of 16% percent
per annum, as long as unpaid, also earns interest, computed from the date of the filing of the complaint (March 12,
1982) until finality of this Courts Decision. [20] From such date of finality, the total unpaid amount (principal +
interest + service charge + penalty + interest on the interest) computed shall earn interest of 12% per annum until
satisfied.
The Court of Appeals awarded only the sum of P3,060,406.25 as it was the amount prayed for in the complaint.
The Appellate Court, however, failed to consider that the complaint was filed on March 12, 1982, or just a year after
the execution of the trust receipts. The computed interests then, the service charge, the penalty and the attorneys fees
corresponded only to one year. The interest on the interest could not have been computed then since the finality of
judgment could not yet be ascertained. Significantly, from the filing of the complaint on March 12, 1982 up to the
time the Appellate Courts decision was promulgated, on May 14, 1998, there had been a lapse of sixteen years. The
computed interest in 1982 would no longer be true in 1998. What the Appellate Court should have done then was to
compute the total amount due in accordance with the rules of thumb laid down by this Court in Eastern Shipping
Lines, Inc.,[21] the resulting formula of which is as follows:
TOTAL AMOUNT DUE = principal + interest + service charge + penalty + interest on interest
Interest = principal x 16 % per annum x no. of years from date of execution until finality of judgment
Service charge = principal x 2% per annum x no. of years from date of execution until finality of judgment
Penalty = principal x 6% per annum x no. of years from demand (March 9, 1982) until finality of judgment
Interest on interest = Interest computed as of the filing of the complaint (March 12, 1982) x 12% x no. of years until
finality of judgment
Attorneys fees is 10% of the total amount computed as of finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid.

The total amount due corresponding to each of the four (4) contracts of loan may be easily determined by the
trial court through a simple mathematical computation based on the formula specified above.Mathematics is an
exact science, the application of which needs no further proof from the parties.
WHEREFORE, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is
MODIFIED in the sense that the award to petitioner RCBC of P3,060,406.25 is SET ASIDE and substituted with an
amount to be computed by the trial court, upon finality of this Decision, in accordance with the formula indicated
above.
SO ORDERED.

republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49101 October 24, 1983
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents.
Edgardo I. De Leon for petitioners.
Siguion Reyna, Montecillo & Associates for private respondent.

GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals, now
Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs. Philippine Bank of
Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution denying the motion for reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance of Rizal
against respondent Philippine Bank of Commerce sought the annulment of the Deed of Mortgage dated December 6,
1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as
well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others that (a) the Deed of
Mortgage lacks consideration and (b) the mortgage was executed by one who was not the owner of the mortgaged
property. It further alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended,
without, however, complying with the condition imposed for a valid foreclosure. Granting the validity of the
mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank should have accepted petitioner's
offer to redeem the property under the principle of equity said justice.
On the other hand, the answer of defendant Bank, now private respondent herein, specifically denied most of the
allegations in the complaint and raised the following affirmative defenses: (a) that the defendant has not given its
consent, much less the requisite written consent, to the sale of the mortgaged property to plaintiff and the
assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure were sent
to Jose Lozano at his address; (c) that it was notified for the first time about the alleged sale after it had foreclosed
the Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose Lozano can be released
from his bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose Lozano and
Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid
despite countless reminders and demands; of that the property in question remained registered in the name of Jose
M. Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff;
(g) that it is an established banking practice that payments against accounts need not be personally made by the
debtor himself; and (h) that it is not true that the mortgage, at the time of its execution and registration, was without
consideration as alleged because the execution and registration of the securing mortgage, the signing and delivery of
the promissory note and the disbursement of the proceeds of the loan are mere implementation of the basic
consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a motion for
intervention. The intervention was premised on the Deed of Assignment executed by petitioner Honesto Bonnevie in
favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner Honesto Bonnevie over the
subject property. The intervention was ultimately granted in order that all issues be resolved in one proceeding to
avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as follows:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered dismissing the
complaint with costs against the plaintiff and the intervenor.
After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to respondent
Court of Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage executed by Jose Lozano was
null and void;
2. The lower court erred in not finding that the auction sale decide on August 19, 1968 was null
and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the property;

4. The lower court erred in not finding that the defendant acted in bad faith; and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower court, and on
October 3. 1978 denied the motion for reconsideration. Hence, the present petition for review.
The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby adopt the facts
found the trial court and found by the Court of Appeals to be consistent with the evidence adduced during trial, to
wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of the
property which they mortgaged on December 6, 1966, to secure the payment of the loan in the
principal amount of P75,000.00 they were about to obtain from defendant-appellee Philippine
Bank of Commerce; that on December 8, 1966, executed in favor of plaintiff-appellant the Deed
of Sale with Mortgage ,, for and in consideration of the sum of P100,000.00, P25,000.00 of which
amount being payable to the Lozano spouses upon the execution of the document, and the balance
of P75,000.00 being payable to defendant- appellee; that on December 6, 1966, when the
mortgage was executed by the Lozano spouses in favor of defendant-appellee, the loan of
P75,000.00 was not yet received them, as it was on December 12, 1966 when they and their comaker Alfonso Lim signed the promissory note for that amount; that from April 28, 1967 to July
12, 1968, plaintiff-appellant made payments to defendant-appellee on the mortgage in the total
amount of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all his rights under the
Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on
June 10, 1968, defendant-appellee applied for the foreclosure of the mortgage, and notice of sale
was published in the Luzon Weekly Courier on June 30, July 7, and July 14, 1968; that auction
sale was conducted on August 19, 1968, and the property was sold to defendant-appellee for
P84,387.00; and that offers from plaintiff-appellant to repurchase the property failed, and on
October 9, 1969, he caused an adverse claim to be annotated on the title of the property. (Decision
of the Court of Appeals, p. 5).
Presented for resolution in this review are the following issues:
I
Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was
validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in refusing their offers
to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack the
validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next, they attack the validity
of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of the deed of
mortgage, they contended that when it was executed on December 6, 1966, there was yet no principal obligation to
secure as the loan of P75,000.00 was not received by the Lozano spouses "So much so that in the absence of a
principal obligation, there is want of consideration in the accessory contract, which consequently impairs its validity
and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the
mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter
did not collect from the respondent Bank the consideration of the mortgage on the date it was executed is
immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time
the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of
indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using
as security the same property which the Lozano spouses had already sold to petitioners, rendered the mortgage null
and void,

This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of,
mortgage and encumbrance of the mortgaged properties, without the written consent of the mortgagee, as well as the
additional proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume the
mortgage in the terms and conditions under which it is constituted. These provisions are expressly made part and
parcel of the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage.
Coupled with the fact that the sale/assignment was not registered so that the title remained in the name of the
Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly
mortgage the property. Respondent Bank had every right to rely on the certificate of title. It was not bound to go
behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being
applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32
SCRA 48). Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor
may be and subjects the fulfillment of the obligation for whose security it was constituted. Finally, it can also be said
that petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of
Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or renewals
thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was not in accordance
with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to the
Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the same and hence, it may
not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice because as
of May 14, 1968, he had transferred and assigned all his rights and interests over the property in favor of intervenor
Raoul Bonnevie and respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is
not entitled to notice. Most importantly, Act No. 3135 does not require personal notice on the mortgagor. The
requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty days in at
least three public places of the municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall also be published once a week
for at least three consecutive weeks in a newspaper of general circulation in the municipality or
city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and
notices of the sale were posted for not less than twenty days in at least three (3) public places in the Municipality
where the property is located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a
judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered making the mortgaged
privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in accordance with law,
namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the publication of notice
on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act No. 3135 notwithstanding the
fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that such notice shall be
published once a week for at least three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs.
Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with law as
said newspaper is not of general circulation must likewise be disregarded. The affidavit of publication, executed by
the Publisher, business/advertising manager of the Luzon Weekly Courier, stares that it is "a newspaper of general
circulation in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July 7 and July
14, 1968. This constitutes prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18
SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news and
general information; that it has a bona fide subscription list of paying subscribers; that it is published at regular
intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so long as it is of
general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read the Luzon
Weekly Courier is no proof that said newspaper is not a newspaper of general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It can no
longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126). Nevertheless, the records show
that copies of said notice were posted in three conspicuous places in the municipality of Pasig, Rizal namely: the

Hall of Justice, the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice
were also posted in the place where the property was located, namely: the Municipal Building of San Juan, Rizal;
the Municipal Market and on Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal
department of respondent bank, namely:
Q How many days were the notices posted in these two places, if you know?
A We posted them only once in one day. (TSN, p. 45, July 25, 1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting requirement in the
absence of proof or even of allegation that the notices were removed before the expiration of the twenty- day period.
A single act of posting (which may even extend beyond the period required by law) satisfies the requirement of law.
The burden of proving that the posting requirement was not complied with is now shifted to the one who alleges
non-compliance.
On the question of whether or not the petitioners had a right to redeem the property, We hold that the Court of
Appeals did not err in ruling that they had no right to redeem. No consent having been secured from respondent
Bank to the sale with assumption of mortgage by petitioners, the latter were not validly substituted as debtors. In
fact, their rights were never recorded and hence, respondent Bank is charged with the obligation to recognize the
right of redemption only of the Lozano spouses. But even granting that as purchaser or assignee of the property, as
the case may be, the petitioners had acquired a right to redeem the property, petitioners failed to exercise said right
within the period granted by law. Thru certificate of sale in favor of appellee was registered on September 2, 1968
and the one year redemption period expired on September 3, 1969. It was not until September 29, 1969 that
petitioner Honesto Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September 29,
1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did not act in
bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent Bank dated December 8,
1966 advising the latter that Honesto Bonnevie was authorized to make payments for the amount secured by the
mortgage on the subject property, to receive acknowledgment of payments, obtain the Release of the Mortgage after
full payment of the obligation and to take delivery of the title of said property. On the assumption that the letter was
received by respondent Bank, a careful reading of the same shows that the plaintiff was merely authorized to do acts
mentioned therein and does not mention that petitioner is the new owner of the property nor request that all
correspondence and notice should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the maturity of said
loan up to said date and accordingly on June 10, 1968 when defendant applied for the foreclosure of the mortgage,
the loan was not yet due and demandable, is totally incorrect and misleading. The undeniable fact is that the loan
matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure, the loan was
already six months overdue. Petitioners' payment of interest on July 12, 1968 does not thereby make the earlier act
of respondent Bank inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a
loan may be effected, not only the payment of the accrued interest is necessary but also the payment of interest for
the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on
the debtor but more so on the discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED. Costs
against petitioners.
SO ORDERED.

republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First
Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other
property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable
within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An
advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the
partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965,
after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p.
47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance
(p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering
liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit
liabilities, the Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in
government securities] excluding extensions or renewals of already approved loans, provided that
such extensions or renewals shall be subject to review by the Superintendent of Banks, who may
impose such limitations as may be necessary to insure correction of the bank's deficiency as soon
as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to
restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank
(pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory
note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land
of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank
failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering

Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said
balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order
enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of
Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting
Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the
petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal
interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First
Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled
that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31.
rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage
be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965,
they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1
[1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish
the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his
willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the
P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted
for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14,
1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally
impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the
Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A.
No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the
Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the
balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement
does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a
debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract
by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to
P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to
collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the
supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released.
A person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the
pre-deducted interest was an exercise of his right to it, which right exist independently of his right to demand the
completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of
the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank
officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural
Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees
that before they approve the loan application of their customers, they must investigate the existence and evaluation
of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out
to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by
bank officials and employees on their customer's representation regarding the loan collateral being offered as loan

security is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the
representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the
collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M.
Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to
raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the
Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme
Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio
M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance
of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt
that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal
obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be
entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him
to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino
for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of
Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both
parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should
account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his
P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract
(Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the
existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art,
2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence,
as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real
estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of
the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only
when the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in
the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974
ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in
the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs.
Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage
of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to
secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to
the facts of this case.
Article 2089 provides:

A pledge or mortgage is indivisible even though the debt may be divided among the successors in
interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the pledge or cancel
the mortgage, to the prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the
debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE
SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE
PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT
COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25
HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN
FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.

G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long time ago can
properly be considered res judicata by respondent Court of Appeals in the present two cases between petitioner and
two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of Respondent
Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No.
3655 (429)], both for Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer,
Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655
(429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of
the Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of
Juan Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio
Octaviano (Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or
damages is hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions that the
Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the
Supreme Court, touched on the ownership of lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; that
petitioner had been in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated
the trust and when it applied for registration in 1962; that petitioner had just been in possession as owner for eleven
years, hence there is no possibility of acquisitive prescription which requires 10 years possession with just title and
30 years of possession without; that the principle of res judicata on these findings by the Court of Appeals will bar a
reopening of these questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two aforementioned cases
(CA G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows
... The documents and records presented reveal that the whole controversy
started when the defendant Catholic Vicar Apostolic of the Mountain Province
(VICAR for brevity) filed with the Court of First Instance of Baguio Benguet on
September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4
in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as
LRC N-91, said Lots being the sites of the Catholic Church building, convents,
high school building, school gymnasium, school dormitories, social hall,
stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of
Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
respectively, asserting ownership and title thereto. After trial on the merits, the
land registration court promulgated its Decision, dated November 17, 1965,
confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the
Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607)
appealed the decision of the land registration court to the then Court of Appeals,
docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision,
dated May 9, 1977, reversing the decision of the land registration court and
dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the
two sets of oppositors in the land registration case (and two sets of plaintiffs in
the two cases now at bar), the first lot being presently occupied by the convent
and the second by the women's dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration

praying the Court of Appeals to order the registration of Lot 3 in the names of
the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez
and Pacita Valdez filed their motion for reconsideration praying that both Lots 2
and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita
Valdez. On August 12,1977, the Court of Appeals denied the motion for
reconsideration filed by the Heirs of Juan Valdez on the ground that there was
"no sufficient merit to justify reconsideration one way or the other ...," and
likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his (its) application
for registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic
Vicar Apostolic of the Mountain Province vs. Court of Appeals and Heirs of
Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the
Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the
Supreme Court a petition for review, docketed as G.R. No. L-46872,
entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar,
Heirs of Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both
petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita
Valdez on the other) for lack of merit. Upon the finality of both Supreme Court
resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano
filed with the then Court of First Instance of Baguio, Branch II, a Motion For
Execution of Judgment praying that the Heirs of Octaviano be placed in
possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on
December 7, 1978, denied the motion on the ground that the Court of Appeals
decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any
affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a
petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R,
entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar.
In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio
Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of
possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655
(429) on September 24, 1979, likewise for recovery of possession of Lot 2
(Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented
one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question
(Lot 3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B
B-4 ) to defendant Vicar for the return of the land to them; and the reasonable rentals for the use
of the land at P10,000.00 per month. On the other hand, defendant Vicar presented the Register of
Deeds for the Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is
not covered by any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The
defendant dispensed with the testimony of Mons.William Brasseur when the plaintiffs admitted
that the witness if called to the witness stand, would testify that defendant Vicar has been in
possession of Lot 3, for seventy-five (75) years continuously and peacefully and has constructed
permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted
the case on the sole issue of whether or not the decisions of the Court of Appeals and the Supreme
Court touching on the ownership of Lot 2, which in effect declared the plaintiffs the owners of the
land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting up the
defense of ownership and/or long and continuous possession of the two lots in question since this
is barred by prior judgment of the Court of Appeals in CA-G.R. No. 038830-R under the principle
of res judicata. Plaintiffs contend that the question of possession and ownership have already been
determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by
the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court). On his part, defendant
Vicar maintains that the principle of res judicata would not prevent them from litigating the issues
of long possession and ownership because the dispositive portion of the prior judgment in CAG.R. No. 038830-R merely dismissed their application for registration and titling of lots 2 and 3.
Defendant Vicar contends that only the dispositive portion of the decision, and not its body, is the
controlling pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY
PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ AND
OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND
OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO WERE IN
POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND THE
PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE
1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST TITLE IS
A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR
ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO. 038830 WAS
AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON OWNERSHIP OF
LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN
POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS
BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT
RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY AND
CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when it clearly
held that it was in agreement with the findings of the trial court that the Decision of the Court of Appeals dated May
4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court of
Appeals Decision CA-G.R. No. 38830-R) did not positively declare private respondents as owners of the land,
neither was it declared that they were not owners of the land, but it held that the predecessors of private respondents
were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951. Petitioner was in
possession as borrower in commodatum up to 1951, when it repudiated the trust by declaring the properties in its
name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten
years, but always with just title. Extraordinary acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R. No. 38830R, affirmed by this Court, We see no error in respondent appellate court's ruling that said findings are res
judicata between the parties. They can no longer be altered by presentation of evidence because those issues were
resolved with finality a long time ago. To ignore the principle of res judicata would be to open the door to endless
litigations by continuous determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No. 38830-R,
shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register the lands in question
under its ownership, on its evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive
prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. The appellate court did not believe the findings of the trial court that
Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano
by petitioner Vicar because there was absolutely no documentary evidence to support the same and the alleged
purchases were never mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and
Octaviano had Free Patent Application for those lots since 1906. The predecessors of private respondents, not
petitioner Vicar, were in possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2 and 3,
because the buildings standing thereon were only constructed after liberation in 1945. Petitioner Vicar only declared
Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but
said Bishop was appointed only in 1947, the church was constructed only in 1951 and the new convent only 2 years
before the trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from Fructuoso
Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the
church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free
use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject
matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in
trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it
declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title
by way of ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of
ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse
claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of
fact have become incontestible. This Court declined to review said decision, thereby in effect, affirming it. It has
become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of discretion, when it held
that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the principle of res judicata,
hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence
established in that decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision
dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs
against petitioner.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 157194

June 20, 2006

ANTONIO P. TAN, Petitioner,

vs.
HON. COURT OF APPEALS (Special Former Fourth Division), THE HONORABLE WILFREDO D.
REYES, Acting Presiding Judge, Regional Trial Court, Branch 31, Manila, THE REGISTER OF DEEDS OF
MANILA and DPG DEVELOPMENT & MANAGEMENT CORPORATION, Respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari which seeks to reverse the Decision 1 dated September 10, 2001 of the
Court of Appeals in CA-G.R. SP No. 56873, and its Resolution2 dated February 17, 2003. The Court of Appeals
affirmed the Order3 dated July 29, 1998, of the Regional Trial Court of Manila, Branch 31, which dismissed
petitioner Antonio P. Tans complaint for cancellation/annulment of Transfer Certificate of Title No. 169146 in the
name of private respondent DPG Development & Management Corporation.
The facts are as follows:
Petitioner Antonio P. Tan is the lessee of a parcel of land covered by Transfer Certificate of Title (TCT) No. 165501
located at No. 3658 Ramon Magsaysay Boulevard, Sta. Mesa, Manila. Private respondent, DPG Development &
Management Corporation bought the land and was issued TCT No. 169146 on April 22, 1986.4
On January 24, 1990, the petitioner filed a Complaint5 for the cancellation/annulment of TCT No. 169146 before the
Regional Trial Court of Manila, Branch 31. Petitioner claimed that TCT No. 169146, originally TCT No. 165501,
covered an area outside of Sampaloc, Manila, where the subject property was located.
For failing to file a responsive pleading, the trial court declared the private respondent in default. The petitioner was
allowed to present evidence ex parte.
On October 5, 1990, the trial court ordered the cancellation of TCT No. 169146. The property reverted to the
government for distribution to qualified applicants. On November 3, 1990, the private respondent filed a motion for
new trial and a motion to admit its answer, which were both denied by the trial court.
Elevated to the Court of Appeals, the trial courts decision was reversed and it was directed to conduct a new trial
and to admit the answer of the private respondent. Likewise, the appellate court ordered the use of the evidence
recorded during the first trial insofar as they were material in the resolution of the issues in the case.
The Supreme Court affirmed the appellate courts decision.
During the trial in the lower court, the private respondent filed on November 6, 1992, a motion to dismiss the
complaint, which the petitioner opposed. On July 29, 1998, the trial court dismissed the complaint. Citing Bishop v.
Court of Appeals,6 that likewise cited Legarda and Prieto v. Saleeby,7 it ruled that upon the expiration of one year
from and after the date of entry of the registration, the certificate of title becomes indefeasible and collateral attack is
not allowed.8
Petitioners motion for reconsideration was denied in the Order dated October 13, 1998. Petitioners notice of appeal
was likewise denied on January 6, 1999 for having been filed late.9
On January 26, 2000, the petitioner filed a petition for annulment of judgment before the Court of Appeals, praying
to annul and set aside the Orders dated July 29, 1998, October 13, 1998, and January 6, 1999 of the Regional Trial
Court. On September 10, 2001, the appellate court affirmed the assailed orders of the trial court.
The Court of Appeals ruled that for a petition for annulment of judgment to prosper, it is required that: (1) the
judgment is void for want of jurisdiction or for lack of due process of law; or (2) the judgment has been obtained by
fraud. It explained that the fraud referred to must either be extrinsic or collateral fraud to set aside a judgment. Such
fraud should have been neither revealed nor deliberately suppressed from the opposing party and the court. Absent
these requisites, relief could be available only subject to certain conditions.
According to the appellate court, the petitioner failed to meet these requisites. It also added that the petitioners
innuendos that the legal infirmity emanated from his former counsels negligence cannot be given weight since it is
a well-settled rule that the negligence of counsel binds the client just as the latter is bound by the mistakes of his
lawyer. The appellate court also said that the petitioner failed to avail of the remedies provided for in Rule

47,10Section 2 of the Revised Rules of Court without any justification. Hence, he must suffer the consequences of his
own inaction or negligence. The dispositive portion of the appellate court decision reads:
WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING the assailed orders of the
Regional Trial Court (Branch 31) in Manila in Civil Case No. 90-51767. Let the records of said case be remanded to
the court a quo immediately upon the finality hereof.
SO ORDERED.11
Petitioners motion for reconsideration was also denied.
In the instant petition for review, the petitioner now submits the following issues for our consideration:
1. whether OR NOT petitioner IS ENTITLED TO DUE PROCESS FOR THE SINGLE NEGLIGENCE
COMMITTED BY HIS PREVIOUS COUNSEL FOR FAILURE TO APPEAL ON TIME.
2. whether or not petitioner can avail [of] the preferential RIGHT TO FIRST REFUSAL UNDER
[ARTICLES]1279, 1380, 1381, 1403, SUB-PARAGRAPH 2, 1479, and 1544 of the [new] civil code of the
philippines.12
While the petitioner admits that he failed to file the notice of appeal seasonably, he contends that it was due to the
patent negligence of his previous counsel who failed to inform him of the denial of the notice of appeal and the
motion for reconsideration filed thereafter. According to the petitioner, his counsels negligence amounted to
betrayal of confidence and a serious violation of a lawyers oath, which should have prompted the appellate court to
take cognizance of the notice of appeal and the petition for annulment of judgment.
The private respondent, on the other hand, maintains that no extrinsic fraud existed in the case to warrant the relief
under Rule 47. The petitioner had the chance to ventilate his case before the lower court but the case was dismissed
with finality due to his failure to perfect his appeal to the Court of Appeals.
After considering the circumstances in this case, and the submission of the parties, we agree that the petition should
be denied for lack of merit.
Jurisprudence teems with pronouncements that the perfection of an appeal in the manner and within the period
permitted by law is not only mandatory, but also jurisdictional. Failure to perfect the appeal renders the judgment of
the court final and executory.13 Just as a losing party has the privilege to file an appeal within the prescribed period,
so does the winner also have the correlative right to enjoy the finality of the decision.14 Furthermore, a denial of a
petition for being time-barred is a decision on the merits.15
Although the Court may extend the time or allow the perfection of the appeal beyond the prescribed period if it is
satisfactorily shown that there is justifiable reason, such as fraud, accident, mistake or excusable negligence, or
similar supervening cause, without fault of the appellant, and the appeal is deemed taken and perfected on time, and
the appellate court acquires appellate jurisdiction,16 the circumstances here do not convince us to take exception.
While the petitioner made a painstaking effort to attribute the loss of the remedy of appeal to the fault entirely of his
former counsel, this Court cannot turn a blind eye to his own negligence and apathy.
The findings of the appellate court, as fully substantiated by the records, showed that the petitioner was equally
guilty of negligence, thus,17
In the first place, the remedy of appeal was lost through the fault of petitioner, particularly of his counsel. Thus, the
first requisite [abovecited] is clearly not satisfied here. Besides, it is incredible that petitioner did not bother to check
the status of his case with his lawyer in spite that he stood to lose his alleged property on which he was operating his
business. He therefore could not complain of the negligence of his counsel in not informing him of the outcome of
the case when he himself did not bother to check with his counsel or to find out the status of his case. It is the duty
of a party-litigant to be in contact with this counsel from time to time in order to be informed of the progress of his
case. (Underscoring ours.)
Both the petitioner and his former counsel offered no justification why the notice of appeal was filed eleven days
beyond the reglementary period. Likewise, the petitioner failed to explain why he only learned of the dismissal of
his case five months later. Involving as it did the loss of the property where both his residence and business
establishment are built, no less than staunch vigilance in safeguarding his rights was expected from the petitioner.
The petitioner manifestly failed to display in the proceedings below the expected degree of concern or attention to
his case. In Leonardo v. S.T. Best, Inc., 18 we reiterated that:
As clients, petitioners should have maintained contact with their counsel from time to time, and informed
themselves of the progress of their case, thereby exercising that standard of care "which an ordinarily prudent man
bestows upon his business."
Even in the absence of the petitioners negligence, the rule in this jurisdiction is that a party is bound by the mistakes
of his counsel. In the earlier case of Tesoro v. Court of Appeals,19 we emphasized

It has been repeatedly enunciated that "a client is bound by the action of his counsel in the conduct of a case and
cannot be heard to complain that the result might have been different had he proceeded differently. A client is bound
by the mistakes of his lawyer. If such grounds were to be admitted as reasons for reopening cases, there would never
be an end to a suit so long as new counsel could be employed who could allege and show that prior counsel had not
been sufficiently diligent or experienced or learned."
Thus, with the ordinary remedy of appeal lost through the petitioners own fault, we affirm that no reversible error
was committed in the dismissal of the petition by the appellate court.
The remedy of annulment of judgment can be resorted to only where the ordinary remedies of new trial, appeal,
petition for relief or other appropriate remedies are no longer available through no fault of the petitioner.20 In the
case at bar, the loss of the remedy of appeal is attributable to the petitioners and his former counsels fault.
Moreover, annulment of judgment may either be based on the ground that the judgment is void for want of
jurisdiction or that the judgment was obtained by extrinsic fraud.21 By no stretch of the imagination can we equate
the negligence of the petitioner and his former counsel to extrinsic fraud as contemplated in the cited rules. Extrinsic
fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the trial of
the case, whereby the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent.22 The fraud or deceit cannot be of the losing partys own doing, nor must it
contribute to it. The extrinsic fraud must be employed against it by the adverse party, who, because of some trick,
artifice, or device, naturally prevails in the suit.23 This Court notes that no such fraud or deceit was properly proved
against the private respondent. Indeed, the petitioner has no reason to protest his own negligence.
Anent the second issue, records show that the same had been resolved with finality by the Regional Trial Court of
Manila, Branch 40 in Civil Case No. 86-37402 in an Order 24 dated June 5, 1987. We do not see any compelling
reason to allow the same issue to be opened anew either before the appellate court or in the instant petition. A
decision that has become final and executory can no longer be disturbed.25
WHEREFORE, the instant petition is DENIED for lack of merit.

[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.
DECISION
PARDO, J.:
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. Servado 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 Leticia 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 January 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 amount
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. The executed a promissory note,
reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 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 thereonat 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. (Underscoring
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 pe
nalty charges in the form of liquidated damages until fully paid; and the
further sum ofTWENTY FIVE PER CENT (25%) thereon 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. (Underscoring 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 pesoobligation under this agreement is based on the present value of 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 pesoobligation herein contracted shall be adjusted in accordance with the value of the peso then prevailing at
the time of the complete fulfillment of 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% ofthe amount due
is unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties and
other charges.
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]
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads 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;
"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.
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 March 21, 1997, the Court of Appeals promulgated it decision reversing that of the Regional
Trial Court, disposing as follows:
"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 OREDERED."[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]
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 ofP500,000.00, 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 Circulr 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 of Florendo 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, 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
SO ORDERED.
Narvasa, C.J. (Chairman), Romero, Kapunan, and Purisima, JJ., concu

FIRST DIVISON

[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.
DECISION
HERMOSISIMA, JR., J.:
Questions of law which are the 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 impositions 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 by 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
installments.[1]
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 notes, private respondents 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:
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 collectible 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 plaintiffs 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 P16,665.00, 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 attorneys fees;
and to
5. Pay the cost of this suit.
SO ORDERED.[6]
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 three (3)
promissory notes;
(3) defendant 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-defendant 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 Banks Monetary Board pursuant to P.D. 1684 empowering them to
prescribe the maximum rates of interest for loans and certain forbearances, to wit:
SECTION 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 prescribed 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 rates or rates may be
effected gradually on scheduled dates announced in advance.
In the exercise of the authority herein granted, the Monetary Board may prescribed 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]
This 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 latters 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]
xxx We cannot see any room for interpretation or construction in the clear and unambiguous language of the abovequoted 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 its 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 file 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.
SO ORDERED.