II. INTEREST AND THE USURY LAW !

supportFootnotes][3][endif]
dated 19 June 2006 of the Court of
Appeals in CA-G.R. CV No. 71814, which affirmed in toto
1. SIGA-AN VS. VILLANUEVA the Decision,[if !supportFootnotes][4][endif] dated 26 January 2001,
of the Las Pinas City Regional Trial Court, Branch 255, in
SEBASTIAN SIGA-AN, G.R. No.
Civil
173227
Case No. LP-98-0068.
Petitioner,
Present: The facts gathered from the records are as
follows:
YNARES-SANTIAGO,
Chairperson, On 30 March 1998, respondent Alicia Villanueva
filed a complaint[if !supportFootnotes][5][endif] for sum of money
AUSTRIA-MARTINEZ,
-versus CHICO-NAZARIO,
against petitioner Sebastian Siga-an before the Las
NACHURA,
PinasandCity Regional Trial Court (RTC), Branch 255,
LEONARDO-DE
docketed CASTRO,*
as Civil CaseJJ. No. LP-98-0068. Respondent
alleged that she was a businesswoman engaged in
supplying office materials and equipments to the
Promulgated:
Philippine Navy Office (PNO) located at Fort Bonifacio,
ALICIA VILLANUEVA, Taguig City, while petitioner was a military officer and
Respondent. January
comptroller
20, 2009 of the PNO from 1991 to 1996.
x----------------------------------------
- - - - - - - - - -x Respondent claimed that sometime in 1992,
petitioner approached her inside the PNO and offered to
loan her the amount of P540,000.00. Since she needed
DECISION capital for her business transactions with the PNO, she
accepted petitioners proposal. The loan agreement was
CHICO-NAZARIO, J.: not reduced in writing. Also, there was no stipulation as
to the payment of interest for the loan.[if
Before Us is a Petition[if !supportFootnotes][1][endif] for !supportFootnotes][6][endif]

Review on Certiorari under Rule 45 of the Rules of Court

seeking to set aside the Decision,[if !supportFootnotes][2][endif] On 31 August 1993, respondent issued a check
dated 16 December 2005, and Resolution,[if worth P500,000.00 to petitioner as partial payment of the
loan. On 31 October 1993, she issued another check in
the amount of P200,000.00 to petitioner as payment of
the remaining balance of the loan. Petitioner told her that
since she paid a total amount of P700,000.00 for the
P540,000.00 worth of loan, the excess amount of
P160,000.00 would be applied as interest for the loan.
Not satisfied with the amount applied as interest,
petitioner pestered her to pay additional interest.
Petitioner threatened to block or disapprove her
transactions with the PNO if she would not comply with
his demand. As all her transactions with the PNO were
subject to the approval of petitioner as comptroller of the
PNO, and fearing that petitioner might block or unduly
influence the payment of her vouchers in the PNO, she
conceded. Thus, she paid additional amounts in cash
and checks as interests for the loan. She asked petitioner
for receipt for the payments but petitioner told her that it
was not necessary as there was mutual trust and
confidence between them. According to her computation,
the total amount she paid to petitioner for the loan and
interest accumulated to P1,200,000.00.[if
!supportFootnotes][7][endif]
Thereafter, respondent consulted a lawyer
regarding the propriety of paying interest on the loan
despite absence of agreement to that effect. Her lawyer
told her that petitioner could not validly collect interest on
the loan because there was no agreement between her
and petitioner regarding payment of interest. Since she
paid petitioner a total amount of P1,200,000.00 for the
P540,000.00 worth of loan, and upon being advised by
her lawyer that she made overpayment to petitioner, she
sent a demand letter to petitioner asking for the return of
the excess amount of P660,000.00. Petitioner, despite
receipt of the demand letter, ignored her claim for
reimbursement.[if !supportFootnotes][8][endif]
Respondent prayed that the RTC render
judgment ordering petitioner to pay respondent (1)
P660,000.00 plus legal interest from the time of demand;
(2) P300,000.00 as moral damages; (3) P50,000.00 as
exemplary damages; and (4) an amount equivalent to
25% of P660,000.00 as attorneys fees.[if
!supportFootnotes][9][endif]
In his answer[if !supportFootnotes][10][endif] to the
complaint, petitioner denied that he offered a loan to
respondent. He averred that in 1992, respondent
approached and asked him if he could grant her a loan,
as she needed money to finance her business venture
with the PNO. At first, he was reluctant to deal with
respondent, because the latter had a spotty record as a
supplier of the PNO. However, since respondent was an
acquaintance of his officemate, he agreed to grant her a
loan. Respondent paid the loan in full.[if
!supportFootnotes][11][endif]
Subsequently, respondent again asked him to
give her a loan. As respondent had been able to pay the
previous loan in full, he agreed to grant her another loan.
Later, respondent requested him to restructure the
payment of the loan because she could not give full
payment on the due date. He acceded to her request.
Thereafter, respondent pleaded for another restructuring
of the payment of the loan. This time he rejected her
plea. Thus, respondent proposed to execute a
promissory note wherein she would acknowledge her
obligation to him, inclusive of interest, and that she would
issue several postdated checks to guarantee the
payment of her obligation. Upon his approval of
respondents request for restructuring of the loan,
respondent executed a promissory note dated 12
September 1994 wherein she admitted having borrowed
an amount of P1,240,000.00, inclusive of interest, from
petitioner and that she would pay said amount in March
1995. Respondent also issued to him six postdated
checks amounting to P1,240,000.00 as guarantee of
compliance with her obligation. Subsequently, he
presented the six checks for encashment but only one
check was honored. He demanded that respondent settle
her obligation, but the latter failed to do so. Hence, he
filed criminal cases for Violation of the Bouncing Checks
Law (Batas Pambansa Blg. 22) against respondent. The
cases were assigned to the Metropolitan Trial Court of
Makati City, Branch 65 (MeTC).[if !supportFootnotes][12][endif]
Petitioner insisted that there was no
overpayment because respondent admitted in the latters
promissory note that her monetary obligation as of 12
September 1994 amounted to P1,240,000.00 inclusive of
interests. He argued that respondent was already
estopped from complaining that she should not have paid
any interest, because she was given several times to
settle her obligation but failed to do so. He maintained
that to rule in favor of respondent is tantamount to
concluding that the loan was given interest-free. Based
on the foregoing averments, he asked the RTC to
dismiss respondents complaint.
After trial, the RTC rendered a Decision on 26
January 2001 holding that respondent made an
overpayment of her loan obligation to petitioner and that
the latter should refund the excess amount to the former.
It ratiocinated that respondents obligation was only to pay
the loaned amount of P540,000.00, and that the alleged
interests due should not be included in the computation
of respondents total monetary debt because there was
no agreement between them regarding payment of
interest. It concluded that since respondent made an
excess payment to petitioner in the amount of
P660,000.00 through mistake, petitioner should return
the said amount to respondent pursuant to the principle
of solutio indebiti.[if !supportFootnotes][13][endif]
The RTC also ruled that petitioner should pay
moral damages for the sleepless nights and wounded
feelings experienced by respondent. Further, petitioner
should pay exemplary damages by way of example or
correction for the public good, plus attorneys fees and
costs of suit.
The dispositive portion of the RTC Decision
reads:
 WHEREFORE, in view of the (4) Ordering defendant to pay
foregoing evidence and in the light of plaintiff the amount equivalent to 25%
the provisions of law and jurisprudence of P660,000.00 as attorneys fees; and
on the matter, judgment is hereby
rendered in favor of the plaintiff and
against the defendant as follows:

(5) Ordering defendant to pay

the costs of suit.[if !supportFootnotes][14][endif]

[if !supportLists](1) [endif]Ordering defendant to

pay plaintiff the amount of P660,000.00 plus legal interest
of 12% per annum computed from 3 March 1998 until the
amount is paid in full;
Petitioner appealed to the Court of Appeals. On
(2) Ordering defendant to pay
16 December 2005, the appellate court promulgated its
plaintiff the amount of P300,000.00 as Decision affirming in toto the RTC Decision, thus:
moral damages;
WHEREFORE, the foregoing
considered, the instant appeal is
hereby DENIED and the assailed
decision [is] AFFIRMED in toto.[if
!supportFootnotes][15][endif]
(3) Ordering defendant to pay
plaintiff the amount of P50,000.00 as
exemplary damages;

Petitioner filed a motion for reconsideration of

the appellate courts decision but this was denied. [if
!supportFootnotes][16][endif] Hence, petitioner lodged the instant

petition before us assigning the following errors: Interest is a compensation fixed by the parties
for the use or forbearance of money. This is referred to
I. as monetary interest. Interest may also be imposed by
law or by courts as penalty or indemnity for damages.
This is called compensatory interest.[if !supportFootnotes][18][endif]
The right to interest arises only by virtue of a contract or
by virtue of damages for delay or failure to pay the
principal loan on which interest is demanded.[if
THE RTC AND THE COURT OF APPEALS !supportFootnotes][19][endif]
ERRED IN RULING THAT NO
INTEREST WAS DUE TO
Article 1956 of the Civil Code, which refers to
PETITIONER;
monetary interest,[if !supportFootnotes][20][endif] specifically
mandates that no interest shall be due unless it has been
expressly stipulated in writing. As can be gleaned from
the foregoing provision, payment of monetary interest is
allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the
II. payment of interest was reduced in writing. The
concurrence of the two conditions is required for the
payment of monetary interest. Thus, we have held that
collection of interest without any stipulation therefor in
writing is prohibited by law.[if !supportFootnotes][21][endif]
THE RTC AND THE COURT OF APPEALS
It appears that petitioner and respondent did not
ERRED IN APPLYING THE
PRINCIPLE OF SOLUTIO INDEBITI.[if agree on the payment of interest for the loan. Neither
!supportFootnotes][17][endif] was there convincing proof of written agreement between
the two regarding the payment of interest. Respondent
testified that although she accepted petitioners offer of
loan amounting to P540,000.00, there was, nonetheless,
no verbal or written agreement for her to pay interest on
the loan.[if !supportFootnotes][22][endif]
Petitioner presented a handwritten promissory
note dated 12 September 1994[if !supportFootnotes][23][endif]
wherein respondent purportedly admitted owing petitioner
capital and interest. Respondent, however, explained that
it was petitioner who made a promissory note and she
was told to copy it in her own handwriting; that all her
transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO; that petitioner
threatened to disapprove her transactions with the PNO if
she would not pay interest; that being unaware of the law
on interest and fearing that petitioner would make good
of his threats if she would not obey his instruction to copy
the promissory note, she copied the promissory note in
her own handwriting; and that such was the same
promissory note presented by petitioner as alleged proof
of their written agreement on interest.[if
!supportFootnotes][24][endif] Petitioner did not rebut the foregoing
testimony. It is evident that respondent did not really
consent to the payment of interest for the loan and that
she was merely tricked and coerced by petitioner to pay
interest. Hence, it cannot be gainfully said that such
promissory note pertains to an express stipulation of
interest or written agreement of interest on the loan
between petitioner and respondent.
Petitioner, nevertheless, claims that both the
RTC and the Court of Appeals found that he and
respondent agreed on the payment of 7% rate of interest
on the loan; that the agreed 7% rate of interest was duly
admitted by respondent in her testimony in the Batas
Pambansa Blg. 22 cases he filed against respondent;
that despite such judicial admission by respondent, the
RTC and the Court of Appeals, citing Article 1956 of the
Civil Code, still held that no interest was due him since
the agreement on interest was not reduced in writing; that
the application of Article 1956 of the Civil Code should
not be absolute, and an exception to the application of
such provision should be made when the borrower
admits that a specific rate of interest was agreed upon as
in the present case; and that it would be unfair to allow
respondent to pay only the loan when the latter very well
knew and even admitted in the Batas Pambansa Blg. 22
cases that there was an agreed 7% rate of interest on the
loan.[if !supportFootnotes][25][endif]
We have carefully examined the RTC Decision
and found that the RTC did not make a ruling therein that
petitioner and respondent agreed on the payment of
interest at the rate of 7% for the loan. The RTC clearly
stated that although petitioner and respondent entered
into a valid oral contract of loan amounting to
P540,000.00, they, nonetheless, never intended the
payment of interest thereon.[if !supportFootnotes][26][endif] While
the Court of Appeals mentioned in its Decision that it
concurred in the RTCs ruling that petitioner and
respondent agreed on a certain rate of interest as
regards the loan, we consider this as merely an
inadvertence because, as earlier elucidated, both the
RTC and the Court of Appeals ruled that petitioner is not
entitled to the payment of interest on the loan. The rule is
that factual findings of the trial court deserve great weight
and respect especially when affirmed by the appellate
court.[if !supportFootnotes][27][endif] We found no compelling
reason to disturb the ruling of both courts.
Petitioners reliance on respondents alleged
admission in the Batas Pambansa Blg. 22 cases that
they had agreed on the payment of interest at the rate of
7% deserves scant consideration. In the said case,
respondent merely testified that after paying the total
amount of loan, petitioner ordered her to pay interest.[if
!supportFootnotes][28][endif] Respondent did not categorically
declare in the same case that she and respondent made
an express stipulation in writing as regards payment of
interest at the rate of 7%. As earlier discussed, monetary
interest is due only if there was an express stipulation in
writing for the payment of interest.
There are instances in which an interest may be
imposed even in the absence of express stipulation,
verbal or written, regarding payment of interest. Article
2209 of the Civil Code states that if the obligation
consists in the payment of a sum of money, and the
debtor incurs delay, a legal interest of 12% per annum
may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon.
Likewise, Article 2212 of the Civil Code provides that
interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be
silent on this point.
All the same, the interest under these two
instances may be imposed only as a penalty or damages
for breach of contractual obligations. It cannot be
charged as a compensation for the use or forbearance of
money. In other words, the two instances apply only to
compensatory interest and not to monetary interest.[if
!supportFootnotes][29][endif] The case at bar involves petitioners
claim for monetary interest.
Further, said compensatory interest is not
chargeable in the instant case because it was not duly
proven that respondent defaulted in paying the loan.
Also, as earlier found, no interest was due on the loan
because there was no written agreement as regards
payment of interest.
Apropos the second assigned error, petitioner argues
that the principle of solutio indebiti does not apply to the
instant case. Thus, he cannot be compelled to return the
alleged excess amount paid by respondent as interest.[if
!supportFootnotes][30][endif]
Under Article 1960 of the Civil Code, if the
borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code
concerning solutio indebiti shall be applied. Article 2154
of the Civil Code explains the principle of solutio indebiti.
Said provision provides that if something is received
when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it
arises. In such a case, a creditor-debtor relationship is
created under a quasi-contract whereby the payor
becomes the creditor who then has the right to demand
the return of payment made by mistake, and the person
who has no right to receive such payment becomes
obligated to return the same. The quasi-contract of
solutio indebiti harks back to the ancient principle that no
one shall enrich himself unjustly at the expense of
another.[if !supportFootnotes][31][endif] The principle of solutio
indebiti applies where (1) a payment is made when there
exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment;
and (2) the payment is made through mistake, and not
through liberality or some other cause.[if
!supportFootnotes][32][endif] We have held that the principle of
solutio indebiti applies in case of erroneous payment of
undue interest.[if !supportFootnotes][33][endif]
It was duly established that respondent paid
interest to petitioner. Respondent was under no duty to
make such payment because there was no express
stipulation in writing to that effect. There was no binding
relation between petitioner and respondent as regards
the payment of interest. The payment was clearly a
mistake. Since petitioner received something when there
was no right to demand it, he has an obligation to return
it.
We shall now determine the propriety of the
monetary award and damages imposed by the RTC and
the Court of Appeals.
Records show that respondent received a loan
amounting to P540,000.00 from petitioner.[if
!supportFootnotes][34][endif] Respondent issued two checks with a
total worth of P700,000.00 in favor of petitioner as
payment of the loan.[if !supportFootnotes][35][endif] These checks
were subsequently encashed by petitioner.[if
!supportFootnotes][36][endif] Obviously, there was an excess of
P160,000.00 in the payment for the loan. Petitioner
claims that the excess of P160,000.00 serves as interest
on the loan to which he was entitled. Aside from issuing
the said two checks, respondent also paid cash in the
total amount of P175,000.00 to petitioner as interest.[if
!supportFootnotes][37][endif] Although no receipts reflecting the
same were presented because petitioner refused to issue
such to respondent, petitioner, nonetheless, admitted in
his Reply-Affidavit[if !supportFootnotes][38][endif] in the Batas
Pambansa Blg. 22 cases that respondent paid him a total
amount of P175,000.00 cash in addition to the two
checks. Section 26 Rule 130 of the Rules of Evidence
provides that the declaration of a party as to a relevant
fact may be given in evidence against him. Aside from
the amounts of P160,000.00 and P175,000.00 paid as
interest, no other proof of additional payment as interest
was presented by respondent. Since we have previously
found that petitioner is not entitled to payment of interest
and that the principle of solutio indebiti applies to the
instant case, petitioner should return to respondent the
excess amount of P160,000.00 and P175,000.00 or the
total amount of P335,000.00. Accordingly, the
reimbursable amount to respondent fixed by the RTC and
the Court of Appeals should be reduced from
P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal
cases for violation of Batas Pambansa Blg. 22 against
respondent. In the said cases, the MeTC found
respondent guilty of violating Batas Pambansa Blg. 22 for
issuing five dishonored checks to petitioner. Nonetheless,
respondents conviction therein does not affect our ruling
in the instant case. The two checks, subject matter of this
case, totaling P700,000.00 which respondent claimed as
payment of the P540,000.00 worth of loan, were not
among the five checks found to be dishonored or
bounced in the five criminal cases. Further, the MeTC
found that respondent made an overpayment of the loan
by reason of the interest which the latter paid to
petitioner.[if !supportFootnotes][39][endif]
Article 2217 of the Civil Code provides that
moral damages may be recovered if the party underwent
physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury. Respondent testified
that she experienced sleepless nights and wounded
feelings when petitioner refused to return the amount
paid as interest despite her repeated demands. Hence,
the award of moral damages is justified. However, its
corresponding amount of P300,000.00, as fixed by the
RTC and the Court of Appeals, is exorbitant and should
be equitably reduced. Article 2216 of the Civil Code
instructs that assessment of damages is left to the
discretion of the court according to the circumstances of
each case. This discretion is limited by the principle that
the amount awarded should not be palpably excessive as
to indicate that it was the result of prejudice or corruption
on the part of the trial court.[if !supportFootnotes][40][endif] To our
mind, the amount of P150,000.00 as moral damages is
fair, reasonable, and proportionate to the injury suffered
by respondent.
Article 2232 of the Civil Code states that in a
quasi-contract, such as solutio indebiti, exemplary
damages may be imposed if the defendant acted in an
oppressive manner. Petitioner acted oppressively when
he pestered respondent to pay interest and threatened to
block her transactions with the PNO if she would not pay
interest. This forced respondent to pay interest despite
lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00
imposed as exemplary damages by the RTC and the
Court is fitting so as to deter petitioner and other lenders
from committing similar and other serious wrongdoings.[if
!supportFootnotes][41][endif]
Jurisprudence instructs that in awarding
attorneys fees, the trial court must state the factual, legal
or equitable justification for awarding the same.[if
!supportFootnotes][42][endif] In the case under consideration, the
RTC stated in its Decision that the award of attorneys
fees equivalent to 25% of the amount paid as interest by
respondent to petitioner is reasonable and moderate
considering the extent of work rendered by respondents
lawyer in the instant case and the fact that it dragged on
for several years.[if !supportFootnotes][43][endif] Further,
respondent testified that she agreed to compensate her
lawyer handling the instant case such amount. [if
!supportFootnotes][44][endif] The award, therefore, of attorneys
fees and its amount equivalent to 25% of the amount
paid as interest by respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals
imposed a 12% rate of legal interest on the amount
refundable to respondent computed from 3 March 1998
until its full payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court
of Appeals,[if !supportFootnotes][45][endif] that 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 rate of 6% per annum.
We further declared that when the judgment of the court
awarding a sum of money becomes final and executory,
the rate of legal interest, whether it is a loan/forbearance
of money or not, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed equivalent to a forbearance of credit.
In the present case, petitioners obligation arose
from a quasi-contract of solutio indebiti and not from a
loan or forbearance of money. Thus, an interest of 6%
per annum should be imposed on the amount to be
refunded as well as on the damages awarded and on the
attorneys fees, to be computed from the time of the extra-
judicial demand on 3 March 1998,[if !supportFootnotes][46][endif]
up to the finality of this Decision. In addition, the interest
shall become 12% per annum from the finality of this
Decision up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in
CA-G.R. CV No. 71814, dated 16 December 2005, is
hereby AFFIRMED with the following MODIFICATIONS:
(1) the amount of P660,000.00 as refundable amount of
interest is reduced to THREE HUNDRED THIRTY FIVE
THOUSAND PESOS (P335,000.00); (2) the amount of
P300,000.00 imposed as moral damages is reduced to
ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00); (3) an interest of 6% per annum is
imposed on the P335,000.00, on the damages awarded
and on the attorneys fees to be computed from the time
of the extra-judicial demand on 3 March 1998 up to the
finality of this Decision; and (4) an interest of 12% per
annum is also imposed from the finality of this Decision
up to its satisfaction. Costs against petitioner.
SO ORDERED.
2. GSIS VS CA
G.R. No. L-52478 October 30, 1986
THE GOVERNMENT SERVICE INSURANCE SYSTEM,
petitioner-appellant,
vs.
HONORABLE COURT OF APPEALS, NEMENCIO R.
MEDINA and JOSEFINA G. MEDINA, respondents-
appellants.
Coronel Law Office for private respondents.
Alberto C. Lerma collaborating counsel for private
respondents
PARAS, J.:
This is a petition for review on certiorari of the decision of
the Court of Appeals in CA-G.R. No. 62541-R (Nemencio
R. Medina and Josefina G. Medina, Plaintiffs-Appellants
vs. The Government Service Insurance System,
Defendant-Appellant) affirming the January 21, 1977
Decision of the trial court, and at the same time ordering
the GSIS to reimburse the amount of P9,580.00 as over-
payment and to pay the spouses Nemencio R. Medina
and Josefina G. Medina P3,000.00 and P1,000.00 as
attorney's fees and litigation expenses.
In 1961, herein private respondents spouses Nemencio
R. Medina and Josefina G. Medina (Medinas for short)
applied with the herein petitioner Government Service
Insurance System (GSIS for short) for a loan of
P600,000.00. The GSIS Board of Trustees, in its
Resolution of December 20, 1961, approved under
Resolution No. 5041 only the amount of P350,000.00,
subject to the following conditions: that the rate of interest
shall be 9% per annum compounded monthly; repayable
in ten (10) years at a monthly amortization of P4,433.65
including principal and interest, and that any installment
or amortization that remains due and unpaid shall bear
interest at the rate of 9%/12% per month. The Office of
the Economic Coordinator, in a 2nd Indorsement dated
March 26, 1962, further reduced the approved amount to
P295,000.00. On April 4, 1962, the Medinas accepting
the reduced amount, executed a promissory note and a
real estate mortgage in favor of GSIS. On May 29, 1962,
the GSIS, and on June 6, 1962, the Office of the
Economic Coordinator, upon request of the Medinas,
both approved the restoration of the amount of
P350,000.00 (P295,000.00 + P55,000.00) originally
approved by the GSIS. This P350,000.00 loan was
denominated by the GSIS as Account No. 31055.
On July 6, 1962, the Medinas executed in favor of the
GSIS an Amendment of Real Estate Mortgage, the
pertinent portion of which reads:
WHEREAS, on the 4th day of April, 1962, the Mortgagor
executed signed and delivered a real estate mortgage to
and in favor of the Mortgagee on real estate properties
located in the City of Manila, ... to secure payment to the
mortgages of a loan of Two Hundred Ninety Five
Thousand Pesos (P295,000.00) Philippine Currency,
granted by the mortgagee to the Mortgagors, ...;
WHEREAS, the parties herein have agreed as they
hereby agree to increase the aforementioned loan from
Two Hundred Ninety Five Thousand Pesos
(P295,000.00) to Three Hundred Fifty Thousand Pesos
(P350,000.00), Philippine Currency;
NOW, THEREFORE, for and in consideration of the
foregoing premises, the aforementioned parties have
amended and by these presents do hereby amend the
said mortgage dated April 4, 1962, mentioned in the
second paragraph hereof by increasing the loan from
Two Hundred Ninety Five Thousand Pesos
(P295,000.00) to Three Hundred Fifty Thousand Pesos
(P350,000.00) subject to this additional condition.
(1) That the mortgagor shall pay to the system P4,433.65
monthly including principal and interest.
It is hereby expressly understood that with the foregoing
amendment, all other terms and conditions of the said
real estate mortgage dated April 4, 1962 insofar as they
are not inconsistent herewith, are hereby confirmed,
ratified and continued in full force and effect and that the
parties thereto agree that this amendment be an integral
part of said real estate mortgage. (Rollo, p. 153-154).
Upon application by the Medinas, the GSIS Board of
Trustees adopted Resolution No. 121 on January 18,
1963, as amended by Resolution No. 348 dated February
25, 1963, approving an additional loan of P230,000.00 in
favor of the Medinas on the security of the same
mortgaged properties and the additional properties
covered by TCT Nos. 49234, 49235 and 49236, to bear
interest at 9% per annum compounded monthly and
repayable in ten years. This additional loan of
P230,000.00 was denominated by the GSIS as Account
No. 31442.
On March 18, 1963, the Economic Coordinator thru the
Auditor General interposed no objection thereto, subject
to the conditions of Resolution No. 121 as amended by
Resolution No. 348 of the GSIS.
Beginning 1965, the Medinas having defaulted in the
payment of the monthly amortization on their loan, the
GSIS imposed 9%/12% interest on an installments due
and unpaid. In 1967, the Medinas began defaulting in the
payment of fire insurance premiums.
On May 3, 1974, the GSIS notified the Medinas that they
had arrearages in the aggregate amount of P575,652.42
as of April 18, 1974 (Exhibit 9, p. 149, Joint Record on
Appeal, Rollo, p. 79), and demanded payment within
seven (7) days from notice thereof, otherwise, it would
foreclose the mortgage.
On April 21, 1975, the GSIS filed an Application for
Foreclosure of Mortgage with the Sheriff of the City of
Manila (Exhibit "22," pp. 63 and 149; Rollo, p. 79). On
June 30, 1975, the Medinas filed with the Court of First
Instance of Manila a complaint, praying, among other
things, that a restraining order or writ of preliminary
injunction be issued to prevent the GSIS and the Sheriff
of the City of Manila from proceeding with the extra-
judicial foreclosure of their mortgaged properties (CFI
Decision, p. 121; Rollo, p. 79). However, in view of
Section 2 of Presidential Decree No. 385, no restraining
order or writ of preliminary injunction was issued by the
trial court (CFI Decision, p. 212; Rollo, p. 79). On April
25, 1975, the Medinas made a last partial payment in the
amount of P209,662.80.
Under a Notice of Sale on Extra-Judicial Foreclosure
dated June 18, 1975, the real properties of the Medinas
covered by Transfer Certificates of Title Nos. 32231,
43527, 51394, 58626, 60534, 63304, 67550, 67551 and
67552 of the Registry of Property of the City of Manila
were sold at public auction to the GSIS as the highest
bidder for the total amount of P440,080.00 on January
12, 1976, and the corresponding Certificate of Sale was
executed by the Sheriff of Manila on January 27, 1976
(CFI Decision, pp. 212-213; Rollo, p. 79).
On January 30, 1976, the Medinas filed an Amended
Complaint with the trial court, praying for (a) the
declaration of nullity of their two real estate mortgage
contracts with the GSIS as well as of the extra-judicial
foreclosure proceedings; and (b) the refund of excess
payments, plus damages and attorney's fees (CFI
Decision, p. 213; Rollo, p. 79).
On March 19, 1976, the GSIS filed its Amended Answer
(Joint Record on Appeal, pp. 99-105; Rollo, p. 79). After
trial, the trial court rendered a Decision dated January 21,
1977 (Joint Record on Appeal, pp. 210-232), the
pertinent dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered declaring
the extra-judicial foreclosure conducted by the Sheriff of
Manila of real estate mortgage contracts executed by
plaintiffs on April 4, 1962, as amended on July 6, 1962,
and February 17, 1963, null and void and the Sheriff's
Certificate of Sale dated January 27, 1976, in favor of the
GSIS of no legal force and effect; and directing plaintiffs
to pay the GSIS the sum of P1,611.12 in full payment of
their obligation to the latter with interest of 9% per annum
from December 11, 1975, until fully paid.
Dissatisfied with the said judgment, both parties
appealed with the Court of Appeals.
The Court of Appeals, in a Decision promulgated on
January 18, 1980 (Record, pp. 72-77), ruled in favor of
the Medinas
WHEREFORE, the defendant GSIS is ordered to
reimburse the amount of P9,580.00 as overpayment and
to pay plaintiffs P3,000.00 and Pl,000.00 as attorney's
fees and litigation expenses, respectively. With these
modifications, the judgment appealed from is AFFIRMED
in all other respects, with costs against defendant GSIS."
Hence this petition.
The Second Division of this Court, in a Resolution dated
April 25, 1980 (Rollo, p.. 88), resolved to deny the
petition for lack of merit.
Petitioner filed on June 26, 1980 a Motion for
Reconsideration dated June 17, 1980 (Rollo, pp. 95-103),
of the above-stated Resolution and respondents in a
Resolution dated July 9, 1980 (Rollo, p. 105), were
required to comment thereon which comment they filed
on August 6, 1980. (Rollo, pp. 106-116).
The petition was given due course in the Resolution
dated July 6, 1981 (Rollo, p. 128). Petitioner filed its brief
on November 26, 1981 (Rollo, pp. 147-177); while private
respondents filed their brief on January 27, 1982 (Rollo,
pp. 181-224), and the case was considered submitted for
decision in the Resolution of July 19, 1982 (Rollo, p.
229).
The issues in this case are:
1. WHETHER OR NOT THE COURT OF APPEALS
ERRED IN HOLDING THAT THE AMENDMENT OF
REAL ESTATE MORTGAGE DATED JULY 6, 1962
SUPERSEDED THE MORTGAGE CONTRACT DATED
APRIL 4, 1962, PARTICULARLY WITH RESPECT TO
COMPOUNDING OF INTEREST;
2. WHETHER OR NOT THE COURT OF APPEALS
ERRED IN SUSTAINING THE RESPONDENT-
APPELLEE SPOUSES MEDINA'S CLAIM OR
OVERPAYMENT, BY CREDITING THE FIRE
INSURANCE PROCEEDS IN THE SUM OF P11,152.02
TO THE TOTAL PAYMENT MADE BY SAID SPOUSES
AS OF DECEMBER 11, 1975;
3. WHETHER OR NOT THE COURT OF APPEALS
ERRED IN HOLDING THAT THE INTEREST RATES ON
THE LOAN ACCOUNTS OF RESPONDENT-APPELLEE
SPOUSES ARE USURIOUS;
4. WHETHER OR NOT THE COURT OF APPEALS
ERRED IN AFFIRMING THE ANNULMENT OF THE
SUBJECT EXTRAJUDICIAL FORECLOSURE AND
SHERIFF'S CERTIFICATE OF SALE; AND
5. WHETHER OR NOT THE COURT OF APPEALS
ERRED IN HOLDING THE GSIS LIABLE FOR
ATTORNEY'S FEES, EXPENSES OF LITIGATION AND
COSTS.
The petition is impressed with merit.
There is no dispute as to the facts of the case. By
agreement of the parties the issues in this case are
limited to the loan of P350,000.00 denominated as
Account No. 31055 (Rollo, p. 79; Joint Record on Appeal,
p. 129) subject of the Amendment of Real Mortgage
dated July 6, 1962, the interpretation of which is the
major issue in this case.
GSIS claims that the amendment of the real estate
mortgage did not supersede the original mortgage
contract dated April 4, 1962 which was being amended
only with respect to the amount secured thereby, and the
amount of monthly amortizations. All other provisions of
aforesaid mortgage contract including that on
compounding of interest were deemed rewritten and thus
binding on and enforceable against the respondent
spouses. (Rollo, pp. 162-166).
Accordingly, payments made by the Medinas in the total
amount of P991,845.53 was applied as follows: the
amount of P600,495.51 to Account No. 31055,
P466,965.31 of which to interest and P133,530.20 to
principal and P390,845.66 to Account No. 31442,
P230,774.29 to interest and P159,971.37 to principal.
(Joint Record on Appeal, p. 216; Rollo, p. 79).
On the other hand the Medinas maintain that there is no
express stipulation on compounded interest in the
amendment of mortgage contract of July 6, 1962 so that
the compounded interest stipulation in the original
mortgage contract of April 4, 1962 which has been
superseded cannot be enforced in the later mortgage.
(Rollo, p. 185).
Hence the Medinas claim an overpayment in Account No.
31055. The application of their total payment in the
amount of P991,845.53 as computed by the trial court
and by the Court of Appeals is as follows:
... It appearing and so the parties admit in their own
exhibits that as of December 11, 1975, plaintiffs had paid
a total of P991,241.17 excluding fire insurance,
P532,038.00 of said amount should have been applied to
the full payment of Acct. No. 31055 and the balance of
P459,203.17 applied to the payment of Acct. No. 31442.
According to the computation of the GSIS (Exhibit C, also
Exhibit 38) the total amounts, collected on Acct. No.
31442 as of December 11, 1975 total P390,745.66 thus
leaving an unpaid balance of P70,028.63. The total
amount plaintiffs should pay on said account should
therefore be P460,774.29. Deduct this amount from
P459,163.17 which has been shown to be the difference
between the total payments made by plaintiffs to the
G.S.I.S. as of December 11, 1975 and the amount said
plaintiffs should pay under their Acct. No. 31055, there
remains an outstanding balance of P1,611.12. This
amount represents the balance of the obligation of the
plaintiffs to the G.S.I.S. on Acct. No. 31442 as of
December 11, 1975." (Decision, Civil Case No. 98390;
Joint Record on Appeal, pp. 227-228; Rollo, p. 79).
To recapitulate, the difference in the computation lies in
the inclusion of the compounded interest as demanded
by the GSIS on the one hand and the exclusion thereof,
as insisted by the Medinas on the other.
It is a basic and fundamental rule in the interpretation of
contract that if the terms thereof are clear and leave no
doubt as to the intention of the contracting parties, the
literal meaning of the stipulations shall control but when
the words appear contrary to the evident intention of the
parties, the latter shall prevail over, the former. In order to
judge the intention of the parties, their contemporaneous
and subsequent acts shall be principally considered. (Sy
v. Court of Appeals, 131 SCRA 116; July 31, 1984).
There appears no ambiguity whatsoever in the terms and
conditions of the amendment of the mortgage contract
herein quoted earlier. On the contrary, an opposite
conclusion cannot be otherwise but absurd.
As correctly stated by the GSIS in its brief (Rollo, pp.
162166), a careful perusal of the title, preamble and body
of the Amendment of Real Estate Mortgage dated July 6,
1962, taking into account the prior, contemporaneous,
and subsequent acts of the parties, ineluctably shows
that said Amendment was never intended to completely
supersede the mortgage contract dated April 4, 1962.
First, the title "Amendment of Real Estate Mortgage"
recognizes the existence and effectivity of the previous
mortgage contract. Second, nowhere in the aforesaid
Amendment did the parties manifest their intention to
supersede the original contract. On the contrary in the
WHEREAS clauses, the existence of the previous
mortgage contract was fully recognized and the fact that
the same was just being amended as to amount and
amortization is fully established as to obviate any doubt.
Third, the Amendment of Real Estate Mortgage dated
July 6, 1962 does not embody the act of conveyancing
the subject properties by way of mortgage. In fact the
intention of the parties to be bound by the unaffected
provisions of the mortgage contract of April 4, 1962
expressed in unmistakable language is clearly evident in
the last provision of the Amendment of Real Estate
Mortgage dated July 6, 1962 which reads:
It is hereby expressly understood that with the foregoing
amendment, all other terms and conditions of the said
real estate mortgage dated April 4, 1962, insofar as they
are not inconsistent herewith, are hereby confirmed,
ratified and continued to be in full force and effect, and
that the parties hereto agree that the amendment be an
integral part of said real estate mortgage. (Emphasis
supplied).
A review of prior, contemporaneous, and subsequent
acts supports the conclusion that both contracts are fully
subsisting insofar as the latter is not inconsistent with the
former. The fact is the GSIS, as a matter of policy,
imposes uniform terms and conditions for all its real
estate loans, particularly with respect to compounding of
interest. As shown in the case at bar, the original
mortgage contract embodies the same terms and
conditions as in the additional loan denominated as
Account No. 31442 while the amendment carries the
provision that it shall be subject to the same terms and
conditions as the real estate mortgage of April 4, 1962
except as to amount and amortization.
Furthermore, it would be contrary to human experience
and to ordinary practice for the mortgagee to impose less
onerous conditions on an increased loan by the deletion
of compound interest exacted on a lesser loan.
II
There is an obvious error in the ruling of the Court of
Appeals in its Decision dated January 18, 1980, which
reads:
... We agree that plaintiff should be credited with
P11,152.02 of the fire insurance proceeds as the same is
admitted in paragraph (4) of its Answer and should be
added to their payments. (par. 13).
Contrary thereto, paragraph 4 of the Answer of the GSIS
states:
That they (GSIS) specifically deny the allegations in
Paragraph 11, the truth being that plaintiffs are not
entitled to a credit of P19,381.07 as fire insurance
proceeds since they were only entitled to, and were
credited with, the amount of P11,152.02 as proceeds of
their fire insurance policy. (par. 4, Amended Answer).
As can be gleaned from the foregoing, petitioner-
appellant GSIS had already credited the amount of
P11,152.02. Thus, when the Court of Appeals made the
aforequoted ruling, it was actually doubly crediting the
amount of P11,152.02 which had been previously
credited by petitioner-appellant GSIS (Rollo, pp. 170-
171).
III.
As to whether or not the interest rates on the loan
accounts of the Medinas are usurious, it has already
been settled that the Usury Law applies only to interest
by way of compensation for the use or forbearance of
money (Lopez v. Hernaez, 32 Phil. 631; Bachrach Motor
Co. v. Espiritu, 52 Phil. 346; Equitable Banking
Corporation v. Liwanag, 32 SCRA 293, March 30, 1970).
Interest by way of damages is governed by Article 2209
of the Civil Code of the Philippines which provides:
Art. 2209. If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed
upon,...
In the Bachrach case (supra) the Supreme Court ruled
that the Civil Code permits the agreement upon a penalty
apart from the interest. Should there be such an
agreement, the penalty does not include the interest, and
as such the two are different and distinct things which
may be demanded separately. Reiterating the same
principle in the later case of Equitable Banking Corp.
(supra), where this Court held that the stipulation about
payment of such additional rate partakes of the nature of
a penalty clause, which is sanctioned by law.
IV.
Based on the finding that the GSIS had the legal right to
impose an interest 9% per annum, compounded monthly,
on the loans of the Medinas and an interest of 9%/12%
per annum on all due and unpaid amortizations or
installments, there is no question that the Medinas failed
to settle their accounts with the GSIS which as computed
by the latter reached an outstanding balance of
P630,130.55 as of April 12, 1975 and that the GSIS had
a perfect right to foreclose the mortgage.
In the same manner, there is obvious error in invalidating
the extra-judicial foreclosure on the basis of a
typographical error in the Sheriff's Certificate of Sale
which stated that the mortgage was foreclosed on May
17, 1963 instead of February 17, 1963.
There is merit in GSIS' contention that the Sheriff's
Certificate of Sale is merely provisional in character and
is not intended to operate as an absolute transfer of the
subject property, but merely to Identify the property, to
show the price paid and the date when the right of
redemption expires (Section 27, Rule 39, Rules of Court,
Francisco, The Revised Rules of Court, 1972 Vol., IV-B,
Part I, p. 681). Hence the date of the foreclosed
mortgage is not even a material content of the said
Certificate. (Rollo, p. 174).
V.
PREMISES CONSIDERED, the decision of the Court of
Appeals, in CA-G.R. No. 62541-R Medina, et al. v.
Government Service Insurance System et al., is hereby
REVERSED and SET ASIDE, and a new one is hereby
RENDERED, affirming the validity of the extra-judicial
foreclosure of the real estate mortgages of the
respondent-appellee spouses Medina dated April 4,
1962, as amended on July 6, 1962, and February 17,
1963.
SO ORDERED.
3.
G.R. No. 192986 January 15, 2013
ADVOCATES FOR TRUTH IN LENDING, INC. and
EDUARDO B. OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD,
represented by its Chairman, GOVERNOR ARMANDO
M. TETANGCO, JR., and its incumbent members:
JUANITA D. AMATONG, ALFREDO C. ANTONIO,
PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO
R. BUNYE and CESAR V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of
transcendental importance to the public, filed directly with
this Court this Petition for Certiorari under Rule 65 of the
1997 Rules of Court, seeking to declare that the Bangko
Sentral ng Pilipinas Monetary Board (BSP-MB), replacing
the Central Bank Monetary Board (CB-MB) by virtue of
Republic Act (R.A.) No. 7653, has no authority to
continue enforcing Central Bank Circular No. 905,1
issued by the CB-MB in 1982, which "suspended" Act
No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL)
is a non-profit, non-stock corporation organized to
engage in pro bono concerns and activities relating to
money lending issues. It was incorporated on July 9,
2010,2 and a month later, it filed this petition, joined by its
founder and president, Eduardo B. Olaguer, suing as a
taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the
Philippines on June 15, 1948, empowered the CB-MB to,
among others, set the maximum interest rates which
banks may charge for all types of loans and other credit
operations, within limits prescribed by the Usury Law.
Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges.
The Monetary Board may fix the maximum rates of
interest which banks may pay on deposits and on other
obligations.
The Monetary Board may, within the limits prescribed in
the Usury Law fix the maximum rates of interest which
banks may charge for different types of loans and for any
other credit operations, or may fix the maximum
differences which may exist between the interest or
rediscount rates of the Central Bank and the rates which
the banks may charge their customers if the respective
credit documents are not to lose their eligibility for
rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates
permitted for the borrowing or lending operations of the
banks shall apply only to future operations and not to
those made prior to the date on which the modification
becomes effective.
In order to avoid possible evasion of maximum interest
rates set by the Monetary Board, the Board may also fix
the maximum rates that banks may pay to or collect from
their customers in the form of commissions, discounts,
charges, fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by
Presidential Decree (P.D.) No. 1684, giving the CB-MB
authority to prescribe different maximum rates of interest
which may be imposed for a loan or renewal thereof or
the forbearance of any money, goods or credits, provided
that the changes are effected gradually and announced
in advance. Thus, Section 1-a of Act No. 2655 now
reads:
Sec. 1-a. The Monetary Board is hereby authorized to
prescribe the maximum rate or rates of interest for the
loan or renewal thereof or the forbearance of any money,
goods or credits, and to change such rate or rates
whenever warranted by prevailing economic and social
conditions: Provided, That changes in such rate or rates
may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the
Monetary Board may prescribe higher maximum rates for
loans of low priority, such as consumer loans or renewals
thereof as well as such loans made by pawnshops,
finance companies and other similar credit institutions
although the rates prescribed for these institutions need
not necessarily be uniform. The Monetary Board is also
authorized to prescribe different maximum rate or rates
for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries.
(Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the
CB-MB issued CB Circular No. 905, Series of 1982,
effective on January 1, 1983. Section 1 of the Circular,
under its General Provisions, removed the ceilings on
interest rates on loans or forbearance of any money,
goods or credits, to wit:
Sec. 1. The rate of interest, including commissions,
premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits, regardless
of maturity and whether secured or unsecured, that may
be charged or collected by any person, whether natural
or juridical, shall not be subject to any ceiling prescribed
under or pursuant to the Usury Law, as amended.
(Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the
CBs "Manual of Regulations for Banks and Other
Financial Intermediaries" (Manual of Regulations) by
removing the applicable ceilings on specific interest
rates. Thus, Sections 5, 9 and 10 of CB Circular No. 905
amended Book I, Subsections 1303, 1349, 1388.1 of the
Manual of Regulations, by removing the ceilings for
interest and other charges, commissions, premiums, and
fees applicable to commercial banks; Sections 12 and 17
removed the interest ceilings for thrift banks (Book II,
Subsections 2303, 2349); Sections 19 and 21 removed
the ceilings applicable to rural banks (Book III,
Subsection 3152.3-c); and, Sections 26, 28, 30 and 32
removed the ceilings for non-bank financial
intermediaries (Book IV, Subsections 4303Q.1 to
4303Q.9, 4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into
law R.A. No. 7653 establishing the Bangko Sentral ng
Pilipinas (BSP) to replace the CB. The repealing clause
thereof, Section 135, reads:
Sec. 135. Repealing Clause. Except as may be
provided for in Sections 46 and 132 of this Act, Republic
Act No. 265, as amended, the provisions of any other
law, special charters, rule or regulation issued pursuant
to said Republic Act No. 265, as amended, or parts
thereof, which may be inconsistent with the provisions of
this Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going
directly to this Court to secure a writ of certiorari,
petitioners contend that the transcendental importance of
their Petition can readily be seen in the issues raised
therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the
CB-MB had the statutory or constitutional authority to
prescribe the maximum rates of interest for all kinds of
credit transactions and forbearance of money, goods or
credit beyond the limits prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when
it issued CB Circular No. 905, which removed all interest
ceilings and thus suspended Act No. 2655 as regards
usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may
continue to enforce CB Circular No. 905.5
Petitioners attached to their petition copies of several
Senate Bills and Resolutions of the 10th Congress, which
held its sessions from 1995 to 1998, calling for
investigations by the Senate Committee on Banks and
Financial Institutions into alleged unconscionable
commercial rates of interest imposed by these entities.
Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator
Vicente C. Sotto III and the late Senator Blas F. Ople,
respectively, sought to amend Act No. 2655 by fixing the
rates of interest on loans and forbearance of credit;
Philippine Senate Resolution (SR) No. 1053,8 10739 and
1102,10 filed by Senators Ramon B. Magsaysay, Jr.,
Gregorio B. Honasan and Franklin M. Drilon,
respectively, urged the aforesaid Senate Committee to
investigate ways to curb the high commercial interest
rates then obtaining in the country; Senator Ernesto
Maceda filed SB No. 1151 to prohibit the collection of
more than two months of advance interest on any loan of
money; and Senator Raul Roco filed SR No. 114411
seeking an investigation into an alleged cartel of
commercial banks, called "Club 1821", reportedly behind
the regime of high interest rates. The petitioners also
attached news clippings12 showing that in February 1998
the banks prime lending rates, or interests on loans to
their best borrowers, ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No.
2655, as amended by P.D. No. 1684, the CB-MB was
authorized only to prescribe or set the maximum rates of
interest for a loan or renewal thereof or for the
forbearance of any money, goods or credits, and to
change such rates whenever warranted by prevailing
economic and social conditions, the changes to be
effected gradually and on scheduled dates; that nothing
in P.D. No. 1684 authorized the CB-MB to lift or suspend
the limits of interest on all credit transactions, when it
issued CB Circular No. 905. They further insist that under
Section 109 of R.A. No. 265, the authority of the CB-MB
was clearly only to fix the banks maximum rates of
interest, but always within the limits prescribed by the
Usury Law.
Thus, according to petitioners, CB Circular No. 905,
which was promulgated without the benefit of any prior
public hearing, is void because it violated Article 5 of the
New Civil Code, which provides that "Acts executed
against the provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their
validity."
They further claim that just weeks after the issuance of
CB Circular No. 905, the benchmark 91-day Treasury
bills (T-bills),13 then known as "Jobo" bills14 shot up to
40% per annum, as a result. The banks immediately
followed suit and re-priced their loans to rates which were
even higher than those of the "Jobo" bills. Petitioners
thus assert that CB Circular No. 905 is also
unconstitutional in light of Section 1 of the Bill of Rights,
which commands that "no person shall be deprived of
life, liberty or property without due process of law, nor
shall any person be denied the equal protection of the
laws."
Finally, petitioners point out that R.A. No. 7653 did not re-
enact a provision similar to Section 109 of R.A. No. 265,
and therefore, in view of the repealing clause in Section
135 of R.A. No. 7653, the BSP-MB has been stripped of
the power either to prescribe the maximum rates of
interest which banks may charge for different kinds of
loans and credit transactions, or to suspend Act No. 2655
and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for
certiorari, as well as to grant due course thereto, is
addressed to the sound discretion of the court.15 A
petition for certiorari being an extraordinary remedy, the
party seeking to avail of the same must strictly observe
the procedural rules laid down by law, and non-
observance thereof may not be brushed aside as mere
technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is
directed against a tribunal exercising judicial or quasi-
judicial functions.17 Judicial functions are exercised by a
body or officer clothed with authority to determine what
the law is and what the legal rights of the parties are with
respect to the matter in controversy. Quasi-judicial
function is a term that applies to the action or discretion
of public administrative officers or bodies given the
authority to investigate facts or ascertain the existence of
facts, hold hearings, and draw conclusions from them as
a basis for their official action using discretion of a judicial
nature.18
The CB-MB (now BSP-MB) was created to perform
executive functions with respect to the establishment,
operation or liquidation of banking and credit institutions,
and branches and agencies thereof.19 It does not perform
judicial or quasi-judicial functions. Certainly, the issuance
of CB Circular No. 905 was done in the exercise of an
executive function. Certiorari will not lie in the instant
case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a
court of justice on a given question." In private suits,
Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that "every action must be prosecuted or
defended in the name of the real party in interest," who is
"the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of
the suit." Succinctly put, a partys standing is based on
his own right to the relief sought.21
Even in public interest cases such as this petition, the
Court has generally adopted the "direct injury" test that
the person who impugns the validity of a statute must
have "a personal and substantial interest in the case
such that he has sustained, or will sustain direct injury as
a result."22 Thus, while petitioners assert a public right to
assail CB Circular No. 905 as an illegal executive action,
it is nonetheless required of them to make out a sufficient
interest in the vindication of the public order and the
securing of relief. It is significant that in this petition, the
petitioners do not allege that they sustained any personal
injury from the issuance of CB Circular No. 905.
Petitioners also do not claim that public funds were being
misused in the enforcement of CB Circular No. 905. In
Kilosbayan, Inc. v. Morato,23 involving the on-line lottery
contract of the PCSO, there was no allegation that public
funds were being misspent, which according to the Court
would have made the action a public one, "and justify
relaxation of the requirement that an action must be
prosecuted in the name of the real party-in-interest." The
Court held, moreover, that the status of Kilosbayan as a
peoples organization did not give it the requisite
personality to question the validity of the contract. Thus:
Petitioners do not in fact show what particularized
interest they have for bringing this suit. It does not detract
from the high regard for petitioners as civic leaders to say
that their interest falls short of that required to maintain
an action under the Rule 3, Sec. 2.24
C. The Petition raises no issues of transcendental
importance.
In the 1993 case of Joya v. Presidential Commission on
Good Government,25 it was held that no question
involving the constitutionality or validity of a law or
governmental act may be heard and decided by the court
unless there is compliance with the legal requisites for
judicial inquiry, namely: (a) that the question must be
raised by the proper party; (b) that there must be an
actual case or controversy; (c) that the question must be
raised at the earliest possible opportunity; and (d) that
the decision on the constitutional or legal question must
be necessary to the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court
summarized the requirements before taxpayers, voters,
concerned citizens, and legislators can be accorded a
standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal
disbursement of public funds or that the tax measure is
unconstitutional;
(3) for voters, there must be a showing of obvious
interest in the validity of the election law in question;
(4) for concerned citizens, there must be a showing that
the issues raised are of transcendental importance which
must be settled early; and
(5) for legislators, there must be a claim that the official
action complained of infringes upon their prerogatives as
legislators.
While the Court may have shown in recent decisions a
certain toughening in its attitude concerning the question
of legal standing, it has nonetheless always made an
exception where the transcendental importance of the
issues has been established, notwithstanding the
petitioners failure to show a direct injury.27 In CREBA v.
ERC,28 the Court set out the following instructive guides
as determinants on whether a matter is of transcendental
importance, namely: (1) the character of the funds or
other assets involved in the case; (2) the presence of a
clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any
other party with a more direct and specific interest in the
questions being raised. Further, the Court stated in Anak
Mindanao Party-List Group v. The Executive Secretary29
that the rule on standing will not be waived where these
determinants are not established.
In the instant case, there is no allegation of misuse of
public funds in the implementation of CB Circular No.
905. Neither were borrowers who were actually affected
by the suspension of the Usury Law joined in this petition.
Absent any showing of transcendental importance, the
petition must fail.
More importantly, the Court notes that the instant petition
adverted to the regime of high interest rates which
obtained at least 15 years ago, when the banks prime
lending rates ranged from 26% to 31%,30 or even 29
years ago, when the 91-day Jobo bills reached 40% per
annum. In contrast, according to the BSP, in the first two
(2) months of 2012 the bank lending rates averaged
5.91%, which implies that the banks prime lending rates
were lower; moreover, deposit interests on savings and
long-term deposits have also gone very low, averaging
1.75% and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the
savings rates must be approaching 0%.1wphi1 In the
auctions held on November 12, 2012, the rates of 3-
month, 6-month and 1-year T-bills have dropped to
0.150%, 0.450% and 0.680%, respectively.32 According
to Manila Bulletin, this very low interest regime has been
attributed to "high liquidity and strong investor demand
amid positive economic indicators of the country."33
While the Court acknowledges that cases of
transcendental importance demand that they be settled
promptly and definitely, brushing aside, if we must,
technicalities of procedure,34 the delay of at least 15
years in the filing of the instant petition has actually
rendered moot and academic the issues it now raises.
For its part, BSP-MB maintains that the petitioners
allegations of constitutional and statutory violations of CB
Circular No. 905 are really mere challenges made by
petitioners concerning the wisdom of the Circular. It
explains that it was in view of the global economic
downturn in the early 1980s that the executive
department through the CB-MB had to formulate policies
to achieve economic recovery, and among these policies
was the establishment of a market-oriented interest rate
structure which would require the removal of the
government-imposed interest rate ceilings.35
D. The CB-MB merely suspended the effectivity of the
Usury Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury
Law pursuant to P.D. No. 1684 has long been recognized
and upheld in many cases. As the Court explained in the
landmark case of Medel v. CA,36 citing several cases, CB
Circular No. 905 "did not repeal nor in anyway amend the
Usury Law but simply suspended the latters effectivity;"37
that "a CB Circular cannot repeal a law, [for] only a law
can repeal another law;"38 that "by virtue of CB Circular
No. 905, the Usury Law has been rendered ineffective;" 39
and "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and
borrower may agree upon."40
In First Metro Investment Corp. v. Este Del Sol Mountain
Reserve, Inc.41 cited in DBP v. Perez,42 we also belied
the contention that the CB was engaged in self-
legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any
way amend the Usury Law but simply suspended the
latters effectivity. The illegality of usury is wholly the
creature of legislation. A Central Bank Circular cannot
repeal a law. Only a law can repeal another law. x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a
loan agreement authorized the PNB to unilaterally
increase the rate of interest to 25% per annum, plus a
penalty of 6% per annum on past dues, then to 30% on
October 15, 1984, and to 42% on October 25, 1984. The
Supreme Court invalidated the rate increases made by
the PNB and upheld the 12% interest imposed by the CA,
in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than
allow contracting parties to stipulate freely regarding any
subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or
credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated. x x x.45
Thus, according to the Court, by lifting the interest ceiling,
CB Circular No. 905 merely upheld the parties freedom
of contract to agree freely on the rate of interest. It cited
Article 1306 of the New Civil Code, under which the
contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No.
905.
Section 1 of CB Circular No. 905 provides that "The rate
of interest, including commissions, premiums, fees and
other charges, on a loan or forbearance of any money,
goods, or credits, regardless of maturity and whether
secured or unsecured, that may be charged or collected
by any person, whether natural or juridical, shall not be
subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended." It does not purport to suspend
the Usury Law only as it applies to banks, but to all
lenders.
Petitioners contend that, granting that the CB had power
to "suspend" the Usury Law, the new BSP-MB did not
retain this power of its predecessor, in view of Section
135 of R.A. No. 7653, which expressly repealed R.A. No.
265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No.
265.
A closer perusal shows that Section 109 of R.A. No. 265
covered only loans extended by banks, whereas under
Section 1-a of the Usury Law, as amended, the BSP-MB
may prescribe the maximum rate or rates of interest for
all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low
priority such as consumer loans, as well as such loans
made by pawnshops, finance companies and similar
credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different
types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope,
whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other
financial institutions. Had R.A. No. 7653 been intended to
repeal Section 1-a of Act No. 2655, it would have so
stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication
are not favored, because laws are presumed to be
passed with deliberation and full knowledge of all laws
existing pertaining to the subject.46 An implied repeal is
predicated upon the condition that a substantial conflict
or repugnancy is found between the new and prior laws.
Thus, in the absence of an express repeal, a subsequent
law cannot be construed as repealing a prior law unless
an irreconcilable inconsistency and repugnancy exists in
the terms of the new and old laws.47 We find no such
conflict between the provisions of Act 2655 and R.A. No.
7653.
F. The lifting of the ceilings for interest rates does not
authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants
lenders a carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to
a hemorrhaging of their assets.48 As held in Castro v.
Tan:49
The imposition of an unconscionable rate of interest on a
money debt, even if knowingly and voluntarily assumed,
is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support
in law, in principles of justice, or in the human conscience
nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be
sustained within the sphere of public or private morals.50
Stipulations authorizing iniquitous or unconscionable
interests have been invariably struck down for being
contrary to morals, if not against the law.51 Indeed, under
Article 1409 of the Civil Code, these contracts are
deemed inexistent and void ab initio, and therefore
cannot be ratified, nor may the right to set up their
illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious
interest does not affect the lenders right to recover the
principal of a loan, nor affect the other terms thereof.52
Thus, in a usurious loan with mortgage, the right to
foreclose the mortgage subsists, and this right can be
exercised by the creditor upon failure by the debtor to
pay the debt due. The debt due is considered as without
the stipulated excessive interest, and a legal interest of
12% per annum will be added in place of the excessive
interest formerly imposed,53following the guidelines laid
down in the landmark case of Eastern Shipping Lines,
Inc. v. Court of Appeals,54 regarding the manner of
computing legal interest:
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as
follows:
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.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan
v. Court of Appeals, 56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate,
as follows: The 12% per annum rate under CB Circular
No. 416 shall apply only to loans or forbearance of
money, goods, or credits, as well as to judgments
involving such loan or forbearance of money, goods, or
credit, while the 6% per annum under Art. 2209 of the
Civil Code applies "when the transaction involves the
payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of
obligations in general," with the application of both rates
reckoned "from the time the complaint was filed until the
[adjudged] amount is fully paid." In either instance, the
reckoning period for the commencement of the running of
the legal interest shall be subject to the condition "that
the courts are vested with discretion, depending on the
equities of each case, on the award of interest."57
(Citations omitted)
WHEREFORE, premises considered, the Petition for
certiorari is DISMISSED.
SO ORDERED.
ANTONIO TAN, petitioner, vs. COURT OF APPEALS
and the CULTURAL CENTER OF THE PHILIPPINES,
respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision [if
!supportFootnotes][1][endif] dated August 31, 1993 and
Resolution[if !supportFootnotes][2][endif] dated July 13, 1994 of the
Court of Appeals affirming the Decision[if
!supportFootnotes][3][endif] dated May 8, 1991 of the Regional
Trial Court (RTC) of Manila, Branch 27.
The facts are as follows:
On May 14, 1978 and July 6, 1978, petitioner
Antonio Tan obtained two (2) loans each in the principal
amount of Two Million Pesos (P2,000,000.00), or in the
total principal amount of Four Million Pesos
(P4,000,000.00) from respondent Cultural Center of the
Philippines (CCP, for brevity) evidenced by two (2)
promissory notes with maturity dates on May 14, 1979
and July 6, 1979, respectively. Petitioner defaulted but
after a few partial payments he had the loans
restructured by respondent CCP, and petitioner
accordingly executed a promissory note (Exhibit A) on
August 31, 1979 in the amount of Three Million Four
Hundred Eleven Thousand Four Hundred Twenty-One
Pesos and Thirty-Two Centavos (P3,411,421.32) payable
in five (5) installments. Petitioner Tan failed to pay any
installment on the said restructured loan of Three Million
Four Hundred Eleven Thousand Four Hundred Twenty-
One Pesos and Thirty-Two Centavos (P3,411,421.32),
the last installment falling due on December 31, 1980. In
a letter dated January 26, 1982, petitioner requested and
proposed to respondent CCP a mode of paying the
restructured loan, i.e., (a) twenty percent (20%) of the
principal amount of the loan upon the respondent giving
its conformity to his proposal; and (b) the balance on the
principal obligation payable in thirty-six (36) equal
monthly installments until fully paid. On October 20,
1983, petitioner again sent a letter to respondent CCP
requesting for a moratorium on his loan obligation until
the following year allegedly due to a substantial
deduction in the volume of his business and on account
of the peso devaluation. No favorable response was
made to said letters. Instead, respondent CCP, through
counsel, wrote a letter dated May 30, 1984 to the
petitioner demanding full payment, within ten (10) days
from receipt of said letter, of the petitioners restructured
loan which as of April 30, 1984 amounted to Six Million
Eighty-Eight Thousand Seven Hundred Thirty-Five Pesos
and Three Centavos (P6,088,735.03).
On August 29, 1984, respondent CCP filed in the
RTC of Manila a complaint for collection of a sum of
money, docketed as Civil Case No. 84-26363, against
the petitioner after the latter failed to settle his said
restructured loan obligation. The petitioner interposed the
defense that he merely accommodated a friend, Wilson
Lucmen, who allegedly asked for his help to obtain a loan
from respondent CCP. Petitioner claimed that he has not
been able to locate Wilson Lucmen. While the case was
pending in the trial court, the petitioner filed a
Manifestation wherein he proposed to settle his
indebtedness to respondent CCP by proposing to make a
down payment of One Hundred Forty Thousand Pesos
(P140,000.00) and to issue twelve (12) checks every
beginning of the year to cover installment payments for
one year, and every year thereafter until the balance is
fully paid. However, respondent CCP did not agree to the
petitioners proposals and so the trial of the case ensued.
On May 8, 1991, the trial court rendered a decision,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff and against defendant, ordering defendant to pay
plaintiff, the amount of P7,996,314.67, representing
defendants outstanding account as of August 28, 1986,
with the corresponding stipulated interest and charges
thereof, until fully paid, plus attorneys fees in an amount
equivalent to 25% of said outstanding account, plus
P50,000.00, as exemplary damages, plus costs.
Defendants counterclaims are ordered dismissed, for
lack of merit.
SO ORDERED.[if !supportFootnotes][4][endif]
The trial court gave five (5) reasons in ruling in favor
of respondent CCP. First, it gave little weight to the
petitioners contention that the loan was merely for the
accommodation of Wilson Lucmen for the reason that the
defense propounded was not credible in itself. Second,
assuming, arguendo, that the petitioner did not personally
benefit from the said loan, he should have filed a third
party complaint against Wilson Lucmen, the alleged
accommodated party but he did not. Third, for three (3)
times the petitioner offered to settle his loan obligation
with respondent CCP. Fourth, petitioner may not avoid
his liability to pay his obligation under the promissory
note (Exh. A) which he must comply with in good faith
pursuant to Article 1159 of the New Civil Code. Fifth,
petitioner is estopped from denying his liability or loan
obligation to the private respondent.
The petitioner appealed the decision of the trial
court to the Court of Appeals insofar as it charged
interest, surcharges, attorneys fees and exemplary
damages against the petitioner. In his appeal, the
petitioner asked for the reduction of the penalties and
charges on his loan obligation. He abandoned his alleged
defense in the trial court that he merely accommodated
his friend, Wilson Lucmen, in obtaining the loan, and
instead admitted the validity of the same. On August 31,
1993, the appellate court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, with the foregoing modification, the
judgment appealed from is hereby AFFIRMED.
SO ORDERED.[if !supportFootnotes][5][endif]
In affirming the decision of the trial court imposing
surcharges and interest, the appellate court held that:
We are unable to accept appellants (petitioners) claim for
modification on the basis of alleged partial or irregular
performance, there being none. Appellants offer or tender
of payment cannot be deemed as a partial or irregular
performance of the contract, not a single centavo
appears to have been paid by the defendant.
However, the appellate court modified the decision
of the trial court by deleting the award for exemplary
damages and reducing the amount of awarded attorneys
fees to five percent (5%), by ratiocinating as follows:
Given the circumstances of the case, plus the fact that
plaintiff was represented by a government lawyer, We
believe the award of 25% as attorneys fees and
P500,000.00 as exemplary damages is out of proportion
to the actual damage caused by the non-performance of
the contract and is excessive, unconscionable and
iniquitous.
In a Resolution dated July 13, 1994, the appellate
court denied the petitioners motion for reconsideration of
the said decision.
Hence, this petition anchored on the following
assigned errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED
A MISTAKE IN GIVING ITS IMPRIMATUR TO THE
DECISION OF THE TRIAL COURT WHICH
COMPOUNDED INTEREST ON SURCHARGES.
II
THE HONORABLE COURT OF APPEALS ERRED IN
NOT SUSPENDING IMPOSITION OF INTEREST FOR
THE PERIOD OF TIME THAT PRIVATE RESPONDENT
HAS FAILED TO ASSIST PETITIONER IN APPLYING
FOR RELIEF OF LIABILITY THROUGH THE
COMMISSION ON AUDIT AND THE OFFICE OF THE
PRESIDENT.
III
THE HONORABLE COURT OF APPEALS ERRED IN
NOT DELETING AWARD OF ATTORNEYS FEES AND
IN REDUCING PENALTIES.
Significantly, the petitioner does not question his
liability for his restructured loan under the promissory
note marked Exhibit A. The first question to be resolved
in the case at bar is whether there are contractual and
legal bases for the imposition of the penalty, interest on
the penalty and attorneys fees.
The petitioner imputes error on the part of the
appellate court in not totally eliminating the award of
attorneys fees and in not reducing the penalties
considering that the petitioner, contrary to the appellate
courts findings, has allegedly made partial payments on
the loan. And if penalty is to be awarded, the petitioner is
asking for the non-imposition of interest on the
surcharges inasmuch as the compounding of interest on
surcharges is not provided in the promissory note marked
Exhibit A. The petitioner takes exception to the
computation of the private respondent whereby the
interest, surcharge and the principal were added together
and that on the total sum interest was imposed. Petitioner
also claims that there is no basis in law for the charging
of interest on the surcharges for the reason that the New
Civil Code is devoid of any provision allowing the
imposition of interest on surcharges.
We find no merit in the petitioners contention.
Article 1226 of the New Civil Code provides that:
In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of
interests in case of non-compliance, if there is no
stipulation to the contrary. Nevertheless, damages shall
be paid if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable
in accordance with the provisions of this Code.
In the case at bar, the promissory note (Exhibit A)
expressly provides for the imposition of both interest and
penalties in case of default on the part of the petitioner in
the payment of the subject restructured loan. The
pertinent[if !supportFootnotes][6][endif] portion of the promissory
note (Exhibit A) imposing interest and penalties provides
that:
For value received, I/We jointly and severally promise to
pay to the CULTURAL CENTER OF THE PHILIPPINES
at its office in Manila, the sum of THREE MILLION FOUR
HUNDRED ELEVEN THOUSAND FOUR HUNDRED +
PESOS (P3,411,421.32) Philippine Currency, xxx.
xxx xxx xxx
With interest at the rate of FOURTEEN per cent (14%)
per annum from the date hereof until paid. PLUS THREE
PERCENT (3%) SERVICE CHARGE.
In case of non-payment of this note at maturity/on
demand or upon default of payment of any portion of it
when due, I/We jointly and severally agree to pay
additional penalty charges at the rate of TWO per cent
(2%) per month on the total amount due until paid,
payable and computed monthly. Default of payment of
this note or any portion thereof when due shall render all
other installments and all existing promissory notes made
by us in favor of the CULTURAL CENTER OF THE
PHILIPPINES immediately due and demandable.
(Underscoring supplied)
xxx xxx xxx
The stipulated fourteen percent (14%) per annum
interest charge until full payment of the loan constitutes
the monetary interest on the note and is allowed under
Article 1956 of the New Civil Code.[if !supportFootnotes][7][endif]
On the other hand, the stipulated two percent (2%) per
month penalty is in the form of penalty charge which is
separate and distinct from the monetary interest on the
principal of the loan.
Penalty on delinquent loans may take different
forms. In Government Service Insurance System v. Court
of Appeals,[if !supportFootnotes][8][endif] this Court has ruled that
the New Civil Code permits an agreement upon a penalty
apart from the monetary interest. If the parties stipulate
this kind of agreement, the penalty does not include the
monetary interest, and as such the two are different and
distinct from each other and may be demanded
separately. Quoting Equitable Banking Corp. v.
Liwanag,[if !supportFootnotes][9][endif] the GSIS case went on to
state that such a stipulation about payment of an
additional interest rate partakes of the nature of a penalty
clause which is sanctioned by law, more particularly
under Article 2209 of the New Civil Code which provides
that:
If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per
cent per annum.
The penalty charge of two percent (2%) per month
in the case at bar began to accrue from the time of
default by the petitioner. There is no doubt that the
petitioner is liable for both the stipulated monetary
interest and the stipulated penalty charge. The penalty
charge is also called penalty or compensatory interest.
Having clarified the same, the next issue to be resolved
is whether interest may accrue on the penalty or
compensatory interest without violating the provisions of
Article 1959 of the New Civil Code, which provides that:
Without prejudice to the provisions of Article 2212,
interest due and unpaid shall not earn interest. However,
the contracting parties may by stipulation capitalize the
interest due and unpaid, which as added principal, shall
earn new interest.
According to the petitioner, there is no legal basis
for the imposition of interest on the penalty charge for the
reason that the law only allows imposition of interest on
monetary interest but not the charging of interest on
penalty. He claims that since there is no law that allows
imposition of interest on penalties, the penalties should
not earn interest. But as we have already explained,
penalty clauses can be in the form of penalty or
compensatory interest. Thus, the compounding of the
penalty or compensatory interest is sanctioned by and
allowed pursuant to the above-quoted provision of Article
1959 of the New Civil Code considering that:
 First, there is an express stipulation in the
promissory note (Exhibit A) permitting the compounding
of interest. The fifth paragraph of the said promissory
note provides that: Any interest which may be due if not
paid shall be added to the total amount when due and
shall become part thereof, the whole amount to bear
interest at the maximum rate allowed by law.[if
!supportFootnotes][10][endif] Therefore, any penalty interest not
paid, when due, shall earn the legal interest of twelve
percent (12%) per annum,[if !supportFootnotes][11][endif] in the
absence of express stipulation on the specific rate of
interest, as in the case at bar.
Second, Article 2212 of the New Civil Code
provides that Interest due shall earn legal interest from
the time it is judicially demanded, although the obligation
may be silent upon this point. In the instant case, interest
likewise began to run on the penalty interest upon the
filing of the complaint in court by respondent CCP on
August 29, 1984. Hence, the courts a quo did not err in
ruling that the petitioner is bound to pay the interest on
the total amount of the principal, the monetary interest
and the penalty interest.
The petitioner seeks the elimination of the
compounded interest imposed on the total amount based
allegedly on the case of National Power Corporation v.
National Merchandising Corporation,[if !supportFootnotes][12][endif]
wherein we ruled that the imposition of interest on the
damages from the filing of the complaint is unjust where
the litigation was prolonged for twenty-five (25) years
through no fault of the defendant. However, the ruling in
the said National Power Corporation (NPC) case is not
applicable to the case at bar inasmuch as our ruling on
the issue of interest in that NPC case was based on
equitable considerations and on the fact that the said
case lasted for twenty-five (25) years through no fault of
the defendant. In the case at bar, however, equity cannot
be considered inasmuch as there is a contractual
stipulation in the promissory note whereby the petitioner
expressly agreed to the compounding of interest in case
of failure on his part to pay the loan at maturity. Inasmuch
as the said stipulation on the compounding of interest
has the force of law between the parties and does not
appear to be inequitable or unjust, the said written
stipulation should be respected.
The private respondents Statement of Account
(marked Exhibits C to C-2)[if !supportFootnotes][13][endif] shows
the following breakdown of the petitioners indebtedness
as of August 28, 1986:
Principal P2,838,454.68
Interest P 576,167.89
Surcharge P4,581,692.10
P7,996,314.67
The said statement of account also shows that the above
amounts stated therein are net of the partial payments
amounting to a total of Four Hundred Fifty-Two Thousand
Five Hundred Sixty-One Pesos and Forty-Three
Centavos (P452,561.43) which were made during the
period from May 13, 1983 to September 30, 1983. [if
!supportFootnotes][14][endif] The petitioner now seeks the
reduction of the penalty due to the said partial payments.
The principal amount of the promissory note (Exhibit A)
was Three Million Four Hundred Eleven Thousand Four
Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32) when the loan was restructured on
August 31, 1979. As of August 28, 1986, the principal
amount of the said restructured loan has been reduced to
Two Million Eight Hundred Thirty-Eight Thousand Four
Hundred Fifty-Four Pesos and Sixty-Eight Centavos
(P2,838,454.68). Thus, petitioner contends that reduction
of the penalty is justifiable pursuant to Article 1229 of the
New Civil Code which provides that: The judge shall
equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or
unconscionable. Petitioner insists that the penalty should
be reduced to ten percent (10%) of the unpaid debt in
accordance with Bachrach Motor Company v. Espiritu.[if
!supportFootnotes][15][endif]
There appears to be a justification for a reduction of
the penalty charge but not necessarily to ten percent
(10%) of the unpaid balance of the loan as suggested by
petitioner. Inasmuch as petitioner has made partial
payments which showed his good faith, a reduction of the
penalty charge from two percent (2%) per month on the
total amount due, compounded monthly, until paid can
indeed be justified under the said provision of Article
1229 of the New Civil Code.
In other words, we find the continued monthly
accrual of the two percent (2%) penalty charge on the
total amount due to be unconscionable inasmuch as the
same appeared to have been compounded monthly.
Considering petitioners several partial payments
and the fact he is liable under the note for the two
percent (2%) penalty charge per month on the total
amount due, compounded monthly, for twenty-one (21)
years since his default in 1980, we find it fair and
equitable to reduce the penalty charge to a straight
twelve percent (12%) per annum on the total amount due
starting August 28, 1986, the date of the last Statement
of Account (Exhibits C to C-2). We also took into
consideration the offers of the petitioner to enter into a
compromise for the settlement of his debt by presenting
proposed payment schemes to respondent CCP. The
said offers at compromise also showed his good faith
despite difficulty in complying with his loan obligation due
to his financial problems. However, we are not unmindful
of the respondents long overdue deprivation of the use of
its money collectible from the petitioner.
The petitioner also imputes error on the part of the
appellate court for not declaring the suspension of the
running of the interest during that period when the
respondent allegedly failed to assist the petitioner in
applying for relief from liability. In this connection, the
petitioner referred to the private respondents letter[if
!supportFootnotes][16][endif] dated September 28, 1988
addressed to petitioner which partially reads:
Dear Mr. Tan:
xxx xxx xxx
With reference to your appeal for condonation of interest
and surcharge, we wish to inform you that the center will
assist you in applying for relief of liability through the
Commission on Audit and Office of the President xxx.
While your application is being processed and awaiting
approval, the center will be accepting your proposed
payment scheme with the downpayment of P160,000.00
and monthly remittances of P60,000.00 xxx.
xxx xxx xxx
The petitioner alleges that his obligation to pay the
interest and surcharge should have been suspended
because the obligation to pay such interest and
surcharge has become conditional, that is dependent on
a future and uncertain event which consists of whether
the petitioners request for condonation of interest and
surcharge would be recommended by the Commission
on Audit and the Office of the President to the House of
Representatives for approval as required under Section
36 of Presidential Decree No. 1445. Since the condition
has not happened allegedly due to the private
respondents reneging on its promise, his liability to pay
the interest and surcharge on the loan has not arisen.
This is the petitioners contention.
It is our view, however, that the running of the
interest and surcharge was not suspended by the private
respondents promise to assist the petitioners in applying
for relief therefrom through the Commission on Audit and
the Office of the President.
First, the letter dated September 28, 1988 alleged
to have been sent by the respondent CCP to the
petitioner is not part of the formally offered documentary
evidence of either party in the trial court. That letter
cannot be considered evidence pursuant to Rule 132,
Section 34 of the Rules of Court which provides that: The
court shall consider no evidence which has not been
formally offered xxx. Besides, the said letter does not
contain any categorical agreement on the part of
respondent CCP that the payment of the interest and
surcharge on the loan is deemed suspended while his
appeal for condonation of the interest and surcharge was
being processed.
Second, the private respondent correctly asserted
that it was the primary responsibility of petitioner to
inform the Commission on Audit and the Office of the
President of his application for condonation of interest
and surcharge. It was incumbent upon the petitioner to
bring his administrative appeal for condonation of interest
and penalty charges to the attention of the said
government offices.
On the issue of attorneys fees, the appellate court
ruled correctly and justly in reducing the trial courts
award of twenty-five percent (25%) attorneys fees to five
percent (5%) of the total amount due.
WHEREFORE, the assailed Decision of the Court of
Appeals is hereby AFFIRMED with MODIFICATION in
that the penalty charge of two percent (2%) per month on
the total amount due, compounded monthly, is hereby
reduced to a straight twelve percent (12%) per annum
starting from August 28, 1986. With costs against the
petitioner.
SO ORDERED.
[G.R. Nos. 128833. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION, UY
CHUN BING AND ELI D. LAO, petitioners, vs.
COURT OF APPEALS and GOYU & SONS,
INC., respondents.
 [G.R. No. 128834. April 20, 1998]
RIZAL COMMERCIAL BANKING CORPORATION,
petitioners, vs. COURT OF APPEALS,
ALFREDO C. SEBASTIAN, GOYU & SONS,
INC., GO SONG HIAP, SPOUSES GO TENG
KOK and BETTY CHIU SUK YING alias
BETTY GO, respondents.
[G.R. No. 128866. April 20, 1998]
MALAYAN INSURANCE INC., petitioner, vs. GOYU &
SONS, INC. respondent.
D EC I S I O N
MELO, J.:
The issues relevant to the herein three consolidated
petitions revolve around the fire loss claims of
respondent Goyu & Sons, Inc. (GOYU) with petitioner
Malayan Insurance Company, Inc. (MICO) in connection
with the mortgage contracts entered into by and between
Rizal Commercial Banking Corporation (RCBC) and
GOYU.
The Court of Appeals ordered MICO to pay GOYU
its claims in the total amount of P74,040,518.58, plus
37% interest per annum commencing July 27, 1992.
RCBC was ordered to pay actual and compensatory
damages in the amount of P5,000,000.00. MICO and
RCBC were held solidarily liable to pay GOYU
P1,500,000.00 as exemplary damages and
P1,500,000.00 for attorneys fees. GOYUs obligation to
RCBC was fixed at P68,785,069.04 as of April 1992,
without any interest, surcharges, and penalties. RCBC
and MICO appealed separately but, in view of the
common facts and issues involved, their individual
petitions were consolidated.
The undisputed facts may be summarized as
follows:
GOYU applied for credit facilities and
accommodations with RCBC at its Binondo Branch. After
due evaluation, RCBC Binondo Branch, through its key
officers, petitioners Uy Chun Bing and Eli D. Lao,
recommended GOYUs application for approval by
RCBCs executive committee. A credit facility in the
amount of P30 million was initially granted. Upon GOYUs
application and Uys and Laos recommendation, RCBCs
executive committee increased GOYUs credit facility to
P50 million, then to P90 million, and finally to P117
million.
As security for its credit facilities with RCBC, GOYU
executed two real estate mortgages and two chattel
mortgages in favor of RCBC, which were registered with
the Registry of Deeds at Valenzuela, Metro Manila.
Under each of these four mortgage contracts, GOYU
committed itself to insure the mortgaged property with an
insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance
policies to RCBC.
GOYU obtained in its name a total of ten insurance
policies from MICO. In February 1992, Alchester
Insurance Agency, Inc., the insurance agent where
GOYU obtained the Malayan insurance policies, issued
nine endorsements in favor of RCBC seemingly upon
instructions of GOYU (Exhibits 1-Malayan to 9-Malayan).
On April 27, 1992, one of GOYUs factory buildings
in Valenzuela was gutted by fire. Consequently, GOYU
submitted its claim for indemnity on account of the loss
insured against. MICO denied the claim on the ground
that the insurance policies were either attached pursuant
to writs of attachments/garnishments issued by various
courts or that the insurance proceeds were also claimed
by other creditors of GOYU alleging better rights to the
proceeds than the insured. GOYU filed a complaint for
specific performance and damages which was docketed
at the Regional Trial Court of the National Capital Judicial
Region (Manila, Branch 3) as Civil Case No. 93-65442,
now subject of the present G.R. No. 128833 and 128866.
RCBC, one of GOYUs creditors, also filed with
MICO its formal claim over the proceeds of the insurance
policies, but said claims were also denied for the same
reasons that MICO denied GOYUs claims.
In an interlocutory order dated October 12, 1993
(Record, pp. 311-312), the Regional Trial Court of Manila
(Branch 3), confirmed that GOYUs other creditors,
namely, Urban Bank, Alfredo Sebastian, and Philippine
Trust Company obtained their respective writs of
attachments from various courts, covering an aggregate
amount of P14,938,080.23, and ordered that the
proceeds of the ten insurance policies be deposited with
the said court minus the aforementioned P14,938,080.23.
Accordingly, on January 7, 1994, MICO deposited the
amount of P50,505,594.60 with Branch 3 of the Manila
RTC.
In the meantime, another notice of garnishment was
handed down by another Manila RTC sala (Branch 28)
for the amount of P8,696,838.75 (Exhibit 22-Malayan).
After trial, Branch 3 of the Manila RTC rendered
judgment in favor of GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the defendant, Malayan
Insurance Company, Inc. and Rizal Commercial Banking
Corporation, ordering the latter as follows:
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total
amount of P74,040,518.58 less the
amount of P50,000,000.00 which is
deposited with this Court;
b. To pay the plaintiff damages by way of interest for the
duration of the delay since July 27,
1992 (ninety days after defendant
insurers receipt of the required proof of
loss and notice of loss) at the rate of
twice the ceiling prescribed by the
Monetary Board, on the following
amounts:
1) P50,000,000.00 from July 27, 1992 up to the time said
amount was deposited with
this Court on January 7, 1994;
2) P24,040,518.58 from July 27, 1992 up to the time
when the writs of attachments
were received by defendant
Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages
in the amount of P2,000,000.00;
3. For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following
amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorneys fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering
the plaintiff to pay its loan obligations with
defendant RCBC in the amount of
P68,785,069.04, as of April 27, 1992, with
interest thereon at the rate stipulated in the
respective promissory notes (without
surcharges and penalties) per computation,
pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court
of Manila is hereby ordered to release immediately to the
plaintiff the amount of P50,000,000.00 deposited with the
Court by defendant Malayan, together with all the
interests earned thereon.
Record, pp. 478-479.)
From this judgment, all parties interposed their
respective appeals. GOYU was unsatisfied with the
amounts awarded in its favor. MICO and RCBC disputed
the trial courts findings of liability on their part. The Court
of Appeals partly granted GOYUs appeal, but sustained
the findings of the trial court with respect to MICO and
RCBCs liabilities, thusly:
WHEREFORE, the decision of the lower court dated
June 29, 1994 is hereby modified as follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount
of P74,040,518.58 less the amount of P50,505,594.60
(per O.R. No. 3649285) plus deposited in court and
damages by way of interest commencing July 27, 1992
until the time Goyu receives the said amount at the rate
of thirty-seven (37%) percent per annum which is twice
the ceiling prescribed by the Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING
CORPORATION:
a) To pay the plaintiff actual and compensatory damages
in the amount of P5,000,000.00.
3. FOR DEFENDANTS MALAYAN INSURANCE CO.,
INC., RIZAL COMMERCIAL BANKING CORPORATION,
UY CHUN BING AND ELI D. LAO:
a) To pay the plaintiff jointly and severally the following
amounts:
1. P1,500,000.00 as exemplary damages;
2. P1,500,000.00 as and for attorneys fees.
4. And on RCBCs Counterclaim, ordering the plaintiff
Goyu & Sons,( Inc. to pay its loan obligation with RCBC in
the amount of P68,785,069.04 as of April 27, 1992
without any interest, surcharges and penalties.
The Clerk of the Court of the Regional Trial Court of
Manila is hereby ordered to immediately release to Goyu
& Sons, Inc. the amount of P50,505,594.60 (per O.R. No.
3649285) deposited with it by Malayan Insurance Co.,
Inc., together with all the interests thereon.
Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No.
128833 and 128866, respectively, seeking review and
consequent reversal of the above dispositions of the
Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from
the decision in C.A. G.R. No. CV-48376, which case, by
virtue of the Court of Appeals resolution dated August 7,
1996, was consolidated with C.A. G.R. No. CV-46162
(subject of herein G.R. No. 128833). At issue in said
petition is RCBCs right to intervene in the action between
Alfredo C. Sebastian (the creditor) and GOYU (the
debtor), where the subject insurance policies were
attached in favor of Sebastian.
After a careful review of the material facts as found
by the two courts below in relation to the pertinent and
applicable laws, we find merit in the submissions of
RCBC and MICO.
The several causes of action pursued below by
GOYU gave rise to several related issues which are now
submitted in the petitions before us. This Court, however,
discerns one primary and central issue, and this is,
whether or not RCBC, as mortgagee, has any right over
the insurance policies taken by GOYU, the mortgagor, in
case of the occurrence of loss.
As earlier mentioned, accordant with the credit
facilities extended by RCBC to GOYU, the latter
executed several mortgage contracts in favor of RCBC. It
was expressly stipulated in these mortgage contracts that
GOYU shall insure the mortgaged property with any of
the insurance companies acceptable to RCBC. GOYU
indeed insured the mortgaged property with MICO, an
insurance company acceptable to RCBC. Based on their
stipulations in the mortgage contracts, GOYU was
supposed to endorse these insurance policies in favor of,
and deliver them, to RCBC. Alchester Insurance Agency,
Inc., MICOs underwriter from whom GOYU obtained the
subject insurance policies, prepared the nine
endorsements (see Exh. 1-Malayan to 9-Malayan; also
Exh. 51-RCBC to 59-RCBC), copies of which were
delivered to GOYU, RCBC, and MICO. However,
because these endorsements do not bear the signature
of any officer of GOYU, the trial court, as well as the
Court of Appeals, concluded that the endorsements are
defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have
separate and distinct insurable interests in the same
mortgaged property, such that each one of them may
insure the same property for his own sole benefit. There
is no question that GOYU could insure the mortgaged
property for its own exclusive benefit. In the present
case, although it appears that GOYU obtained the
subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration
in order to better serve the interest of justice and equity.
It is to be noted that nine endorsement documents
were prepared by Alchester in favor of RCBC. The Court
is in a quandary how Alchester could arrive at the idea of
endorsing any specific insurance policy in favor of any
particular beneficiary or payee other than the insured had
not such named payee or beneficiary been specifically
disclosed by the insured itself. It is also significant that
GOYU voluntarily and purposely took the insurance
policies from MICO, a sister company of RCBC, and not
just from any other insurance company. Alchester would
not have found out that the subject pieces of property
were mortgaged to RCBC had not such information been
voluntarily disclosed by GOYU itself. Had it not been for
GOYU, Alchester would not have known of GOYUs
intention of obtaining insurance coverage in compliance
with its undertaking in the mortgage contracts with
RCBC, and verily, Alchester would not have endorsed
the policies to RCBC had it not been so directed by
GOYU.
On equitable principles, particularly on the ground
of estoppel, the Court is constrained to rule in favor of
mortgagor RCBC. The basis and purpose of the doctrine
was explained in Philippine National Bank vs. Court of
Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of
public policy, fair dealing, good faith and justice, and its
purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to
whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to
aid the law in the administration of justice where without
its aid injustice might result. It has been applied by this
Court wherever and whenever special circumstances of a
case so demand.
p. 368.)
Evelyn Lozada of Alchester testified that upon
instructions of Mr. Go, through a certain Mr. Yam, she
prepared in quadruplicate on February 11, 1992 the nine
endorsement documents for GOYUs nine insurance
policies in favor of RCBC. The original copies of each of
these nine endorsement documents were sent to GOYU,
and the others were sent to RCBC and MICO, while the
fourth copies were retained for Alchesters file (tsn,
February 23, pp. 7-8). GOYU has not denied having
received from Alchester the originals of these
endorsements.
RCBC, in good faith, relied upon the endorsement
documents sent to it as this was only pursuant to the
stipulation in the mortgage contracts. We find such
reliance to be justified under the circumstances of the
case. GOYU failed to seasonably repudiate the authority
of the person or persons who prepared such
endorsements. Over and above this, GOYU continued, in
the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss
insured against, it was too late for GOYU to disown the
endorsements for any imagined or contrived lack of
authority of Alchester to prepare and issue said
endorsements. If there had not been actually an implied
ratification of said endorsements by virtue of GOYUs
inaction in this case, GOYU is at the very least estopped
from assailing their operative effects. To permit GOYU to
capitalize on its non-confirmation of these endorsements
while it continued to enjoy the benefits of the credit
facilities of RCBC which( believed in good faith that there
was due endorsement pursuant to their mortgage
contracts, is to countenance grave contravention of
public policy, fair dealing, good faith, and justice. Such an
unjust situation, the Court cannot sanction. Under the
peculiar circumstances obtaining in this case, the Court is
bound to recognize RCBCs right to the proceeds of the
insurance policies if not for the actual endorsement of the
policies, at least on the basis of the equitable principle of
estoppel.
GOYU cannot seek relief under Section 53 of the
Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the
person in whose name or for whose benefit it is made.
The peculiarity of the circumstances obtaining in the
instant case presents a justification to take exception to
the strict application of said provision, it having been
sufficiently established that it was the intention of the
parties to designate RCBC as the party for whose benefit
the insurance policies were taken out. Consider thus the
following:
1. It is undisputed that the insured pieces of property
were the subject of mortgage contracts entered into
between RCBC and GOYU in consideration of and for
securing GOYUs credit facilities from RCBC. The
mortgage contracts contained common provisions
whereby GOYU, as mortgagor, undertook to have the
mortgaged property properly covered against any loss by
an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover
the mortgaged property from MICO, no less than a sister
company of RCBC and definitely an acceptable
insurance company to RCBC.
3. Endorsement documents were prepared by MICOs
underwriter, Alchester Insurance Agency, Inc., and
copies thereof were sent to GOYU, MICO, and RCBC.
GOYU did not assail, until of late, the validity of said
endorsements.
4. GOYU continued until the occurrence of the fire, to
enjoy the benefits of the credit facilities extended by
RCBC which was conditioned upon the endorsement of
the insurance policies to be taken by GOYU to cover the
mortgaged properties.
This Court can not over stress the fact that upon
receiving its copies of the endorsement documents
prepared by Alchester, GOYU, despite the absence of its
written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its
obligation under the mortgage contracts since RCBC
accordingly continued to extend the benefits of its credit
facilities and GOYU continued to benefit therefrom. Just
as plain too is the intention of the parties to constitute
RCBC as the beneficiary of the various insurance policies
obtained by GOYU. The intention of the parties will have
to be given full force and effect in this particular case.
The insurance proceeds may, therefore, be exclusively
applied to RCBC, which under the factual circumstances
of the case, is truly the person or entity for whose benefit
the policies were clearly intended.
Moreover, the laws evident intention to protect the
interests of the mortgagee upon the mortgaged property
is expressed in Article 2127 of the Civil Code which
states:
ART. 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits, and the
rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan
established by law, whether the estate remains in the Issue Date : January 18, 1992
possession of the mortgagor, or it passes into the hands Expiry Date : February 9, 1993
of a third person. Amount : P9,457,972.76
Significantly, the Court notes that out of the 10 [if !supportEmptyParas] [endif]
insurance policies subject of this case, only 8 of them f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan
appear to have been subject of the endorsements Issue Date : January 13, 1992
prepared and delivered by Alchester for and upon Expiry Date : January 13, 1993
instructions of GOYU as shown below: Amount : P24,750,000.00
INSURANCE POLICY PARTICULARS ENDORSEMENT [if !supportEmptyParas] [endif]
a. Policy Number : F-114-07795 None g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan
Issue Date : March 18, 1992 Issue Date : May 29, 1991
Expiry Date : April 5, 1993 Expiry Date : June 27, 1992
Amount : P9,646,224.92 Amount : P6,000,000.00
[if !supportEmptyParas] [endif] [if !supportEmptyParas] [endif]
b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan h. Policy Number : CI/F-128-03341 None
Issue Date : January 18, 1992 Issue Date : May 3, 1991
Expiry Date : February 9, 1993 Expiry Date : May 3, 1992
Amount : P4,307,217.54 Amount : P10,000,000.00
[if !supportEmptyParas] [endif] [if !supportEmptyParas] [endif]
[if !supportEmptyParas] [endif] i. Policy Number : F-114-07402 Exhibit 8-Malayan
c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan Issue Date : September 16, 1991
Issue Date : January 18, 1992 Expiry Date : October 19, 1992
Expiry Date : February 15, 1993 Amount : P32,252,125.20
Amount : P6,603,586.43 [if !supportEmptyParas] [endif]
[if !supportEmptyParas] [endif] j. Policy Number : F-114-07525 Exhibit 9-Malayan
d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan Issue Date : November 20, 1991
Issue Date : January 18, 1992 Expiry Date : December 5, 1992
Expiry Date : (not legible) Amount : P6,603,586.43
Amount : P6,603,586.43 [if !supportEmptyParas] [endif]
(pp. 456-457, Record; Folder of Exhibits for MICO.)
 Policy Number F-114-07795 [(a) above] has not
been endorsed. This fact was admitted by MICOs
witness, Atty. Farolan (tsn, February 16, 1994, p. 25).
Likewise, the record shows no endorsement for Policy
Number CI/F-128-03341 [(h) above]. Also, one of the
endorsement documents, Exhibit 5-Malayan, refers to a
certain insurance policy number ACIA-F-07066, which is
not among the insurance policies involved in the
complaint.
The proceeds of the 8 insurance policies endorsed
to RCBC aggregate to P89,974,488.36. Being exclusively
payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the
force and effect of an endorsement by GOYU itself, these
8 policies can not be attached by GOYUs other creditors
up to the extent of the GOYUs outstanding obligation in
RCBCs favor. Section 53 of the Insurance Code ordains
that the insurance proceeds of the endorsed policies
shall be applied exclusively to the proper interest of the
person for whose benefit it was made. In this case, to the
extent of GOYUs obligation with RCBC, the interest of
GOYU in the subject policies had been transferred to
RCBC effective as of the time of the endorsement. These
policies may no longer be attached by the other creditors
of GOYU, like Alfredo Sebastian in the present G.R. No.
128834, which may nonetheless forthwith be dismissed
for being moot and academic in view of the results
reached herein. Only the two other policies amounting to
P19,646,224.92 may be validly attached, garnished, and
levied upon by GOYUs other creditors. To the extent of
GOYUs outstanding obligation with RCBC, all the rest of
the other insurance policies above-listed which were
endorsed to RCBC, are, therefore, to be released from
attachment, garnishment, and levy by the other creditors
of GOYU.
This brings us to the next relevant issue to be
resolved, which is, the extent of GOYUs outstanding
obligation with RCBC which the proceeds of the 8
insurance policies will discharge and liquidate, or put
differently, the actual amount of GOYUs liability to RCBC.
The Court of Appeals simply echoed the declaration
of the trial court finding that GOYUS total obligation to
RCBC was only P68,785,060.04 as of April 27, 1992,
thus sanctioning the trial courts exclusion of Promissory
Note No. 421-92 (renewal of Promissory Note No. 908-
91) and Promissory Note No. 420-92 (renewal of
Promissory Note No. 952-91) on the ground that their
execution is highly questionable for not only are these
dated after the fire, but also because the signatures of
either GOYU or any its representative are conspicuously
absent. Accordingly, the Court of Appeals speculated
thusly:
Hence, this Court is inclined to conclude that said
promissory notes were pre-signed by plaintiff in blank
terms, as averred by plaintiff, in contemplation of the
speedy grant of future loans, for the same practice of
procedure has always been adopted in its previous
dealings with the bank.
Rollo, pp. 181-182.)
The fact that the promissory notes bear dates
posterior to the fire does not necessarily mean that the
documents are spurious, for it is presumed that the
ordinary course of business had been followed
(Metropolitan Bank and Trust Company vs. Quilts and All,
Inc., 222 SCRA 486 [1993]). The obligor and not the
holder of the negotiable instrument has the burden of
proof of showing that he no longer owes the obligee any
amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA
351 [1992]).
Even casting aside the presumption of regularity of
private transactions, receipt of the loan amounting to
P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by
GOYU as indicated in the testimony of Go Song Hiap
when he answered the queries of the trial court:
ATTY. NATIVIDAD
Q: But insofar as the amount stated in Exhibits 1 to 29-
RCBC, you received all the amounts stated
therein?
A: Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in
Exhibits 1 to 29-RCBC?
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the
amount I asked which is correct, Your Honor.
COURT
Q: You mean to say the amounts indicated in Exhibits 1
to 29-RCBC is correct?
A: Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of
having received all the proceeds of the 29 promissory
notes as hereinabove quoted, GOYU also offered and
admitted to RCBC that its obligation be fixed at
P116,301,992.60 as shown in its letter dated March 9,
1993, which pertinently reads:
We wish to inform you, therefore that we are ready and
willing to pay the current past due account of this
company in the amount of P116,301,992.60 as of 21
January 1993, specified in pars. 15, p. 10, and 18, p. 13
of your affidavits of Third Party Claims in the Urban case
at Makati, Metro Manila and in the Zamboanga case at
Zamboanga city, respectively, less the total of
P8,851,519.71 paid from the Seaboard and Equitable
insurance companies and other legitimate deductions.
We accept and confirm this amount of P116,301,992.60
as stated as true and correct.
Exhibit BB.)
The Court of Appeals erred in placing much
significance on the fact that the excluded promissory
notes are dated after the fire. It failed to consider that
said notes had for their origin transactions consummated
prior to the fire. Thus, careful attention must be paid to
the fact that Promissory Notes No. 420-92 and 421-92
are mere renewals of Promissory Notes No. 908-91 and
952-91, loans already availed of by GOYU.
The two courts below erred in failing to see that the
promissory notes which they ruled should be excluded for
bearing dates which are after that of the fire, are mere
renewals of previous ones. The proceeds of the loan
represented by these promissory notes were admittedly
received by GOYU. There is ample factual and legal
basis for giving GOYUs judicial admission of liability in
the amount of P116,301,992.60 full force and effect
It should, however, be quickly added that whatever
amount RCBC may have recovered from the other
insurers of the mortgaged property will, nonetheless,
have to be applied as payment against GOYUs
obligation. But, contrary to the lower courts findings,
payments effected by GOYU prior to January 21, 1993
should no longer be deducted. Such payments had
obviously been duly considered by GOYU, in its
aforequoted letter dated March 9, 1993, wherein it
admitted that its past due account totaled
P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is
thus reduced to P107,246,887.90 as of January 21,
1993, to wit:
Total Obligation as admitted by GOYU as of January 21,
1993: P116,301,992.60
Broken down as follows
Principal[if !supportFootnotes][1][endif] Interest
Regular 80,535,946.32
FDU 7,548,025.17
____________ _____________
Total: 108,083,971.49 8,218,021.11[if !supportFootnotes][2][endif]
LESS:
1) Proceeds from
Seaboard Eastern
Insurance Company: 6,095,145.81
2) Proceeds from
Equitable Insurance
Company: 2,756,373.00
3) Payment from
foreign department
negotiation: 203,584.89
9,055,104.70[if !supportFootnotes][3][endif]
NET AMOUNT as of January 21, 1993: P
107,246,887.90
The need for the payment of interest due upon the
principal amount of the obligation, which is the cost of
money to RCBC, the primary end and the ultimate reason
for RCBCs existence and being, was duly recognized by
the trial court when it ruled favorably on RCBCs
counterclaim, ordering GOYU to pay its loan obligation
with RCBC in the amount of P68,785,069.04, as of April
27,1992, with interest thereon at the rate stipulated in the
respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B, 14-C
(Record, p. 479). Inexplicably, the Court of Appeals,
without even laying down the factual or legal justification
for its ruling, modified the trial courts ruling and ordered
GOYU to pay the principal amount of P68,785,069.04
without any interest, surcharges and penalties (Rollo, p.
200).
It is to be noted in this regard that even the trial
court hedgingly and with much uncertainty deleted the
payment of additional interest, penalties, and charges, in
this manner:
Regarding defendant RCBCs commitment not to charge
additional interest, penalties and surcharges, the same
does not require that it be embodied in a document or
some form of writing to be binding and enforceable. The
principle is well known that generally a verbal agreement
or contract is no less binding and effective than a written
one. And the existence of such a verbal agreement has
been amply established by the evidence in this case. In
any event, regardless of the existence of such verbal
agreement, it would still be unjust and inequitable for
defendant RCBC to charge the plaintiff with surcharges
and penalties considering the latters pitiful situation.
(Emphasis supplied.)
(Record, p. 476)
The essence or rationale for the payment of interest
or cost of money is separate and distinct from that of
surcharges and penalties. What may justify a court in not
allowing the creditor to charge surcharges and penalties
despite express stipulation therefor in a valid agreement,
may not equally justify non-payment of interest. The
charging of interest for loans forms a very essential and
fundamental element of the banking business, which may
truly be considered to be at the very core of its existence
or being. It is inconceivable for a bank to grant loans for
which it will not charge any interest at all. We fail to find
justification for the Court of Appeals outright deletion of
the payment of interest as agreed upon in the respective
promissory notes. This constitutes gross error.
For the computation of the interest due to be paid to
RCBC, the following rules of thumb laid down by this
Court in Eastern Shipping Lines, Inc. vs. Court of
Appeals (234 SCRA 78 [1994]), shall apply, to wit:
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 of 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.
pp. 95-97.)
There being written stipulations as to the rate of
interest owing on each specific promissory note as
summarized and tabulated by the trial court in its decision
(pp.470 and 471, Record) such agreed interest rates
must be followed. This is very clear from paragraph II,
sub-paragraph 1 quoted above.
On the issue of payment of surcharges and
penalties, we partly agree that GOYUs pitiful situation
must be taken into account. We do not agree, however,
that payment of any amount as surcharges and penalties
should altogether be deleted. Even assuming that RCBC,
through its responsible officers, herein petitioners Eli Lao
and Uy Chun Bing, may have relayed its assurance for
assistance to GOYU immediately after the occurrence of
the fire, we cannot accept the lower courts finding that
RCBC had thereby ipso facto effectively waived
collection of any additional interests, surcharges, and
penalties from GOYU. Assurances of assistance are one
thing, but waiver of additional interests, surcharges, and
penalties is another.
Surcharges and penalties agreed to be paid by the
debtor in case of default partake of the nature of
liquidated damages, covered by Section 4, Chapter 3,
Title XVIII of the Civil Code. Article 2227 thereof
provides:
ART. 2227. Liquidated damages, whether intended as a
indemnity or penalty, shall be equitably reduced if they
are iniquitous and unconscionable.
In exercising this vested power to determine what is
iniquitous and unconscionable,
( the Court must consider
the circumstances of each case. It should be stressed
that the Court will not make any sweeping ruling that
surcharges and penalties imposed by banks for non-
payment of the loans extended by them are generally
iniquitous and unconscionable. What may be iniquitous
and unconscionable in one case, may be totally just and
equitable in another. This provision of law will have to be
applied to the established facts of any given case. Given
the circumstances under which GOYU found itself after
the occurrence of the fire, the Court rules the surcharges
rates ranging anywhere from 9% to 27%, plus the penalty
charges of 36%, to be definitely iniquitous and
unconscionable. The Court tempers these rates to 2%
and 3%, respectively. Furthermore, in the light of GOYUs
offer to pay the amount of P116,301,992.60 to RCBC as
March 1993 (See: Exhibit BB), which RCBC refused, we
find it more in keeping with justice and equity for RCBC
not to charge additional interest, surcharges, and
penalties from that time onward.
Given the factual milieu spread hereover, we rule
that it was error to hold MICO liable in damages for
denying or withholding the proceeds of the insurance
claim to GOYU.
Firstly, by virtue of the mortgage contracts as well
as the endorsements of the insurance policies, RCBC
has the right to claim the insurance proceeds, in
substitution of the property lost in the fire. Having
assigned its rights, GOYU lost its standing as the
beneficiary of the said insurance policies.
Secondly, for an insurance company to be held
liable for unreasonably delaying and withholding payment
of insurance proceeds, the delay must be wanton,
oppressive, or malevolent (Zenith Insurance Corporation
vs. CA, 185 SCRA 403 [1990]). It is generally agreed,
however, that an insurer may in good faith and honesty
entertain a difference of opinion as to its liability.
Accordingly, the statutory penalty for vexatious refusal of
an insurer to pay a claim should not be inflicted unless
the evidence and circumstances show that such refusal
was willful and without reasonable cause as the facts
appear to a reasonable and prudent man (Buffalo Ins.
Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211;
Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65
Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo.
143, 281 SW 47, 45 ALR 189). The case at bar does not
show that MICO wantonly and in bad faith delayed the
release of the proceeds. The problem in the
determination of who is the actual beneficiary of the
insurance policies, aggravated by the claim of various
creditors who wanted to partake of the insurance
proceeds, not to mention the importance of the
endorsement to RCBC, to our mind, and as now borne
out by the outcome herein, justified MICO in withholding
payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the
Court of Appeals said that RCBC cannot avail itself of
two simultaneous remedies in enforcing the claim of an
unpaid creditor, one for specific performance and the
other for foreclosure. In doing so, said the appellate
court, the second action is deemed barred, RCBC having
split a single cause of action (Rollo, pp. 195-199). The
Court of Appeals was too accommodating in giving due
consideration to this argument of GOYU, for the
foreclosure suit is still pending appeal before the same
Court of Appeals in CA G.R CV No. 46247, the case
having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper,
the Fifteenth Division of the Court of Appeals pre-empted
the resolution of said foreclosure case which is not before
it. This is plain reversible error if not grave abuse of
discretion.
As held in Pea vs. Court of Appeals (245 SCRA
691[1995]):
It should have been enough, nonetheless, for the
appellate court to merely set aside the questioned orders
of the trial court for having been issued by the latter with
grave abuse of discretion. In likewise enjoining
permanently herein petitioner from entering in and
interfering with the use or occupation and enjoyment of
petitioners (now private respondent) residential house
and compound, the appellate court in effect, precipitately
resolved with finality the case for injunction that was yet
to be heard on the merits by the lower court. Elevated to
the appellate court, it might be stressed, were mere
incidents of the principal case still pending with the trial
court. In Municipality of Bian, Laguna vs. Court of
Appeals, 219 SCRA 69, we ruled that the Court of
Appeals would have no jurisdiction in a certiorari
proceeding involving an incident in a case to rule on the
merits of the main case itself which was not on appeal
before it.
pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case
No. 1073, before the Zamboanga Regional Trial Court,
since it has been determined that RCBC has the right to
the insurance proceeds, the subject matter of intervention
is rendered moot and academic. Respondent Sebastian
must, however, yield to the preferential right of RCBC
over the MICO insurance policies. It is basic and
fundamental that the first mortgagee has superior rights
over junior mortgagees or attaching creditors (Alpha
Insurance & Surety Co. vs. Reyes, 106 SCRA 274
[1981]; Sun Life Assurance Co. of Canada vs. Gonzales
Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED
and the decision and resolution of December 16, 1996
and April 3, 1997 in CA-G.R. CV No. 46162 are hereby
REVERSED and SET ASIDE, and a new one entered:
1. Dismissing the Complaint of private respondent GOYU
in Civil Case No. 93-65442 before Branch 3 of the Manila
Regional Trial Court for lack of merit;
2. Ordering Malayan Insurance Company, Inc. to deliver
to Rizal Commercial Banking Corporation the proceeds
of the insurance policies in the amount of
P51,862,390.94 (per report of adjuster Toplis & Harding
(Far East), Inc., Exhibits 2 and 2-1), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of
P50,505,594.60 including the interests earned to Rizal
Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation
with Rizal Commercial Banking ( Corporation in the
principal amount of P107,246,887.90, with interest at the
respective rates stipulated in each promissory note from
January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21,
1993 to March 9, 1993, minus payments made by
Malayan Insurance Company, Inc. and the proceeds of
the amount deposited with the trial court and its earned
interest. The total amount due RCBC at the time of the
finality of this judgment shall earn interest at the legal
rate of 12% in lieu of all other stipulated interests and
charges until fully paid.
The petition of Rizal Commercial Banking
Corporation against the respondent Court in CA-GR CV
48376 is DISMISSED for being moot and academic in
view of the results herein arrived at. Respondent
Sebastians right as attaching creditor must yield to the
preferential rights of Rizal Commercial Banking
Corporation over the Malayan insurance policies as first
mortgagee.
SO ORDERED.
FIRST FIL-SIN LENDING CORPORATION, petitioner,
vs. GLORIA D. PADILLO, respondent.
DECISION
YNARES-SANTIAGO, J.:
Before us is a petition for review under Rule 45 of the
Rules of Court, seeking a reversal of the Court of
Appeals decision in CA-G.R. CV No. 75183[1] dated
October 16, 2003, which reversed and set aside the
decision of the Regional Trial Court of Manila, Branch 21
in Civil Case No. 00-96235.
On July 22, 1997, respondent Gloria D. Padillo obtained
a P500,000.00 loan from petitioner First Fil-Sin Lending
Corp. On September 7, 1997, respondent obtained
another P500,000.00 loan from petitioner. In both
instances, respondent executed a promissory note and
disclosure statement.[2]
For the first loan, respondent made 13 monthly interest
payments of P22,500.00 each before she settled the
P500,000.00 outstanding principal obligation on February
2, 1999. As regards the second loan, respondent made
11 monthly interest payments of P25,000.00 each before
paying the principal loan of P500,000.00 on February 2,
1999.[3] In sum, respondent paid a total of P792,500.00
for the first loan and P775,000.00 for the second loan.
On January 27, 2000, respondent filed an action for sum
of money against herein petitioner before the Regional
Trial Court of Manila. Alleging that she only agreed to pay
interest at the rates of 4.5% and 5% per annum,
respectively, for the two loans, and not 4.5% and 5% per
month, respondent sought to recover the amounts she
allegedly paid in excess of her actual obligations.
On October 12, 2001,[4] the trial court dismissed
respondents complaint, and on the counterclaim, ordered
her to pay petitioner P311,125.00 with legal interest from
February 3, 1999 until fully paid plus 10% of the amount
due as attorneys fees and costs of the suit.[5] The trial
court ruled that by issuing checks representing interest
payments at 4.5% and 5% monthly interest rates,
respondent is now estopped from questioning the
provisions of the promissory notes.
On appeal, the Court of Appeals (CA) reversed and set
aside the decision of the court a quo, the dispositive
portion of which reads:
IN VIEW OF ALL THE FOREGOING, the appealed
decision is REVERSED and SET ASIDE and a new one
entered: (1) ordering First Fil-Sin Lending Corporation to
return the amount of P114,000.00 to Gloria D. Padillo,
and (2) deleting the award of attorneys fees in favor of
appellee. Other claims and counterclaims are dismissed
for lack of sufficient causes. No pronouncement as to
cost.
SO ORDERED.[6]
The appellate court ruled that, based on the disclosure
statements executed by respondent, the interest rates
should be imposed on a monthly basis but only for the 3-
month term of the loan. Thereafter, the legal interest rate
will apply. The CA also found the penalty charges
pegged at 1% per day of delay highly unconscionable as
it would translate to 365% per annum. Thus, it was
reduced to 1% per month or 12% per annum.
Hence, the instant petition on the following assignment of
errors:
I Petitioner finally contends that the CA erred in deleting
THE COURT OF APPEALS ERRED IN FINDING THAT
THE APPLICABLE INTEREST SHOULD BE THE LEGAL
INTEREST OF TWELVE PER CENT (12%) PER
ANNUM DESPITE THE CLEAR AGREEMENT OF THE
PARTIES ON ANOTHER APPLICABLE RATE.
II
THE COURT OF APPEALS ERRED IN IMPOSING A
PENALTY COMPUTED AT THE RATE OF TWELVE
PER CENT (12%) PER ANNUM DESPITE THE CLEAR
AGREEMENT OF THE PARTIES ON ANOTHER
APPLICABLE RATE.
III
THE COURT OF APPEALS ERRED IN DELETING THE
ATTORNEYS FEES AWARDED BY THE REGIONAL
TRIAL COURT.[7]
Petitioner maintains that the trial court and the CA are
correct in ruling that the interest rates are to be imposed
on a monthly and not on a per annum basis. However, it
insists that the 4.5% and 5% monthly interest shall be
imposed until the outstanding obligations have been fully
paid.
As to the penalty charges, petitioner argues that the 12%
per annum penalty imposed by the CA in lieu of the 1%
per day as agreed upon by the parties violates their
freedom to stipulate terms and conditions as they may
deem proper.
the trial courts award of attorneys fees arguing that the
same is anchored on sound and legal ground.
Respondent, on the other hand, avers that the interest on
the loans is per annum as expressly stated in the
promissory notes and disclosure statements. The
provision as to annual interest rate is clear and requires
no room for interpretation. Respondent asserts that any
ambiguity in the promissory notes and disclosure
statements should not favor petitioner since the loan
documents were prepared by the latter.
We agree with respondent.
Perusal of the promissory notes and the disclosure
statements pertinent to the July 22, 1997 and September
7, 1997 loan obligations of respondent clearly and
unambiguously provide for interest rates of 4.5% per
annum and 5% per annum, respectively. Nowhere was it
stated that the interest rates shall be applied on a
monthly basis.
Thus, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it
any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the
contract.[8] It is only in instances when the language of a
contract is ambiguous or obscure that courts ought to
apply certain established rules of construction in order to
ascertain the supposed intent of the parties. However,
these rules will not be used to make a new contract for
the parties or to rewrite the old one, even if the contract is
inequitable or harsh. They are applied by the court
merely to resolve doubts and ambiguities within the
framework of the agreement.[9]
The lower court and the CA mistook the Loan
Transactions Summary for the Disclosure Statement. The
former was prepared exclusively by petitioner and merely
summarizes the payments made by respondent and the
income earned by petitioner. There was no mention of
any interest rates and having been prepared exclusively
by petitioner, the same is self serving. On the contrary,
the Disclosure Statements were signed by both parties
and categorically stated that interest rates were to be
imposed annually, not monthly.
As such, since the terms and conditions contained in the
promissory notes and disclosure statements are clear
and unambiguous, the same must be given full force and
effect. The expressed intention of the parties as laid
down on the loan documents controls.
Also, reformation cannot be resorted to as the documents
have not been assailed on the ground of mutual mistake.
When a party sues on a written contract and no attempt
is made to show any vice therein, he cannot be allowed
to lay claim for more than what its clear stipulations
accord. His omission cannot be arbitrarily supplied by the
courts by what their own notions of justice or equity may
dictate.[10]
Notably, petitioner even admitted that it was solely
responsible for the preparation of the loan documents,
and that it failed to correct the pro forma note p.a. to per
month.[11] Since the mistake is exclusively attributed to
petitioner, the same should be charged against it. This
unilateral mistake cannot be taken against respondent
who merely affixed her signature on the pro forma loan
agreements. As between two parties to a written
agreement, the party who gave rise to the mistake or
error in the provisions of the same is estopped from
asserting a contrary intention to that contained therein.
The checks issued by respondent do not clearly and
convincingly prove that the real intent of the parties is to
apply the interest rates on a monthly basis. Absent any
proof of vice of consent, the promissory notes and
disclosure statements remain the best evidence to
ascertain the real intent of the parties.
The same promissory note provides that x x x any and all
remaining amount due on the principal upon maturity
hereof shall earn interest at the rate of _____ from date
of maturity until fully paid. The CA thus properly imposed
the legal interest of 12% per annum from the time the
loans matured until the same has been fully paid on
February 2, 1999. As decreed in Eastern Shipping Lines,
Inc. v. Court of Appeals,[12] in the absence of stipulation,
the rate of interest shall be 12% per annum to be
computed from default.
As regards the penalty charges, we agree with the CA in
ruling that the 1% penalty per day of delay is highly
unconscionable. Applying Article 1229 of the Civil Code,
courts shall equitably reduce the penalty when the
principal obligation has been partly or irregularly
complied with, or if it is iniquitous or unconscionable.
With regard to the attorneys fees, the CA correctly
deleted the award in favor of petitioner since the trial
courts decision does not reveal any explicit basis for such
an award. Attorneys fees are not automatically awarded
to every winning litigant. It must be shown that any of the
instances enumerated under Art. 2208[13] of the Civil
Code exists to justify the award thereof.[14] Not one of
such instances exists here. Besides, by filing the
complaint, respondent was merely asserting her rights
which, after due deliberations, proved to be lawful, proper
and valid.
WHEREFORE, in view of the foregoing, the
October 16, 2003 decision of the Court of Appeals in CA-
G.R. CV No. 75183 is AFFIRMED with the
MODIFICATION that the interest rates on the July 22,
1997 and September 7, 1997 loan obligations of
respondent Gloria D. Padillo from petitioner First Fil-Sin
Lending Corporation be imposed and computed on a per
annum basis, and upon their respective maturities, the
interest rate of 12% per annum shall be imposed until full
payment. In addition, the penalty at the rate of 12% per
annum shall be imposed on the outstanding obligations
from date of default until full payment.
SO ORDERED.
G.R. No. L-60705 June 28, 1989
INTEGRATED REALTY CORPORATION and RAUL L.
SANTOS, petitioners,
vs.
PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF
MANILA and THE HON. COURT OF APPEALS,
respondents.
G.R. No. L-60907 June 28, 1989
OVERSEAS BANK OF MANILA, petitioner,
vs.
COURT OF APPEALS, INTEGRATED REALTY
CORPORATION, and RAUL L. SANTOS, respondents.
REGALADO, J.:
In these petitions for review on certiorari, Integrated
Realty Corporation and Raul Santos (G.R. No. 60705),
and Overseas Bank of Manila (G.R. No. 60907) appeal
from the decision of the Court of Appeals, 1 the decretal
portion of which states:
WHEREFORE, with the modification that appellee
Overseas Bank of Manila is ordered to pay to the
appellant Raul Santos the sum of P 700,000.00 due
under the time deposit certificates Nos. 2308 and 2367
with 6 1/2 (sic) interest per annum from date of issue until
fully paid, the appealed decision is affirmed in all other
respects.
In G.R. No. 60705, petitioners Integrated Realty
Corporation (hereafter, IRC and Raul L. Santos
(hereafter, Santos) seek the dismissal of the complaint
filed by the Philippine National Bank (hereafter, PNB), or
in the event that they be held liable thereunder, to revive
and affirm that portion of the decision of the trial court
ordering Overseas Bank of Manila (hereafter, OBM) to
pay IRC and Santos whatever amounts the latter will pay
to PNB, with interest from the date of payment. 2
On the other hand, in G.R. No. 60907, petitioner OBM
challenges the decision of respondent court insofar as it
holds OBM liable for interest on the time deposit with it of
Santos corresponding to the period of its closure by order
of the Central Bank. 3
In its assailed decision, the respondent Court of Appeals,
quoting from the decision of the lower court, 4 narrated
the antecedents of this case in this wise:
The facts of this case are not seriously disputed by any of
the parties. They are set forth in the decision of the trial
court as follows:
Under date 11 January 1967 defendant Raul L. Santos
made a time deposit with defendant OBM in the amount
of P 500,000.00. (Exhibit-10 OBM) and was issued a
Certificate of Time Deposit No. 2308 (Exhibit 1 Santos,
Exhibit D). Under date 6 February 1967 defendant Raul
L. Santos also made a time deposit with defendant OBM
in the amount of P 200,000.00 (Exhibit 11 OBM and was
issued certificate of Time Deposit No. 2367 (Exhibit 2
Santos, Exhibit E).
Under date 9 February 1967 defendant IRC thru its
President-defendant Raul L. Santos, applied for a loan
and/or credit line (Exhibit A) in the amount of P
700,000.00 with plaintiff bank. To secure the said loan,
defendant Raul L. Santos executed on August 11, 1967 a
Deed of Assignment (Exhibit C) of the two time deposits
(Exhibits 1-Santos and 2 Santos, also Exhibits D and E)
in favor of plaintiff. Defendant OBM gave its conformity to
the assignment thru letter dated 11 August 1967 (Exhibit
F). On the same date, defendant IRC thru its President
Raul L. Santos, also executed a Deed of Conformity to
Loan Conditions (Exhibit G).
The defendant OBM after the due dates of the time
deposit certificates, did not pay plaintiff PNB. Plaintiff
demanded payment from defendants IRC and Raul L.
Santos (Exhibit K) and from defendant OBM (Exhibit L).
Defendants IRC and Raul L. Santos replied that the
obligation (loan) of defendant IRC was deemed paid with
the irrevocable assignment of the time deposit certificates
(Exhibits 5 Santos, 6 Santos and 7 Santos).
On April 6, 1969 (sic), ** PNB filed a complaint to collect
from IRC and Santos the loan of P 700,000.00 with
interest as well as attomey's fees. It impleaded OBM as a
defendant to compel it to redeem and pay to it Santos'
time deposit certificates with interest, plus exemplary and
corrective damages, attorney's fees, and cost.
In their answer to the complaint, IRC and Santos alleged
that PNB has no cause of action against them because
their obligation to PNB was fully paid or extinguished
upon the' irrevocable' assignment of the time deposit
certificates, and that they are not answerable for the
insolvency of OBM They filed a counterclaim for
damages against PNB and a cross-claim against OBM
alleging that OBM acted fraudulently in refusing to pay
the time deposit certificates to PNB resulting in the filing
of the suit against them by PNB, and that, therefore,
OBM should pay them whatever amount they may be
ordered by the court to pay PNB with interest. They also
asked that OBM be ordered to pay them compensatory,
moral, exemplary and corrective damages.
In its answer to the complaint, OBM denied knowledge of
the time deposit certificates because the alleged time
deposit of Santos 'does not appear in its books of
account.
Whereupon, IRC and Santos, with leave of court, filed a
third-party complaint against Emerito B. Ramos, Jr.,
president of OBM and Rodolfo R. Sunico, treasurer of
said bank, who allegedly received the time deposits of
Santos and issued the certificates therefor.
Answering the third-party complaint, Ramos and Sunico
alleged that IRC and Santos have no cause of action
against them because they received and signed the time
deposit certificates as officers of OBM that the time
deposits are recorded in the subsidiary ledgers of the
bank and are 'civil liabilities of the defendant OBM
On November 18, 1970, OBM filed an amended or
supplemental answer to the complaint, acknowledging
the certificates of time deposit that it issued to Santos,
and admitting its failure to pay the same due to its
distressed financial situation. As affirmative defenses, it
alleged that by reason of its state of insolvency its
operations have been suspended by the Central Bank
since August 1, 1968; that the time deposits ceased to
earn interest from that date; that it may not give
preference to any depositor or creditor; and that payment
of the plaintiffs claim is prohibited.
On January 30, 1976, the lower court rendered judgment
for the plaintiff, the dispositive portion of which reads as
foIlows
WHEREFORE, judgment is hereby rendered, ordering:
1. The defendant Integrated Realty Corporation and Raul
L. Santos to pay the plaintiff, jointly and solidarily, the
total amount of P 700,000.00 plus interest at the rate of
9% per annum from maturity dates of the two promissory
notes on January 11 and February 6, 1968, respectively
(Exhibits M and I), plus 1-1/ 2% additional interest
effective February 28, 1968 and additional penalty
interest of 1% per annum of the Id amount of P
700,000.00 from the time of maturity of Id loan up to the
time the said amount of P 700,000.00 is actually paid to
the plaintiff;
2. The defendants topay l0% of the amount of P
700,000.00 as and for attorney's fees;
3. The defendant Overseas Bank of Manila to pay cross-
plaintiffs Integrated Realty Corporation and Raul L.
Santos whatever amounts the latter will pay to the
plaintiff with interest from date of payment;
4. The defendant Overseas Bank of Manila to pay cross-
plaintiffs Integrated Realty Corporation and Raul L.
Santos the amount of P 10,000.00 as and for attorney's
fees;
5. The third-party complaint and cross-claim dismissed;
6. The defendant Overseas Bank of Manila to pay the
costs.
SO ORDERED. 5
IRC Santos and OBM all appealed to the respondent
Court of Appeals. As stated in limine, on March 16, 1982
respondent court promulgated its appealed decision, with
a modification and the deletion of that portion of the
judgment of the trial court ordering OBM to pay IRC and
Santos whatever amounts they will pay to PNB with
interest from the date of payment.
Therein defendants-appellants, through separate
petitions, have brought the said decision to this Court for
review.
1. The first issue posed before us for resolution is
whether the liability of IRC and Santos with PNB should
be deemed to have been paid by virtue of the deed of
assignment made by the former in favor of PNB, which
reads:
KNOW ALL MEN BY THESE PRESENTS;
I, RAUL L. SANTOS, of legal age, Filipino, with residence
and postal address at 661 Richmond St., Mandaluyong,
Rizal for and in consideration of certain loans, overdrafts
and other credit accommodations granted or those that
may hereafter be granted to me/us by the PHILIPPINE
NATIONAL BANK, have assigned, transferred and
conveyed and by these presents, do hereby assign,
transfer and convey by way of security unto said
PHILIPPINE NATIONAL BANK its successors and
assigns the following Certificates of Time Deposit issued
by the OVERSEAS BANK OF MANILA, its
CONFORMITY issued on August 11, 1967, hereto
enclosed as Annex ' A', in favor of RAUL L. SANTOS
and/or NORA S. SANTOS, in the aggregate sum of
SEVEN HUNDRED THOUSAND PESOS ONLY (P
700,000.00), Philippine Currency, ....
xxx xxx xxx
It is also understood that the herein Assignor/s shall
remain hable for any outstanding balance of his/their
obligation if the Bank is unable to actually receive or
collect the above assigned sums , monies or properties
resulting from any agreements, orders or decisions of the
court or for any other cause whatsoever. 6
xxx xxx xxx
Respondent Court of Appeals did not consider the
aforesaid assignment as payment, thus:
The contention of IRC and Santos that the irrevocable
assignment of the time deposit certificates to PNB
constituted payment' of their obligation to the latter is not
well taken.
Where a certificate of deposit in a bank, payable at a
future day, was handed over by a debtor to his creditor, it
was not payment, unless there was an express
agreement on the part of the creditor to receive it as
such, and the question whether there was or was not
such an agreement, was one of facts to be decided by
the jury. (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed.
404; See also Michie, Vol. 5-B Banks and Banking, p.
200). 7
We uphold respondent court on this score.
In Lopez vs. Court of appeals, et al., 8 petitioner Benito
Lopez obtained a loan for P 20,000.00 from the
Prudential Bank and Trust Company. On the same day,
he executed a promissory note in favor of the bank and,
in addition, he executed a surety bond in which he, as
principal, and Philippine American General Insurance
Co., Inc. (Philamgen), as surety, bound themselves
jointly and severally in favor of the bank for the payment
of the loan. On the same occasion, Lopez also executed
in favor of Philamgen an indemnity agreement whereby
he agreed to indemnify the company against any
damages which the latter may sustain in consequence of
having become a surety upon the bond. At the same
time, Lopez executed a deed of assignment of his shares
of stock in the Baguio Military Institute, Inc. in favor of
Philamgen. When Lopez' obligation matured without
being settled, Philamgen caused the transfer of the
shares of stocks to its name in order that it may sell the
same and apply the proceeds thereof in payment of the
loan to the bank. However, when no payment was still
made by the principal debtor or surety, the bank filed a
complaint which compelled Philamgen to pay the bank.
Thereafter, Philamgen filed an action to recover the
amount of the loan against Lopez. The trial court therein
held that the obligation of Lopez was deemed paid when
his shares of stocks were transferred in the name of
Philamgen. On appeal, the Court of Appeals ruled that
Lopez was still liable to Philamgen because, pending
payment, Philamgen was merely holding the stock as
security for the payment of Lopez' obligation.
In upholding the finding therein of the Court of Appeals,
We held that:
Notwithstanding the express terms of the 'Stock
Assignment Separate from Certificate', however, We hold
and rule that the transaction should not be regarded as
an absolute conveyance in view of the circumstances
obtaining at the time of the execution thereof.
It should be remembered that on June 2, 1959, the day
Lopez obtained a loan of P 20,000.00 from Prudential
Bank, Lopez executed a promissory note for P
20,000.00, plus interest at the rate of ten (10%) per cent
per annum, in favor of said Bank. He likewise posted a
surety bond to secure his full and faithful performance of
his obligation under the promissory note with Philamgen
as his surety. In return for the undertaking of Philamgen
under the surety bond, Lopez executed on the same day
not only an indemnity agreement but also a stock
assignment.
The indemnity agreement and stock assignment must be
considered together as related transactions because in
order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be
principally considered. (Article 1371, New Civil Code).
Thus, considering that the indemnity agreement connotes
a continuing obligation of Lopez towards Philamgen while
the stock assignment indicates a complete discharge of
the same obligation, the existence of the indemnity
agreement whereby Lopez had to pay a premium of P
l,000.00 for a period of one year and agreed at all times
to indemnify Philamgen of any and all kinds of losses
which the latter might sustain by reason of it becoming a
surety, is inconsistent with the theory of an absolute sale
for and in consideration of the same undertaking of
Philamgen. There would have been no necessity for the
execution of the indemnity agreement if the stock
assignment was really intended as an absolute
conveyance. ...
Along the same vein, in the case at bar it would not have
been necessary on the part of IRC and Santos to execute
promissory notes in favor of PNB if the assignment of the
time deposits of Santos was really intended as an
absolute conveyance.
There are cogent reasons to conclude that the parties
intended said deed of assignment to complement the
promissory notes. In declaring that the deed of
assignment did not operate as payment of the loan so as
to extinguish the obligations of IRC and Santos with PNB,
the trial court advanced several valid bases, to wit:
a. It is clear from the Deed of Assignment that it was only
by way of security;
xxx xxx xxx
b. The promissory notes (Exhibits H and I) were executed
on August 16, 1967. If defendants IRC and Raul L.
Santos, upon executing the Deed of Assignment on
August 11, 1967 had already paid their loan of P
700,000.00 or otherwise extinguished the same, why
were the promissory notes made on August 16, 1967 still
executed by IRC and signed by Raul L. Santos as
President?
c. In the application for a credit line (Exhibit A),the time
deposits were offered as collateral. 9
For all intents and purposes, the deed of assignment in
this case is actually a pledge. Adverting again to the
Court's pronouncements in Lopez, supra, we quote
therefrom:
The character of the transaction between the parties is to
be determined by their intention, regardless of what
language was used or what the form of the transfer was.
If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some
other intention, it is not a pledge. However, even though
a transfer, if regarded by itself, appears to have been
absolute, its object and character might still be qualified
and explained by a contemporaneous writing declaring it
to have been a deposit of the property as collateral
security. It has been said that a transfer of property by
the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a
pledge if the debt continues in existence and is not
discharged by the transfer, and that accordingly, the use
of the terms ordinarily importing conveyance, of absolute
ownership will not be given that effect in such a
transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly
indicate a transfer of absolute ownership, in the absence
of clear and unambiguous language or other
circumstances excluding an intent to pledge. 10
The facts and circumstances leading to the execution of
the deed of assignment, as found by the court a quo and
the respondent court, yield said conclusion that it is in
fact a pledge. The deed of assignment has satisfied the
requirements of a contract of pledge (1) that it be
constituted to secure the fulfillment of a principal
obligation; (2) that the pledgor be the absolute owner of
the thing pledged; (3) that the persons constituting the
pledge have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the
purpose. 11 The further requirement that the thing
pledged be placed in the possession of the creditor, or of
a third person by common agreement 12 was complied
with by the execution of the deed of assignment in favor
of PNB.
It must also be emphasized that Santos, as assignor,
made an express undertaking that he would remain liable
for any outstanding balance of his obligation should PNB
be unable to actually receive or collect the assigned
sums resulting from any agreements, orders or decisions
of the court or for any other cause whatsoever. The term
"for any cause whatsoever" is broad enough to include
the situation involved in the present case.
Under the foregoing circumstances and considerations,
the unavoidable conclusion is that IRC and Santos
should be held liable to PNB for the amount of the loan
with the corresponding interest thereon.
2. We find nothing illegal in the interest of one and one-
half percent (1-1/2%) imposed by PNB pursuant to the
resolution of its Board which presumably was done in
accordance with ordinary banking procedures. Not only
did IRC and Santos fail to overcome the presumption of
regularity of business transactions, but they are likewise
estopped from questioning the validity thereof for the first
time in this petition. There is nothing in the records to
show that they raised this issue during the trial by
presenting countervailing evidence. What was merely
touched upon during the proceedings in the court below
was the alleged lack of notice to them of the board
resolution, but not the veracity or validity thereof.
3. On the issue of whether OBM should be held liable for
interests on the time deposits of IRC and Santos from the
time it ceased operations until it resumed its business,
the answer is in the negative.
We have held in The Overseas Bank of Manila vs. Court
of Appeals and Tony D. Tapia, 13 that:
It is a matter of common knowledge, which We take
judicial notice of, that what enables a bank to pay
stipulated interest on money deposited with it is that thru
the other aspects of its operation it is able to generate
funds to cover the payment of such interest. Unless a
bank can lend money, engage in international
transactions, acquire foreclosed mortgaged properties or
their proceeds and generally engage in other banking
and financing activities from which it can derive income, it
is inconceivable how it can carry on as a depository
obligated to pay stipulated interest. Conventional wisdom
dictated; this inexorable fair and just conclusion. And it
can be said that all who deposit money in banks are
aware of such a simple economic proposition petition.
Consequently, it should be deemed read into every
contract of deposit with a bank that the obligation to pay
interest on the deposit ceases the moment the operation
of the bank is completely suspended by the duly
constituted authority, the Central Bank.
We consider it of trivial consequence that the stoppage of
the bank's operation by the Central Bank has been
subsequently declared illegal by the Supreme Court, for
before the Court's order, the bank had no alternative
under the law than to obey the orders of the Central
Bank. Whatever be the juridical significance of the
subsequent action of the Supreme Court, the stubborn
fact remained that the petitioner was totally crippled from
then on from earning the income needed to meet its
obligations to its depositors. If such a situation cannot,
strictly speaking, be legally denominated as 'force
majeure', as maintained by private respondent, We hold it
is a matter of simple equity that it be treated as such.
The Court further adjured that:
Parenthetically, We may add for the guidance of those
who might be concerned, and so that unnecessary
litigations be avoided from further clogging the dockets of
the courts, that in the light of the considerations
expounded in the above opinion, the same formula that
exempts petitioner from the payment of interest to its
depositors during the whole period of factual stoppage of
its operations by orders of the Central Bank, modified in
effect by the decision as well as the approval of a formula
of rehabilitation by this Court, should be, as a matter of
consistency, applicable or followed in respect to all other
obligations of petitioner which could not be paid during
the period of its actual complete closure.
We cannot accept the holding of the respondent Court of
Appeals that the above-cited decisions apply only where
the bank is in a state of liquidation. In the very case
aforecited, this issue was likewise raised and We
resolved:
Thus, Our task is narrowed down to the resolution of the
legal problem of whether or not, for purposes of the
payment of the interest here in question, stoppage of the
operations of a bank by a legal order of liquidation may
be equated with actual cessation of the bank's operation,
not different, factually speaking, in its effects, from legal
liquidation the factual cessation having been ordered by
the Central Bank.
In the case of Chinese Grocer's Association, et al. vs.
American Apothecaries, 65 Phil. 395, this Court held:
As to the second assignment of error, this Court, in G.R.
No. 43682, In re Liquidation of the Mercantile Bank of
China, Tan Tiong Tick, claimant and appellant vs.
American Apothecaries, C., et al., claimants and
appellees, through Justice Imperial, held the following:
4. The court held that the appellant is not entitled to
charge interest on the amounts of his claims, and this is
the object of the second assignment of error, Upon this
point a distinction must be made between the interest
which the deposits should earn from their existence until
the bank ceased to operate, and that which they may
earn from the time the bank's operations were stopped
until the date of payment of the deposits. As to the first-
class, we hold that it should be paid because such
interest has been earned in the ordinary course of the
bank's businesses and before the latter has been
declared in a state of liquidation. Moreover, the bank
being authorized by law to make use of the deposits with
the limitation stated, to invest the same in its business
and other operations, it may be presumed that it bound
itself to pay interest to the depositors as in fact it paid
interest prior to the dates of the Id claims. As to the
interest which may be charged from the date the bank
ceased to do business because it was declared in a state
of liquidation, we hold that the said interest should not be
paid.
The Court of Appeals considered this ruling inapplicable
to the instant case, precisely because, as contended by
private respondent, the said Apothecaries case had in
fact in contemplation a valid order of liquidation of the
bank concerned, whereas here, the order of the Central
Bank of August 13, 1968 completely forbidding herein
petitioner to do business preparatory to its liquidation was
first restrained and then nullified by this Supreme Court.
In other words, as far as private respondent is
concerned, it is the legal reason for cessation of
operations, not the actual cessation thereof, that matters
and is decisive insofar as his right to the continued
payment of the interest on his deposit during the period
of cessation is concerned.
In the light of the peculiar circumstances of this particular
case, We disagree. It is Our considered view, after
mature deliberation, that it is utterly unfair to award
private respondent his prayer for payment of interest on
his deposit during the period that petitioner bank was not
allowed by the Central Bank to operate.
4. Lastly, IRC and Santos claim that OBM should
reimburse them for whatever amounts they may be
adjudged to pay PNB by way of compensation for
damages incurred, pursuant to Articles 1170 and 2201 of
the Civil Code.
It appears that as early as April, 1967, the financial
situation of OBM had already caused mounting concern
in the Central Bank. 14 On December 5, 1967, new
directors and officers drafted from the Central Bank (CB)
itself, the Philippine National Bank (PNB) and the
Development Bank of the Philippines (DBP) were elected
and installed and they took over the management and
control of the Overseas Bank. 15 However, it was only on
July 31, 1968 when OBM was excluded from clearing
with the CB under Monetary Board Resolution No. 1263.
Subsequently, on August 2, 1968, pursuant to Resolution
No. 1290 of the CB OBM's operations were suspended.
16 These CB resolutions were eventually annulled and set
aside by this Court on October 4, 1971 in the decision
rendered in the herein cited case of Ramos.
Thus, when PNB demanded from OBM payment of the
amounts due on the two time deposits which matured on
January 11, 1968 and February 6, 1968, respectively,
there was as yet no obstacle to the faithful compliance by
OBM of its liabilities thereunder. Consequently, for having
incurred in delay in the performance of its obligation,
OBM should be held liable for damages. 17 When
respondent Santos invested his money in time deposits
with OBM they entered into a contract of simple loan or
mutuum, 18 not a contract of deposit.
While it is true that under Article 1956 of the Civil Code
no interest shall be due unless it has been expressly
stipulated in writing, this applies only to interest for the
use of money. It does not comprehend interest paid as
damages. 19 OBM contends that it had agreed to pay
interest only up to the dates of maturity of the certificates
of time deposit and that respondent Santos is not entitled
to interest after the maturity dates had expired, unless
the contracts are renewed. This is true with respect to the
stipulated interest, but the obligations consisting as they
did in the payment of money, under Article 1108 of the
Civil Code he has the right to recover damages resulting
from the default of OBM and the measure of such
damages is interest at the legal rate of six percent (6%)
per annum on the amounts due and unpaid at the
expiration of the periods respectively provided in the
contracts. In fine, OBM is being required to pay such
interest, not as interest income stipulated in the
certificates of time deposit, but as damages for failure
and delay in the payment of its obligations which thereby
compelled IRC and Santos to resort to the courts.
The applicable rule is that legal interest, in the nature of
damages for non-compliance with an obligation to pay a
sum of money, is recoverable from the date judicial or
extra-judicial demand is made, 20 Which latter mode of
demand was made by PNB, after the maturity of the
certificates of time deposit, on March 1, 1968. 21 The
measure of such damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed
upon in the certificates of deposit 22 Which is six and
onehalf percent (6-1/2%). Such interest due or accrued
shall further earn legal interest from the time of judicial
demand. 23
We reject the proposition of IRC and Santos that OBM
should reimburse them the entire amount they may be
adjudged to pay PNB. It must be noted that their liability
to pay the various interests of nine percent (9%) on the
principal obligation, one and one-half percent (1-1/2%)
additional interest and one percent (1%) penalty interest
is an offshoot of their failure to pay under the terms of the
two promissory notes executed in favor of PNB. OBM
was never a party to Id promissory notes. There is,
therefore, no privity of contract between OBM and PNB
which will justify the imposition of the aforesaid interests
upon OBM whose liability should be strictly confined to
and within the provisions of the certificates of time
deposit involved in this case. In fact, as noted by
respondent court, when OBM assigned as error that
portion of the judgment of the court a quo requiring OBM
to make the disputed reimbursement, IRC and Santos did
not dispute that objection of OBM Besides, IRC and
Santos are not without fault. They likewise acted in bad
faith when they refuse to comply with their obligations
under the promissory notes, thus incurring liability for all
damages reasonably attributable to the non-payment of
said obligations. 24
WHEREFORE, judgment is hereby rendered, ordering:
1. Integrated Realty Corporation and Raul L. Santos to
pay Philippine National Bank, jointly and severally, the
total amount of seven hundred thousand pesos (P
700,000.00), with interest thereon at the rate of nine
percent (9%) per annum from the maturity dates of the
two promissory notes on January 11 and February 6,
1968, respectively, plus one and one-half percent (1-
1/2%) additional interest per annum effective February
28, 1968 and additional penalty interest of one percent
(1%) per annum of the said amount of seven hundred
thousand pesos (P 700,000.00) from the time of maturity
of said loan up to the time the said amount of seven
hundred thousand pesos (P 700,000.00) is fully paid to
Philippine National Bank.
2. Integrated Realty Corporation and Raul L. Santos to
pay solidarily Philippine National Bank ten percent (10%)
of the amount of seven hundred thousand pesos (P
700,000.00) as and for attorney's fees.
3. Overseas Bank of Manila to pay Integrated Realty
Corporation and Raul L. Santos the sum of seven
hundred thousand pesos (P 700,000.00) due under Time
Deposit Certificates Nos. 2308 and 2367, with interest
thereon of six and one-half percent (6-1/2%) per annum
from their dates of issue on January 11, 1967 and
February 6, 1967, respectively, until the same are fully
paid, except that no interest shall be paid during the
entire period of actual cessation of operations by
Overseas Bank of Manila;
4. Overseas Bank of Manila to pay Integrated Realty
Corporation and Raul L. Santos six and one-half per cent
(6-1/2%) interest in the concept of damages on the
principal amounts of said certificates of time deposit from
the date of extrajudicial demand by PNB on March 1,
1968, plus legal interest of six percent (6%) on said
interest from April 6, 1968, until fifth payment thereof,
except during the entire period of actual cessation of
operations of said bank.
5. Overseas Bank of Manila to pay Integrated Realty
Corporation and Raul L. Santos ten thousand pesos (P
l0,000.00) as and for attorney's fees.
SO ORDERED.
BATAAN SEEDLING ASSOCIATION, INC. and
CARLOS VALENCIA, petitioners, vs.
REPUBLIC OF THE PHILIPPINES,
represented by the DEPARTMENT OF
ENVIRONMENT and NATURAL RESOURCES,
respondent.
RESOLUTION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under
Rule 45 of the Rules of Court which seeks to set aside
the Decision promulgated on October 14, 1998 by the
Court of Appeals in CA-G.R. CV No. 52545,[if
!supportFootnotes][1][endif] affirming with modification the
decision of the Regional Trial Court of Quezon City. The
dispositive portion of the assailed Decision reads:
IN THE LIGHT OF ALL THE FOREGOING, the Decision
appealed from is AFFIRMED with the following
modifications:
1. The Appellants are hereby ordered to pay, jointly and
severally, to the Republic of the Philippines, the principal
amount of P56,290.69, with interest thereon at the rate of
12% per annum, from January 27, 1994 until the said
amount is paid in full;
2. The Appellant BSAI is hereby ordered to pay to the
appellant Republic of the Philippines the amount of
P50,000.00 as and by way of exemplary damages.
No pronouncement as to cost.
SO ORDERED.[if !supportFootnotes][2][endif]
Petitioner Bataan Seedling Association, Inc. (BSAI
for brevity) entered into a Community Based
Reforestation Contract on October 26, 1990 with the
Republic of the Philippines, represented by the
Department of Environment and Natural Resources
(DENR). Under said contract, BSAI, in consideration of
the amount of Nine Hundred Seventy Five Thousand
One Hundred Twenty Six Pesos and Sixty One Centavos
(P975,126.61), bound itself to undertake the reforestation
of a fifty-hectare open/denuded forest land in Barangay
Liyang, Pilar, Bataan within a period of three (3) years.[if
!supportFootnotes][3][endif] BSAI likewise undertook to report to
the DENR any event or condition which delays or may
delay or prevent completion of the work,[if
!supportFootnotes][4][endif] and submit progress billings and
accomplishment reports.[if !supportFootnotes][5][endif]
Concomitant with the contract is the Project Development
Plan and the Approved Schedule of Progress Payments
detailing the annual cash flow and schedule of activities
within the three-year period,[if !supportFootnotes][6][endif] and the
Contract of Undertaking providing for the mobilization
fund in the amount of Seventy Five Thousand Fifty Four
Pesos and Sixty Six Centavos (P75,054.66).[if
!supportFootnotes][7][endif] Said fund was allotted and released
by respondent to enable BSAI to start with the project,
but the fund was to be returned to respondent upon
completion of the project or deducted from the periodic
release of moneys to petitioners.[if !supportFootnotes][8][endif]
Believing that petitioners failed to comply with their
obligations under the contract, respondent sent a notice
of cancellation dated July 31, 1992 to petitioner Carlos
Valencia, President of BSAI, asking the latter to show
cause why the contract should not be terminated on the
following grounds:
1. Willful violation of the material terms and conditions,
stipulations and covenants of the Contract, to wit: a) The
association failed to fully plant/establish the whole 50-
hectare contracted area during the first year of operations
as provided for in the Contract; b) The seedlings raised in
the nursery were disposed of to other contractors and the
seedlings left were practically overgrown indicating lack
of proper care and maintenance; c) Inspite of the fact that
a forest fire occurred sometime in December, 1991, no
report was ever made to the DENR in violation of Article
1.1.5 of the Contract; d) The Association even failed to
submit to the DENR accomplishment reports and other
relevant information required and expected from it.
2. Abandonment of the project area. The
PENRO/CENRO monitoring and Evaluation Team which
inspected the project area on March 18, 25 and 31, 1992
reported that except for the family that actually resides in
the bunkhouse, no laborers were observed at the project
area during the time of the field inspections. Even you
failed to show up despite written and verbal notices
served to you. Finally, the photodocuments taken on the
plantation illustrates clearly the abandoned project area.[if
!supportFootnotes][9][endif]
Due to their failure to respond to the notice of
cancellation, as well as return the mobilization fund,
respondent filed a Complaint for Damages against
petitioners,[if !supportFootnotes][10][endif] praying that the latter
jointly and solidarily pay actual damages in the amount of
Seventy Five Thousand Fifty Four Pesos and Twenty
Five Centavos (P75,054.25) representing the portion of
the mobilization fund released to them, and Sixty Two
Thousand Pesos Four Hundred Fifty Pesos and Twenty
Two Centavos (P62,450.22) as the amount paid under
the accomplishment bills, totaling One Hundred Thirty
Seven Thousand Five Hundred Four Pesos and Forty
Seven Centavos (P137,504.47). Respondent also sought
liquidated damages equivalent to 0.1% of the total
contract cost due to BSAIs delay in the performance of its
obligations, and exemplary damages in the amount of
Fifty Thousand Pesos (P50,000.00).[if !supportFootnotes][11][endif]
In their Amended Answer, petitioners deny the
allegations, arguing that: (1) the whole area was totally
destroyed by a forest fire in December 1991 without their
fault and negligence, which incident was duly reported to
respondent, and (2) the cancellation was arbitrary.[if
!supportFootnotes][12][endif]
The Regional Trial Court of Quezon City, Branch
217, rendered its decision ordering petitioners to pay the
amount of Fifty Thousand Pesos (P50,000.00) as
exemplary damages.[if !supportFootnotes][13][endif] The trial court
held that respondent had sufficient grounds to cancel the
contract but saw no reason why the mobilization fund and
the advance payments should be refunded, or that
petitioners should be liable for liquidated damages.
Not satisfied, both respondent and petitioners
appealed the decision to the Court of Appeals. The
appellate court affirmed with modification the decision of
the trial court, adjudicating the balance of the mobilization
fund refunded by petitioners in the amount of Fifty Six
Thousand Two Hundred Ninety Pesos and Sixty Nine
Centavos (P56,290.69) with 12% interest.[if
!supportFootnotes][14][endif]
Hence, the petition for review on certiorari.
Petitioners submit that the issues to be resolved are
as follows:
1. Whether the unilateral cancellation by the
respondent of the Community-Based
Reforestation Contract is invalid, being
without factual and legal basis.
2. Whether the order to refund the amount of
P56,290.69 with interest at the rate of 12%
per annum, representing the balance of
the mobilization fund, is palpably
erroneous as being contrary to the facts. [if
!supportFootnotes][15][endif]
At the outset, it must be stated that the foregoing
issues and the respective arguments in support thereof
have been raised by the parties and passed upon by both
the trial court and the appellate court.
Petitioners deny that they were bound to fully plant
the fifty (50) hectares during the first (1st) year of the
program as their commitment under clause 1.1.9 of the
Reforestation Contract was to turn-over to the DENR at
the end of the third (3rd) year the contracted area of fifty
hectares, fully planted and properly maintained.
Petitioners also refute the finding that they abandoned
the project area, arguing that the investigation conducted
by the PENCO/CENRO Monitoring and Evaluation Team
is suspect; and that its report ignored the fact that a
forest fire occurred sometime in December 1991
destroying the plants and seedlings already introduced in
the area. Petitioners further claim that their failure to
immediately report the fire and submit progress reports is
not a substantial breach of their undertaking to warrant
the cancellation of the contract; and that they cannot be
made to refund the balance of the mobilization fund
because these correspond to the work already done in
the area. Finally, petitioners object to the award of
exemplary damages for being without legal and factual
basis.[if !supportFootnotes][16][endif]
On the issue of whether or not respondent had
sufficient basis to cancel the contract, both the trial and
appellate courts found that there was basis for the
cancellation. A perusal of the records of this case
confirms such finding.
True, under the reforestation contract, petitioners
were to turn over at the end of the third year the project
area fully planted and properly maintained.[if
!supportFootnotes][17][endif] However, the Project Development
Plan, appended and made integral part of the contract,[if
!supportFootnotes][18][endif] specifically defines and details
petitioners undertaking. Under the Plan, the following
tasks were to be completed during the first year of the
project: (1) survey and mapping of the whole fifty (50)
hectares; (2) nursery operations for fast-growth, medium-
growing, and slow-growth species; (3) plantation
establishment, including site preparation, spot hoeing,
staking, holing, and planting and seed transporting of
83,333 pieces, medium-sized seedlings and sucklers in
planting holes; and (4) infrastructure work, including the
development of footpath, graded trail, plantation road,
bunkhouse and look-out tower.[if !supportFootnotes][19][endif]
Spread out during the three-year period is the annual
maintenance, protection, administration and supervision,
and, monitoring and evaluation of the project area.[if
!supportFootnotes][20][endif] Clearly, based on said schedule,
petitioners were to undertake the principal task of
planting the fifty (50) hectare-project area during the 1st
year of the project. What is to be carried out during the
entire 3-year period is the maintenance and aftercare of
the project site, and petitioners were to turn over the
project at the end of the third year fully planted and
established. Therefore, petitioners argument that they are
not bound to fully plant/establish the whole fifty (50)
hectares during the 1st year of operations is without
merit.
Moreover, contrary to petitioners posture, there was
a material breach of the contract warranting its
cancellation. One (1) year after the commencement of
the project or sometime in December, 1991, a fire razed
the reforestation area. As admitted by petitioners, they
failed to inform respondent of said incident. Neither did
they attempt to submit progress reports on the project,
which duties were expressly required of them under the
contract. Thus, the appellate court correctly observed,
viz.:
x x x The Appellant BSAI unabashedly admitted failing to
establish/plant the project area. Under Section 1.1.5 of
the Contract, the Appellant BSAI was obliged to report to
the DENR any event or condition which delayed or may
delay the progress or prevent the completion, of the work
under the time-table set forth under the contract or any
relevant facts known to the Appellant BSAI. A fire in the
area which gutted the improvements in contract area
occurred in December, 1991. However, the Appellant
BSAI never informed the DENR of said fire. Worse, the
Appellant BSAI did not anymore conduct any replanting
activities on the area, thus accounting, in part, for the
failure of the said Appellant to submit periodic progress
reports on its activities in said area. Even before the fire
occurred, in December 1991, the Appellant BSAI already
failed to submit any periodic reports of progress of its
activities in the area. This prompted the DENR to conduct
an on the site inspection of the subject project area.
Indeed, Carlos Valencia and Hernani Salaya Jr., even
ignored the requests of DENR for them to be present
during the said inspections. The DENR inspection team
found and discovered that the Appellant BSAI failed to
fully establish planting on the subject project area.
Instead of planting the seedlings on the project area, the
Appellant BSAI sold some of the seedlings because of its
failure to pay the nursery owner, Anilao Satellite Nursery,
located in Pilar, Bataan for said seedlings. x x x[if
!supportFootnotes][21][endif]
Petitioners attempt to trivialize their lapse, but the Court
believes that this is not merely a slight or casual breach,
but a substantial one giving sanction to the cancellation.
Under Clause 4.1 of the contract, respondents shall have
the right to suspend, terminate or cancel the contract
upon petitioners substantial failure to fulfill their
obligations, or a willful violation of the material conditions,
stipulations and covenants thereof. It can be concluded
from the tenor of said clause that the parties intended
mandatory compliance with all the provisions of the
contract. As stated previously, among such provisions
requiring strict adherence are the submission of progress
reports and the reporting of such event which may delay
or prevent the project. Hence, upon petitioners failure to
comply with said obligations, respondent was well within
its right to cancel the contract by express grant of Clause
4.1.
Anent the refund of the mobilization fund, the
Contract of Undertaking signed by petitioners is explicit in
this regard, to wit:
THAT BATAAN SEEDLING ASSOCIATION,
INCORPORATED x x x, for and in consideration of the
sum of Seventy Five Thousand Fifty four pesos and sixty
six centavos (P75,054.66) representing advance
payment under said contract receipt of which is hereby
acknowledge in full, as hereby bind ourselves;
xxx
3. To repay the amount advanced in accordance with
the Contract of Reforestation and DENR
Administration order No. 14 Series of 1989 as
amended;[if !supportFootnotes][22][endif] (Emphasis Ours)
The amount of Seventy Five Thousand Fifty Four Pesos
and Sixty Six Centavos (P75,054.66) advanced to BSAI,
represents 15% of Five Hundred Thousand Three
Hundred Sixty One Pesos and Seventy Two Centavos
(P500,361.72), the contract cost for the 1st year.[if
!supportFootnotes][23][endif] When initial payment was made by
respondent to petitioners on February 25, 1991, the
amount of Eighteen Thousand Seven Hundred Sixty
Three Pesos and Fifty Six Centavos (P18,763.56), or 1/4
of the mobilization fund, was deducted,[if
!supportFootnotes][24][endif] leaving a balance of Fifty Six
Thousand Two Hundred Ninety Pesos and Sixty Nine
Centavos (P56,290.69). Respondent thereafter made no
deductions on the subsequent payments of the contract
price remitted to petitioners. Hence, they remain liable on
the balance of said fund in the amount of Fifty Six
Thousand Two Hundred Ninety Pesos and Sixty Nine
Centavos (P56,290.69). We find no error committed by
the Appellate Court on this matter.
Nevertheless, the appellate court erred in imposing
a 12% interest on the amount due. In Eastern Shipping
Lines, Inc. vs. Court of Appeals, we enunciated the
following rules:
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. [if !supportFootnotes][25][endif]
Interest at the rate of 12% per annum is imposable if
there is no stipulation in the contract. Herein subject
contract does not contain any stipulation as to interest.
However, the amount that is due the respondent does not
represent a loan or forbearance of money. The word
forbearance is defined, within the context of usury law, as
a contractual obligation of lender or creditor to refrain,
during given period of time, from requiring borrower or
debtor to repay loan or debt then due and payable. [if
!supportFootnotes][26][endif] The contract between petitioner and
respondent is a Community Based Reforestation
Contract by virtue of which petitioner undertook the
reforestation of a fifty-hectare open/denuded forest land.
The amount of Fifty Six Thousand Two Hundred Ninety
Pesos and Sixty Nine Centavos (P56,290.69) due to
respondent, represents the balance of the mobilization
fund which petitioner is obliged to return because of its
failure to fully comply with its undertaking to plant the
entire area with seedlings within the period contracted for
reforestation. Under the reforestation contract, the fund
released to petitioner was supposed to be returned to
respondent upon completion of the project or deducted
from the periodic releases of money. Clearly therefrom,
the amount of Fifty Six Thousand Two Hundred Ninety
Pesos and Sixty Nine Centavos (P56,290.69) was neither
a loan nor forbearance of money.
Thus, the above-quoted paragraph II, sub-
paragraph 1, applies to the present case. In the absence
of stipulation, the legal interest is six percent (6%) per
annum[if !supportFootnotes][27][endif] on the amount finally
adjudged by the Court.[if !supportFootnotes][28][endif]
In addition, under the above-quoted paragraph II,
sub-paragraph 3, the amount of Fifty Six Thousand Two
Hundred Ninety Pesos and Sixty Nine Centavos
(P56,290.69) shall earn 12% interest per annum from
date of finality of herein judgment.
Finally, the Court finds the award of Fifty Thousand
Pesos (P50,000.00) as exemplary damages to be
excessive and should therefore be reduced to Twenty
Thousand Pesos (P20,000.00). Exemplary damages are
imposed not to enrich one party or impoverish another
but to serve as a deterrent against or as a negative
incentive to curb socially deleterious actions.[if
!supportFootnotes][29][endif]
WHEREFORE, the petition is partly GRANTED and the
assailed Decision is AFFIRMED with the following
MODIFICATIONS:
1) The interest to be paid on the amount of Fifty Six
Thousand Two Hundred Ninety Pesos and
Sixty Nine Centavos (P56,290.69) shall be
at the rate of 6% per annum from the Court
of Appeals Decision dated October 14,
1998. A twelve percent (12% ) interest, in
lieu of six percent (6%) shall be imposed
upon finality of this decision, until full
payment thereof.
2) The award of exemplary damages is reduced
from Fifty Thousand Pesos (P50,000.00)
to Twenty Thousand Pesos (P20,000.00).
SO ORDERED.
SPS. ERNESTO and MINA CATUNGAL, petitioners,
vs. DORIS HAO, respondent.
DECISION
KAPUNAN, J.:
This is a petition for review of the Decision of the
Court of Appeals dated 10 March 1998 and Resolution
dated 30 July 1998 in the case entitled Doris Hao vs.
Sps. Ernesto and Mina Catungal docketed as CA-G.R.
SP No. 46158. Said decision affirmed with modification
the judgment rendered by the Regional Trial Court.
The antecedents of this case are as follows:
On December 28, 1972, the original owner, Aniana
Galang, leased a three-storey building situated at Quirino
Avenue, Baclaran, Paraaque, Metro Manila, to the Bank
of the Philippine Islands (BPI) for a period of about fifteen
(15) years, to expire on June 20, 1986. During the
existence of the lease, BPI subleased the ground floor of
said building to respondent Doris Hao.
On August 24, 1984, Galang and respondent
executed a contract of lease on the second and third
floors of the building. The lease was for a term of four (4)
years commencing on August 15, 1984 and ending on
August 15, 1988. On August 15, 1986, petitioner spouses
Ernesto and Mina Catungal bought the property from
Aniana Galang.
Invoking her right of first refusal purportedly based
on the lease contract between her and Aniana Galang,
respondent filed a complaint for Annulment of Sale with
Damages docketed as Civil Case No. 88-491 of the
Regional Trial Court (RTC) of Makati, Metro Manila.
Meanwhile, the lease agreement between BPI and
Galang expired.
Upon expiration of the lease agreements, petitioner
spouses sent demand letters to respondent for her to
vacate the building. The demand letters were unheeded
by respondent causing petitioners to file two complaints
for ejectment, docketed as Civil Cases Nos. 7666 and
7667 of the Metropolitan Trial Court (MeTC) of Paraaque,
Metro Manila.
The institution of the ejectment cases prompted
respondent to file an action for injunction docketed as
Civil Case No. 90-758 of the RTC of Makati, to stop the
MeTC of Paraaque from proceeding therewith pending
the settlement of the issue of ownership raised in Civil
Case No. 88-491. These two cases for annulment of sale
and for injunction were also consolidated before Branch
63 of the RTC of Makati which rendered a Decision dated
September 19, 1991, granting the injunction and
annulling the contract of sale between Aniana Galang
and petitioners.
On appeal,[if !supportFootnotes][1][endif] the Court of
Appeals reversed and set aside the decision of the RTC
and the complaints in Civil Cases Nos. 88-491 and 90-
758 were accordingly dismissed.
Not satisfied, respondent elevated the above
decision of the CA before this Court. We, however,
denied respondent's petition on April 10, 1996.[if
!supportFootnotes][2][endif]
The MeTC of Paraaque, after the reversal of the
decision in Civil Case No. 90-758 for injunction,
proceeded with the trial of the ejectment cases.
On January 22, 1997, the MeTC of Paraaque
rendered a Decision, the dispositive portion of which
reads:
In view of the foregoing, judgment is hereby rendered
ordering the defendant Doris T. Hao who is in actual
possession of the property and all persons claiming rights
under her to vacate the premises in question and to pay
the plaintiffs the amount of P20,000.00 a month from
June 28, 1988, until she finally vacates the premises and
to pay attorneys fees of P20,000.00. With costs against
the defendant.[if !supportFootnotes][3][endif]
Petitioners filed a motion for clarificatory or
amended judgment on the ground that although MeTC
"ordered the defendant to vacate the entire subject
property, it only awarded rent or compensation for the
use of said property and attorney's fees for said ground
floor and not the entire subject property. Compensation
for the use of the subject property's second and third
floors and attorney's fees as prayed for in Civil Case No.
7767 were not awarded."[if !supportFootnotes][4][endif] In response
to said motion, the MeTC issued an Order dated March
3, 1997, the dispositive portion of which reads:
In view of the foregoing, the Decision of this Court is
hereby clarified in such a way that the dispositive portion
would read as follows: in view of the foregoing, judgment
is hereby rendered ordering the defendant Doris T. Hao
who is in actual possession of the property and all
persons claiming rights under her to vacate the premises
and to pay the plaintiffs the amount of P8,000.00 a month
in Civil Case No. 7666 for the use and occupancy of the
first floor of the premises in question from June 28, 1998
until she finally vacates the premises and to pay the
plaintiff a rental of P5,000.00 a month in Civil Case No.
7667 from June 28, 1988, until she finally vacates the
premises and to pay attorneys fees of P20,000.00. With
costs against defendant.
So ordered.[if !supportFootnotes][5][endif]
Petitioners sought reconsideration of the above
order, praying that respondent be ordered to pay
P20,000.00 monthly for the use and occupancy of the
ground floor and P10,000.00 each monthly for the
second and third floors.
Respondent, on the other hand, filed a notice of
appeal.
Instead of resolving the motion for reconsideration,
on May 7, 1997, the MeTC of Paraaque issued an Order,
elevating the case to the Regional Trial Court:
Considering the Motion for Reconsideration of the
Order of this Court dated March 3, 1997 and the
Comment and Opposition thereto of the counsel for the
defendant, the Court finds that the said Motion for
Reconsideration should already be addressed to the
Regional Trial Court considering that whatever
disposition that this Court will award will still be subject to
the appeal taken by the defendant and considering
further that the supersedeas bond posted by the
defendant covered the increased rental.[if
!supportFootnotes][6][endif]
On September 30, 1997, the RTC of Paraaque,
Branch 259, rendered a Decision modifying that of the
MeTC, the dispositive portion of which reads:
In the Light of the foregoing, the appealed decision, being
in accordance with law, is hereby affirmed as to the order
to vacate the property in question and modified as to the
amount of rentals which is hereby increased to
P20,000.00 a month for the ground floor starting June 28,
1988 and P10,000.00 a month for the second floor and
also P10,000.00 a month for the third floor (or) a total of
P40,000.00 monthly rentals commencing June 28, 1988
until the subject property has been vacated and
possession thereof turner [sic] over to the plaintiffs-
appellees; to pay attorneys fees in the amount of
P20,000.00; and with costs.[if !supportFootnotes][7][endif]
In her Motion dated October 6, 1997, respondent
sought a reconsideration of the above ruling of the RTC.
The same was denied on November 25, 1997.
Respondent elevated her case to the Court of
Appeals. The CA rendered the Decision subject of this
petition the dispositive portion thereof reads:
Wherefore, the decision appealed from is hereby
modified by reducing the amount of rentals for both the
second and third floors from P20,000.00 to P10,000.00
monthly. With this modification, the judgment below is
AFFIRMED in all other respects.[if !supportFootnotes][8][endif]
 The parties filed their respective motions for
reconsideration to the Court of Appeals. Petitioners
asked that the decision of the Regional Trial Court fixing
the total monthly rentals at P40,000.00 be sustained. On
the other hand, respondent sought a revival of the
decision of the MeTC on the ground that since petitioners
did not interpose an appeal from the amended judgment
of the MeTC, the RTC could not validly increase the
amount of rentals awarded by the former.
In its Resolution dated 30 July 1998, the Court of
Appeals resolved the parties motions for reconsideration
in favor of the respondent. It ruled that the motion for
reconsideration filed by the petitioners before the MeTC
was a prohibited pleading under the Rules of Summary
Procedure. Such being the case, said motion for
reconsideration did not produce any legal effect and thus
the amended judgment of the MeTC had become final
and executory insofar as the petitioners are concerned.
The dispositive portion of the CA's resolution reads as
follows:
Wherefore, the decision appealed from is hereby
MODIFIED by reducing the monthly rentals for the
first/ground floor from P20,000.00 to P8,000.00 and for
the second and third floors from P10,000.00 each to
P5,000.00 for both floors. With this modification the
judgment below is affirmed in all other respects.
No pronouncement as to costs.
So ordered.[if !supportFootnotes][9][endif]
Petitioners now come before this Court assigning
the following errors:
A.
IN THE ASSAILED DECISION, THE HONORABLE
COURT OF APPEALS GRAVELY ERRED IN
REVERSING THE FINDINGS OF THE REGIONAL
TRIAL COURT BY USING AS BASIS FOR REDUCING
THE RENTAL ONLY THE EVIDENCE SUBMITTED BY
THE PARTIES AND IGNORING CIRCUMSTANCES OF
WHICH THE REGIONAL TRIAL COURT PROPERLY
TOOK JUDICIAL NOTICE.
B.
IN THE ASSAILED DECISION, THE HONORABLE
COURT OF APPEALS GRAVELY ERRED IN ITS
FINDINGS THAT THE REGIONAL TRIAL COURT HAD
NO JURISDICTION TO MODIFY THE APPEALED
JUDGMENT BY INCREASING THE AWARD OF
MONTHLY RENTALS FROM P13,000.00 TO
P40,000.00.[if !supportFootnotes][10][endif]
We required respondent to comment on the
petition.[if !supportFootnotes][11][endif] In her
Comment/Compliance, respondent contends that the
petition should be dismissed and the resolution of the
case should be based on the following issues:
1. DID THE RESPONDENT APPELLATE COURT
COMMITTED [sic] ANY REVERSIBLE ERROR WHEN IT
CONSIDERED PETITIONERS' "MOTION FOR
RECONSIDERATION" (ANNEX "I" - PETITION) FILED
WITH THE MTC-COURT AS A PROHIBITVE [sic]
PLEADING IN A SUMMARY PROCEDURE CASE SUCH
AS THE ONE AT BAR[?]
2. DID THE RESPONDENT APPELLATE COURT
COMMITTED [sic] ANY REVERSIBLE ERROR WHEN IT
RESOLVED TO RESTORE, REINSTATE, AFFIRM AND
UPHOLD THE MTC - AMENDED JUDGMENT OF
MARCH 3, 1997 FIXING THE TOTAL AWARD OF
P13,000.00 GROUNDED ON A PROHIBITIVE [sic]
PLEADING AND FAILURE TO FILE A NOTICE OF
APPEAL[?]
3. DID THE APPELLATE COURT COMMITTED [sic]
ANY REVERSIBLEERROR WHEN IT RESOLVED TO
SUSTAIN RESPONDENT'S POSITION CONSISTENT
WITH THE LAW AND JURISPRUDENCE THAT FOR
PETITIONERS' FAILURE TO APPEAL AND HAVING
FILED A PROHIBITIVE [sic] PLEADING, THEY
CANNOT ASK FOR AFFIRMATIVE RELIEF SUCH AS
INCREASE IN RENTAL[?][if !supportFootnotes][12][endif]
There is no question that after the expiration of the
lease contracts which respondent contracted with Aniana
Galang and BPI, she lost her right to possess the
property since, as early as the actual expiration date of
the lease contract, petitioners were not negligent in
enforcing their right of ownership over the property.
While respondent was finally evicted from the
leased premises, the amount of monthly rentals which
respondent should pay the petitioners as forced lessors
of said property from 20 June 1988 (for the ground floor)
and 15 August 1988 until 6 January 1998 (for the second
and third floors), or a period of almost ten years remains
to be resolved.
Petitioners, in the main, posit that there should be a
reinstatement of the decision of the regional trial court
which fixed the monthly rentals to be paid by herein
respondent at the total of P40,000.00, P20,000.00 for the
occupancy of the first floor, and P10,000.00 each for the
occupancy of the second and third floors of the building,
effective after the lapse of the original lease contract
between respondent and the original owner of the
building.
On the other hand, respondent insists on the ruling
of the Metropolitan Trial Court, which was thereafter
reinstated by the Court of Appeals in its 30 July 1998
Resolution, that the monthly rental rates of only
P8,000.00 for the first floor and P5,000.00 for each of the
second and third floors should prevail.
At the outset, it should be recalled that there existed
no consensual lessor-lessee relationship between the
parties. At most, what we have is a forced lessor-lessee
relationship inasmuch as the respondent, by way of
detaining the property without the consent of herein
petitioners, was in unlawful possession of the property
belonging to petitioner spouses.
We cannot allow the respondent to insist on the
payment of a measly sum of P8,000 for the rentals of the
first floor of the property in question and P5,000.00 for
each of the second and the third floors of the leased
premises. The plaintiff in an ejectment case is entitled to
damages caused by his loss of the use and possession
of the premises.[if !supportFootnotes][13][endif] Damages in the
context of Section 17, Rule 70 of the 1997 Rules of Civil
Procedure is limited to rent or fair rental value or the
reasonable compensation for the use and occupation of
the property.[if !supportFootnotes][14][endif] What therefore
constitutes the fair rental value in the case at bench?
In ruling that the increased rental rates of
P40,000.00 should be awarded the petitioners, the
regional trial court based its decision on the doctrine of
judicial notice. The RTC held, thus:
While this Court is fully in agreement with the Court of
Origin that plaintiffs-appellees have the better right to the
possession of the premises in question being the present
owners and the contract of lease between the former
owner and herein defendant-appellant had already
expired, the amount of rentals as laid down in the
Clarificatory Order dated 3 March 1997 is inadequate, if
not unreasonable.
The Court a quo misappreciated the nature of the
property, its location and the business practice in the
vicinity and indeed committed an error in fixing the
amount of rentals in the aforementioned Order. Said
premises is situated along Quirino Avenue, a main
thoroughfare in Barangay Baclaran, Paraaque, Metro
Manila, a fully developed commercial area and the place
where the famous shrine of the Mother of Perpetual Help
stands. Withal, devotees, traders, tourists and practically
people from all walks of life visit said barangay making it
suitable for commerce, not to mention thousand of
residents therein. Needless to say, every square meter of
said community is valuable for all kinds of business or
commerce of man.
Further, considering that the questioned property
has three floors and strategically located along the main
road and consistent with the prevailing rental rates in said
business area which is between P20,000.00 and
P30,000.00 as testified to by Divina Q. Roco, a real
estate agent and Mina Catungal, this Court finds the
amount of P20,000.00 a month for the ground floor and
P10,000.00 a month each for the second floor and third
floor or a total of P40,000.00 monthly rentals as
appropriate and reasonable rentals for the use and
occupation of said premises.
Finally, worth mentioning here as parallel is [the]
ruling of the Supreme Court in the case of Manila Bay
Club Corporation vs. Court of Appeals, 245 SCRA 715
and 731-732 citing Licmay vs. Court of Appeals, 215
SCRA 1 (1992) and Commander Realty Inc. v. Court of
Appeals, 168 SCRA 181. It reads as follows:
It is worth stressing at this juncture that the trial court had
the authority to fix the reasonable value for the continued
use and occupancy of the leased premises after the
termination of the lease contract, and that it was not
bound by the stipulated rental in the contract of lease
since it is equally settled that upon termination or
expiration of the Contract of Lease, the rental stipulated
therein may no longer be the reasonable value for the
use and occupation of the premises as a result or by
reason of the change or rise in values. Moreover, the trial
court can take judicial notice of the general increase in
rentals of real estate especially of business
establishments like the leased building owned by the
private respondents.[if !supportFootnotes][15][endif]
We find that the RTC correctly applied and
construed the legal concept of judicial notice in the case
at bench. Judicial knowledge may be defined as the
cognizance of certain facts which a judge under rules of
legal procedure or otherwise may properly take or act
upon without proof because they are already known to
him, or is assumed to have, by virtue of his office.[if
!supportFootnotes][16][endif] Judicial cognizance is taken only of
those matters that are commonly known. The power of
taking judicial notice is to be exercised by courts with
caution; care must be taken that the requisite notoriety
exists; and every reasonable doubt on the subject should
be promptly resolved in the negative.[if
!supportFootnotes][17][endif] Matters of judicial notice have three
material requisites: (1) the matter must be one of
common and general knowledge; (2) it must be well and
authoritatively settled and not doubtful or uncertain; and
(3) it must be known to be within the limits of jurisdiction
of the court.
The RTC correctly took judicial notice of the nature
of the leased property subject of the case at bench based
on its location and the commercial viability. The above
quoted assessment by the RTC of the Baclaran area,
where the subject property is located, is fairly grounded.
Furthermore, the RTC also had factual basis in
arriving at the said conclusion, the same being based on
testimonies of witnesses, such as real estate broker
Divina Roco and the petitioner Mina Catungal.
The RTC rightly modified the rental award from
P13,000.00 to P40,000.00, considering that it is settled
jurisprudence that courts may take judicial notice of the
general increase in rentals of lease contract renewals
much more with business establishments. Thus, We held
in Manila Bay Club Corporation vs. Court of Appeals:[if
!supportFootnotes][18][endif]
It is worth stressing at this juncture that the trial court had
the authority to fix the reasonable value for the continued
use and occupancy of the leased premises after the
termination of the lease contract, and that it was not
bound by the stipulated rental in the contract of lease
since it is equally settled that upon termination or
expiration of the contract of lease, the rental stipulated
therein may no longer be the reasonable value for the
use and occupation of the premises as a result or by
reason of the change or rise in values. Moreover, the trial
court can take judicial notice of the general increase in
rentals of real estate especially of business
establishments like the leased building owned by the
private respondent.[if !supportFootnotes][19][endif]
The increased award of rentals ruled by the RTC is
reasonable given the circumstances of the case at
bench. We note that respondent was able to deny
petitioners the benefits, including possession, of their
rightful ownership over the subject property for almost a
decade.
The Court of Appeals failed to justify its reduction of
the P40,000.00 fair rental value as determined by the
RTC. Neither has respondent shown that the rental
pegged by the RTC is exorbitant or unconscionable. This
is because the burden of proof to show that the rental
demanded is unconscionable or exorbitant rests upon
private respondent as the lessee.[if !supportFootnotes][20][endif]
Here, respondent neither discharged this burden when
she omitted to present any evidence at all on what she
considers to be fair rental value, nor did she controvert
the evidence submitted by petitioners by way of
testimonies of the real estate broker and petitioner Mina
Catungal. Thus, in Sia v. CA, we ruled:
xxx On the contrary, the records bear out that the
P5,000.00 monthly rental is a reasonable amount,
considering that the subject lot is prime commercial real
property whose value has significantly increased and that
P5,000.00 is within the range of prevailing rental rates in
that vicinity. Moreover, petitioner has not proffered
controverting evidence to support what he believes to be
the fair rental value of the leased building since the
burden of proof to show that the rental demanded is
unconscionable or exorbitant rests upon the lessee.
Thus, here and now we rule, as we did in the case of
Manila Bay Club v. Court of Appeals, that petitioner
having failed to prove its claim of excessive rentals, the
valuation made by the Regional Trial Court, as affirmed
by the respondent Court of Appeals, stands.[if
!supportFootnotes][21][endif]
The Court of Appeals merely anchored its decision
to reduce the P40,000.00 rental on procedural grounds.
According to the Court of Appeals, the motion for
reconsideration filed by petitioners before the MeTC is a
prohibited pleading under the Rule on Summary
Procedure and did not have any effect in stalling the
running of the period to appeal the decision nor could it
be considered as notice of appeal and consequently this
affected the elevation of the case to the RTC. Not having
appealed the case to the RTC, the amended judgment of
the MeTC fixing the rental rate at P13,000.00 is final and
executory as far as petitioners are concerned.
We disagree. A reading of the order issued by the
MeTC will show that said court elevated the issue on the
amount of rentals raised by the petitioner to the RTC
because the appeal of respondent had already been
perfected, thus:
Considering the Motion for Reconsideration of the Order
of this Court dated March 3, 1997 and the Comment and
Opposition thereto of the counsel for the defendant, the
Court finds the said Motion for Reconsideration should
already be addressed to the Regional Trial Court
considering that whatever disposition that this Court will
award will still be subject to the appeal taken by the
defendant and considering further that the supersedeas
bond posted by the defendant covered the increased
rental.
In order that this case will be immediately forwarded to
the Regional Trial Court in view of the appeal of the
defendant, the Court deemed it wise not to act on the
said motion for reconsideration and submit the matter to
the Regional Trial Court who has the final say on whether
the rental or the premises in question will be raised or
not.
It will be to the advantage of both parties that this Court
refrain from acting on the said Motion for Reconsideration
so as to expedite the remanding (sic) of this Court to the
Regional Trial Court.[if !supportFootnotes][22][endif]
When the MeTC referred petitioners motion to the
RTC for its disposition, respondent could have opposed
such irregularity in the proceeding.
This respondent failed to do. Before this Court,
respondent now insists that the petition should be denied
on the ground that the Motion for Reconsideration filed
before the MeTC is a prohibited pleading and hence
could not be treated as a notice of appeal. Respondent is
precluded by estoppel from doing so. To grant
respondents prayer will not only do injustice to the
petitioners, but also it will make a mockery of the judicial
process as it will result in the nullity of the entire
proceedings already had on a mere technicality, a
practice frowned upon by the Court. Our ruling in
Martinez, et al. vs. De la Merced, et al.[if
!supportFootnotes][23][endif] is illustrative :
xxx In fine, these are acts amounting to a waiver of the
irregularity of the proceedings. For it has been
consistently held by this Court that while lack of
jurisdiction may be assailed at any stage, a party's active
participation in the proceedings before a court without
jurisdiction will estop such party from assailing such lack
of jurisdiction.
The Court of Appeals in the assailed Decision
correctly observed that the peculiar circumstances
attendant to the ejectment cases warrant departure from
the presumption that a party who did not interject an
appeal is satisfied with the adjudication made by the
lower court:
As regard the issue on the propriety of the increase in the
award of damages/rentals made by the RTC, the Court
notes that, while respondent spouses did not formally
appeal the decision in the ejectment cases, their motion
for reconsideration assailing the clarificatory order
reducing the award of damages/rentals was, by order of
the MTC, referred to the RTC for appropriate action.
Reason for such action is stated in the Order of May 7,
1997, thus:
xxx
Neither petitioner nor respondent spouses assailed the
above order. In fact, in their appeal memorandum,
respondent spouses reiterated their claim, first ventilated
in their motion for reconsideration dated March 24, 1997,
that the MTC grievously erred in finding that plaintiffs-
appellees are only entitled to a meager monthly rental of
P8,000.00 for the ground floor and P5,000.00 for the
second and third floors.
Hence, while the entrenched procedure in this jurisdiction
is that a party who has not himself appealed cannot
obtain from the appellate court affirmative relief other
than those granted in the decision of the lower court, the
peculiar circumstances attendant to the ejectment cases
warrant a departure therefrom. The rule is premised on
the presumption that a party who did not interpose an
appeal is satisfied with the adjudication made by the
lower court. Respondent spouses, far from showing
satisfaction with the clarificatory order of March 3, 1997,
assailed it in their motion for reconsideration which,
however, was referred to the RTC for appropriate action
in view of the appeal taken by the petitioner. Clearly, the
increase in the damages/rentals awarded by the MTC
was an issue the RTC could validly resolve in the
ejectment cases.[if !supportFootnotes][24][endif]
Respondent, argues that ejectment cases are tried
under the Revised Rule on Summary Procedure,[if
!supportFootnotes][25][endif] hence, the motion for reconsideration
filed by petitioner was a prohibited pleading and could not
take the place of the required notice of appeal.
The argument by respondent is misleading. Simply
because the case was one for ejectment does not
automatically mean that the same was triable under the
Rules of Summary Procedure. At the time of the filing of
the complaint by petitioner in 1989, said Rules provide:
SECTION 1. SCOPE - THIS RULE SHALL GOVERN
THE PROCEDURE IN THE METROPOLITAN TRIAL
COURTS, THE MUNICIPAL CIRCUIT TRIAL COURTS
IN THE FOLLOWING CASES:
A. CIVIL CASES:
(1) CASES OF FORCIBLE ENTRY AND UNLAWFUL
DETAINER, EXCEPT WHERE THE QUESTION OF
OWNERSHIP IS INVOLVED, OR WHERE THE
DAMAGES OR UNPAID RENTALS SOUGHT TO BE
RECOVERED BY THE PLAINTIFF EXCEED TWENTY
THOUSAND PESOS (P20,000.00) AT THE TIME OF
THE FILING OF COMPLAINT. x x x
In their complaint, petitioners prayed, among others,
for rentals for the period covering June 1988 to April
1989, at a rate of P20,000.00 for the first floor alone, as
well as P10,000.00 for attorney's fees. Clearly,
considering the amount of rentals and damages claimed
by petitioners, said case before the MeTC was not
governed by the Rules on Summary Procedure. Said
case was governed by the ordinary rules where the
general proposition is that the filing of a motion for
reconsideration of a final judgment is allowed. In the
interest of substantial justice, in this particular case, we
rule that the MeTC did not err in treating the motion for
reconsideration filed by petitioner as a notice of appeal.
Finally, respondent questions why petitioners would
want to reinstate the RTC decision when in fact they had
already applied for a writ of execution of the 8 March
1997 Decision. Respondent is of the view that since
petitioners had already moved for the execution of the
decision awarding a smaller amount of damages or fair
rental value, the same is inconsistent with a petition
asking for a greater fair rental value and, therefore, a
possible case of unjust enrichment in favor of the
petitioners. We are not persuaded.
In order to avoid further injustice to a lawful
possessor, an immediate execution of a judgment is
mandated and the courts duty to order such execution is
practically ministerial.[if !supportFootnotes][26][endif] In City of
Manila, et al. vs. CA, et al.,[if !supportFootnotes][27][endif] We held
that Section 8 (now Section 19), Rule 70, on execution
pending appeal, also applies even if the plaintiff-lessor
appeals where, as in that case, judgment was rendered
in favor of the lessor but it was not satisfied with the
increased rentals granted by the trial court, hence the
appeal xxx.
As above discussed, the petitioners have long been
deprived of the exercise of their proprietary rights over
the leased premises and the rightful amount of rentals at
the rate of P40,000.00 a month. Consequently,
petitioners are entitled to accrued monthly rentals of
P27,000.00, which is the difference between P40,000.00
awarded by the Regional Trial Court and P13,000.00
awarded by the MeTC and affirmed by the Court of
Appeals. Said amount of P27,000.00 should rightly be
the subject of another writ of execution being distinct
from the subject of the first writ of execution filed by
petitioners.
The Court also awards interest in favor of
petitioners. In Eastern Shipping Lines, Inc. vs. Court of
Appeals, we gave the following guidelines in the award of
interest:
xxx
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.
The back rentals in this case being equivalent to a
loan or forbearance of money, the interest due thereon in
twelve percent (12%) per annum from the time of extra-
judicial demand on September 27, 1988.
WHEREFORE, premises considered, judgment is hereby
rendered in favor of petitioners by reinstating the
decision of the RTC, with modifications, and ordering
respondent to further pay:
1. The sum of Twenty Seven Thousand Pesos
(P27,000.00), corresponding to the difference between
the P40,000.00 awarded by the Regional Trial Court and
the P13,000.00 awarded by the Metropolitan Trial Court,
as monthly arrears, computed from respondents unlawful
detainer, 20 June 1988 (for the ground floor) and 15
August 1988 (for the second and third floors) of the
subject property until the time she vacated the premises
on 7 January 1998;
2. Legal interest of twelve percent (12%) per annum on
the foregoing sum from the date of notice of demand on
27 September 1988 until fully paid;
3. The sum of Twenty Thousand Pesos (P20,000.00) as
and for attorneys fees and;
4. The costs of suit.
SO ORDERED.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
petitioners, vs. THE HON. COURT OF APPEALS, and
CALVIN & ELSA ARCILLA, respondents.
DECISION
GONZAGA_REYES, J.:
Before us is a Petition for Review on Certiorari of the
Decision of the Court of Appeals[if !supportFootnotes][1][endif] in
CA-G.R. CV No. 45891 entitled CALVIN S. ARCILLA and
ELSA B. ARCILLA vs. BANCO FILIPINO SAVINGS and
MORTGAGE BANK, ET. AL. which affirmed the decision
of the Regional Trial Court (RTC), Branch 33, Manila
ordering BANCO FILIPINO to pay CALVIN and ELSA
ARCILLA the amount of P126,139.00 with interest
thereon at 12% per annum from the filing of the
complaint.
The undisputed facts as found by the Court of Appeals
are as follows:
"Elsa Arcilla and her husband, Calvin Arcilla, the
Appellees in the present recourse,
secured, on three (3) occasions, loans
from the Banco Filipino Savings and
Mortgage Bank, the Appellant in the
present recourse, in the total amount of
P107,946.00 as evidenced by
"Promissory Note" executed by the
Appellees in favor of the Appellant. To
secure the payment of said loans, the
Appellees executed "Real Estate
Mortgages" in favor of the Appellants
over their parcels of land located in BF-
Paraaque, covered by Transfer
Certificate of Title Nos. 444645,
450406, 450407 and 455410 of the
Registry of Deeds of Paraaque
(Annexes "B" to "B-2", Amended
Complaint). Under said deeds, the
Appellant may increase the rate of
interest, on said loans, within the limits
allowed by law, as Appellants Board of
Directors may prescribe for its
borrowers. At that time, under the
Usury Law, Act 2655, as amended, the
maximum rate of interest for loans
secured by real estate mortgages was
12% per annum. On January 10, 1975,
the Appellees and the Appellant
executed a "Deed of Consolidation and
Amendment of Real Estate Mortgage"
whereby the aforementioned loans of
the Appellees and the "Real Estate
Mortgage" executed by them as
security for the payment of said loans
were consolidated (pages 33-35,
Record). Likewise, under said deed,
the loan of the Appellees from the
Appellant was increased to
P188,000.00. The Appellees executed
a "Promissory Note", dated January 15,
1975, whereby they bound and obliged
themselves, jointly and severally, to
pay the Appellant the aforesaid amount
of P188,000.00 with interest at the rate
of 12% per annum, in nineteen (19)
years from date thereof, in stated
installments of P2,096.93 a month
(page 32, Records).
On January 2, 1976, the Central Bank of the Philippines
issued Central Bank Circular No. 494, quoted infra, as
follows:
xxx
3. The maximum rate of interest, including commissions,
premiums, fees and other charges on
loans with maturity of more than seven
hundred thirty (730) days, by banking
institutions, including thrift banks, or by
financial intermediaries authorized to
engage in quasi-banking functions
shall be nineteen percent (19%) per
annum.
xxx
7. Except as provided in this Circular and Circular No.
493, loans or renewals thereof shall
 continue to be governed by the Usury
Law, as amended. (idem, supra)
In the meantime, the Skyline Builders, Inc., through its
President, Appellee Calvin Arcilla, secured loans from the
Bank of the Philippine Islands in the total amount of
P450,000.00. To insure payment of the aforesaid loan,
the FGU Insurance Corporation, issued PG Bond No.
1003 for the amount of P225,000.00 (pages 434-436,
Records) in favor of the Bank of the Philippine Islands.
Skyline Buildings, Inc., and the Appellees executed an
"Agreement of Counter-Guaranty with Mortgage" in favor
of the FGU Insurance Corporation covering the aforesaid
parcels of land to assure payment of any amount that the
insurance company may pay on account of said loans
(pages 429-436, Records). The mortgage was annotated
as Entry No. 58009 at the dorsal portion of Appellees
titles.
After October 30, 1978, the Appellant prepared and
issued a "Statement of Account" to the Appellees on their
loan account to the effect that, as of October 30, 1978,
the balance of their loan account, inclusive of interests,
computed at 17% per annum, amounted to 284,490.75
(page 555, Records). It turned out that the Appellant
unilaterally increased the rate of interest on the loan
account of the Appellees from 12% per annum, as
covenanted in the "Real Estate Mortgage" and "Deed of
Consolidated and Amended Real Estate Mortgage" to
17% per annum on the authority of the aforequoted
Central Bank Circular.
The Appellees failed to pay their monthly amortizations to
Appellant. The latter forthwith filed, on April 3, 1979, a
petition, with the Provincial Sheriff, for the extrajudicial
foreclosure of Appellees "Real Esate Mortgage" in favor
of the Appellant for the amount of P342,798.00 inclusive
of the 17% per annum which purportedly was the totality
of Appellees account with the Appellant on their loans.
The Appellant was the purchaser of the property at public
auction for the aforesaid amount of P324,798.00. On May
25, 1979, the Sheriff executed a "Certificate of Sale" over
the aforesaid properties in favor of the Appellant for the
aforesaid amount (pages 37-38, Records).
The Appellant filed a "Petition for a Writ of Possession"
with the Regional Trial Court entitled "Banco Filipino
Savings and Mortgage Bank vs. Elsa Arcilla, et al., LRC
Case No. P-7757-P". On February 28, 1980, the Court
rendered a Decision granting the Petition of the
Appellant. The Appellees appealed to the Court of
Appeals but the latter Court, on June 29, 1985,
promulgated a Decision affirming the Decision of the
Regional Trial Court (pages 190-198, Records).
In the meantime, the FGU Insurance Corporation, Inc.,
redeemed the aforesaid properties from the Appellant by
paying to the latter the amount of P389,289.41 inclusive
of interest computed at 17% per annum. The Appellant
and FGU Insurance Corp., Inc., executed, on May 27,
1980, a "Deed of Redemption" (pages 126-129,
Records).
On September 2, 1985, the Appellees filed a complaint in
the Court a quo for the "Annulment of the Loan
Contracts, Foreclose Sale with Prohibition and Injunction,
Etc." entitled "Calvin Arcilla, et al. vs. Banco Filipino
Savings and Mortgage Bank, et al." (pages 1-38,
Records).
The Appellees averred, in their complaint, inter alia, that
the loan contracts and mortgages between the Appellees
and the Appellant were null and void because: (a) the
interests, charges, etc., were deducted in advance from
the face value of the "Promissory Notes" executed by the
Appellees; and (b) the rate of interests charged by the
Appellant were usurious. The Appellees prayed that
judgment be rendered in their favor as follows:
"x x x
WHEREFORE, it is respectfully prayed
a) Pending hearing on the prayer for the issuance of the
Writ of Preliminary Injunction, a
restraining order be immediately issued
against the defendants or anyone
acting in their behalf from enforcing the
writ of possession issued against the
plaintiffs;
b) After notice and hearing, a writ of preliminary
injunction be issued against the
defendants, particularly defendants
FGU Insurance Corporation and the
City Sheriff of Pasay City, MM, or any
of his deputies or anyone acting in their
behalf from enforcing the writ of
possession;
c) After trial
1) To make the injunction permanent;
2) Declare the loan contracts null and void;
3) Declare the extrajudicial foreclosure null and void;
4) Ordering the defendants to pay the plaintiffs the sums
of P100,000.00 as moral
damages; P50,000.00 as
attorney fees; and, costs of
suit.
PLAINTIFFS further pray for such other reliefs and
remedies just and equitable in
the premises." (pages 88-89,
Records)
In its Answer to the Complaint, the Appellant averred that
the interests charged by it on
Appellees loan accounts and that the
said loan contracts and mortgages
were lawful. The Appellant further
averred that the Appellees action had
already prescribed.
In the interim, the Supreme Court promulgated its
Decision in the precedent - setting
case of "Banco Filipino Savings and
Mortgage Bank vs. Hon. Miguel
Navarro, et al., 152 SCRA 346" where
it declared that Central Bank Circular
No. 494 was not the "law" envisaged in
the mortgage deeds of borrowers of
the Bank; that the escalation clause
incorporated in said deeds giving
authority to the Appellant to increase
the rate of interests without the
corresponding deescalation clause
should not be given effect because of
its one-sidedness in favor of the
Appellant; that the aforesaid Central
 Bank Circular did not apply to loans
secured by real estate mortgages, and
that, therefore, the Appellant cannot
rely said Circular as authority for it to
unilaterally increase the rate of
interests on loans secured by Real
Estate Mortgages.
In the meantime, the FGU Insurance Corp., Inc., filed a
"Motion for Substitution" with the
Regional Trial Court, in LRC Case No.
Pq-7757-P praying that it be
substituted as the Petitioner in said
case (pages 354-356, Records). The
Appellees were served with a copy of
said motion and filed their Opposition
thereto. However, on November 10,
1987, the Regional Trial Court
rendered a Decision granting the
motion of FGU Insurance Company
(page 369, Records)
On December 3, 1987, the Appellees filed a Motion, with
the Court a quo, for leave to file an
"Amended Complaint" to implead FGU
Insurance Corporation as party
defendant (pages 83-129, Records).
The Court granted said motion and
admitted Appellees Amended
Complaint.
After the requisite pre-trial, the Court a quo issued a Pre-
Trial Order which defined, inter alia,
Appellees action against the Appellant,
and the latters defenses, to wit:
"x x x
On the part of the defendants Banco Filipino Savings to
simplify the case, it seeks to
declare as null and void
plaintiffs loan contract with
Banco Filipino obtained in
May 1974, on the ground that
the interest agreed in the
contract was usurious.
Plaintiffs also seek to declare
as null and void the
foreclosure of their mortgage
by Banco Filipino on the
ground that the loan with the
said mortgagee foreclosure
maybe validly done.
DEFENSES
1. Prescription
2. Laches
3. Estoppel" (page 496, Records)
In the meantime, the Appellees and FGU Insurance
Corporation entered into and forged a
"Compromise Agreement." The Court a
quo promulgated a Decision, dated
April 3, 1991, based on said
"Compromise Agreement." Under the
"Compromise Agreement", the
Appellees bound and obliged
themselves, jointly and severally, to
pay to FGU Insurance Corporation the
 amount of P1,964,117.00 in three (3)
equal installments and that:
"x x x
6. Upon faithful compliance by plaintiffs Calvin S. Arcilla
and Elsa B. Arcilla with their
Agreement, defendant FGU
Insurance Corporation shall
renounce in their favor all its
rights, interests and claims to
the four (4) parcels of land
mentioned in paragraph No. 4
of this Compromise
Agreement, together with all
the improvements thereon,
and plaintiffs Calvin S. Arcilla
and Elsa B. Arcilla shall be
subrogated to all such rights,
interests and claims. In
addition, defendant FGU
Insurance Corporation shall
execute in favor of plaintiffs
Calvin S. Arcilla and Elsa B.
Arcilla a deed of cancellation
of the real estate mortgage
constituted in its favor on the
above-mentioned four (4)
parcels of land, together with
all the improvements thereon.
All documentary stamps and
expenses for registration of
the said deed of cancellation
of mortgage shall be for the
account of plaintiffs Calvin S.
Arcilla and Elsa B. Arcilla.
7. Subject to the provisions of paragraph No. 4 of this
Compromise Agreement, the
execution of this Compromise
Agreement shall be without
prejudice to the prosecution of
the claims of plaintiffs Calvin
S. Arcilla and Elsa B. Arcilla.
(pages 543-544, Records)
Thereafter, the Appellees and the Appellant agreed, upon
the prodding of the Court a quo, that
the only issue to be resolved by the
Court a quo was, whether or not the
Appellees were entitled to the refund,
under the Decision of the Supreme
Court in "Banco Filipino Savings and
Mortgage Bank vs. Hon. Miguel
Navarro, et al.," supra. On November
8, 1991, the Appellees filed a "Motion
for Summary Judgment" appending
thereto, inter alia, the Affidavit of
Appellee Calvin S. Arcilla and the
appendages thereof (pages 550-555,
Records). Appellant filed its Opposition
but did not append any affidavit to said
Opposition. On March 26, 1993, the
Court a quo promulgated a Decision,
the decretal portion of which reads as
follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the
plaintiffs and against
defendant Banco Filipino
ordering defendant Banco
Filipino to pay spouses Calvin
S. Arcilla and Elsa B. Arcilla
the sum of P126,139.00 with
interest thereon at 12% per
annum reckoned from the
filing of the complaint.
SO ORDERED. (pages 584-585, Records)"[if
!supportFootnotes][2][endif]
II. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT HELD THAT THE MATERIAL ALLEGATIONS
OF THE PRIVATE RESPONDENTS COMPLAINT
WERE SUFFICIENT TO WARRANT THE RELIEFS
GRANTED TO THEM BY THE LOWER COURT,
PATICULARLY THE REFUND OF P126,139.00
REPRESENTING ALLEGED EXCESS INTEREST PAID
ON THEIR LOAN.
III. THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT THE PRIVATE RESPONDENTS
WERE ENTITLED TO THE SAID REFUND OF
P126,139.00 CLAIMED BY THEM."[if
!supportFootnotes][5][endif]

Petitioner appealed to the Court of Appeals, which
affirmed the decision of the RTC the dispositive portion of
which reads:
"IN THE LIGHT OF ALL THE FOREGOING, the assailed
Decision is AFFIRMED. Appellants
appeal is DISMISSED. With costs
against the Appellant.
SO ORDERED." !supportFootnotes][3][endif]
[if
Their Motion for Reconsideration[if !supportFootnotes][4][endif] was
denied hence this petition where the petitioner assigns
the following errors:
"I. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT HELD THAT THE CAUSE OF ACTION OF
THE PRIVATE RESPONDENTS ACCRUED ON
OCTOBER 30, 1978, AND THEREFORE THE FILING
OF THEIR COMPLAINT FOR ANNULMENT OF THEIR
LOAN CONTRACTS WITH THE PETITIONER IN 1985
WAS NOT YET BARRED BY PRESCRIPTION.
The petitioner maintains that the complaint filed by herein
private respondents was an action for Annulment of Loan
Contracts, foreclosure sale with prohibition and
injunction. It is contended that these causes of action
accrued on the date of the execution of the promissory
note and deed of mortgage on January 15, 1975 and not
October 30, 1978 as found by the Court of Appeals.
Thus, private respondents cause of action has already
prescribed inasmuch as the case was filed on September
2, 1985 or more than ten years thereafter. Petitioner
further contends that private respondents cannot rely on
the ruling in the case of Banco Filipino Savings &
Mortgage Bank vs. Navarro[if !supportFootnotes][6][endif]
considering that they were not parties to said case.
Petitioner also maintains that the order of the lower court,
which was affirmed by the Court of Appeals ordering the
petitioner to refund the excess interest paid by private
respondents in the amount of P126,318.00 was without
any legal basis since private respondents never raised
the issue of interest nor prayed for any relief with respect
thereto. Moreover, the private respondents never paid
said amount to the petitioner. While the amount was
included in the bid price of the bank when it bought the
mortgaged properties during the public auction, said bid
price did not prejudice the private respondents because
when the private respondents repurchased the
properties, the amount they paid was different and
independent of the redemption price of the bank.
Besides, the agreement between the private respondents
and FGU Insurance Corporation was one of sale and not
redemption. Thus, any amount paid by the private
respondents to FGU was voluntarily entered into by them
and was not a consequence of the foreclosure of the
mortgage properties.
Conversely, private respondents allege that their action
has not prescribed considering that prescription begins to
run from the day the action may be brought; the date
their right of action accrued. It is their contention that the
period of prescription of their action should commence to
run from October 30, 1978 when the petitioner
unilaterally increased the rate of interest on private
respondents loan to 17% per annum. Thus, when private
respondents filed their action against the petitioner on
September 2, 1985 or almost eight years thereafter, their
action had not yet prescribed. Moreover, private
respondents aver that they are entitled to the refund
inasmuch as the escalation clause incorporated in the
loan contracts do not have a corresponding de-escalation
clause and is therefore illegal.
The appeal is unmeritorious.
There are only two issues, which must be resolved in the
present appeal. First, has the action of the private
respondents prescribed; and second, are the
respondents entitled to the refund of the alleged interest
overpayments.
Petitioners claim that the action of the private
respondents has prescribed is bereft of merit. Under
Article 1150 of the Civil Code, the time for prescription of
all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day
they may be brought. Thus, the period of prescription of
any cause of action is reckoned only from the date the
cause of action accrued.[if !supportFootnotes][7][endif] And a cause
of action arises when that which should have been done
is not done, or that which should not have been done is
done.[if !supportFootnotes][8][endif] The period should not be made
to retroact to the date of the execution of the contract on
January 15, 1975 as claimed by the petitioner for at that
time, there would be no way for the respondents to know
of the violation of their rights.[if !supportFootnotes][9][endif] The
Court of Appeals therefore correctly found that
respondents cause of action accrued on October 30,
1978, the date they received the statement of account
showing the increased rate of interest, for it was only
from that moment that they discovered the petitioners
unilateral increase thereof. We quote with approval the
pertinent portions of the Court of Appeals decision as
follows:
"It is the legal possibility of bringing the action that
determines the starting point for the
 computation of the period of
prescription (Constancia C. Telentino
vs. Court of Appeals, et al., 162 SCRA
66). In fine, the ten-year prescriptive
period is to be reckoned from the
accrual of Appellees right of action, not
necessarily on the very date of the
execution of the contracts subject of
the action (Naga Telepone Co. Inc. vs.
Court of Appeals, et al., 230 SCRA
351). A partys right of action accrues
only when the confluence of the
following elements is established:
"xxx: a) a right in favor of the plaintiff by whatever means
and under whatever law it
arises or is created; b) an
obligation on the part of
defendant to respect such
right; and c) an act or
omission on the part of such
defendant violative of the right
of the plaintiff (Cole vs. Vda.
de Gregorio, 116 SCRA 670
[1982]; Mathay vs.
Consolidated Bank & Trust
Co., 58 SCRA 559 [1974];
Vda. de Enriquez vs. Dela
Cruz, 54 SCRA 1 [1973]. It is
only when the last element
occurs or takes place that it
can be said in law that a
cause of action has arisen
(Cole vs. Vda. De Gregorio,
supra)" (Maria U. Espaol vs.
Chairman, etc., et al.,, 137
SCRA 314, page 318)
More, the aggrieved must have either actual or
presumptive knowledge of the
violation, by the guilty party of his rights
either by an act or omission. The
question that now comes to the fore is
when the Appellees became precisely
aware of the unilateral increase, by the
Appellant, of the rate of interest on
their loan account to 17% per annum.
As can be ascertained from the
records, the Appellees discovered or
should have discovered, for the first
time, the unilateral increase by the
Appellant of the rate of interest to 17%
per annum when they received the
"Statement of Account" of the Appellant
as of October 30, 1978. Hence, it was
only then that the prescriptive period
for the Appellees to institute their
action in the Court a quo commenced.
Since the Appellees filed their
complaint in the Court a quo on
September 2, 1985, the same was
seasonably filed within the ten-year
prescriptive period."[if
!supportFootnotes][10][endif]
Anent the second issue as to whether the respondents loans not in accordance with the
are entitled to recover the alleged overpayments of contracts;
interest, we find that they are despite the absence of any 7. Even the loan contracts (Annexes "B" to "D", inclusive)
prayer therefor. This Court has ruled that it is the material required by defendant Banco Filipino to
allegations of fact in the complaint, not the legal be signed by the plaintiffs were
conclusion made therein or the prayer that determines contrary to and in violation of the then
the relief to which the plaintiff is entitled.[if Usury Law, as amended;
!supportFootnotes][11][endif] It is the allegations of the pleading 8. Assuming arguendo that the loan contracts between
which determine the nature of the action and the Court plaintiffs and defendant Banco Filipino
shall grant relief warranted by the allegations and the are valid, the extra-judicial foreclosure
proof even if no such relief is prayed for.[if of the properties of the plaintiffs on
!supportFootnotes][12][endif] Thus, even if the complaint seeks the May 24, 1979 was null and void for
declaration of nullity of the contract, the Court of Appeals having been conducted in clear
correctly ruled that the factual allegations contained violation of the law (Act 3135), namely:
therein ultimately seek the return of the excess interests a) lack of roper notice to the plaintiffs;
paid. b) lack of proper publication and
The amended complaint[if !supportFootnotes][13][endif] of herein posting as required by law; c) the
private respondents specifically allege that the contracts alleged sale was conducted at the
of loan entered into by them and the petitioner were place other than that prescribed by law,
contrary to and signed in violation of the Usury Law[if among others;
!supportFootnotes][14][endif] and consequentially pray that said 9. On May 27, 1990, defendant Banco Filipino
contracts be declared null and void. The amended purportedly executed in favor of
complaint reads: defendant FGU Insurance Corporation
"6. The aforementioned loans granted by defendant a Deed of Redemption over the
Banco Filipino to the plaintiffs as stated foreclosed properties of the plaintiffs,
on the face of the promissory note and again, without notice to the latter, as
real estate mortgage (Annexes "B" to evidenced by the said Deed of
"D", inclusive) were not actually Redemption, copy of which is hereto
received by the plaintiffs because attached and marked as Annex "F".
interests, charges, etc. were deducted 10. The Deed of Redemption (Annex "F") is clearly null
in advance from the face value of the and void for having been executed in
 violation of Rule 39, Rules of Court,
and other related provisions of the
Rules of Court."[if !supportFootnotes][15][endif]
The loan contracts with real estate mortgage entered into
by and between the petitioner and respondent stated that
the petitioner may increase the interest on said loans,
within the limits allowed by law, as petitioners Board of
Directors may prescribe for its borrowers. At the time the
contracts were entered into, said escalation clause was
valid.[if !supportFootnotes][16][endif] It was only pursuant to P.D.
No. 1684 which became effective March 17, 1980
wherein to be valid, escalation clauses should provide:
1.) that there can be an increase in interest if increased
by law or by the Monetary Board; and 2.) in order for
such stipulation to be valid, it must include a provision for
the reduction of the stipulated interest in the event that
the maximum rate of interest is reduced by law or by the
Monetary Board.[if !supportFootnotes][17][endif]
Given the validity of the escalation clause, could the
petitioner increase the stipulated interest pursuant to the
Central Bank Circular 494 from 12% to 17%.
We rule that it may not.
The escalation clause in the loan contracts reads as
follows:
"xxx g) The rate of interest charged on the obligation
secured by this mortgage, as well as
the interest on the amount which may
have been advanced by the Mortgagee
in accordance with paragraph (b) and
(d) hereof, shall be subject, during the
terms of this contract, to such an
increase, within the limits allowed by
law, as the Board of Directors of the
Mortgagee may prescribe for its
debtors; xxx" (emphasis supplied)[if
!supportFootnotes][18][endif]
In Banco Filipino Savings & Mortgage Bank vs. Navarro,[if
!supportFootnotes][19][endif] which involved a similar escalation
clause[if !supportFootnotes][20][endif], we ruled that Central Bank
Circular 494, although it has the force and effect of law, is
not a law and is not the law contemplated by the parties
which authorizes the petitioner to unilaterally raise the
interest rate of the loan.[if !supportFootnotes][21][endif]
Consequently, the reliance by the petitioner on Central
Bank Circular 494 to unilaterally raise the interest rates
on the loan in question was without any legal basis.
Petitioners argument that the Banco Filipino case cannot
be applied to the present case since the respondents
were not intervenors therein is flawed. Only the judgment
in said case cannot bind the respondents as they were
not parties thereto, however, the doctrine enunciated
therein is a judicial decision and forms part of the legal
system of the land.[if !supportFootnotes][22][endif] It forms a
precedent, which must be adhered to under the doctrine
of stare decisis.[if !supportFootnotes][23][endif] Thus, even if the
respondents were not parties to the above-mentioned
case, the doctrine enunciated therein may be applied to
the present case.
WHEREFORE, the decision of the Court of Appeals in
CA-G.R. CV No. 45891 is AFFIRMED and the instant
petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, and Purisima, JJ., concur.
Panganiban, J., on leave.
THE CONSOLIDATED BANK AND TRUST
CORPORATION (SOLIDBANK), petitioner, vs. THE
COURT OF APPEALS, CONTINENTAL CEMENT
CORPORATION, GREGORY T. LIM and SPOUSE,
respondents.
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks to partially set
aside the July 26, 1993 Decision[if !supportFootnotes][1][endif] of
respondent Court of Appeals in CA-G.R. CV No. 29950,
insofar as it orders petitioner to reimburse respondent
Continental Cement Corporation the amount of
P490,228.90 with interest thereon at the legal rate from
July 26, 1988 until fully paid. The petition also seeks to
set aside the March 8, 1994 Resolution[if
!supportFootnotes][2][endif] of respondent Court of Appeals
denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement
Corporation (hereinafter, respondent Corporation) and
Gregory T. Lim (hereinafter, respondent Lim) obtained
from petitioner Consolidated Bank and Trust Corporation
Letter of Credit No. DOM-23277 in the amount of
P1,068,150.00 On the same date, respondent
Corporation paid a marginal deposit of P320,445.00 to
petitioner. The letter of credit was used to purchase
around five hundred thousand liters of bunker fuel oil
from Petrophil Corporation, which the latter delivered
directly to respondent Corporation in its Bulacan plant. In
relation to the same transaction, a trust receipt for the
amount of P1,001,520.93 was executed by respondent
Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the
goods covered by the trust receipt or the proceeds
thereof, petitioner filed a complaint for sum of money with
application for preliminary attachment[if !supportFootnotes][3][endif]
before the Regional Trial Court of Manila. In answer to
the complaint, respondents averred that the transaction
between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did
not take into account payments already made by them.
Respondent Lim also denied any personal liability in the
subject transactions. In a Supplemental Answer,
respondents prayed for reimbursement of alleged
overpayment to petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on
the following issues:
1) Whether or not the transaction involved is a loan
transaction or a trust receipt transaction;
2) Whether or not the interest rates charged against the
defendants by the plaintiff are proper under the letter of
credit, trust receipt and under existing rules or regulations
of the Central Bank;
3) Whether or not the plaintiff properly applied the
previous payment of P300,456.27 by the defendant
corporation on July 13, 1982 as payment for the latters
account; and
4) Whether or not the defendants are personally liable
under the transaction sued for in this case.[if
!supportFootnotes][4][endif]
On September 17, 1990, the trial court rendered its
Decision,[if !supportFootnotes][5][endif] dismissing the Complaint
and ordering petitioner to pay respondents the following
amounts under their counterclaim: P490,228.90
representing overpayment of respondent Corporation,
with interest thereon at the legal rate from July 26, 1988
until fully paid; P10,000.00 as attorneys fees; and costs.
Both parties appealed to the Court of Appeals,
which partially modified the Decision by deleting the
award of attorneys fees in favor of respondents and,
instead, ordering respondent Corporation to pay
petitioner P37,469.22 as and for attorneys fees and
litigation expenses.
Hence, the instant petition raising the following
issues:
1. WHETHER OR NOT THE RESPONDENT
APPELLATE COURT ACTED INCORRECTLY OR
COMMITTED REVERSIBLE ERROR IN HOLDING
THAT THERE WAS OVERPAYMENT BY PRIVATE
RESPONDENTS TO THE PETITIONER IN THE
AMOUNT OF P490,228.90 DESPITE THE ABSENCE
OF ANY COMPUTATION MADE IN THE DECISION
AND THE ERRONEOUS APPLICATION OF PAYMENTS
WHICH IS IN VIOLATION OF THE NEW CIVIL CODE.
2. WHETHER OR NOT THE MANNER OF
COMPUTATION OF THE MARGINAL DEPOSIT BY THE
RESPONDENT APPELLATE COURT IS IN
ACCORDANCE WITH BANKING PRACTICE.
3. WHETHER OR NOT THE AGREEMENT AMONG
THE PARTIES AS TO THE FLOATING OF INTEREST
RATE IS VALID UNDER APPLICABLE
JURISPRUDENCE AND THE RULES AND
REGULATIONS OF THE CENTRAL BANK.
4. WHETHER OR NOT THE RESPONDENT
APPELLATE COURT GRIEVOUSLY ERRED IN NOT
CONSIDERING THE TRANSACTION AT BAR AS A
TRUST RECEIPT TRANSACTION ON THE BASIS OF
THE JUDICIAL ADMISSIONS OF THE PRIVATE
RESPONDENTS AND FOR WHICH RESPONDENTS
ARE LIABLE THEREFOR.
5. WHETHER OR NOT THE RESPONDENT
APPELLATE COURT GRIEVOUSLY ERRED IN NOT
HOLDING PRIVATE RESPONDENT SPOUSES LIABLE
UNDER THE TRUST RECEIPT TRANSACTION.[if
!supportFootnotes][6][endif]
The petition must be denied.
On the first issue respecting the fact of
overpayment found by both the lower court and
respondent Court of Appeals, we stress the time-honored
rule that findings of fact by the Court of Appeals
especially if they affirm factual findings of the trial court
will not be disturbed by this Court, unless these findings
are not supported by evidence.[if !supportFootnotes][7][endif]
Petitioner decries the lack of computation by the
lower court as basis for its ruling that there was an
overpayment made. While such a computation may not
have appeared in the Decision itself, we note that the trial
courts finding of overpayment is supported by evidence
presented before it. At any rate, we painstakingly
reviewed and computed the payments together with the
interest and penalty charges due thereon and found that
the amount of overpayment made by respondent Bank to
petitioner, i.e., P563,070.13, was more than what was
ordered reimbursed by the lower court. However, since
respondents did not file an appeal in this case, the
amount ordered reimbursed by the lower court should
stand.
Moreover, petitioners contention that the marginal
deposit made by respondent Corporation should not be
deducted outright from the amount of the letter of credit is
untenable. Petitioner argues that the marginal deposit
should be considered only after computing the principal
plus accrued interests and other charges. However, to
sustain petitioner on this score would be to countenance
a clear case of unjust enrichment, for while a marginal
deposit earns no interest in favor of the debtor-depositor,
the bank is not only able to use the same for its own
purposes, interest-free, but is also able to earn interest
on the money loaned to respondent Corporation. Indeed,
it would be onerous to compute interest and other
charges on the face value of the letter of credit which the
petitioner issued, without first crediting or setting off the
marginal deposit which the respondent Corporation paid
to it. Compensation is proper and should take effect by
operation of law because the requisites in Article 1279 of
the Civil Code are present and should extinguish both
debts to the concurrent amount.[if !supportFootnotes][8][endif]
Hence, the interests and other charges on the
subject letter of credit should be computed only on the
balance of P681,075.93, which was the portion actually
loaned by the bank to respondent Corporation.
Neither do we find error when the lower court and
the Court of Appeals set aside as invalid the floating rate
of interest exhorted by petitioner to be applicable. The
pertinent provision in the trust receipt agreement of the
parties fixing the interest rate states:
I, WE jointly and severally agree to any increase or
decrease in the interest rate which may occur after July
1, 1981, when the Central Bank floated the interest rate,
and to pay additionally the penalty of 1% per month until
the amount/s or installment/s due and unpaid under the
trust receipt on the reverse side hereof is/are fully paid.[if
!supportFootnotes][9][endif]
We agree with respondent Court of Appeals that the
foregoing stipulation is invalid, there being no reference
rate set either by it or by the Central Bank, leaving the
determination thereof at the sole will and control of
petitioner.
While it may be acceptable, for practical reasons
given the fluctuating economic conditions, for banks to
stipulate that interest rates on a loan not be fixed and
instead be made dependent upon prevailing market
conditions, there should always be a reference rate upon
which to peg such variable interest rates. An example of
such a valid variable interest rate was found in Polotan,
Sr. v. Court of Appeals.[if !supportFootnotes][10][endif] In that case,
the contractual provision stating that if there occurs any
change in the prevailing market rates, the new interest
rate shall be the guiding rate in computing the interest
due on the outstanding obligation without need of serving
notice to the Cardholder other than the required posting
on the monthly statement served to the Cardholder[if
!supportFootnotes][11][endif] was considered valid. The
aforequoted provision was upheld notwithstanding that it
may partake of the nature of an escalation clause,
because at the same time it provides for the decrease in
the interest rate in case the prevailing market rates
dictate its reduction. In other words, unlike the stipulation
subject of the instant case, the interest rate involved in
the Polotan case is designed to be based on the
prevailing market rate. On the other hand, a stipulation
ostensibly signifying an agreement to any increase or
decrease in the interest rate, without more, cannot be
accepted by this Court as valid for it leaves solely to the
creditor the determination of what interest rate to charge
against an outstanding loan.
Petitioner has also failed to convince us that its
transaction with respondent Corporation is really a trust
receipt transaction instead of merely a simple loan, as
found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals[if
!supportFootnotes][12][endif] appears to be foursquare with the
facts obtaining in the case at bar. There, we found that
inasmuch as the debtor received the goods subject of the
trust receipt before the trust receipt itself was entered
into, the transaction in question was a simple loan and
not a trust receipt agreement. Prior to the date of
execution of the trust receipt, ownership over the goods
was already transferred to the debtor. This situation is
inconsistent with what normally obtains in a pure trust
receipt transaction, wherein the goods belong in
ownership to the bank and are only released to the
importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to
respondent Corporation of the goods subject of the trust
receipt occurred long before the trust receipt itself was
executed. More specifically, delivery of the bunker fuel oil
to respondent Corporations Bulacan plant commenced
on July 7, 1982 and was completed by July 19, 1982. [if
!supportFootnotes][13][endif] Further, the oil was used up by
respondent Corporation in its normal operations by
August, 1982.[if !supportFootnotes][14][endif] On the other hand,
the subject trust receipt was only executed nearly two
months after full delivery of the oil was made to
respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a
trust receipt transaction was explained in Colinares, to
wit:
The Trust Receipts Law does not seek to enforce
payment of the loan, rather it punishes the dishonesty
and abuse of confidence in the handling of money or
goods to the prejudice of another regardless of whether
the latter is the owner. Here, it is crystal clear that on the
part of Petitioners there was neither dishonesty nor
abuse of confidence in the handling of money to the
prejudice of PBC. Petitioners continually endeavored to
meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud
and misappropriating the money for their personal use.
The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved
to be present in Petitioners situation. Petitioners
employed no artifice in dealing with PBC and never did
they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms
precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not
importers acquiring the goods for re-sale, contrary to the
express provision embodied in the trust receipt. They are
contractors who obtained the fungible goods for their
construction project. At no time did title over the
construction materials pass to the bank, but directly to
the Petitioners from CM Builders Centre. This impresses
upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust
receipts to facilitate collection of loans and place them
under the threats of criminal prosecution should they be
unable to pay it may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest
their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of
banks, and is prone to misinterpretation, as had
happened in this case. Eventually, PBC showed its true
colors and admitted that it was only after collection of the
money, as manifested by its Affidavit of Desistance.
Similarly, respondent Corporation cannot be said to
have been dishonest in its dealings with petitioner.
Neither has it been shown that it has evaded payment of
its obligations. Indeed, it continually endeavored to meet
the same, as shown by the various receipts issued by
petitioner acknowledging payment on the loan. Certainly,
the payment of the sum of P1,832,158.38 on a loan with
a principal amount of only P681,075.93 negates any
badge of dishonesty, abuse of confidence or mishandling
of funds on the part of respondent Corporation, which are
the gravamen of a trust receipt violation. Furthermore,
respondent Corporation is not an importer which acquired
the bunker fuel oil for re-sale; it needed the oil for its own
operations. More importantly, at no time did title over the
oil pass to petitioner, but directly to respondent
Corporation to which the oil was directly delivered long
before the trust receipt was executed. The fact that
ownership of the oil belonged to respondent Corporation,
through its President, Gregory Lim, was acknowledged
by petitioners own account officer on the witness stand,
to wit:
Q - After the bank opened a letter of credit in favor of
Petrophil Corp. for the account of the defendants thereby
paying the value of the bunker fuel oil what transpired
next after that?
A - Upon purchase of the bunker fuel oil and upon the
requests of the defendant possession of the bunker fuel
oil were transferred to them.
Q - You mentioned them to whom are you referring to?
A - To the Continental Cement Corp. upon the execution
of the trust receipt acknowledging the ownership of the
bunker fuel oil this should be acceptable for whatever
disposition he may make.
Q - You mentioned about acknowledging ownership of
the bunker fuel oil to whom by whom?
A - By the Continental Cement Corp.
Q - So by your statement who really owns the bunker fuel
oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in
favor of Continental Cement Corp. so that question has
already been answered.
ATTY. BAAGA:
That is why I made a follow up question asking
ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from
Petrophil Corp.?
A - Gregory Lim.[if !supportFootnotes][15][endif]
By all indications, then, it is apparent that there was
really no trust receipt transaction that took place.
Evidently, respondent Corporation was required to sign
the trust receipt simply to facilitate collection by petitioner
of the loan it had extended to the former.
Finally, we are not convinced that respondent
Gregory T. Lim and his spouse should be personally
liable under the subject trust receipt. Petitioners
argument that respondent Corporation and respondent
Lim and his spouse are one and the same cannot be
sustained. The transactions sued upon were clearly
entered into by respondent Lim in his capacity as
Executive Vice President of respondent Corporation. We
stress the hornbook law that corporate personality is a
shield against personal liability of its officers. Thus, we
agree that respondents Gregory T. Lim and his spouse
cannot be made personally liable since respondent Lim
entered into and signed the contract clearly in his official
capacity as Executive Vice President. The personality of
the corporation is separate and distinct from the persons
composing it.[if !supportFootnotes][16][endif]
WHEREFORE, in view of all the foregoing, the instant
Petition for Review is DENIED. The Decision of the Court
of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950
is AFFIRMED.
SO ORDERED.
DANILO D. MENDOZA, also doing business under the
name and style of ATLANTIC EXCHANGE
PHILIPPINES, petitioner, vs. COURT OF APPEALS,
PHILIPPINE NATIONAL BANK, FERNANDO
MARAMAG, JR., RICARDO G. DECEPIDA and
BAYANI A. BAUTISTA, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Decision[if !supportFootnotes][1][endif] dated August 8, 1994 of the
respondent Court of Appeals (Tenth Division) in CA-G.R.
CV No. 38036 reversing the judgment[if
!supportFootnotes][2][endif] of the Regional Trial Court (RTC) and
dismissing the complaint therein.
Petitioner Danilo D. Mendoza is engaged in the
domestic and international trading of raw materials and
chemicals. He operates under the business name
Atlantic Exchange Philippines (Atlantic), a single
proprietorship registered with the Department of Trade
and Industry (DTI). Sometime in 1978 he was granted by
respondent Philippine National Bank (PNB) a Five
Hundred Thousand Pesos (P500,000.00) credit line and
a One Million Pesos (P1,000,000.00) Letter of
Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for
those which may thereinafter be granted, petitioner
mortgaged to respondent PNB the following: 1) three (3)
parcels of land[if !supportFootnotes][3][endif] with improvements in
F. Pasco Avenue, Santolan, Pasig; 2) his house and lot
in Quezon City; and 3) several pieces of machinery and
equipment in his Pasig coco-chemical plant.
The real estate mortgage[if !supportFootnotes][4][endif]
provided the following escalation clause:
(f) The rate of interest charged on the obligation secured
by this mortgage as well as the interest on the amount
which may have been advanced by the Mortgagee in
accordance with paragraph (d) of the conditions herein
stipulated shall be subject during the life of this contract
to such increase within the rates allowed by law, as the
Board of Directors of the Mortgagee may prescribe for its
debtors.
Petitioner executed in favor of respondent PNB
three (3) promissory notes covering the Five Hundred
Thousand Pesos (P500,000.00) credit line, one dated
March 8, 1979 for Three Hundred Ten Thousand Pesos
(P310,000.00); another dated March 30, 1979 for Forty
Thousand Pesos (P40,000.00); and the last dated
September 27, 1979 for One Hundred Fifty Thousand
Pesos (P150,000.00). The said 1979 promissory notes
uniformly stipulated: "with interest thereon at the rate of
12% per annum, until paid, which interest rate the Bank
may, at any time, without notice, raise within the limits
allowed by law xxx."[if !supportFootnotes][5][endif]
Petitioner made use of his LC/TR line to purchase
raw materials from foreign importers. He signed a total of
eleven (11) documents denominated as "Application and
Agreement for Commercial Letter of Credit,"[if
!supportFootnotes][6][endif] on various dates from February 8 to
September 11, 1979, which uniformly contained the
following clause: "Interest shall be at the rate of 9% per
annum from the date(s) of the draft(s) to the date(s) of
arrival of payment therefor in New York. The Bank,
however, reserves the right to raise the interest charges
at any time depending on whatever policy it may follow in
the future."[if !supportFootnotes][7][endif]
In a letter dated January 3, 1980 and signed by
Branch Manager Fil S. Carreon Jr., respondent PNB
advised petitioner Mendoza that effective December 1,
1979, the bank raised its interest rates to 14% per
annum, in line with Central Bank's Monetary Board
Resolution No. 2126 dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent
PNB requesting for the restructuring of his past due
accounts into a five-year term loan and for an additional
LC/TR line of Two Million Pesos (P2,000,000.00).[if
!supportFootnotes][8][endif] According to the letter, because of the
shut-down of his end-user companies and the huge
amount spent for the expansion of his business,
petitioner failed to pay to respondent bank his LC/TR
accounts as they became due and demandable.
Ceferino D. Cura, Branch Manager of PNB
Mandaluyong replied on behalf of the respondent bank
and required petitioner to submit the following documents
before the bank would act on his request: 1) Audited
Financial Statements for 1979 and 1980; 2) Projected
cash flow (cash in - cash out) for five (5) years detailed
yearly; and 3) List of additional machinery and equipment
and proof of ownership thereof. Cura also suggested that
petitioner reduce his total loan obligations to Three
Million Pesos (P3,000,000.00) "to give us more
justification in recommending a plan of payment or
restructuring of your accounts to higher authorities of the
Bank."[if !supportFootnotes][9][endif]
On September 25, 1981, petitioner sent another
letter addressed to PNB Vice-President Jose Salvador,
regarding his request for restructuring of his loans. He
offered respondent PNB the following proposals: 1) the
disposal of some of the mortgaged properties, more
particularly, his house and lot and a vacant lot in order to
pay the overdue trust receipts; 2) capitalization and
conversion of the balance into a 5-year term loan payable
semi-annually or on annual installments; 3) a new Two
Million Pesos (P2,000,000.00) LC/TR line in order to
enable Atlantic Exchange Philippines to operate at full
capacity; 4) assignment of all his receivables to PNB
from all domestic and export sales generated by the
LC/TR line; and 5) maintenance of the existing Five
Hundred Thousand Pesos (P500,000.00) credit line.
The petitioner testified that respondent PNB
Mandaluyong Branch found his proposal favorable and
recommended the implementation of the agreement.
However, Fernando Maramag, PNB Executive Vice-
President, disapproved the proposed release of the
mortgaged properties and reduced the proposed new
LC/TR line to One Million Pesos (P1,000,000.00).[if
!supportFootnotes][10][endif] Petitioner claimed he was forced to
agree to these changes and that he was required to
submit a new formal proposal and to sign two (2) blank
promissory notes.
In a letter dated July 2, 1982, petitioner offered the
following revised proposals to respondent bank: 1) the
restructuring of past due accounts including interests and
penalties into a 5-year term loan, payable semi-annually
with one year grace period on the principal; 2) payment
of Four Hundred Thousand Pesos (P400,000.00) upon
the approval of the proposal; 3) reduction of penalty from
3% to 1%; 4) capitalization of the interest component with
interest rate at 16% per annum; 5) establishment of a
One Million Pesos (P1,000,000.00) LC/TR line against
the mortgaged properties; 6) assignment of all his export
proceeds to respondent bank to guarantee payment of
his loans.
According to petitioner, respondent PNB approved
his proposal. He further claimed that he and his wife were
asked to sign two (2) blank promissory note forms.
According to petitioner, they were made to believe that
the blank promissory notes were to be filled out by
respondent PNB to conform with the 5-year restructuring
plan allegedly agreed upon. The first Promissory Note, [if
!supportFootnotes][11][endif] No. 127/82, covered the principal
while the second Promissory Note,[if !supportFootnotes][12][endif]
No. 128/82, represented the accrued interest.
Petitioner testified that respondent PNB allegedly
contravened their verbal agreement by 1) affixing dates
on the two (2) subject promissory notes to make them
mature in two (2) years instead of five (5) years as
supposedly agreed upon; 2) inserting in the first
Promissory Note No. 127/82 an interest rate of 21%
instead of 18%; 3) inserting in the second Promissory
Note No. 128/82, the amount stated therein representing
the accrued interest as One Million Five Hundred Thirty
Six Thousand Four Hundred Ninety Eight Pesos and
Seventy Three Centavos (P1,536,498.73) when it should
only be Seven Hundred Sixty Thousand Three Hundred
Ninety Eight Pesos and Twenty Three Centavos
(P760,398.23) and pegging the interest rate thereon at
18% instead of 12%.
The subject Promissory Notes Nos. 127/82 and
128/82 both dated December 29, 1982 in the principal
amounts of Two Million Six Hundred Fifty One Thousand
One Hundred Eighteen Pesos and Eighty Six Centavos
(P2,651,118.86) and One Million Five Hundred Thirty Six
Thousand Seven Hundred Ninety Eight and Seventy
Three Centavos (P1,536,798.73) respectively and
marked Exhibits BB and CC respectively, were payable
on equal semi-annual amortization and contained the
following escalation clause:
x x x which interest rate the BANK may increase within
the limits allowed by law at any time depending on
whatever policy it may adopt in the future; Provided, that,
the interest rate on this note shall be correspondingly
decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board.
In either case, the adjustment in the interest rate agreed
upon shall take effect on the effectivity date of the
increase or decrease in the maximum interest rate. x x x
It appears from the record that the subject
Promissory Notes Nos. 127/82 and 128/82 superseded
and novated the three (3) 1979 promissory notes and the
eleven (11) 1979 Application and Agreement for
Commercial Letter of Credit which the petitioner executed
in favor of respondent PNB.
According to the petitioner, sometime in June 1983
the new PNB Mandaluyong Branch Manager Bayani A.
Bautista suggested that he sell the coco-chemical plant
so that he could keep up with the semi-annual
amortizations. On three (3) occasions, Bautista even
showed up at the plant with some unidentified persons
who claimed that they were interested in buying the plant.
Petitioner testified that when he confronted the PNB
management about the two (2) Promissory Notes Nos.
127/82 and 128/82 (marked Exhibits BB and CC
respectively) which he claimed were improperly filled out,
Bautista and Maramag assured him that the five-year
restructuring agreement would be implemented on the
condition that he assigns 10% of his export earnings to
the Bank.[if !supportFootnotes][13][endif] In a letter dated August
22, 1983, petitioner Mendoza consented to assign 10%
of the net export proceeds of a Letter of Credit covering
goods amounting to One Hundred Fourteen Thousand
Dollars ($114,000.00).[if !supportFootnotes][14][endif] However,
petitioner claimed that respondent PNB subsequently
debited 14% instead of 10% from his export proceeds.[if
!supportFootnotes][15][endif]
Pursuant to the escalation clauses of the subject
two (2) promissory notes, the interest rate on the
principal amount in Promissory Note No. 127/82 was
increased from 21% to 29% on May 28, 1984, and to
32% on July 3, 1984 while the interest rate on the
accrued interest per Promissory Note No. 128/82 was
increased from 18% to 29% on May 28, 1984, and to
32% on July 3, 1984.
Petitioner failed to pay the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 (Exhibits BB
and CC) as they fell due. Respondent PNB extra-
judicially foreclosed the real and chattel mortgages, and
the mortgaged properties were sold at public auction to
respondent PNB, as highest bidder, for a total of Three
Million Seven Hundred Ninety Eight Thousand Seven
Hundred Nineteen Pesos and Fifty Centavos
(P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a
complaint for specific performance, nullification of the
extra-judicial foreclosure and damages against
respondents PNB, Fernando Maramag Jr., Ricardo C.
Decepida, Vice-President for Metropolitan Branches, and
Bayani A. Bautista. He alleged that the Extrajudicial
Foreclosure Sale of the mortgaged properties was null
and void since his loans were restructured to a five-year
term loan; hence, it was not yet due and demandable;
that the escalation clauses in the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were null and
void, that the total amount presented by PNB as basis of
the foreclosure sale did not reflect the actual loan
obligations of the plaintiff to PNB; that Bautista purposely
delayed payments on his exports and caused delays in
the shipment of materials; that PNB withheld certain
personal properties not covered by the chattel mortgage;
and that the foreclosure of his mortgages was premature
so that he was unable to service his foreign clients,
resulting in actual damages amounting to Two Million
Four Thousand Four Hundred Sixty One Pesos
(P2,004,461.00).
On March 16, 1992, the trial court rendered
judgment in favor of the petitioner and ordered the
nullification of the extrajudicial foreclosure of the real
estate mortgage, the Sheriffs sale of the mortgaged real
properties by virtue of consolidation thereof and the
cancellation of the new titles issued to PNB; that PNB
vacate the subject premises in Pasig and turn the same
over to the petitioner; and also the nullification of the
extrajudicial foreclosure and sheriff's sale of the
mortgaged chattels, and that the chattels be returned to
petitioner Mendoza if they were removed from his Pasig
premises or be paid for if they were lost or rendered
unserviceable.
The trial court also ordered respondent PNB to
restructure to five-years petitioner's principal loan of Two
Million Six Hundred Fifty One Thousand One Hundred
Eighteen Pesos and Eighty Six Centavos
(P2,651,118.86) and the accumulated capitalized interest
on the same in the amount of Seven Hundred Sixty
Thousand Three Hundred Eighty Nine Pesos and Twenty
Three Centavos (P760,389.23) as of December 1982,
and that respondent PNB should compute the additional
interest from January 1983 up to October 15, 1984 only
when respondent PNB took possession of the said
properties, at the rate of 12% and 9% respectively.
The trial court also ordered respondent PNB to
grant petitioner Mendoza an additional Two Million Pesos
(P2,000,000.00) loan in order for him to have the
necessary capital to resume operation. It also ordered
respondents PNB, Bayani A. Bautista and Ricardo C.
Decepida to pay to petitioner actual damages in the
amount of Two Million One Hundred Thirteen Thousand
Nine Hundred Sixty One Pesos (P2,113,961.00) and the
peso equivalent of Six Thousand Two Hundred Fifteen
Dollars ($6,215.00) at the prevailing foreign exchange
rate on October 11, 1983; and exemplary damages in the
amount of Two Hundred Thousand Pesos (P200,000.00).
Respondent PNB appealed this decision of the trial
court to the Court of Appeals. And the Court of Appeals
reversed the decision of the trial court and dismissed the
complaint. Hence, this petition.
It is the petitioners contention that the PNB
management restructured his existing loan obligations to
a five-year term loan and granted him another Two
Million Pesos (P2,000,000.00) LC/TR line; that the
Promissory Notes Nos. 127/82 and 128/82 evidencing a
2-year restructuring period or with the due maturity date
December 29, 1984 were filled out fraudulently by
respondent PNB, and contrary to his verbal agreement
with respondent PNB; hence, his indebtedness to
respondent PNB was not yet due and the extrajudicial
foreclosure of his real estate and chattel mortgages was
premature. On the other hand, respondent PNB denies
that petitioner's loan obligations were restructured to five
(5) years and maintains that the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were filled out
regularly and became due as of December 29, 1984 as
shown on the face thereof.
Respondent Court of Appeals held that there is no
evidence of a promise from respondent PNB, admittedly
a banking corporation, that it had accepted the proposals
of the petitioner to have a five-year restructuring of his
overdue loan obligations. It found and held, on the basis
of the evidence adduced, that "appellee's (Mendoza)
communications were mere proposals while the bank's
responses were not categorical that the appellee's
request had been favorably accepted by the bank."
Contending that respondent PNB had allegedly
approved his proposed five-year restructuring plan,
petitioner presented three (3) documents executed by
respondent PNB officials. The first document is a letter
dated March 16, 1981 addressed to the petitioner and
signed by Ceferino D. Cura, Branch Manager of PNB
Mandaluyong, which states:
x x x In order to study intelligently the feasibility of your
above request, please submit the following
documents/papers within thirty (30) days from the date
thereof, viz:
1. Audited Financial Statements for 1979 and 1980;
2. Projected cash flow (cash in - cash out) for five years
detailed yearly; and
3. List of additional machinery and equipment and proof
of ownership thereof.
We would strongly suggest, however, that you reduce
your total obligations to at least P3 million (principal and
interest and other charges) to give us more justification in
recommending a plan of payment or restructuring of your
accounts to higher authorities of this bank.
The second document is a letter dated May 11,
1981 addressed to Mr. S. Pe Benito, Jr., Managing
Director of the Technological Resources Center and
signed by said PNB Branch Manager, Ceferino D. Cura.
According to petitioner, this letter showed that
respondent PNB seriously considered the restructuring of
his loan obligations to a five-year term loan, to wit:
xxx
At the request of our client, we would like to furnish you
with the following information pertinent to his accounts
with us:
xxx
We are currently evaluating the proposal of the client to
re-structure his accounts with us into a five-year plan.
We hope that the above information will guide you in
evaluating the proposals of Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981
addressed to petitioner and signed by PNB Assistant
Vice-President Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations were
granted and carried in the books of our Mandaluyong
Branch, we would suggest that your requests and
proposals be directed to Ceferino Cura, Manager of our
said Branch.
We feel certain that Mr. Cura will be pleased to discuss
matters of mutual interest with you.
xxx
Petitioner also presented a letter which he
addressed to Mr. Jose Salvador, Vice-President of the
Metropolitan Branches of PNB, dated September 24,
1981, which reads:
Re: Restructuring of our Account into a 5-year Term Loan
and Request for the Establishment of a P2.0 Million
LC/TR Line
Dear Sir:
In compliance with our discussion last September 17, we
would like to formalize our proposal to support our above
requested assistance from the Philippine National Bank.
xxx
Again we wish to express our sincere appreciation for
your open-minded approach towards the solution of this
problem which we know and will be beneficial and to the
best interest of the bank and mutually advantageous to
your client.
xxx
Petitioner argues that he submitted the
requirements according to the instructions given to him
and that upon submission thereof, his proposed five-year
restructuring plan was deemed automatically approved
by respondent PNB.
We disagree.
Nowhere in those letters is there a categorical
statement that respondent PNB had approved the
petitioners proposed five-year restructuring plan. It is
stretching the imagination to construe them as evidence
that his proposed five-year restructuring plan has been
approved by the respondent PNB which is admittedly a
banking corporation. Only an absolute and unqualified
acceptance of a definite offer manifests the consent
necessary to perfect a contract.[if !supportFootnotes][16][endif] If
anything, those correspondences only prove that the
parties had not gone beyond the preparation stage,
which is the period from the start of the negotiations until
the moment just before the agreement of the parties. [if
!supportFootnotes][17][endif]
There is nothing in the record that even suggests
that respondent PNB assented to the alleged five-year
restructure of petitioners overdue loan obligations to
PNB. However, the trial court ruled in favor of petitioner
Mendoza, holding that since petitioner has complied with
the conditions of the alleged oral contract, the latter may
not renege on its obligation to honor the five-year
restructuring period, under the rule of promissory
estoppel. Citing Ramos v. Central Bank,[if
!supportFootnotes][18][endif] the trial court said:
The broad general rule to the effect that a promise to do
or not to do something in the future does not work an
estoppel must be qualified, since there are numerous
cases in which an estoppel has been predicated on
promises or assurances as to future conduct. The
doctrine of promissory estoppel is by no means new,
although the name has been adopted only in
comparatively recent years. According to that doctrine,
an estoppel may arise from the making of a promise,
even though without consideration, if it was intended that
the promise should be relied upon and in fact it was
relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or would
result in other injustice. In this respect, the reliance by the
promisee is generally evidenced by action or forbearance
on his part, and the idea has been expressed that such
action or forbearance would reasonably have been
expected by the promissor. xxx
The doctrine of promissory estoppel is an exception
to the general rule that a promise of future conduct does
not constitute an estoppel. In some jurisdictions, in order
to make out a claim of promissory estoppel, a party bears
the burden of establishing the following elements: (1) a
promise reasonably expected to induce action or
forebearance; (2) such promise did in fact induce such
action or forebearance, and (3) the party suffered
detriment as a result.[if !supportFootnotes][19][endif]
It is clear from the forgoing that the doctrine of
promissory estoppel presupposes the existence of a
promise on the part of one against whom estoppel is
claimed. The promise must be plain and unambiguous
and sufficiently specific so that the Judiciary can
understand the obligation assumed and enforce the
promise according to its terms.[if !supportFootnotes][20][endif] For
petitioner to claim that respondent PNB is estopped to
deny the five-year restructuring plan, he must first prove
that respondent PNB had promised to approve the plan
in exchange for the submission of the proposal. As
discussed earlier, no such promise was proven,
therefore, the doctrine does not apply to the case at bar.
A cause of action for promissory estoppel does not lie
where an alleged oral promise was conditional, so that
reliance upon it was not reasonable.[if !supportFootnotes][21][endif]
It does not operate to create liability where it does not
otherwise exist.[if !supportFootnotes][22][endif]
Since there is no basis to rule that petitioner's
overdue loan obligations were restructured to mature in a
period of five (5) years, we see no other option but to
respect the two-year period as contained in the two (2)
subject Promissory Notes Nos. 127/82 and 128/82,
marked as Exhibits BB and CC respectively which
superseded and novated all prior loan documents signed
by petitioner in favor of respondent PNB. Petitioner
argues, in his memorandum, that "respondent Court of
Appeals had no basis in saying that the acceptance of
the five-year restructuring is totally absent from the
record."[if !supportFootnotes][23][endif] On the contrary, the subject
Promissory Notes Nos. 127/82 and 128/82 are clear on
their face that they were due on December 29, 1984 or
two (2) years from the date of the signing of the said
notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory
Notes Nos. 127/82 and 128/82 were signed by him in
blank with the understanding that they were to be
subsequently filled out to conform with his alleged oral
agreements with PNB officials, among which is that they
were to become due only after five (5) years. If petitioner
were to be believed, the PNB officials concerned
committed a fraudulent act in filling out the subject two
(2) promissory notes in question. Private transactions are
presumed to be fair and regular.[if !supportFootnotes][24][endif] The
burden of presenting evidence to overcome this
presumption falls upon petitioner. Considering that
petitioner imputes a serious act of fraud on respondent
PNB, which is a banking corporation, this court will not be
satisfied with anything but the most convincing evidence.
However, apart from petitioner's self-serving verbal
declarations, we find no sufficient proof that the subject
two (2) Promissory Notes Nos. 127/82 and 128/82 were
completed irregularly. Therefore, we rule that the
presumption has not been rebutted.
Besides, it could be gleaned from the record that
the petitioner is an astute businessman who took care to
reduce in writing his business proposals to the
respondent bank. It is unthinkable that the same person
would commit the careless mistake of leaving his subject
two (2) promissory notes in blank in the hands of other
persons. As the respondent Court of Appeals correctly
pointed out:
Surely, plaintiff-appellee who is a C.P.A and a Tax
Consultant (p. 3 TSN, January 9, 1990) will insist that the
details of the two promissory notes he and his wife
executed in 1982 should be specific to enable them to
make the precise computation in the event of default as
in the case at bench. In fact, his alleged omission as a
C.P.A. and a Tax Consultant to insist that the two
promissory notes be filled up on important details like the
rates of interest is inconsistent with the legal presumption
of a person who takes ordinary care of his concerns
(Section 3 (c), Rule 131, Revised Rules on Evidence).
As pointed out by the Court of Appeals, Orlando
Montecillo, Chief, Loans and Discounts, PNB
Mandaluyong Branch, testified that the said Promissory
Notes Nos. 127/82 and 128/82 were completely filled out
when Danilo Mendoza signed them (Rollo, p. 14).
 In a last-ditch effort to save his five-year loan
restructuring theory, petitioner contends that respondent
PNB's action of withholding 10% from his export
proceeds is proof that his proposal had been accepted
and the contract had been partially executed. He claims
that he would not have consented to the additional
burden if there were no corresponding benefit. This
contention is not well taken. There is no credible proof
that the 10% assignment of his export proceeds was not
part of the conditions of the two-year restructuring deal.
Considering that the resulting amount obtained from this
assignment of export proceeds was not even enough to
cover the interest for the corresponding month,[if
!supportFootnotes][25][endif] we are hard-pressed to construe it as
the required proof that respondent PNB allegedly
approved the proposed five-year restructuring of
petitioners overdue loan obligations.
It is interesting to note that in his Complaint,
petitioner made no mention that the assignment of his
export proceeds was a condition for the alleged approval
of his proposed five-year loan restructuring plan. The
Complaint merely alleged that "plaintiff in a sincere effort
to make payments on his obligations agreed to assign
10% of his export proceeds to defendant PNB." This
curious omission leads the court to believe that the
alleged link between the petitioners assignment of export
proceeds and the alleged five-year restructuring of his
overdue loans was more contrived than real.
It appears that respondent bank increased the
interest rates on the two (2) subject Promissory Notes
Nos. 127/82 and 128/82 without the prior consent of the
petitioner. The petitioner did not agree to the increase in
the stipulated interest rate of 21% per annum on
Promissory Note No. 127/82 and 18% per annum on
Promissory Note No. 128/82. As held in several cases,
the unilateral determination and imposition of increased
interest rates by respondent bank is violative of the
principle of mutuality of contracts ordained in Article 1308
of the Civil Code.[if !supportFootnotes][26][endif] As held in one
case:[if !supportFootnotes][27][endif]
It is basic that there can be no contract in the true sense
in the absence of the element of agreement, or of mutual
assent of the parties. If this assent is wanting on the part
of one who contracts, his act has no more efficacy than if
it had been done under duress or by a person of unsound
mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification,
especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be
gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture.
It has been held that no one receiving a proposal to
change a contract to which he is a party is obliged to
answer the proposal, and his silence per se cannot be
construed as an acceptance.[if !supportFootnotes][28][endif]
Estoppel will not lie against the petitioner regarding the
increase in the stipulated interest on the subject
Promissory Notes Nos. 127/82 and 128/82 inasmuch as
he was not even informed beforehand by respondent
bank of the change in the stipulated interest rates.
However, we also note that the said two (2) subject
Promissory Notes Nos. 127/82 and 128/82 expressly
provide for a penalty charge of 3% per annum to be
imposed on any unpaid amount when due.
Petitioner prays for the release of some of his
movables[if !supportFootnotes][29][endif] being withheld by
respondent PNB, alleging that they were not included
among the chattels he mortgaged to respondent bank.
However, petitioner did not present any proof as to when
he acquired the subject movables and hence, we are not
disposed to believe that the same were after-acquired
chattels not covered by the chattel and real estate
mortgages.
In asserting its rights over the subject movables,
respondent PNB relies on a common provision in the two
(2) subject Promissory Notes Nos. 127/82 and 128/82
which states:
In the event that this note is not paid at maturity or when
the same becomes due under any of the provisions
hereof, we hereby authorized the BANK at its option and
without notice, to apply to the payment of this note, any
and all moneys, securities and things of value which may
be in its hands on deposit or otherwise belonging to
me/us and for this purpose. We hereby, jointly and
severally, irrevocably constitute and appoint the BANK to
be our true Attorney-in-Fact with full power and authority
for us in our name and behalf and without prior notice to
negotiate, sell and transfer any moneys securities and
things of value which it may hold, by public or private sale
and apply the proceeds thereof to the payment of this
note.
It is clear, however, from the above-quoted
provision of the said promissory notes that respondent
bank is authorized, in case of default, to sell things of
value belonging to the mortgagor which may be on its
hands for deposit or otherwise belonging to me/us and
for this purpose. Besides the petitioner executed not only
a chattel mortgage but also a real estate mortgage to
secure his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope
and effect to after-acquired property is valid and binding
where the after-acquired property is in renewal of, or in
substitution for, goods on hand when the mortgage was
executed, or is purchased with the proceeds of the sale
of such goods.[if !supportFootnotes][30][endif] As earlier pointed
out, the petitioner did not present any proof as to when
the subject movables were acquired.
More importantly, respondent bank makes a valid
argument for the retention of the subject movables.
Respondent PNB asserts that those movables were in
fact "immovables by destination" under Art. 415 (5) of the
Civil Code.[if !supportFootnotes][31][endif] It is an established rule
that a mortgage constituted on an immovable includes
not only the land but also the buildings, machinery and
accessories installed at the time the mortgage was
constituted as well as the buildings, machinery and
accessories belonging to the mortgagor, installed after
the constitution thereof.[if !supportFootnotes][32][endif]
Petitioner also contends that respondent PNBs bid
prices for this foreclosed properties in the total amount of
Three Million Seven Hundred Ninety Eight Thousand
Seven Hundred Nineteen Pesos and Fifty Centavos
(P3,798,719.50), were allegedly unconscionable and
shocking to the conscience of men. He claims that the
fair market appraisal of his foreclosed plant site together
with the improvements thereon located in Pasig, Metro
Manila amounted to Five Million Four Hundred Forty One
Thousand Six Hundred Fifty Pesos (P5,441,650.00) while
that of his house and lot in Quezon City amounted to
Seven Hundred Twenty Two Thousand Pesos
(P722,000.00) per the appraisal report dated September
20, 1990 of Cuervo Appraisers, Inc.[if !supportFootnotes][33][endif]
That contention is not well taken considering that:
1. The total of the principal amounts alone of petitioners
subject Promissory Notes Nos. 127/82 and 128/82 which
are both overdue amounted to Four Million One Hundred
Eighty Seven Thousand Nine Hundred Seventeen Pesos
and Fifty Nine Centavos (P4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc. was
undertaken in September 1990, the extrajudicial
foreclosure of petitioners real estate and chattel
mortgages have been effected way back on October 15,
1984, October 23, 1984 and December 21, 1984.[if
!supportFootnotes][34][endif] Common experience shows that real
estate values especially in Metro Manila tend to go
upward due to developments in the locality.
3. In the public auction/foreclosure sales, respondent
PNB, as mortgagee, was not obliged to bid more than its
claims or more than the amount of petitioners loan
obligations which are all overdue. The foreclosed real
estate and chattel mortgages which petitioner earlier
executed are accessory contracts covering the collaterals
or security of his loans with respondent PNB. The
principal contracts are the Promissory Notes Nos. 127/82
and 128/82 which superseded and novated the 1979
promissory notes and the 1979 eleven (11) Applications
and Agreements for Commercial Letter of Credit.
Finally, the record shows that petitioner did not
even attempt to tender any redemption price to
respondent PNB, as highest bidder of the said foreclosed
real estate properties, during the one-year redemption
period.
In view of all the foregoing, it is our view and we
hold that the extrajudicial foreclosure of petitioners real
estate and chattel mortgages was not premature and that
it was in fact legal and valid.
WHEREFORE, the petition is hereby DENIED. The
challenged Decision of the Court of Appeals in CA-G.R.
CV No. 38036 is AFFIRMED with modification that the
increase in the stipulated interest rates of 21% per
annum and 18% per annum appearing on Promissory
Notes Nos. 127/82 and 128/82 respectively is hereby
declared null and void.
SO ORDERED.
FIRST METRO INVESTMENT CORPORATION,
petitioner, vs. ESTE DEL SOL MOUNTAIN RESERVE,
INC., VALENTIN S. DAEZ, JR., MANUEL Q.
SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER
G. ASUNCION, ALBERTO* M. LADORES, VICENTE M.
DE VERA, JR., and FELIPE B. SESE, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Decision[if !supportFootnotes][1][endif]
of the Court of Appeals[if
!supportFootnotes][2][endif]
dated November 8, 1999 in CA-G.R.
CV No. 53328 reversing the Decision[if !supportFootnotes][3][endif]
of the Regional Trial Court of Pasig City, Branch 159
dated June 2, 1994 in Civil Case No. 39224. Essentially,
the Court of Appeals found and declared that the fees
provided for in the Underwriting and Consultancy
Agreements executed by and between petitioner First
Metro Investment Corp. (FMIC) and respondent Este del
Sol Mountain Reserve, Inc. (Este del Sol) simultaneously
with the Loan Agreement dated January 31, 1978 were
mere subterfuges to camouflage the usurious interest
charged by petitioner FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner
FMIC granted respondent Este del Sol a loan of Seven
Million Three Hundred Eighty-Five Thousand Five
Hundred Pesos (P7,385,500.00) to finance the
construction and development of the Este del Sol
Mountain Reserve, a sports/resort complex project
located at Barrio Puray, Montalban, Rizal.[if
!supportFootnotes][4][endif]
Under the terms of the Loan Agreement, the
proceeds of the loan were to be released on staggered
basis. Interest on the loan was pegged at sixteen (16%)
percent per annum based on the diminishing balance.
The loan was payable in thirty-six (36) equal and
consecutive monthly amortizations to commence at the
beginning of the thirteenth month from the date of the first
release in accordance with the Schedule of
Amortization.[if !supportFootnotes][5][endif] In case of default, an
acceleration clause was, among others, provided and the
amount due was made subject to a twenty (20%) percent
one-time penalty on the amount due and such amount
shall bear interest at the highest rate permitted by law
from the date of default until full payment thereof plus
liquidated damages at the rate of two (2%) percent per
month compounded quarterly on the unpaid balance and
accrued interests together with all the penalties, fees,
expenses or charges thereon until the unpaid balance is
fully paid, plus attorneys fees equivalent to twenty-five
(25%) percent of the sum sought to be recovered, which
in no case shall be less than Twenty Thousand Pesos
(P20,000.00) if the services of a lawyer were hired.[if
!supportFootnotes][6][endif]
In accordance with the terms of the Loan
Agreement, respondent Este del Sol executed several
documents[if !supportFootnotes][7][endif] as security for payment,
among them, (a) a Real Estate Mortgage dated January
31, 1978 over two (2) parcels of land being utilized as the
site of its development project with an area of
approximately One Million Twenty-Eight Thousand and
Twenty-Nine (1,028,029) square meters and particularly
described in TCT Nos. N-24332 and N-24356 of the
Register of Deeds of Rizal, inclusive of all improvements,
as well as all the machineries, equipment, furnishings
and furnitures existing thereon; and (b) individual
Continuing Suretyship agreements by co-respondents
Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A.
De Vega, Alexander G. Asuncion, Alberto M. Ladores,
Vicente M. De Vera, Jr. and Felipe B. Sese, all dated
February 2, 1978, to guarantee the payment of all the
obligations of respondent Este del Sol up to the
aggregate sum of Seven Million Five Hundred Thousand
Pesos (P7,500,000 00) each.[if !supportFootnotes][8][endif]
Respondent Este del Sol also executed, as
provided for by the Loan Agreement, an Underwriting
Agreement on January 31, 1978 whereby petitioner FMIC
shall underwrite on a best-efforts basis the public offering
of One Hundred Twenty Thousand (120,000) common
shares of respondent Este del Sols capital stock for a
one-time underwriting fee of Two Hundred Thousand
Pesos (P200,000.00). In addition to the underwriting fee,
the Underwriting Agreement provided that for supervising
the public offering of the shares, respondent Este del Sol
shall pay petitioner FMIC an annual supervision fee of
Two Hundred Thousand Pesos (P200,000.00) per annum
for a period of four (4) consecutive years. The
Underwriting Agreement also stipulated for the payment
by respondent Este del Sol to petitioner FMIC a
consultancy fee of Three Hundred Thirty-Two Thousand
Five Hundred Pesos (P332,500.00) per annum for a
period of four (4) consecutive years. Simultaneous with
the execution of and in accordance with the terms of the
Underwriting Agreement, a Consultancy Agreement was
also executed on January 31, 1978 whereby respondent
Este del Sol engaged the services of petitioner FMIC for
a fee as consultant to render general consultancy
services.[if !supportFootnotes][9][endif]
In three (3) letters all dated February 22, 1978
petitioner billed respondent Este del Sol for the amounts
of [a] Two Hundred Thousand Pesos (P200,000.00) as
the underwriting fee of petitioner FMIC in connection with
the public offering of the common shares of stock of
respondent Este del Sol; [b] One Million Three Hundred
Thirty Thousand Pesos (P1,330,000.00) as consultancy
fee for a period of four (4) years; and [c] Two Hundred
Thousand Pesos (P200,000.00) as supervision fee for
the year beginning February, 1978, in accordance to the
Underwriting Agreement.[if !supportFootnotes][10][endif] The said
amounts of fees were deemed paid by respondent Este
del Sol to petitioner FMIC which deducted the same from
the first release of the loan.
Since respondent Este del Sol failed to meet the
schedule of repayment in accordance with a revised
Schedule of Amortization, it appeared to have incurred a
total obligation of Twelve Million Six Hundred Seventy-
Nine Thousand Six Hundred Thirty Pesos and Ninety-
Eight Centavos (P12,679,630.98) per the petitioners
Statement of Account dated June 23, 1980,[if
!supportFootnotes][11][endif] to wit:
STATEMENT OF ACCOUNT OF
ESTE DEL SOL MOUNTAIN RESERVE, INC.
AS OF JUNE 23, 1980
PARTICULARS AMOUNT
Total amount due as of 11-22-78 per
revised amortization schedule dated
1-3-78 P7,999,631.42
Interest on P7,999,631.42 @ 16% p.a. from
11-22-78 to 2-22-79 (92 days) 327,096.04
Balance 8,326,727.46
One time penalty of 20% of the entire unpaid
obligations under Section 6.02 (ii) of
Loan Agreement 1,665,345.49
Past due interest under Section 6.02 (iii)
of loan Agreement:
@ 19% p.a. from 2-22-79 to 11-30-79
(281 days) 1,481,879.93
@ 21% p.a. from 11-30-79 to 6-23-80
(206 days) 1,200,714.10
Other charges publication of extra judicial
foreclosure of REM made on
5-23-80 & 6-6-80 4,964.00
Total Amount Due and Collectible as of
June 23, 1980 P12,679,630.98
Accordingly, petitioner FMIC caused the
extrajudicial foreclosure of the real estate mortgage on
June 23, 1980.[if !supportFootnotes][12][endif] At the public auction,
petitioner FMIC was the highest bidder of the mortgaged
properties for Nine Million Pesos (P9,000,000.00). The
total amount of Three Million One Hundred Eighty-Eight
Thousand Six Hundred Thirty Pesos and Seventy-Five
Centavos (P3,188,630.75) was deducted therefrom, that
is, for the publication fee for the publication of the Sheriffs
Notice of Sale, Four Thousand Nine Hundred Sixty-Four
Pesos (P4,964.00); for Sheriffs fees for conducting the
foreclosure proceedings, Fifteen Thousand Pesos
(P15,000.00); and for Attorneys fees, Three Million One
Hundred Sixty-Eight Thousand Six Hundred Sixty-Six
Pesos and Seventy-Five Centavos (P3,168,666.75). The
remaining balance of Five Million Eight Hundred Eleven
Thousand Three Hundred Sixty-Nine Pesos and Twenty-
Five Centavos (P5,811,369.25) was applied to interests
and penalty charges and partly against the principal, due
as of June 23, 1980, thereby leaving a balance of Six
Million Eight Hundred Sixty-Three Thousand Two
Hundred Ninety-Seven Pesos and Seventy-Three
Centavos (P6,863,297.73) on the principal amount of the
loan as of June 23, 1980.[if !supportFootnotes][13][endif]
Failing to secure from the individual respondents,
as sureties of the loan of respondent Este del Sol by
virtue of their continuing surety agreements, the payment
of the alleged deficiency balance, despite individual
demands sent to each of them,[if !supportFootnotes][14][endif]
petitioner instituted on November 11, 1980 the instant
collection suit[if !supportFootnotes][15][endif]against the
respondents to collect the alleged deficiency balance of
Six Million Eight Hundred Sixty-Three Thousand Two
Hundred Ninety-Seven Pesos and Seventy-Three
Centavos (P6,863,297.73) plus interest thereon at
twenty-one (21%) percent per annum from June 24, 1980
until fully paid, and twenty-five (25%) percent thereof as
and for attorneys fees and costs.
In their Answer, the respondents sought the
dismissal of the case and set up several special and
affirmative defenses, foremost of which is that the
Underwriting and Consultancy Agreements executed
simultaneously with and as integral parts of the Loan
Agreement and which provided for the payment of
Underwriting, Consultancy and Supervision fees were in
reality subterfuges resorted to by petitioner FMIC and
imposed upon respondent Este del Sol to camouflage the
usurious interest being charged by petitioner FMIC.[if
!supportFootnotes][16][endif]
The petitioner FMIC presented as its witnesses
during the trial: Cesar Valenzuela, its former Senior Vice-
President, Felipe Neri, its Vice-President for Marketing,
and Dennis Aragon, an Account Manager of its Account
Management Group, as well as documentary evidence.
On the other hand, co-respondents Vicente M. De Vera,
Jr. and Valentin S. Daez, Jr., and Perfecto Doroja, former
Senior Manager and Assistant Vice-President of FMIC,
testified for the respondents.
After the trial, the trial court rendered its decision in
favor of petitioner FMIC, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff and against defendants, ordering defendants
jointly and severally to pay to plaintiff the amount of
P6,863,297.73 plus 21% interest per annum, from June
24, 1980, until the entire amount is fully paid, plus the
amount equivalent to 25% of the total amount due, as
attorneys fees, plus costs of suit.
Defendants counterclaims are dismissed, for lack of
merit.
Finding the decision of the trial court unacceptable,
respondents interposed an appeal to the Court of
Appeals. On November 8, 1999, the appellate court
reversed the challenged decision of the trial court. The
appellate court found and declared that the fees provided
for in the Underwriting and Consultancy Agreements
were mere subterfuges to camouflage the excessively
usurious interest charged by the petitioner FMIC on the
loan of respondent Este del Sol; and that the stipulated
penalties, liquidated damages and attorneys fees were
excessive, iniquitous, unconscionable and revolting to the
conscience, and declared that in lieu thereof, the
stipulated one time twenty (20%) percent penalty on the
amount due and ten (10%) percent of the amount due as
attorneys fees would be reasonable and suffice to
compensate petitioner FMIC for those items. Thus, the
appellate court dismissed the complaint as against the
individual respondents sureties and ordered petitioner
FMIC to pay or reimburse respondent Este del Sol the
amount of Nine Hundred Seventy-One Thousand Pesos
(P971,000.00) representing the difference between what
is due to the petitioner and what is due to respondent
Este del Sol, based on the following computation:[if
!supportFootnotes][17][endif]
A: DUE TO THE [PETITIONER]
Principal of Loan P7,382,500.00
Add: 20% one-time
Penalty 1,476,500.00
Attorneys fees 900,000.00 P9,759,000.00
Less: Proceeds of foreclosure
Sale 9,000,000.00
Deficiency P 759,000.00
B. DUE TO [RESPONDENT ESTE DEL SOL]
Return of usurious interest in the form of:
Underwriting fee P 200,000.00
Supervision fee 200,000.00
Consultancy fee 1,330,000.00
Total amount due Este P 1,730,000.00
The appellee is, therefore, obliged to return to the
appellant Este del Sol the difference of P971,000.00 or
(P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate
courts adverse decision. However, this was denied in a
Resolution[if !supportFootnotes][18][endif]dated February 9, 2000 of
the appellate court.
Hence, the instant petition anchored on the
following assigned errors:[if !supportFootnotes][19][endif]
THE APPELLATE COURT HAS DECIDED QUESTIONS
OF SUBSTANCE IN A WAY NOT IN ACCORD WITH
LAW AND WITH APPLICABLE DECISIONS OF THIS
HONORABLE COURT WHEN IT:
a] HELD THAT ALLEGEDLY THE UNDERWRITING
AND CONSULTANCY AGREEMENTS SHOULD NOT
BE CONSIDERED SEPARATE AND DISTINCT FROM
THE LOAN AGREEMENT, AND INSTEAD, THEY
SHOULD BE CONSIDERED AS A SINGLE
CONTRACT.
b] HELD THAT THE UNDERWRITING AND
CONSULTANCY AGREEMENTS ARE MERE
SUBTERFUGES TO CAMOUFLAGE THE USURIOUS
INTEREST CHARGED BY THE PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES OF
PETITIONERS WITNESSES ON THE SERVICES
PERFORMED BY PETITIONER.
d] REFUSED TO CONSIDER THE FACT [i] THAT
RESPONDENTS HAD WAIVED THEIR RIGHT TO
SEEK RECOVERY OF THE AMOUNTS THEY PAID TO
PETITIONER, AND [ii] THAT RESPONDENTS HAD
ADMITTED THE VALIDITY OF THE UNDERWRITING
AND CONSULTANCY AGREEMENTS.
e] MADE AN ERRONEOUS COMPUTATION ON
SUPPOSEDLY WHAT IS DUE TO EACH PARTY
AFTER THE FORECLOSURE SALE, AS SHOWN IN
PP. 34-35 OF THE ASSAILED DECISION, EVEN
GRANTING JUST FOR THE SAKE OF ARGUMENT
THAT THE APPELLATE COURT WAS CORRECT IN
STIGMATIZING [i] THE PROVISIONS OF THE LOAN
AGREEMENT THAT REFER TO STIPULATED
PENALTIES, LIQUIDATED DAMAGES AND
ATTORNEYS FEES AS SUPPOSEDLY EXCESSIVE,
INIQUITOUS AND UNCONSCIONABLE AND
REVOLTING TO THE CONSCIENCE AND [ii] THE
UNDERWRITING, SUPERVISION AND
CONSULTANCY SERVICES AGREEMENT AS
SUPPOSEDLY MERE SUBTERFUGES TO
CAMOUFLAGE THE USURIOUS INTEREST
CHARGED UPON THE RESPONDENT ESTE BY
PETITIONER.
f] REFUSED TO CONSIDER THE FACT THAT
RESPONDENT ESTE, AND THUS THE INDIVIDUAL
RESPONDENTS, ARE STILL OBLIGATED TO THE
PETITIONER.
Petitioner essentially assails the factual findings and
conclusion of the appellate court that the Underwriting
and Consultancy Agreements were executed to conceal
a usurious loan. Inquiry upon the veracity of the appellate
courts factual findings and conclusion is not the function
of this Court for the Supreme Court is not a trier of facts.
Only when the factual findings of the trial court and the
appellate court are opposed to each other does this
Court exercise its discretion to re-examine the factual
findings of both courts and weigh which, after considering
the record of the case, is more in accord with law and
justice.
After a careful and thorough review of the record
including the evidence adduced, we find no reason to
depart from the findings of the appellate court.
First, there is no merit to petitioner FMICs
contention that Central Bank Circular No. 905 which took
effect on January 1, 1983 and removed the ceiling on
interest rates for secured and unsecured loans,
regardless of maturity, should be applied retroactively to
a contract executed on January 31, 1978, as in the case
at bar, that is, while the Usury Law was in full force and
effect. It is an elementary rule of contracts that the laws,
in force at the time the contract was made and entered
into, govern it.[if !supportFootnotes][20][endif] More significantly,
Central Bank Circular No. 905 did not repeal nor in any
way amend the Usury Law but simply suspended the
latters effectivity.[if !supportFootnotes][21][endif] The illegality of
usury is wholly the creature of legislation. A Central Bank
Circular cannot repeal a law. Only a law can repeal
another law.[if !supportFootnotes][22][endif] Thus, retroactive
application of a Central Bank Circular cannot, and should
not, be presumed.[if !supportFootnotes][23][endif]
Second, when a contract between two (2) parties is
evidenced by a written instrument, such document is
ordinarily the best evidence of the terms of the contract.
Courts only need to rely on the face of written contracts
to determine the intention of the parties. However, this
rule is not without exception.[if !supportFootnotes][24][endif] The
form of the contract is not conclusive for the law will not
permit a usurious loan to hide itself behind a legal form.
Parol evidence is admissible to show that a written
document though legal in form was in fact a device to
cover usury. If from a construction of the whole
transaction it becomes apparent that there exists a
corrupt intention to violate the Usury Law, the courts
should and will permit no scheme, however ingenious, to
becloud the crime of usury.[if !supportFootnotes][25][endif]
In the instant case, several facts and circumstances
taken altogether show that the Underwriting and
Consultancy Agreements were simply cloaks or devices
to cover an illegal scheme employed by petitioner FMIC
to conceal and collect excessively usurious interest, and
these are:
a) The Underwriting and Consultancy Agreements
are both dated January 31, 1978 which is the same date
of the Loan Agreement.[if !supportFootnotes][26][endif]
Furthermore, under the Underwriting Agreement payment
of the supervision and consultancy fees was set for a
period of four (4) years[if !supportFootnotes][27][endif] to coincide
ultimately with the term of the Loan Agreement.[if
!supportFootnotes][28][endif] This fact means that all the said
agreements which were executed simultaneously were
set to mature or shall remain effective during the same
period of time.
b) The Loan Agreement dated January 31, 1978
stipulated for the execution and delivery of an
underwriting agreement[if !supportFootnotes][29][endif]and
specifically mentioned that such underwriting agreement
is a condition precedent[if !supportFootnotes][30][endif]for petitioner
FMIC to extend the loan to respondent Este del Sol,
indicating and as admitted by petitioner FMICs
employees,[if !supportFootnotes][31][endif] that such Underwriting
Agreement is part and parcel of the Loan Agreement. [if
!supportFootnotes][32][endif]
 c) Respondent Este del Sol was billed by petitioner
on February 28, 1978 One Million Three Hundred Thirty
Thousand Pesos (P1,330,000.00)[if !supportFootnotes][33][endif] as
consultancy fee despite the clear provision in the
Consultancy Agreement that the said agreement is for
Three Hundred Thirty-Two Thousand Five Hundred
Pesos (P332,500.00) per annum for four (4) years and
that only the first year consultancy fee shall be due upon
signing of the said consultancy agreement.[if
!supportFootnotes][34][endif]
d) The Underwriting, Supervision and Consultancy
fees in the amounts of Two Hundred Thousand Pesos
(P200,000.00), Two Hundred Thousand Pesos
(P200,000.00) and One Million Three Hundred Thirty
Thousand Pesos (P1,330,000.00), respectively, were
billed by petitioner to respondent Este del Sol on
February 22, 1978,[if !supportFootnotes][35][endif] that is, on the
same occasion of the first partial release of the loan in
the amount of Two Million Three Hundred Eighty-Two
Thousand Five Hundred Pesos (P2,382,500.00).[if
!supportFootnotes][36][endif] It is from this first partial release of
the loan that the said corresponding bills for
Underwriting, Supervision and Consultancy fees were
deducted and apparently paid, thus, reverting back to
petitioner FMIC the total amount of One Million Seven
Hundred Thirty Thousand Pesos (P1,730,000.00) as part
of the amount loaned to respondent Este del Sol.[if
!supportFootnotes][37][endif]
e) Petitioner FMIC was in fact unable to organize an
underwriting/selling syndicate to sell any share of stock of
respondent Este del Sol and much less to supervise such
a syndicate, thus failing to comply with its obligation
under the Underwriting Agreement.[if !supportFootnotes][38][endif]
Besides, there was really no need for an Underwriting
Agreement since respondent Este del Sol had its own
licensed marketing arm to sell its shares and all its
shares have been sold through its marketing arm.[if
!supportFootnotes][39][endif]
f) Petitioner FMIC failed to comply with its obligation
under the Consultancy Agreement,[if !supportFootnotes][40][endif]
aside from the fact that there was no need for a
Consultancy Agreement, since respondent Este del Sols
officers appeared to be more competent to be
consultants in the development of the projected
sports/resort complex.[if !supportFootnotes][41][endif]
All the foregoing established facts and
circumstances clearly belie the contention of petitioner
FMIC that the Loan, Underwriting and Consultancy
Agreements are separate and independent transactions.
The Underwriting and Consultancy Agreements which
were executed and delivered contemporaneously with
the Loan Agreement on January 31, 1978 were exacted
by petitioner FMIC as essential conditions for the grant of
the loan. An apparently lawful loan is usurious when it is
intended that additional compensation for the loan be
disguised by an ostensibly unrelated contract providing
for payment by the borrower for the lenders services
which are of little value or which are not in fact to be
rendered, such as in the instant case.[if
!supportFootnotes][42][endif] In this connection, Article 1957 of the
New Civil Code clearly provides that:
Art. 1957. Contracts and stipulations, under any cloak or
device whatever, intended to circumvent the laws against
usury shall be void. The borrower may recover in
accordance with the laws on usury.
In usurious loans, the entire obligation does not
become void because of an agreement for usurious
interest; the unpaid principal debt still stands and
remains valid but the stipulation as to the usurious
interest is void, consequently, the debt is to be
considered without stipulation as to the interest.[if
!supportFootnotes][43][endif] The reason for this rule was
adequately explained in the case of Angel Jose
Warehousing Co., Inc. v. Child Enterprises[if
!supportFootnotes][44][endif]where this Court held:
In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which is
the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay
the stipulated interest; hence, being separable, the latter
only should be deemed void, since it is the only one that
is illegal.
Thus, the nullity of the stipulation on the usurious
interest does not affect the lenders right to receive back
the principal amount of the loan. With respect to the
debtor, the amount paid as interest under a usurious
agreement is recoverable by him, since the payment is
deemed to have been made under restraint, rather than
voluntarily.[if !supportFootnotes][45][endif]
This Court agrees with the factual findings and
conclusion of the appellate court, to wit:
We find the stipulated penalties, liquidated damages and
attorneys fees, excessive, iniquitous and unconscionable
and revolting to the conscience as they hardly allow the
borrower any chance of survival in case of default. And
true enough, ESTE folded up when the appellee
extrajudicially foreclosed on its (ESTEs) development
project and literally closed its offices as both the appellee
and ESTE were at the time holding office in the same
building. Accordingly, we hold that 20% penalty on the
amount due and 10% of the proceeds of the foreclosure
sale as attorneys fees would suffice to compensate the
appellee, especially so because there is no clear showing
that the appellee hired the services of counsel to effect
the foreclosure; it engaged counsel only when it was
seeking the recovery of the alleged deficiency.
Attorneys fees as provided in penal clauses are in
the nature of liquidated damages. So long as such
stipulation does not contravene any law, morals, or public
order, it is binding upon the parties. Nonetheless, courts
are empowered to reduce the amount of attorneys fees if
the same is iniquitous or unconscionable.[if
!supportFootnotes][46][endif] Articles 1229 and 2227 of the New
Civil Code provide that:
Art. 1229. The judge shall equitably reduce the penalty
when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an
indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable.
In the case at bar, the amount of Three Million One
Hundred Eighty-Eight Thousand Six Hundred Thirty
Pesos and Seventy-Five Centavos (P3,188,630.75) for
the stipulated attorneys fees equivalent to twenty-five
(25%) percent of the alleged amount due, as of the date
of the auction sale on June 23, 1980, is manifestly
exorbitant and unconscionable. Accordingly, we agree
with the appellate court that a reduction of the attorneys
fees to ten (10%) percent is appropriate and reasonable
under the facts and circumstances of this case.
Lastly, there is no merit to petitioner FMICs
contention that the appellate court erred in awarding an
amount allegedly not asked nor prayed for by
respondents. Whether the exact amount of the relief was
not expressly prayed for is of no moment for the reason
that the relief was plainly warranted by the allegations of
the respondents as well as by the facts as found by the
appellate court. A party is entitled to as much relief as the
facts may warrant.[if !supportFootnotes][47][endif]
In view of all the foregoing, the Court is convinced
that the appellate court committed no reversible error in
its challenged Decision.
WHEREFORE, the instant petition is hereby DENIED,
and the assailed Decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 155223 April 4, 2007
BOBIE ROSE V. FRIAS, represented by her Attorney-
in-fact, MARIE F. FUJITA, Petitioner,
vs.
FLORA SAN DIEGO-SISON, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by
Bobie Rose V. Frias represented by her Attorney-in-fact,
Marie Regine F. Fujita (petitioner) seeking to annul the
Decision1 dated June 18, 2002 and the Resolution2 dated
September 11, 2002 of the Court of Appeals (CA) in CA-
G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No.
589 Batangas East, Ayala Alabang, Muntinlupa, Metro
Manila, which she acquired from Island Masters Realty
and Development Corporation (IMRDC) by virtue of a
Deed of Sale dated Nov. 16, 1990.3 The property is
covered by TCT No. 168173 of the Register of Deeds of
Makati in the name of IMRDC.4
On December 7, 1990, petitioner, as the FIRST PARTY,
and Dra. Flora San Diego-Sison (respondent), as the
SECOND PARTY, entered into a Memorandum of
Agreement5 over the property with the following terms:
NOW, THEREFORE, for and in consideration of the sum
of THREE MILLION PESOS (P3,000,000.00) receipt of
which is hereby acknowledged by the FIRST PARTY
from the SECOND PARTY, the parties have agreed as
follows:
1. That the SECOND PARTY has a period of Six (6)
months from the date of the execution of this contract
within which to notify the FIRST PARTY of her intention
to purchase the aforementioned parcel of land together
within (sic) the improvements thereon at the price of SIX
MILLION FOUR HUNDRED THOUSAND PESOS
(P6,400,000.00). Upon notice to the FIRST PARTY of the
SECOND PARTYs intention to purchase the same, the
latter has a period of another six months within which to
pay the remaining balance of P3.4 million.
2. That prior to the six months period given to the
SECOND PARTY within which to decide whether or not
to purchase the above-mentioned property, the FIRST
PARTY may still offer the said property to other persons
who may be interested to buy the same provided that the
amount of P3,000,000.00 given to the FIRST PARTY BY
THE SECOND PARTY shall be paid to the latter
including interest based on prevailing compounded bank
interest plus the amount of the sale in excess of
P7,000,000.00 should the property be sold at a price
more than P7 million.
3. That in case the FIRST PARTY has no other buyer
within the first six months from the execution of this
contract, no interest shall be charged by the SECOND
PARTY on the P3 million however, in the event that on
the sixth month the SECOND PARTY would decide not
to purchase the aforementioned property, the FIRST
PARTY has a period of another six months within which
to pay the sum of P3 million pesos provided that the said
amount shall earn compounded bank interest for the last
six months only. Under this circumstance, the amount of
P3 million given by the SECOND PARTY shall be treated
as [a] loan and the property shall be considered as the
security for the mortgage which can be enforced in
accordance with law.
x x x x.6
Petitioner received from respondent two million pesos in
cash and one million pesos in a post-dated check dated
February 28, 1990, instead of 1991, which rendered said
check stale.7 Petitioner then gave respondent TCT No.
168173 in the name of IMRDC and the Deed of Absolute
Sale over the property between petitioner and IMRDC.
Respondent decided not to purchase the property and
notified petitioner through a letter8 dated March 20, 1991,
which petitioner received only on June 11, 1991,9
reminding petitioner of their agreement that the amount
of two million pesos which petitioner received from
respondent should be considered as a loan payable
within six months. Petitioner subsequently failed to pay
respondent the amount of two million pesos.
On April 1, 1993, respondent filed with the Regional Trial
Court (RTC) of Manila, a complaint10 for sum of money
with preliminary attachment against petitioner. The case
was docketed as Civil Case No. 93-65367 and raffled to
Branch 30. Respondent alleged the foregoing facts and
in addition thereto averred that petitioner tried to deprive
her of the security for the loan by making a false report11
of the loss of her owners copy of TCT No. 168173 to the
Tagig Police Station on June 3, 1991, executing an
affidavit of loss and by filing a petition12 for the issuance
of a new owners duplicate copy of said title with the RTC
of Makati, Branch 142; that the petition was granted in an
Order13 dated August 31, 1991; that said Order was
subsequently set aside in an Order dated April 10, 199214
where the RTC Makati granted respondents petition for
relief from judgment due to the fact that respondent is in
possession of the owners duplicate copy of TCT No.
168173, and ordered the provincial public prosecutor to
conduct an investigation of petitioner for perjury and false
testimony. Respondent prayed for the ex-parte issuance
of a writ of preliminary attachment and payment of two
million pesos with interest at 36% per annum from
December 7, 1991, P100,000.00 moral, corrective and
exemplary damages and P200,000.00 for attorneys fees.
In an Order dated April 6, 1993, the Executive Judge of
the RTC of Manila issued a writ of preliminary attachment
upon the filing of a bond in the amount of two million
pesos.15
Petitioner filed an Amended Answer16 alleging that the
Memorandum of Agreement was conceived and
arranged by her lawyer, Atty. Carmelita Lozada, who is
also respondents lawyer; that she was asked to sign the
agreement without being given the chance to read the
same; that the title to the property and the Deed of Sale
between her and the IMRDC were entrusted to Atty.
Lozada for safekeeping and were never turned over to
respondent as there was no consummated sale yet; that
out of the two million pesos cash paid, Atty. Lozada took
the one million pesos which has not been returned, thus
petitioner had filed a civil case against her; that she was
never informed of respondents decision not to purchase
the property within the six month period fixed in the
agreement; that when she demanded the return of TCT
No. 168173 and the Deed of Sale between her and the
IMRDC from Atty. Lozada, the latter gave her these
documents in a brown envelope on May 5, 1991 which
her secretary placed in her attache case; that the
envelope together with her other personal things were
lost when her car was forcibly opened the following day;
that she sought the help of Atty. Lozada who advised her
to secure a police report, to execute an affidavit of loss
and to get the services of another lawyer to file a petition
for the issuance of an owners duplicate copy; that the
petition for the issuance of a new owners duplicate copy
was filed on her behalf without her knowledge and
neither did she sign the petition nor testify in court as
falsely claimed for she was abroad; that she was a victim
of the manipulations of Atty. Lozada and respondent as
shown by the filing of criminal charges for perjury and
false testimony against her; that no interest could be due
as there was no valid mortgage over the property as the
principal obligation is vitiated with fraud and deception.
She prayed for the dismissal of the complaint, counter-
claim for damages and attorneys fees.
Trial on the merits ensued. On January 31, 1996, the
RTC issued a decision,17 the dispositive portion of which
reads:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2
Million plus interest thereon at the rate of thirty two (32%)
per cent per annum beginning December 7, 1991 until
fully paid.
2) Ordering defendant to pay plaintiff the sum of
P70,000.00 representing premiums paid by plaintiff on
the attachment bond with legal interest thereon counted
from the date of this decision until fully paid.
3) Ordering defendant to pay plaintiff the sum of
P100,000.00 by way of moral, corrective and exemplary
damages.
4) Ordering defendant to pay plaintiff attorneys fees of
P100,000.00 plus cost of litigation.18
The RTC found that petitioner was under obligation to
pay respondent the amount of two million pesos with
compounded interest pursuant to their Memorandum of
Agreement; that the fraudulent scheme employed by
petitioner to deprive respondent of her only security to
her loaned money when petitioner executed an affidavit
of loss and instituted a petition for the issuance of an
owners duplicate title knowing the same was in
respondents possession, entitled respondent to moral
damages; and that petitioners bare denial cannot be
accorded credence because her testimony and that of
her witness did not appear to be credible.
The RTC further found that petitioner admitted that she
received from respondent the two million pesos in cash
but the fact that petitioner gave the one million pesos to
Atty. Lozada was without respondents knowledge thus it
is not binding on respondent; that respondent had also
proven that in 1993, she initially paid the sum of
P30,000.00 as premium for the issuance of the
attachment bond, P20,000.00 for its renewal in 1994, and
P20,000.00 for the renewal in 1995, thus plaintiff should
be reimbursed considering that she was compelled to go
to court and ask for a writ of preliminary attachment to
protect her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision
dated June 18, 2002, the CA affirmed the RTC decision
with modification, the dispositive portion of which reads:
WHEREFORE, premises considered, the decision
appealed from is MODIFIED in the sense that the rate of
interest is reduced from 32% to 25% per annum, effective
June 7, 1991 until fully paid.19
The CA found that: petitioner gave the one million pesos
to Atty. Lozada partly as her commission and partly as a
loan; respondent did not replace the mistakenly dated
check of one million pesos because she had decided not
to buy the property and petitioner knew of her decision as
early as April 1991; the award of moral damages was
warranted since even granting petitioner had no hand in
the filing of the petition for the issuance of an owners
copy, she executed an affidavit of loss of TCT No.
168173 when she knew all along that said title was in
respondents possession; petitioners claim that she
thought the title was lost when the brown envelope given
to her by Atty. Lozada was stolen from her car was
hollow; that such deceitful conduct caused respondent
serious anxiety and emotional distress.
The CA concluded that there was no basis for petitioner
to say that the interest should be charged for six months
only and no more; that a loan always bears interest
otherwise it is not a loan; that interest should commence
on June 7, 199120 with compounded bank interest
prevailing at the time the two million was considered as a
loan which was in June 1991; that the bank interest rate
for loans secured by a real estate mortgage in 1991
ranged from 25% to 32% per annum as certified to by
Prudential Bank,21 that in fairness to petitioner, the rate to
be charged should be 25% only.
Petitioners motion for reconsideration was denied by the
CA in a Resolution dated September 11, 2002.
Hence the instant Petition for Review on Certiorari filed
by petitioner raising the following issues:
(A) WHETHER OR NOT THE COMPOUNDED BANK
INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS
AS CONTAINED IN THE MEMORANDUM OF
AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS
ENTITLED TO MORAL DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE
AND EXEMPLARY DAMAGES AND ATTORNEYS
FEES IS PROPER EVEN IF NOT MENTIONED IN THE
TEXT OF THE DECISION.22
Petitioner contends that the interest, whether at 32% per
annum awarded by the trial court or at 25% per annum
as modified by the CA which should run from June 7,
1991 until fully paid, is contrary to the parties
Memorandum of Agreement; that the agreement provides
that if respondent would decide not to purchase the
property, petitioner has the period of another six months
to pay the loan with compounded bank interest for the
last six months only; that the CAs ruling that a loan
always bears interest otherwise it is not a loan is contrary
to Art. 1956 of the New Civil Code which provides that no
interest shall be due unless it has been expressly
stipulated in writing.
We are not persuaded.
While the CAs conclusion, that a loan always bears
interest otherwise it is not a loan, is flawed since a simple
loan may be gratuitous or with a stipulation to pay
interest,23 we find no error committed by the CA in
awarding a 25% interest per annum on the two-million
peso loan even beyond the second six months stipulated
period.
The Memorandum of Agreement executed between the
petitioner and respondent on December 7, 1990 is the
law between the parties. In resolving an issue based
upon a contract, we must first examine the contract itself,
especially the provisions thereof which are relevant to the
controversy.24 The general rule is that if the terms of an
agreement are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of
its stipulations shall prevail.25 It is further required that the
various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.26
In this case, the phrase "for the last six months only"
should be taken in the context of the entire agreement.
We agree with and adopt the CAs interpretation of the
phrase in this wise:
Their agreement speaks of two (2) periods of six months
each. The first six-month period was given to plaintiff-
appellee (respondent) to make up her mind whether or
not to purchase defendant-appellants (petitioner's)
property. The second six-month period was given to
defendant-appellant to pay the P2 million loan in the
event that plaintiff-appellee decided not to buy the
subject property in which case interest will be charged
"for the last six months only", referring to the second six-
month period. This means that no interest will be charged
for the first six-month period while appellee was making
up her mind whether to buy the property, but only for the
second period of six months after appellee had decided
not to buy the property. This is the meaning of the phrase
"for the last six months only". Certainly, there is nothing in
their agreement that suggests that interest will be
charged for six months only even if it takes defendant-
appellant an eternity to pay the loan.27
The agreement that the amount given shall bear
compounded bank interest for the last six months only,
i.e., referring to the second six-month period, does not
mean that interest will no longer be charged after the
second six-month period since such stipulation was
made on the logical and reasonable expectation that
such amount would be paid within the date stipulated.
Considering that petitioner failed to pay the amount given
which under the Memorandum of Agreement shall be
considered as a loan, the monetary interest for the last
six months continued to accrue until actual payment of
the loaned amount.
The payment of regular interest constitutes the price or
cost of the use of money and thus, until the principal sum
due is returned to the creditor, regular interest continues
to accrue since the debtor continues to use such principal
amount.28 It has been held that for a debtor to continue in
possession of the principal of the loan and to continue to
use the same after maturity of the loan without payment
of the monetary interest, would constitute unjust
enrichment on the part of the debtor at the expense of
the creditor.29
Petitioner and respondent stipulated that the loaned
amount shall earn compounded bank interests, and per
the certification issued by Prudential Bank, the interest
rate for loans in 1991 ranged from 25% to 32% per
annum. The CA reduced the interest rate to 25% instead
of the 32% awarded by the trial court which petitioner no
longer assailed.1awphi1.nt
In Bautista v. Pilar Development Corp.,30 we upheld the
validity of a 21% per annum interest on a P142,326.43
loan. In Garcia v. Court of Appeals,31 we sustained the
agreement of the parties to a 24% per annum interest on
an P8,649,250.00 loan. Thus, the interest rate of 25% per
annum awarded by the CA to a P2 million loan is fair and
reasonable.
Petitioner next claims that moral damages were awarded
on the erroneous finding that she used a fraudulent
scheme to deprive respondent of her security for the
loan; that such finding is baseless since petitioner was
acquitted in the case for perjury and false testimony filed
by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil
action is based on an obligation not arising from the act
or omission complained of as a felony, such civil action
may proceed independently of the criminal proceedings
and regardless of the result of the latter.32
While petitioner was acquitted in the false testimony and
perjury cases filed by respondent against her, those
actions are entirely distinct from the collection of sum of
money with damages filed by respondent against
petitioner.
We agree with the findings of the trial court and the CA
that petitioners act of trying to deprive respondent of the
security of her loan by executing an affidavit of loss of the
title and instituting a petition for the issuance of a new
owners duplicate copy of TCT No. 168173 entitles
respondent to moral damages.1a\^/phi1.net Moral
damages may be awarded in culpa contractual or breach
of contract cases when the defendant acted fraudulently
or in bad faith. Bad faith does not simply connote bad
judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong. It
partakes of the nature of fraud.33
The Memorandum of Agreement provides that in the
event that respondent opts not to buy the property, the
money given by respondent to petitioner shall be treated
as a loan and the property shall be considered as the
security for the mortgage. It was testified to by
respondent that after they executed the agreement on
December 7, 1990, petitioner gave her the owners copy
of the title to the property, the Deed of Sale between
petitioner and IMRDC, the certificate of occupancy, and
the certificate of the Secretary of the IMRDC who signed
the Deed of Sale.34 However, notwithstanding that all
those documents were in respondents possession,
petitioner executed an affidavit of loss that the owners
copy of the title and the Deed of Sale were lost.
Although petitioner testified that her execution of the
affidavit of loss was due to the fact that she was of the
belief that since she had demanded from Atty. Lozada
the return of the title, she thought that the brown
envelope with markings which Atty. Lozada gave her on
May 5, 1991 already contained the title and the Deed of
Sale as those documents were in the same brown
envelope which she gave to Atty. Lozada prior to the
transaction with respondent.35 Such statement remained
a bare statement. It was not proven at all since Atty.
Lozada had not taken the stand to corroborate her claim.
In fact, even petitioners own witness, Benilda Ynfante
(Ynfante), was not able to establish petitioner's claim that
the title was returned by Atty. Lozada in view of Ynfante's
testimony that after the brown envelope was given to
petitioner, the latter passed it on to her and she placed it
in petitioners attach case36 and did not bother to look at
the envelope.37
It is clear therefrom that petitioners execution of the
affidavit of loss became the basis of the filing of the
petition with the RTC for the issuance of new owners
duplicate copy of TCT No. 168173. Petitioners actuation
would have deprived respondent of the security for her
loan were it not for respondents timely filing of a petition
for relief whereby the RTC set aside its previous order
granting the issuance of new title. Thus, the award of
moral damages is in order.
The entitlement to moral damages having been
established, the award of exemplary damages is
proper.38 Exemplary damages may be imposed upon
petitioner by way of example or correction for the public
good.39 The RTC awarded the amount of P100,000.00 as
moral and exemplary damages. While the award of moral
and exemplary damages in an aggregate amount may
not be the usual way of awarding said damages,40 no
error has been committed by CA. There is no question
that respondent is entitled to moral and exemplary
damages.
Petitioner argues that the CA erred in awarding attorneys
fees because the trial courts decision did not explain the
findings of facts and law to justify the award of attorneys
fees as the same was mentioned only in the dispositive
portion of the RTC decision.
We agree.
Article 220841 of the New Civil Code enumerates the Present:
instances where such may be awarded and, in all cases,
it must be reasonable, just and equitable if the same - versus - PUNO, J.,
were to be granted.42 Attorney's fees as part of damages Chairman,
are not meant to enrich the winning party at the expense AUSTRIA-MARTINEZ,
of the losing litigant. They are not awarded every time a CALLEJO, SR.,
party prevails in a suit because of the policy that no ELEANOR CHUA and TINGA, and
premium should be placed on the right to litigate.43 The ELMA DY NG, CHICO-NAZARIO, JJ.
award of attorney's fees is the exception rather than the Respondents.
general rule. As such, it is necessary for the trial court to
make findings of facts and law that would bring the case P
within the exception and justify the grant of such award. ro
The matter of attorney's fees cannot be mentioned only in mu
the dispositive portion of the decision.44 They must be lga
clearly explained and justified by the trial court in the ted
body of its decision. On appeal, the CA is precluded from :
supplementing the bases for awarding attorneys fees
when the trial court failed to discuss in its Decision the September 30, 2005
reasons for awarding the same. Consequently, the award
of attorney's fees should be deleted. x-------------------------------------------------------------------x
WHEREFORE, in view of all the foregoing, the Decision
dated June 18, 2002 and the Resolution dated
September 11, 2002 of the Court of Appeals in CA-G.R. DECISION
CV No. 52839 are AFFIRMED with MODIFICATION that
the award of attorneys fees is DELETED. TINGA, J.:
No pronouncement as to costs.
SO ORDERED. Before this Court are two consolidated petitions
for review. The first, docketed as G.R. No. 150773,
SPOUSES DAVID B. CARPO G.R. Nos. 150773 & assails the Decision[1] of the Regional Trial Court (RTC),
and RECHILDA S. CARPO, 153599 Branch 26 of Naga City dated 26 October 2001 in Civil
Petitioners, Case No. 99-4376. RTC Judge Filemon B. Montenegro
dismissed the complaint[2] for annulment of real estate
mortgage and consequent foreclosure proceedings filed
by the spouses David B. Carpo and Rechilda S. Carpo
(petitioners).
The second, docketed as G.R. No. 153599, seeks to
annul the Court of Appeals Decision[3] dated 30 April
2002 in CA-G.R. SP No. 57297. The Court of Appeals
Third Division annulled and set aside the orders of Judge
Corazon A. Tordilla to suspend the sheriffs enforcement
of the writ of possession.
The cases stemmed from a loan contracted by
petitioners. On 18 July 1995, they borrowed from Eleanor
Chua and Elma Dy Ng (respondents) the amount of One
Hundred Seventy-Five Thousand Pesos (P175,000.00),
payable within six (6) months with an interest rate of six
percent (6%) per month. To secure the payment of the
loan, petitioners mortgaged their residential house and lot
situated at San Francisco, Magarao, Camarines Sur,
which lot is covered by Transfer Certificate of Title (TCT)
No. 23180. Petitioners failed to pay the loan upon
demand. Consequently, the real estate mortgage was
extrajudicially foreclosed and the mortgaged property
sold at a public auction on 8 July 1996. The house and
lot was awarded to respondents, who were the only
bidders, for the amount of Three Hundred Sixty-Seven
Thousand Four Hundred Fifty-Seven Pesos and Eighty
Centavos (P367,457.80).
Upon failure of petitioners to exercise their right
of redemption, a certificate of sale was issued on 5
September 1997 by Sheriff Rolando A. Borja. TCT No.
23180 was cancelled and in its stead, TCT No. 29338
was issued in the name of respondents.
Despite the issuance of the TCT, petitioners
continued to occupy the said house and lot, prompting
respondents to file a petition for writ of possession with
the RTC docketed as Special Proceedings (SP) No. 98-
1665. On 23 March 1999, RTC Judge Ernesto A. Miguel
issued an Order[4] for the issuance of a writ of
possession.
On 23 July 1999, petitioners filed a complaint for
annulment of real estate mortgage and the consequent
foreclosure proceedings, docketed as Civil Case No. 99-
4376 of the RTC. Petitioners consigned the amount of
Two Hundred Fifty-Seven Thousand One Hundred
Ninety-Seven Pesos and Twenty-Six Centavos
(P257,197.26) with the RTC.
Meanwhile, in SP No. 98-1665, a temporary
restraining order was issued upon motion on 3 August
1999, enjoining the enforcement of the writ of
possession. In an Order[5] dated 6 January 2000, the
RTC suspended the enforcement of the writ of
possession pending the final disposition of Civil Case No.
99-4376. Against this Order, respondents filed a petition
for certiorari and mandamus before the Court of Appeals,
docketed as CA-G.R. SP No. 57297.
 During the pendency of the case before the
Court of Appeals, RTC Judge Filemon B. Montenegro
dismissed the complaint in Civil Case No. 99-4376 on the
ground that it was filed out of time and barred by laches.
The RTC proceeded from the premise that the complaint
was one for annulment of a voidable contract and thus
barred by the four-year prescriptive period. Hence, the
first petition for review now under consideration was filed
with this Court, assailing the dismissal of the complaint.
The second petition for review was filed with the
Court after the Court of Appeals on 30 April 2002
annulled and set aside the RTC orders in SP No. 98-
1665 on the ground that it was the ministerial duty of the
lower court to issue the writ of possession when title over
the mortgaged property had been consolidated in the
mortgagee.
This Court ordered the consolidation of the two cases, on
motion of petitioners.
In G.R. No. 150773, petitioners claim that following the
Courts ruling in Medel v. Court of Appeals[6] the rate of
interest stipulated in the principal loan agreement is
clearly null and void. Consequently, they also argue that
the nullity of the agreed interest rate affects the validity of
the real estate mortgage. Notably, while petitioners were
silent in their petition on the issues of prescription and
laches on which the RTC grounded the dismissal of the
complaint, they belatedly raised the matters in their
Memorandum. Nonetheless, these points warrant brief
comment.
On the other hand, petitioners argue in G.R. No. 153599
that the RTC did not commit any grave abuse of
discretion when it issued the orders dated 3 August 1999
and 6 January 2000, and that these orders could not
have been the proper subjects of a petition for certiorari
and mandamus. More accurately, the justiciable issues
before us are whether the Court of Appeals could
properly entertain the petition for certiorari from the
timeliness aspect, and whether the appellate court
correctly concluded that the writ of possession could no
longer be stayed.
We first resolve the petition in G.R. No. 150773.
Petitioners contend that the agreed rate of
interest of 6% per month or 72% per annum is so
excessive, iniquitous, unconscionable and exorbitant that
it should have been declared null and void. Instead of
dismissing their complaint, they aver that the lower court
should have declared them liable to respondents for the
original amount of the loan plus 12% interest per annum
and 1% monthly penalty charge as liquidated damages,[7]
in view of the ruling in Medel v. Court of Appeals.[8]
In Medel, the Court found that the interest
stipulated at 5.5% per month or 66% per annum was so
iniquitous or unconscionable as to render the stipulation
void.

Nevertheless, we find the
interest at 5.5% per month, or 66% per
annum, stipulated upon by the parties
in the promissory note iniquitous or
unconscionable, and, hence, contrary
to morals (contra bonos mores), if not
against the law. The stipulation is void.
The Court shall reduce equitably
liquidated damages, whether intended
as an indemnity or a penalty if they are
iniquitous or unconscionable.[9]
In a long line of cases, this Court has invalidated
similar stipulations on interest rates for being excessive,
iniquitous, unconscionable and exorbitant. In Solangon v.
Salazar,[10] we annulled the stipulation of 6% per month
or 72% per annum interest on a P60,000.00 loan. In
Imperial v. Jaucian,[11] we reduced the interest rate from
16% to 1.167% per month or 14% per annum. In Ruiz v.
Court of Appeals,[12] we equitably reduced the agreed 3%
per month or 36% per annum interest to 1% per month or
12% per annum interest. The 10% and 8% interest rates
per month on a P1,000,000.00 loan were reduced to 12%
per annum in Cuaton v. Salud.[13] Recently, this Court, in
Arrofo v. Quino,[14] reduced the 7% interest per month on
a P15,000.00 loan amounting to 84% interest per annum
to 18% per annum.
There is no need to unsettle the principle affirmed in
Medel and like cases. From that perspective, it is
apparent that the stipulated interest in the subject loan is
excessive, iniquitous, unconscionable and exorbitant.
Pursuant to the freedom of contract principle embodied in
Article 1306 of the Civil Code, contracting parties may
establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or
public policy. In the ordinary course, the codal provision
may be invoked to annul the excessive stipulated
interest.
In the case at bar, the stipulated interest rate is
6% per month, or 72% per annum. By the standards set
in the above-cited cases, this stipulation is similarly
invalid. However, the RTC refused to apply the principle
cited and employed in Medel on the ground that Medel
did not pertain to the annulment of a real estate
mortgage,[15] as it was a case for annulment of the loan
contract itself. The question thus sensibly arises whether
the invalidity of the stipulation on interest carries with it
the invalidity of the principal obligation.
The question is crucial to the present petition
even if the subject thereof is not the annulment of the
loan contract but that of the mortgage contract. The
consideration of the mortgage contract is the same as
that of the principal contract from which it receives life,
and without which it cannot exist as an independent that, in any event, the debtor in a usurious
contract. Being a mere accessory contract, the validity of contract of loan should pay the creditor the
the mortgage contract would depend on the validity of the amount which he justly owes him, citing in
loan secured by it.[16] support of this ruling its previous decisions
in Go Chioco, Supra, Aguilar vs. Rubiato, et
Notably in Medel, the Court did not invalidate the entire al., 40 Phil. 570, and Delgado vs. Duque
loan obligation despite the inequitability of the stipulated Valgona, 44 Phil. 739.
interest, but instead reduced the rate of interest to the
more reasonable rate of 12% per annum. The same
remedial approach to the wrongful interest rates involved
was employed or affirmed by the Court in Solangon,
Imperial, Ruiz, Cuaton, and Arrofo.
....
The Courts ultimate affirmation in the cases cited of the
validity of the principal loan obligation side by side with
the invalidation of the interest rates thereupon is
congruent with the rule that a usurious loan transaction is
not a complete nullity but defective only with respect to
the agreed interest.

We are aware that the Court of Appeals, on certain Then in Lopez and Javelona vs. El
occasions, had ruled that a usurious loan is wholly null Hogar Filipino, 47 Phil. 249, We also held
and void both as to the loan and as to the usurious that the standing jurisprudence of this Court
interest.[17] However, this Court adopted the contrary rule, on the question under consideration was
clearly to the effect that the Usury Law, by
its letter and spirit, did not deprive the
as comprehensively discussed in Briones v. lender of his right to recover from the
Cammayo:[18] borrower the money actually loaned to and
enjoyed by the latter. This Court went
In Gui Jong & Co. vs. Rivera, et al., further to say that the Usury Law did not
45 Phil. 778, this Court likewise declared provide for the forfeiture of the capital in
favor of the debtor in usurious contracts,
and that while the forfeiture might appear to
be convenient as a drastic measure to
eradicate the evil of usury, the legal
question involved should not be resolved on
the basis of convenience.
Other cases upholding the same
principle are Palileo vs. Cosio, 97 Phil. 919
and Pascua vs. Perez, L-19554, January
31, 1964, 10 SCRA 199, 200-202. In the
latter We expressly held that when a
contract is found to be tainted with usury
"the only right of the respondent (creditor) . .
. was merely to collect the amount of the
loan, plus interest due thereon."
The view has been expressed,
however, that the ruling thus consistently
adhered to should now be abandoned
because Article 1957 of the new Civil Code
a subsequent law provides that contracts
and stipulations, under any cloak or device
whatever, intended to circumvent the laws
against usury, shall be void, and that in
such cases "the borrower may recover in
accordance with the laws on usury." From
this the conclusion is drawn that the whole
contract is void and that, therefore, the
creditor has no right to recover not even his
capital.
The meaning and scope of our
ruling in the cases mentioned heretofore is
clearly stated, and the view referred to in
the preceding paragraph is adequately
answered, in Angel Jose, etc. vs. Chelda
Enterprises, et al. (L-25704, April 24, 1968).
On the question of whether a creditor in a
usurious contract may or may not recover
the principal of the loan, and, in the
affirmative, whether or not he may also
recover interest thereon at the legal rate,
We said the following:
....

Appealing
directly to Us, defendants
raise two questions of law:
(1) In a loan with usurious
interest, may the creditor
recover the principal of
the loan? (2) Should
attorney's fees be
awarded in plaintiff's
favor?"
Great reliance is
made by appellants on
Art. 1411 of the New Civil
Code . . . .
Since, according to the appellants, a
usurious loan is void due
to illegality of cause or
object, the rule of pari
delicto expressed in
Article 1411, supra,
applies, so that neither
party can bring action
against each other. Said
rule, however, appellants
add, is modified as to the
borrower, by express
provision of the law (Art.
1413, New Civil Code),
allowing the borrower to
recover interest paid in
excess of the interest
allowed by the Usury Law.
As to the lender, no with such reasoning.
exception is made to the Article 1411 of the New
rule; hence, he cannot Civil Code is not new; it is
recover on the contract. the same as Article 1305
So they continue the New of the Old Civil Code.
Civil Code provisions Therefore, said provision
must be upheld as against is no warrant for departing
the Usury Law, under from previous
which a loan with usurious interpretation that, as
interest is not totally void, provided in the Usury Law
because of Article 1961 of (Act No. 2655, as
the New Civil Code, that: amended), a loan with
"Usurious contracts shall usurious interest is not
be governed by the Usury totally void only as to the
Law and other special interest.
laws, so far as they are
not inconsistent with this
Code."

. . . [a]ppellants fail to consider that a contract of loan

with usurious interest consists of principal and
accessory stipulations; the principal one is to pay
We do not agree the debt; the accessory stipulation is to pay interest
thereon.

And said two stipulations are divisible in the sense

that the former can still stand without the latter.
Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter The principal
shall leave the former in force." debt remaining without
stipulation for payment of
interest can thus be
recovered by judicial
action. And in case of
such demand, and the
debtor incurs in delay, the
The question therefore to resolve is whether the debt earns interest from
illegal terms as to payment of interest likewise the date of the demand (in
renders a nullity the legal terms as to payments of this case from the filing of
the principal debt. Article 1420 of the New Civil Code the complaint). Such
provides in this regard: "In case of a divisible interest is not due to
contract, if the illegal terms can be separated from stipulation, for there was
the legal ones, the latter may be enforced." none, the same being
void. Rather, it is due to
In simple loan with stipulation of usurious interest, the general provision of
the prestation of the debtor to pay the principal debt, law that in obligations to
which is the cause of the contract (Article 1350, Civil pay money, where the
Code), is not illegal. The illegality lies only as to the debtor incurs in delay, he
prestation to pay the stipulated interest; hence, being has to pay interest by way
separable, the latter only should be deemed void, of damages (Art. 2209,
since it is the only one that is illegal. Civil Code). The court a
quo therefore, did not err
.... in ordering defendants to
 pay the principal debt with
interest thereon at the
legal rate, from the date of
filing of the complaint."[19]
The Courts wholehearted affirmation of the rule that the
principal obligation subsists despite the nullity of the
stipulated interest is evinced by its subsequent rulings,
cited above, in all of which the main obligation was
upheld and the offending interest rate merely corrected.
Hence, it is clear and settled that the principal loan
obligation still stands and remains valid. By the same
token, since the mortgage contract derives its vitality from
the validity of the principal obligation, the invalid
stipulation on interest rate is similarly insufficient to
render void the ancillary mortgage contract.
It should be noted that had the Court declared the loan
and mortgage agreements void for being contrary to
public policy, no prescriptive period could have run. [20]
Such benefit is obviously not available to petitioners.
Yet the RTC pronounced that the complaint was
barred by the four-year prescriptive period provided in
Article 1391 of the Civil Code, which governs voidable
contracts. This conclusion was derived from the
allegation in the complaint that the consent of petitioners
was vitiated through undue influence. While the RTC
correctly acknowledged the rule of prescription for
voidable contracts, it erred in applying the rule in this
case. We are hard put to conclude in this case that there
was any undue influence in the first place.
There is ultimately no showing that petitioners
consent to the loan and mortgage agreements was
vitiated by undue influence. The financial condition of
petitioners may have motivated them to contract with
respondents, but undue influence cannot be attributed to
respondents simply because they had lent money.
Article 1391, in relation to Article 1390 of the Civil Code,
grants the aggrieved party the right to obtain the
annulment of contract on account of factors which vitiate
consent. Article 1337 defines the concept of undue
influence, as follows:
There is undue influence when
a person takes improper advantage of
his power over the will of another,
depriving the latter of a reasonable
freedom of choice. The following
circumstances shall be considered: the
confidential, family, spiritual and other
relations between the parties or the fact
that the person alleged to have been
unduly influenced was suffering from
mental weakness, or was ignorant or in
 financial distress.
While petitioners were allegedly financially distressed, it
must be proven that there is deprivation of their free
agency. In other words, for undue influence to be
present, the influence exerted must have so overpowered
or subjugated the mind of a contracting party as to
destroy his free agency, making him express the will of
another rather than his own.[21] The alleged lingering
financial woes of petitioners per se cannot be equated
with the presence of undue influence.
The RTC had likewise concluded that petitioners
were barred by laches from assailing the validity of the
real estate mortgage. We wholeheartedly agree. If indeed
petitioners unwillingly gave their consent to the
agreement, they should have raised this issue as early as
in the foreclosure proceedings. It was only when the writ
of possession was issued did petitioners challenge the
stipulations in the loan contract in their action for
annulment of mortgage. Evidently, petitioners slept on
their rights. The Court of Appeals succinctly made the
following observations:
In all these proceedings
starting from the foreclosure, followed by
the issuance of a provisional certificate
of sale; then the definite certificate of
sale; then the issuance of TCT No.
29338 in favor of the defendants and
finally the petition for the issuance of the
writ of possession in favor of the
defendants, there is no showing that
plaintiffs questioned the validity of these
proceedings. It was only after the
issuance of the writ of possession in
favor of the defendants, that plaintiffs
allegedly tendered to the defendants the
amount of P260,000.00 which the
defendants refused. In all these
proceedings, why did plaintiffs sleep on
their rights?[22]
Clearly then, with the absence of undue influence,
petitioners have no cause of action. Even assuming
undue influence vitiated their consent to the loan
contract, their action would already be barred by
prescription when they filed it. Moreover, petitioners had
clearly slept on their rights as they failed to timely assail
the validity of the mortgage agreement. The denial of the
petition in G.R. No. 150773 is warranted.
We now resolve the petition in G.R. No. 153599.

Petitioners claim that the assailed RTC orders dated 3
August 1999 and 6 January 2000 could no longer be
questioned in a special civil action for certiorari and
mandamus as the reglementary period for such action
had already elapsed.
It must be noted that the Order dated 3 August 1999
suspending the enforcement of the writ of possession
had a period of effectivity of only twenty (20) days from 3
August 1999, or until 23 August 1999. Thus, upon the
expiration of the twenty (20)-day period, the said Order
became functus officio. Thus, there is really no sense in
assailing the validity of this Order, mooted as it was. For
the same reason, the validity of the order need not have
been assailed by respondents in their special civil action
before the Court of Appeals.
On the other hand, the Order dated 6 January 2000 is in
the nature of a writ of injunction whose period of efficacy
is indefinite. It may be properly assailed by way of the
special civil action for certiorari, as it is interlocutory in
nature.
As a rule, the special civil action for certiorari under Rule
65 must be filed not later than sixty (60) days from notice
of the judgment or order.[23] Petitioners argue that the 3
August 1999 Order could no longer be assailed by
respondents in a special civil action for certiorari before
the Court of Appeals, as the petition was filed beyond
sixty (60) days following respondents receipt of the
Order. Considering that the 3 August 1999 Order had
become functus officio in the first place, this argument
deserves scant consideration.
Petitioners further claim that the 6 January 2000 Order
could not have likewise been the subject of a special civil
action for certiorari, as it is according to them a final
order, as opposed to an interlocutory order. That the 6
January 2000 Order is interlocutory in nature should be
beyond doubt. An order is interlocutory if its effects would
only be provisional in character and would still leave
substantial proceedings to be further had by the issuing
court in order to put the controversy to rest.[24] The
injunctive relief granted by the order is definitely final, but
merely provisional, its effectivity hinging on the ultimate
outcome of the then pending action for annulment of real
estate mortgage. Indeed, an interlocutory order hardly
puts to a close, or disposes of, a case or a disputed issue
leaving nothing else to be done by the court in respect
thereto, as is characteristic of a final order.
Since the 6 January 2000 Order is not a final order, but
rather interlocutory in nature, we cannot agree with
petitioners who insist that it may be assailed only through
an appeal perfected within fifteen (15) days from receipt
thereof by respondents. It is axiomatic that an
interlocutory order cannot be challenged by an appeal,
but is susceptible to review only through the special civil
action of certiorari.[25] The sixty (60)-day reglementary
period for special civil actions under Rule 65 applies, and
respondents petition was filed with the Court of Appeals
well within the period.
Accordingly, no error can be attributed to the Court of
Appeals in granting the petition for certiorari and
mandamus. As pointed out by respondents, the remedy
of mandamus lies to compel the performance of a
ministerial duty. The issuance of a writ of possession to a
purchaser in an extrajudicial foreclosure is merely a
ministerial function.[26]
Thus, we also affirm the Court of Appeals ruling
to set aside the RTC orders enjoining the enforcement of
the writ of possession.[27] The purchaser in a foreclosure
sale is entitled as a matter of right to a writ of possession,
regardless of whether or not there is a pending suit for
annulment of the mortgage or the foreclosure
proceedings. An injunction to prohibit the issuance or
enforcement of the writ is entirely out of place.[28]
One final note. The issue on the validity of the
stipulated interest rates, regrettably for petitioners, was
not raised at the earliest possible opportunity. It should
be pointed out though that since an excessive stipulated
interest rate may be void for being contrary to public
policy, an action to annul said interest rate does not
prescribe. Such indeed is the remedy; it is not the action
for annulment of the ancillary real estate mortgage.
Despite the nullity of the stipulated interest rate, the
principal loan obligation subsists, and along with it the
mortgage that serves as collateral security for it.
WHEREFORE, in view of all the foregoing, the petitions
are DENIED. Costs against petitioners.
SO ORDERED.
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA,
petitioners, vs. HON. COURT OF APPEALS &
SECURITY BANK & TRUST COMPANY, respondents.
DECISION
VITUG, J.:
Before the Court is a petition for review on certiorari
under Rule 45 of the Rules of Court, assailing the
decision and resolutions of the Court of Appeals in CA-
G.R. CV No. 34594, entitled "Security Bank and Trust
Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana
obtained on 11 May 1981 a loan in the amount of
P120,000.00 from respondent Security Bank and Trust
Company. Petitioners executed a promissory note
binding themselves, jointly and severally, to pay the sum
borrowed with an interest of 15.189% per annum upon
maturity and to pay a penalty of 5% every month on the
outstanding principal and interest in case of default. In
addition, petitioners agreed to pay 10% of the total
amount due by way of attorneys fees if the matter were
indorsed to a lawyer for collection or if a suit were
instituted to enforce payment. The obligation matured on
8 September 1981; the bank, however, granted an
extension but only up until 29 December 1981.
Despite several demands from the bank, petitioners
failed to settle the debt which, as of 20 May 1982,
amounted to P114,416.10. On 30 September 1982, the
bank sent a final demand letter to petitioners informing
them that they had five days within which to make full
payment. Since petitioners still defaulted on their
obligation, the bank filed on 3 November 1982, with the
Regional Trial Court of Makati, Branch 143, a complaint
for recovery of the due amount.
After petitioners had filed a joint answer to the complaint,
the bank presented its evidence and, on 27 March 1985,
rested its case. Petitioners, instead of introducing their
own evidence, had the hearing of the case reset on two
consecutive occasions. In view of the absence of
petitioners and their counsel on 28 August 1985, the third
hearing date, the bank moved, and the trial court
resolved, to consider the case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed
a motion for reconsideration of the order of the trial court
declaring them as having waived their right to present
evidence and prayed that they be allowed to prove their
case. The court a quo denied the motion in an order,
dated 5 September 1988, and on 20 October 1989, it
rendered its decision,[if !supportFootnotes][1][endif] the dispositive
portion of which read:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the defendants, ordering the
latter to pay, jointly and severally, to the plaintiff, as
follows:
"1. The sum of P114,416.00 with interest thereon at the
rate of 15.189% per annum, 2% service charge and 5%
per month penalty charge, commencing on 20 May 1982
until fully paid;
"2. To pay the further sum equivalent to 10% of the total
amount of indebtedness for and as attorneys fees; and
"3. To pay the costs of the suit.[if !supportFootnotes][2][endif]
Petitioners interposed an appeal with the Court of
Appeals, questioning the rejection by the trial court of
their motion to present evidence and assailing the
imposition of the 2% service charge, the 5% per month
penalty charge and 10% attorney's fees. In its decision[if
!supportFootnotes][3][endif] of 7 March 1996, the appellate court
affirmed the judgment of the trial court except on the
matter of the 2% service charge which was deleted
pursuant to Central Bank Circular No. 783. Not fully
satisfied with the decision of the appellate court, both
parties filed their respective motions for reconsideration.[if
!supportFootnotes][4][endif] Petitioners prayed for the reduction of
the 5% stipulated penalty for being unconscionable. The
bank, on the other hand, asked that the payment of
interest and penalty be commenced not from the date of
filing of complaint but from the time of default as so
stipulated in the contract of the parties.
On 28 October 1998, the Court of Appeals resolved the
two motions thusly:
We find merit in plaintiff-appellees claim that the principal
sum of P114,416.00 with interest thereon must
commence not on the date of filing of the complaint as
we have previously held in our decision but on the date
when the obligation became due.
Default generally begins from the moment the creditor
demands the performance of the obligation. However,
demand is not necessary to render the obligor in default
when the obligation or the law so provides.
In the case at bar, defendants-appellants executed a
promissory note where they undertook to pay the
obligation on its maturity date 'without necessity of
demand.' They also agreed to pay the interest in case of
non-payment from the date of default.
xxxxxxxxx
While we maintain that defendants-appellants must be
bound by the contract which they acknowledged and
signed, we take cognizance of their plea for the
application of the provisions of Article 1229 x x x.
Considering that defendants-appellants partially complied
with their obligation under the promissory note by the
reduction of the original amount of P120,000.00 to
P114,416.00 and in order that they will finally settle their
obligation, it is our view and we so hold that in the
interest of justice and public policy, a penalty of 3% per
month or 36% per annum would suffice.
xxxxxxxxx
WHEREFORE, the decision sought to be reconsidered is
hereby MODIFIED. The defendants-appellants Tolomeo
Ligutan and Leonidas dela Llana are hereby ordered to
pay the plaintiff-appellee Security Bank and Trust
Company the following:
1. The sum of P114,416.00 with interest thereon at the
rate of 15.189% per annum and 3% per month penalty
charge commencing May 20, 1982 until fully paid;
2. The sum equivalent to 10% of the total amount of the
indebtedness as and for attorneys fees.[if
!supportFootnotes][5][endif]
On 16 November 1998, petitioners filed an omnibus
motion for reconsideration and to admit newly discovered
evidence,[if !supportFootnotes][6][endif] alleging that while the case
was pending before the trial court, petitioner Tolomeo
Ligutan and his wife Bienvenida Ligutan executed a real
estate mortgage on 18 January 1984 to secure the
existing indebtedness of petitioners Ligutan and dela
Llana with the bank. Petitioners contended that the
execution of the real estate mortgage had the effect of
novating the contract between them and the bank.
Petitioners further averred that the mortgage was
extrajudicially foreclosed on 26 August 1986, that they
were not informed about it, and the bank did not credit
them with the proceeds of the sale. The appellate court
denied the omnibus motion for reconsideration and to
admit newly discovered evidence, ratiocinating that such
a second motion for reconsideration cannot be
entertained under Section 2, Rule 52, of the 1997 Rules
of Civil Procedure. Furthermore, the appellate court said,
the newly-discovered evidence being invoked by
petitioners had actually been known to them when the
case was brought on appeal and when the first motion for
reconsideration was filed.[if !supportFootnotes][7][endif]
Aggrieved by the decision and resolutions of the Court of
Appeals, petitioners elevated their case to this Court on 9
July 1999 via a petition for review on certiorari under
Rule 45 of the Rules of Court, submitting thusly -
I. The respondent Court of Appeals seriously erred in not
holding that the 15.189% interest and the penalty of three
(3%) percent per month or thirty-six (36%) percent per
annum imposed by private respondent bank on
petitioners loan obligation are still manifestly exorbitant,
iniquitous and unconscionable.
II. The respondent Court of Appeals gravely erred in not
reducing to a reasonable level the ten (10%) percent
award of attorneys fees which is highly and grossly
excessive, unreasonable and unconscionable.
III. The respondent Court of Appeals gravely erred in not
admitting petitioners newly discovered evidence which
could not have been timely produced during the trial of
this case.
IV. The respondent Court of Appeals seriously erred in
not holding that there was a novation of the cause of
action of private respondents complaint in the instant
case due to the subsequent execution of the real estate
mortgage during the pendency of this case and the
subsequent foreclosure of the mortgage.[if
!supportFootnotes][8][endif]
Respondent bank, which did not take an appeal, would,
however, have it that the penalty sought to be deleted by
petitioners was even insufficient to fully cover and
compensate for the cost of money brought about by the
radical devaluation and decrease in the purchasing
power of the peso, particularly vis-a-vis the U.S. dollar,
taking into account the time frame of its occurrence. The
Bank would stress that only the amount of P5,584.00 had
been remitted out of the entire loan of P120,000.00.[if
!supportFootnotes][9][endif]
A penalty clause, expressly recognized by law,[if
!supportFootnotes][10][endif] is an accessory undertaking to
assume greater liability on the part of an obligor in case
of breach of an obligation. It functions to strengthen the
coercive force of the obligation[if !supportFootnotes][11][endif] and
to provide, in effect, for what could be the liquidated
damages resulting from such a breach. The obligor would
then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure
of damages caused by the breach.[if !supportFootnotes][12][endif]
Although a court may not at liberty ignore the freedom of
the parties to agree on such terms and conditions as they
see fit that contravene neither law nor morals, good
customs, public order or public policy, a stipulated
penalty, nevertheless, may be equitably reduced by the
courts if it is iniquitous or unconscionable or if the
principal obligation has been partly or irregularly
complied with.[if !supportFootnotes][13][endif]
The question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly objective. Its
resolution would depend on such factors as, but not
necessarily confined to, the type, extent and purpose of
the penalty, the nature of the obligation, the mode of
breach and its consequences, the supervening realities,
the standing and relationship of the parties, and the like,
the application of which, by and large, is addressed to the
sound discretion of the court. In Rizal Commercial
Banking Corp. vs. Court of Appeals,[if !supportFootnotes][14][endif]
just an example, the Court has tempered the penalty
charges after taking into account the debtors pitiful
situation and its offer to settle the entire obligation with
the creditor bank. The stipulated penalty might likewise
be reduced when a partial or irregular performance is
made by the debtor.[if !supportFootnotes][15][endif] The stipulated
penalty might even be deleted such as when there has
been substantial performance in good faith by the
obligor,[if !supportFootnotes][16][endif] when the penalty clause
itself suffers from fatal infirmity, or when exceptional
circumstances so exist as to warrant it.[if
!supportFootnotes][17][endif]
The Court of Appeals, exercising its good judgment in the
instant case, has reduced the penalty interest from 5% a
month to 3% a month which petitioner still disputes.
Given the circumstances, not to mention the repeated
acts of breach by petitioners of their contractual
obligation, the Court sees no cogent ground to modify the
ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum,
petitioners, for the first time, question its reasonableness
and prays that the Court reduce the amount. This
contention is a fresh issue that has not been raised and
ventilated before the courts below. In any event, the
interest stipulation, on its face, does not appear as being
that excessive. The essence or rationale for the payment
of interest, quite often referred to as cost of money, is not
exactly the same as that of a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of
interest, if there is an agreement to that effect, the two
being distinct concepts which may separately be
demanded.[if !supportFootnotes][18][endif] What may justify a court
in not allowing the creditor to impose full surcharges and
penalties, despite an express stipulation therefor in a
valid agreement, may not equally justify the non-payment
or reduction of interest. Indeed, the interest prescribed in
loan financing arrangements is a fundamental part of the
banking business and the core of a bank's existence.[if
!supportFootnotes][19][endif]
Petitioners next assail the award of 10% of the total
amount of indebtedness by way of attorney's fees for
being grossly excessive, exorbitant and unconscionable
vis-a-vis the time spent and the extent of services
rendered by counsel for the bank and the nature of the
case. Bearing in mind that the rate of attorneys fees has
been agreed to by the parties and intended to answer not
only for litigation expenses but also for collection efforts
as well, the Court, like the appellate court, deems the
award of 10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in
rejecting petitioners' call for a new trial or to admit newly
discovered evidence. As the appellate court so held in its
resolution of 14 May 1999 -
Under Section 2, Rule 52 of the 1997 Rules of Civil
Procedure, no second motion for reconsideration of a
judgment or final resolution by the same party shall be
entertained. Considering that the instant motion is
already a second motion for reconsideration, the same
must therefore be denied.
Furthermore, it would appear from the records available
to this court that the newly-discovered evidence being
invoked by defendants-appellants have actually been
existent when the case was brought on appeal to this
court as well as when the first motion for reconsideration
was filed. Hence, it is quite surprising why defendants-
appellants raised the alleged newly-discovered evidence
only at this stage when they could have done so in the
earlier pleadings filed before this court.
The propriety or acceptability of such a second motion for
reconsideration is not contingent upon the averment of
'new' grounds to assail the judgment, i.e., grounds other
than those theretofore presented and rejected.
Otherwise, attainment of finality of a judgment might be
stayed off indefinitely, depending on the partys
ingenuousness or cleverness in conceiving and
formulating 'additional flaws' or 'newly discovered errors'
therein, or thinking up some injury or prejudice to the
rights of the movant for reconsideration.[if
!supportFootnotes][20][endif]
At any rate, the subsequent execution of the real estate
mortgage as security for the existing loan would not have
resulted in the extinguishment of the original contract of
loan because of novation. Petitioners acknowledge that
the real estate mortgage contract does not contain any
express stipulation by the parties intending it to
supersede the existing loan agreement between the
petitioners and the bank.[if !supportFootnotes][21][endif]
Respondent bank has correctly postulated that the
mortgage is but an accessory contract to secure the loan
in the promissory note.
Extinctive novation requires, first, a previous valid
obligation; second, the agreement of all the parties to the
new contract; third, the extinguishment of the obligation;
and fourth, the validity of the new one.[if
!supportFootnotes][22][endif] In order that an obligation may be
extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or
that the old and the new obligation be on every point
incompatible with each other.[if !supportFootnotes][23][endif] An
obligation to pay a sum of money is not extinctively
novated by a new instrument which merely changes the
terms of payment or adding compatible covenants or
where the old contract is merely supplemented by the
new one.[if !supportFootnotes][24][endif] When not expressed,
incompatibility is required so as to ensure that the parties
have indeed intended such novation despite their failure
to express it in categorical terms. The incompatibility, to
be sure, should take place in any of the essential
elements of the obligation, i.e., (1) the juridical relation or
tie, such as from a mere commodatum to lease of things,
or from negotiorum gestio to agency, or from a mortgage
to antichresis,[if !supportFootnotes][25][endif] or from a sale to one
of loan;[if !supportFootnotes][26][endif] (2) the object or principal
conditions, such as a change of the nature of the
prestation; or (3) the subjects, such as the substitution of
a debtor[if !supportFootnotes][27][endif] or the subrogation of the
creditor. Extinctive novation does not necessarily imply
that the new agreement should be complete by itself;
certain terms and conditions may be carried, expressly or
by implication, over to the new obligation.
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for
petitoner.
Zapa Law Office for private respondent.

VITUG, J.:
The issues, albeit not completely novel, are: (a) whether
or not a claim for damage sustained on a shipment of
goods can be a solidary, or joint and several, liability of
the common carrier, the arrastre operator and the
customs broker; (b) whether the payment of legal interest
on an award for loss or damage is to be computed from
the time the complaint is filed or from the date the
decision appealed from is rendered; and (c) whether the
applicable rate of interest, referred to above, is twelve
percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of
Appeals, on the antecedent and undisputed facts that
have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company,
arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody,
filed by the insurer-subrogee who paid the consignee the
value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern
Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under
plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
Upon arrival of the shipment in Manila on December 12,
1981, it was discharged unto the custody of defendant
Metro Port Service, Inc. The latter excepted to one drum,
said to be in bad order, which damage was unknown to
plaintiff.
On January 7, 1982 defendant Allied Brokerage
Corporation received the shipment from defendant Metro
Port Service, Inc., one drum opened and without seal
(per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum
which contained spillages, while the rest of the contents
was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E).
Plaintiff contended that due to the losses/damage
sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants
who failed and refused to pay the same (Exhs. H, I, J, K,
L).
As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation",
"Release" and Philbanking check, Exhs. M, N, and O).
(pp. 85-86, Rollo.)
There were, to be sure, other factual issues that
confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the
material allegations of the complaint contending that: As
for defendant Eastern Shipping it alleged that the
shipment was discharged in good order from the vessel
unto the custody of Metro Port Service so that any
damage/losses incurred after the shipment was incurred
after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that
although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p.
11, Record); Allied Brokerage alleged that plaintiff has no
cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still
exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same
condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained
losses/damages;
2. Whether or not these losses/damages were sustained
while in the custody of defendants (in whose respective
custody, if determinable);
3. Whether or not defendant(s) should be held liable for
the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).
As to the first issue, there can be no doubt that the
shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly
shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was
shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that
the losses/damages were sustained while in the
respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro
Port) and broker (Allied Brokerage). This becomes
evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the
latter notes, it is stated that when the shipment was
"landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one
(1) fiber drum (was) in damaged condition, covered by
the vessel's Agent's Bad Order Tally Sheet No. 86427."
The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant
arrastre operator's custody on January 7, 1982, one drum
was found opened without seal, cello bag partly torn but
contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that
these losses/damages occurred before the shipment
reached the consignee while under the successive
custodies of defendants. Under Art. 1737 of the New Civil
Code, the common carrier's duty to observe extraordinary
diligence in the vigilance of goods remains in full force
and effect even if the goods are temporarily unloaded
and stored in transit in the warehouse of the carrier at the
place of destination, until the consignee has been
advised and has had reasonable opportunity to remove
or dispose of the goods (Art. 1738, NCC). Defendant
Eastern Shipping's own exhibit, the "Turn-Over Survey of
Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and
severally:
1. The amount of P19,032.95, with the present legal
interest of 12% per annum from October 1, 1982, the
date of filing of this complaints, until fully paid (the liability
of defendant Eastern Shipping, Inc. shall not exceed
US$500 per case or the CIF value of the loss, whichever
is lesser, while the liability of defendant Metro Port
Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case
to exceed P5,000.00 each, pursuant to Section 6.01 of
the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find
that the conclusion drawn therefrom is correct. As there
is sufficient evidence that the shipment sustained
damage while in the successive possession of
appellants, and therefore they are liable to the appellee,
as subrogee for the amount it paid to the consignee. (pp.
87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment
of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common
carrier, attributes error and grave abuse of discretion on
the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND
SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN
THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE
CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF
THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE
DATE OF THE DECISION OF THE TRIAL COURT AND
ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the
questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of
previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite
diligence in the shipment of goods lasts from the time the
articles are surrendered to or unconditionally placed in
the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person
entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs.
Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express
finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals,
139 SCRA 87; Metro Port Service vs. Court of Appeals,
131 SCRA 365). There are, of course, exceptional cases
when such presumption of fault is not observed but these
cases, enumerated in Article 1734 1 of the Civil Code, are
exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre
operator with the obligation of properly delivering the
goods to the consignee has, too, been passed upon by
the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding
the carrier and the arrastre operator liable in solidum,
thus:
The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19
SCRA 5 [1967]. The relationship between the consignee
and the common carrier is similar to that of the consignee
and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of
the ARRASTRE to take good care of the goods that are
in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods
in good condition to the consignee.
We do not, of course, imply by the above pronouncement
that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with
the carrier, or vice-versa, nor that attendant facts in a
given case may not vary the rule. The instant petition has
been brought solely by Eastern Shipping Lines, which,
being the carrier and not having been able to rebut the
presumption of fault, is, in any event, to be held liable in
this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is
sufficient evidence that the shipment sustained damage
while in the successive possession of appellants" (the
herein petitioner among them). Accordingly, the liability
imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether
there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the
appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major
rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila
Port Service, 2 decided 3 on 15 May 1969, involved a
suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan
Insurance (the plaintiff in the lower court) averred in its
complaint that the total amount of its claim for the value
of the undelivered goods amounted to P3,947.20. This
demand, however, was neither established in its totality
nor definitely ascertained. In the stipulation of facts later
entered into by the parties, in lieu of proof, the amount of
P1,447.51 was agreed upon. The trial court rendered
judgment ordering the appellants (defendants) Manila
Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51 with
legal interest thereon from the date the complaint was
filed on 28 December 1962 until full payment thereof. The
appellants then assailed, inter alia, the award of legal
interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of
money, absent a stipulation, is the legal rate. Such
interest normally is allowable from the date of demand,
judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil
Code, interest "cannot be recovered upon unliquidated
claims or damages, except when the demand can be
established with reasonable certainty." And as was held
by this Court in Rivera vs. Perez, 4 L-6998, February 29,
1956, if the suit were for damages, "unliquidated and not
known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c.
Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v.
Guzman,
38 Phil. 302)," then, interest "should be from the date of
the decision." (Emphasis supplied)
The case of Reformina vs. Tomol, 5 rendered on 11
October 1985, was for "Recovery of Damages for Injury
to Person and Loss of Property." After trial, the lower
court decreed:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and third party defendants and against the
defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and
Michael, Incorporated to pay jointly and severally the
following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco
Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories,
fishing gear and equipment minus P80,000.00 which is
the value of the insurance recovered and the amount of
P10,000.00 a month as the estimated monthly loss
suffered by them as a result of the fire of May 6, 1969 up
to the time they are actually paid or already the total sum
of P370,000.00 as of June 4, 1972 with legal interest
from the filing of the complaint until paid and to pay
attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the
amount of damages awarded but sustained the trial court
in adjudging legal interest from the filing of the complaint
until fully paid. When the appellate court's decision
became final, the case was remanded to the lower court
for execution, and this was when the trial court issued its
assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In
their petition for review on certiorari, the petitioners
contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of
Act 2655, as amended, Monetary Board in its Resolution
No. 1622 dated July 29, 1974, has prescribed that 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 be twelve (12%) percent per annum. This
Circular shall take effect immediately. (Emphasis found in
the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments
in litigations involving loans or forbearance of any money,
goods or credits. Any other kind of monetary judgment
which has nothing to do with, nor involving loans or
forbearance of any money, goods or credits does not fall
within the coverage of the said law for it is not within the
ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to
be executed is one rendered in an Action for Damages
for injury to persons and loss of property and does not
involve any loan, much less forbearances of any money,
goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article
2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal interest which
is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus
Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The
case was for damages occasioned by an injury to person
and loss of property. The trial court awarded private
respondent Pedro Manabat actual and compensatory
damages in the amount of P72,500.00 with legal interest
thereon from the filing of the complaint until fully paid.
Relying on the Reformina v. Tomol case, this Court 8
modified the interest award from 12% to 6% interest per
annum but sustained the time computation thereof, i.e.,
from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, 9 the trial court,
in an action for the recovery of damages arising from the
collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc.
(one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with
interest at the legal rate from November 29, 1968, the
date of the filing of the complaint until full payment . . . ."
Save from the modification of the amount granted by the
lower court, the Court of Appeals sustained the trial
court's decision. When taken to this Court for review, the
case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and
environmental circumstances of this case, we deem it
reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a
solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association
of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception to attorney's fees)
occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until
paid. Solidary costs against the defendant and third-party
defendants (Except Roman Ozaeta). (Emphasis
supplied)
A motion for reconsideration was filed by United
Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount
of the monetary award was in contravention of law." The
Court 10 ruled out the applicability of the Reformina and
Philippine Rabbit Bus Lines cases and, in its resolution of
15 April 1988, it explained:
There should be no dispute that the imposition of 12%
interest pursuant to Central Bank Circular No. 416 . . . is
applicable only in the following: (1) loans; (2) forbearance
of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer
to judgments involving loans or forbearance of any
money, goods or credits. (Philippine Rabbit Bus Lines
Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the
instant case, there is neither a loan or a forbearance, but
then no interest is actually imposed provided the sums
referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the
rate of interest is imposed on the total sum, from the filing
of the complaint until paid; in other words, as part of the
judgment for damages. Clearly, they are not applicable to
the instant case. (Emphasis supplied.)
The subsequent case of American Express International,
Inc., vs. Intermediate Appellate Court 11 was a petition for
review on certiorari from the decision, dated 27 February
1985, of the then Intermediate Appellate Court reducing
the amount of moral and exemplary damages awarded
by the trial court, to P240,000.00 and P100,000.00,
respectively, and its resolution, dated 29 April 1985,
restoring the amount of damages awarded by the trial
court, i.e., P2,000,000.00 as moral damages and
P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus
costs of suit. In a decision of 09 November 1988, this
Court, while recognizing the right of the private
respondent to recover damages, held the award,
however, for moral damages by the trial court, later
sustained by the IAC, to be inconceivably large. The
Court 12 thus set aside the decision of the appellate court
and rendered a new one, "ordering the petitioner to pay
private respondent the sum of One Hundred Thousand
(P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the
finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989
case of Florendo v. Ruiz 13 which arose from a breach of
employment contract. For having been illegally
dismissed, the petitioner was awarded by the trial court
moral and exemplary damages without, however,
providing any legal interest thereon. When the decision
was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the
decision of the CFI of Negros Oriental dated October 31,
1972 is affirmed in all respects, with the modification that
defendants-appellants, except defendant-appellant
Merton Munn, are ordered to pay, jointly and severally,
the amounts stated in the dispositive portion of the
decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate
from the date of the filing of the complaint until fully paid
(Emphasis supplied.)
The petition for review to this Court was denied. The
records were thereupon transmitted to the trial court, and
an entry of judgment was made. The writ of execution
issued by the trial court directed that only compensatory
damages should earn interest at 6% per annum from the
date of the filing of the complaint. Ascribing grave abuse
of discretion on the part of the trial judge, a petition for
certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered
the payment of interest "at the legal rate" from the time of
the filing of the complaint. . . Said circular [Central Bank
Circular No. 416] does not apply to actions based on a
breach of employment contract like the case at bar.
(Emphasis supplied)
The Court reiterated that the 6% interest per annum on
the damages should be computed from the time the
complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on
the matter. National Power Corporation vs. Angas, 14
decided on 08 May 1992, involved the expropriation of
certain parcels of land. After conducting a hearing on the
complaints for eminent domain, the trial court ordered the
petitioner to pay the private respondents certain sums of
money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully
paid." Again, in applying the 6% legal interest per annum
under the Civil Code, the Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or
forbearance of money, goods or credits but expropriation
of certain parcels of land for a public purpose, the
payment of which is without stipulation regarding interest,
and the interest adjudged by the trial court is in the
nature of indemnity for damages. The legal interest
required to be paid on the amount of just compensation
for the properties expropriated is manifestly in the form of
indemnity for damages for the delay in the payment
thereof. Therefore, since the kind of interest involved in
the joint judgment of the lower court sought to be
enforced in this case is interest by way of damages, and
not by way of earnings from loans, etc. Art. 2209 of the
Civil Code shall apply.
Concededly, there have been seeming variances in the
above holdings. The cases can perhaps be classified into
two groups according to the similarity of the issues
involved and the corresponding rulings rendered by the
court. The "first group" would consist of the cases of
Reformina v. Tomol (1985), Philippine Rabbit Bus Lines
v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the
"second group" would be Malayan Insurance Company v.
Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.
Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the
application of either the 6% (under the Civil Code) or
12% (under the Central Bank Circular) interest per
annum. It is easily discernible in these cases that there
has been a consistent holding that the Central Bank
Circular imposing the 12% interest per annum applies
only to loans or forbearance 16 of money, goods or
credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6%
interest under the Civil Code governs when the
transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in
the performance of obligations in general. Observe, too,
that in these cases, a common time frame in the
computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on
the application of the 6% or 12% interest per annum, 17
depending on whether or not the amount involved is a
loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike,
however, the "first group" which remained consistent in
holding that the running of the legal interest should be
from the time of the filing of the complaint until fully paid,
the "second group" varied on the commencement of the
running of the legal interest.
Malayan held that the amount awarded should bear legal
interest from the date of the decision of the court a quo,
explaining that "if the suit were for damages,
'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then,
interest 'should be from the date of the decision.'"
American Express International v. IAC, introduced a
different time frame for reckoning the 6% interest by
ordering it to be "computed from the finality of (the)
decision until paid." The Nakpil and Sons case ruled that
12% interest per annum should be imposed from the
finality of the decision until the judgment amount is paid.
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 18 is
breached, the contravenor can be held liable for
damages. 19 The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages. 20
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. 21 Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. 22 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 23 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 24 at the rate of 6% per annum. 25
No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can
be established with reasonable certainty. 26 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.
WHEREFORE, the petition is partly GRANTED. The
appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX
PERCENT (6%) on the amount due computed from the
decision, dated
03 February 1988, of the court a quo. A TWELVE
PERCENT (12%) interest, in lieu of SIX PERCENT (6%),
shall be imposed on such amount upon finality of this
decision until the payment thereof.
SO ORDERED.
G.R. No. 189871 August 13, 2013
DARIO NACAR, PETITIONER,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR.,
RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the
Decision1 dated September 23, 2008 of the Court of
Appeals (CA) in CA-G.R. SP No. 98591, and the
Resolution2 dated October 9, 2009 denying petitioners
motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive
dismissal before the Arbitration Branch of the National
Labor Relations Commission (NLRC) against
respondents Gallery Frames (GF) and/or Felipe Bordey,
Jr., docketed as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a
Decision3 in favor of petitioner and found that he was
dismissed from employment without a valid or just cause.
Thus, petitioner was awarded backwages and separation
pay in lieu of reinstatement in the amount of
P158,919.92. The dispositive portion of the decision,
reads:
With the foregoing, we find and so rule that respondents
failed to discharge the burden of showing that
complainant was dismissed from employment for a just or
valid cause. All the more, it is clear from the records that
complainant was never afforded due process before he
was terminated. As such, we are perforce constrained to
grant complainants prayer for the payments of
separation pay in lieu of reinstatement to his former
position, considering the strained relationship between
the parties, and his apparent reluctance to be reinstated,
computed only up to promulgation of this decision as
follows:
SEPARATION PAY
Date Hired = August 1990
Rate = P198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
P198.00 x 26 days x 8 months
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = P196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
P196.00/day x 12.36 mos. = P62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = P62,986.00
P198.00 x 26 days x 6.4 mos. = P32,947.20
TOTAL = P95.933.76
xxxx
WHEREFORE, premises considered, judgment is hereby
rendered finding respondents guilty of constructive
dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount
of sixty-two thousand nine hundred eighty-six pesos and
56/100 (P62,986.56) Pesos representing his separation
pay;
To pay jointly and severally the complainant the amount
of nine (sic) five thousand nine hundred thirty-three and
36/100 (P95,933.36) representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was
dismissed for lack of merit in the Resolution5 dated
February 29, 2000. Accordingly, the NLRC sustained the
decision of the Labor Arbiter. Respondents filed a motion
for reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on
Certiorari before the CA. On August 24, 2000, the CA
issued= P41,184.00
a Resolution dismissing the petition. Respondents
filed a Motion for Reconsideration, but it was likewise
denied in a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme
Court, docketed as G.R. No. 151332. Finding no
reversible error on the part of the CA, this Court denied
the petition in the Resolution dated April 17, 2002. 8
An Entry of Judgment was later issued certifying that the
resolution became final and executory on May 27, 2002.9
The case was, thereafter, referred back to the Labor
Arbiter. A pre-execution conference was consequently
scheduled, but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for
Correct Computation, praying that his backwages be
computed from the date of his dismissal on January 24,
1997 up to the finality of the Resolution of the Supreme
Court on May 27, 2002.11 Upon recomputation, the
Computation and Examination Unit of the NLRC arrived
at an updated amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued
by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of P471,320.31.
Respondents filed a Motion to Quash Writ of Execution,
arguing, among other things, that since the Labor Arbiter
awarded separation pay of P62,986.56 and limited
backwages of P95,933.36, no more recomputation is
required to be made of the said awards. They claimed
that after the decision becomes final and executory, the
same cannot be altered or amended anymore.14 On
January 13, 2003, the Labor Arbiter issued an Order15
denying the motion. Thus, an Alias Writ of Execution16
was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on
June 30, 2003 issued a Resolution17 granting the appeal
in favor of the respondents and ordered the
recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued
declaring the Resolution of the NLRC to be final and
executory. Consequently, another pre-execution
conference was held, but respondents failed to appear on
time. Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed
judgment award in the sum of P471,320.31.18
The records of the case were again forwarded to the
Computation and Examination Unit for recomputation,
where the judgment award of petitioner was reassessed
to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued
ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated
October 15, 1998, pending the final computation of his
backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias
Writ of Execution to satisfy the judgment award that was
due to petitioner in the amount of P147,560.19, which
petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying
for the re-computation of the monetary award to include
the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20
granting the motion, but only up to the amount of
P11,459.73. The Labor Arbiter reasoned that it is the
October 15, 1998 Decision that should be enforced
considering that it was the one that became final and
executory. However, the Labor Arbiter reasoned that
since the decision states that the separation pay and
backwages are computed only up to the promulgation of
the said decision, it is the amount of P158,919.92 that
should be executed. Thus, since petitioner already
received P147,560.19, he is only entitled to the balance
of P11,459.73.
Petitioner then appealed before the NLRC,21 which
appeal was denied by the NLRC in its Resolution22 dated
September 27, 2006. Petitioner filed a Motion for
Reconsideration, but it was likewise denied in the
Resolution23 dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the
CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24
denying the petition. The CA opined that since petitioner
no longer appealed the October 15, 1998 Decision of the
Labor Arbiter, which already became final and executory,
a belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to
enforce the said judgment. Consequently, it can no
longer be modified in any respect, except to correct
clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was
denied in the Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I said awards. Respondents insist that since the decision
WITH DUE RESPECT, THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED, COMMITTED GRAVE
ABUSE OF DISCRETION AND DECIDED CONTRARY
TO LAW IN UPHOLDING THE QUESTIONED
RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR
ARBITER MAGAT MAKING THE DISPOSITIVE
PORTION OF THE OCTOBER 15, 1998 DECISION OF
LABOR ARBITER LUSTRIA SUBSERVIENT TO AN
OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26
Petitioner argues that notwithstanding the fact that there
was a computation of backwages in the Labor Arbiters
decision, the same is not final until reinstatement is made
or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that
the October 15, 1998 decision of the Labor Arbiter did not
become final and executory until the April 17, 2002
Resolution of the Supreme Court in G.R. No. 151332 was
entered in the Book of Entries on May 27, 2002, the
reckoning point for the computation of the backwages
and separation pay should be on May 27, 2002 and not
when the decision of the Labor Arbiter was rendered on
October 15, 1998. Further, petitioner posits that he is
also entitled to the payment of interest from the finality of
the decision until full payment by the respondents.
On their part, respondents assert that since only
separation pay and limited backwages were awarded to
petitioner by the October 15, 1998 decision of the Labor
Arbiter, no more recomputation is required to be made of
clearly stated that the separation pay and backwages are
"computed only up to [the] promulgation of this decision,"
and considering that petitioner no longer appealed the
decision, petitioner is only entitled to the award as
computed by the Labor Arbiter in the total amount of
P158,919.92. Respondents added that it was only during
the execution proceedings that the petitioner questioned
the award, long after the decision had become final and
executory. Respondents contend that to allow the further
recomputation of the backwages to be awarded to
petitioner at this point of the proceedings would
substantially vary the decision of the Labor Arbiter as it
violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session
Delights Ice Cream and Fast Foods v. Court of Appeals
(Sixth Division),27 wherein the issue submitted to the
Court for resolution was the propriety of the computation
of the awards made, and whether this violated the
principle of immutability of judgment. Like in the present
case, it was a distinct feature of the judgment of the
Labor Arbiter in the above-cited case that the decision
already provided for the computation of the payable
separation pay and backwages due and did not further
order the computation of the monetary awards up to the
time of the finality of the judgment. Also in Session
Delights, the dismissed employee failed to appeal the
decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-
computation in the course of execution of the labor
arbiter's original computation of the awards made,
pegged as of the time the decision was rendered and
confirmed with modification by a final CA decision, is
legally proper. The question is posed, given that the
petitioner did not immediately pay the awards stated in
the original labor arbiter's decision; it delayed payment
because it continued with the litigation until final judgment
at the CA level.
A source of misunderstanding in implementing the final
decision in this case proceeds from the way the original
labor arbiter framed his decision. The decision consists
essentially of two parts.
The first is that part of the decision that cannot now be
disputed because it has been confirmed with finality. This
is the finding of the illegality of the dismissal and the
awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made.
On its face, the computation the labor arbiter made
shows that it was time-bound as can be seen from the
figures used in the computation. This part, being merely a
computation of what the first part of the decision
established and declared, can, by its nature, be re-
computed. This is the part, too, that the petitioner now
posits should no longer be re-computed because the
computation is already in the labor arbiter's decision that
the CA had affirmed. The public and private respondents,
on the other hand, posit that a re-computation is
necessary because the relief in an illegal dismissal
decision goes all the way up to reinstatement if
reinstatement is to be made, or up to the finality of the
decision, if separation pay is to be given in lieu
reinstatement.
That the labor arbiter's decision, at the same time that it
found that an illegal dismissal had taken place, also
made a computation of the award, is understandable in
light of Section 3, Rule VIII of the then NLRC Rules of
Procedure which requires that a computation be made.
This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary
awards and at all events, as far as practicable, shall
embody in any such decision or order the detailed and
full amount awarded.
Clearly implied from this original computation is its
currency up to the finality of the labor arbiter's decision.
As we noted above, this implication is apparent from the
terms of the computation itself, and no question would
have arisen had the parties terminated the case and
implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's
findings on all counts - i.e., on the finding of illegality as
well as on all the consequent awards made. Hence, the
petitioner appealed the case to the NLRC which, in turn,
affirmed the labor arbiter's decision. By law, the NLRC
decision is final, reviewable only by the CA on
jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC
decision on jurisdictional grounds through a timely filed
Rule 65 petition for certiorari. The CA decision, finding
that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to
finality and was subsequently returned to the labor arbiter
of origin for execution.
It was at this point that the present case arose. Focusing
on the core illegal dismissal portion of the original labor
arbiter's decision, the implementing labor arbiter ordered
the award re-computed; he apparently read the figures
originally ordered to be paid to be the computation due
had the case been terminated and implemented at the
labor arbiter's level. Thus, the labor arbiter re-computed
the award to include the separation pay and the
backwages due up to the finality of the CA decision that
fully terminated the case on the merits. Unfortunately, the
labor arbiter's approved computation went beyond the
finality of the CA decision (July 29, 2003) and included as
well the payment for awards the final CA decision had
deleted - specifically, the proportionate 13th month pay
and the indemnity awards. Hence, the CA issued the
decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-
computation is necessary as it essentially considered the
labor arbiter's original decision in accordance with its
basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and
its monetary consequences; the second part is the
computation of the awards or monetary consequences of
the illegal dismissal, computed as of the time of the labor
arbiter's original decision.28
Consequently, from the above disquisitions, under the
terms of the decision which is sought to be executed by
the petitioner, no essential change is made by a
recomputation as this step is a necessary consequence
that flows from the nature of the illegality of dismissal
declared by the Labor Arbiter in that decision.29 A
recomputation (or an original computation, if no previous
computation has been made) is a part of the law
specifically, Article 279 of the Labor Code and the
established jurisprudence on this provision that is read
into the decision. By the nature of an illegal dismissal
case, the reliefs continue to add up until full satisfaction,
as expressed under Article 279 of the Labor Code. The
recomputation of the consequences of illegal dismissal
upon execution of the decision does not constitute an
alteration or amendment of the final decision being
implemented. The illegal dismissal ruling stands; only the
computation of monetary consequences of this dismissal
is affected, and this is not a violation of the principle of
immutability of final judgments.30
That the amount respondents shall now pay has greatly
increased is a consequence that it cannot avoid as it is
the risk that it ran when it continued to seek recourses
against the Labor Arbiter's decision. Article 279 provides
for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation
of when separation pay in lieu of reinstatement is
allowed. When that happens, the finality of the illegal
dismissal decision becomes the reckoning point instead
of the reinstatement that the law decrees. In allowing
separation pay, the final decision effectively declares that
the employment relationship ended so that separation
pay and backwages are to be computed up to that
point.31
Finally, anent the payment of legal interest. In the
landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,32 the Court laid down the guidelines regarding
the manner of computing legal interest, to wit:
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.33
Recently, however, the Bangko Sentral ng Pilipinas
Monetary Board (BSP-MB), in its Resolution No. 796
dated May 16, 2013, approved the amendment of
Section 234 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,35 Series of 2013,
effective July 1, 2013, the pertinent portion of which
reads:
The Monetary Board, in its Resolution No. 796 dated 16
May 2013, approved the following revisions governing
the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No.
905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.136 of
the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of
Regulations for Non-Bank Financial Institutions are
hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express
stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance
of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per
annum - as reflected in the case of Eastern Shipping
Lines40 and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3
and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB
Circular No. 799 - but will now be six percent (6%) per
annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the
twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate
of six percent (6%) per annum shall be the prevailing rate
of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in
Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board,41 this Court affirmed the authority of the
BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe
the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods
or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe
different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries."
Nonetheless, with regard to those judgments that have
become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed
therein.1awp++i1
To recapitulate and for future guidance, the guidelines
laid down in the case of Eastern Shipping Lines42 are
accordingly modified to embody BSP-MB Circular No.
799, as follows:
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.1wphi1
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:
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 6% 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.
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.
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 6% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have
become final and executory prior to July 1, 2013, shall
not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated
September 23, 2008 of the Court of Appeals in CA-G.R.
SP No. 98591, and the Resolution dated October 9, 2009
are REVERSED and SET ASIDE. Respondents are
Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was
illegally dismissed on January 24, 1997 up to May 27,
2002, when the Resolution of this Court in G.R. No.
151332 became final and executory;
(2) separation pay computed from August 1990 up to
May 27, 2002 at the rate of one month pay per year of
service; and
(3) interest of twelve percent (12%) per annum of the
total monetary awards, computed from May 27, 2002 to
June 30, 2013 and six percent (6%) per annum from July
1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another
recomputation of the total monetary benefits awarded
and due to petitioner in accordance with this Decision.
SO ORDERED.
HERMOJINA ESTORES,
Petitioner,
- versus -
SPOUSES ARTURO and
LAURA SUPANGAN,
Respondents.
x----------------------------------------
---------------------------x
The only issue posed before us is the propriety
of the imposition of interest and attorneys fees.
Assailed in this Petition for Review[if !supportFootnotes][1][endif]
filed under Rule 45 of the Rules of Court is the May 12,
2006 Decision[if !supportFootnotes][2][endif] of the Court of
Appeals (CA) in CA-G.R. CV No. 83123, the dispositive
portion of which reads:
WHEREFORE, the appealed
decision is MODIFIED. The rate of
interest shall be six percent (6%) per
G.R. No. annum,
175139 computed from September 27,
2000 until its full payment before
Present: finality of the judgment. If the adjudged
principal and the interest (or any part
CORONA, C.J., Chairperson,
thereof) remain unpaid thereafter, the
LEONARDO-DE
interest CASTRO,
rate shall be adjusted to twelve
BERSAMIN, percent (12%) per annum, computed
DEL CASTILLO,
from theand time the judgment becomes
VILLARAMA,final JR.,
andJJ.executory until it is fully
satisfied. The award of attorneys fees
Promulgated:
is hereby reduced to P100,000.00.
April 18, 2012
Costs against the defendants-
appellants.

DECISION

DEL CASTILLO, J.:

SO ORDERED.[if !supportFootnotes][3][endif] (sic):

Also assailed is the August 31, 2006 a) Letter request

Resolution[if !supportFootnotes][4][endif] denying the motion for
reconsideration.

Factual Antecedents
b) Title
On October 3, 1993, petitioner Hermojina Estores and
respondent-spouses Arturo and Laura Supangan entered
into a Conditional Deed of Sale[if !supportFootnotes][5][endif]
whereby petitioner offered to sell, and respondent- c) Tax Declaration
spouses offered to buy, a parcel of land covered by
Transfer Certificate of Title No. TCT No. 98720 located at
Naic, Cavite for the sum of P4.7 million. The parties
likewise stipulated, among others, to wit: d) Affidavit of Aggregate Landholding
Vendor/Vendee
xxxx

e) Certification from the Provl. Assessors as to

Landholdings of
Vendor/Vendee

1. Vendor will secure approved clearance from

DAR requirements of which are f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale

6. Regarding the house located within the

perimeter of the subject [lot]
owned by spouses [Magbago],
said house shall be moved outside
the perimeter of this subject
xxxx
property to the 300 sq. m. area
allocated for [it]. Vendor hereby
accepts the responsibility of
seeing to it that such agreement is
carried out before full payment of
the sale is made by vendee.

4. Vendee shall be informed as to the status of

DAR clearance within 10 days
upon signing of the documents.

7. If and after the vendor has completed all

necessary documents for
registration of the title and the
vendee fails to complete payment
as per agreement, a forfeiture fee
of 25% or downpayment, shall be
xxxx
applied. However, if the vendor
 fails to complete necessary
documents within thirty days
without any sufficient reason, or
without informing the vendee of its
status, vendee has the right to
10. The vendor assures the vendee of a
demand return of full amount of
peaceful transfer of ownership.
down payment.

x x x x [if !supportFootnotes][6][endif]
xxxx

After almost seven years from the time of the

execution of the contract and notwithstanding payment of
P3.5 million on the part of respondent-spouses, petitioner
9. As to the boundaries and partition of the lots still failed to comply with her obligation as expressly
(15,018 sq. m. and 300 sq. m.) provided in paragraphs 4, 6, 7, 9 and 10 of the contract.
Vendee shall be informed Hence, in a letter[if !supportFootnotes][7][endif] dated September
immediately of its approval by the 27, 2000, respondent-spouses demanded the return of
LRC. the amount of P3.5 million within 15 days from receipt of
the letter. In reply,[if !supportFootnotes][8][endif] petitioner
acknowledged receipt of the P3.5 million and promised to
return the same within 120 days. Respondent-spouses !supportFootnotes][11][endif]

were amenable to the proposal provided an interest of

12% compounded annually shall be imposed on the P3.5
million.[if !supportFootnotes][9][endif] When petitioner still failed to In their Answer with Counterclaim,[if
return the amount despite demand, respondent-spouses !supportFootnotes][12][endif] petitioner and Arias averred that they

were constrained to file a Complaint[if !supportFootnotes][10][endif]
for sum of money before the Regional Trial Court (RTC)
of Malabon against herein petitioner as well as Roberto
U. Arias (Arias) who allegedly acted as petitioners agent.
The case was docketed as Civil Case No. 3201-MN and
raffled off to Branch 170. In their complaint, respondent-
spouses prayed that petitioner and Arias be ordered to:
[if !supportLists]1. [endif]Pay the principal amount
are willing to return the principal amount of P3.5 million
but without any interest as the same was not agreed
upon. In their Pre-Trial Brief,[if !supportFootnotes][13][endif] they
reiterated that the only remaining issue between the
parties is the imposition of interest. They argued that
since the Conditional Deed of Sale provided only for the
return of the downpayment in case of breach, they
cannot be held liable to pay legal interest as well.[if
!supportFootnotes][14][endif]

of P3,500,000.00 plus interest of 12% compounded

annually starting October 1, 1993 or an estimated In its Pre-Trial Order[if !supportFootnotes][15][endif] dated
amount of P8,558,591.65; June 29, 2001, the RTC noted that the parties agreed
that the principal amount of 3.5 million pesos should be
[if !supportLists]2. [endif]Pay the following items returned to the [respondent-spouses] by the [petitioner]
of damages: and the issue remaining [is] whether x x x [respondent-
spouses] are entitled to legal interest thereon, damages
[if !supportLists]a) [endif]Moral damages in the and attorneys fees.[if !supportFootnotes][16][endif]
amount of P100,000.00;
[if !supportLists]b) [endif]Actual damages in the Trial ensued thereafter. After the presentation of
amount of P100,000.00; the respondent-spouses evidence, the trial court set the
[if !supportLists]c) [endif]Exemplary damages in presentation of Arias and petitioners evidence on
the amount of P100,000.00; September 3, 2003.[if !supportFootnotes][17][endif] However,
[if !supportLists]d) [endif][Attorneys] fee in the despite several postponements, petitioner and Arias
amount of P50,000.00 plus 20% of recoverable amount failed to appear hence they were deemed to have waived
from the [petitioner]. the presentation of their evidence. Consequently, the
[if !supportLists]e) [endif][C]ost of suit.[if case was deemed submitted for decision.[if
!supportFootnotes][18][endif]
Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision[if
!supportFootnotes][19][endif] finding respondent-spouses entitled
to interest but only at the rate of 6% per annum and not
12% as prayed by them.[if !supportFootnotes][20][endif] It also
found respondent-spouses entitled to attorneys fees as
they were compelled to litigate to protect their interest.[if
!supportFootnotes][21][endif]
The dispositive portion of the RTC Decision
reads:
WHEREFORE, premises
considered, judgment is hereby
rendered in favor of the [respondent-
spouses] and ordering the [petitioner
and Roberto Arias] to jointly and
severally:
[if !supportLists]1. [endif]Pay [respondent-
spouses] the principal amount of Three Million Five
Hundred Thousand pesos (P3,500,000.00) with an
interest of 6% compounded annually starting October 1,
1993 and attorneys fee in the amount of Fifty Thousand
pesos (P50,000.00) plus 20% of the recoverable amount
from the defendants and cost of the suit.
The Compulsory Counter
Claim is hereby dismissed for lack of
factual evidence.
SO ORDERED.[if
!supportFootnotes][22][endif]
Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of
appeal.[if !supportFootnotes][23][endif] The CA noted that the only
issue submitted for its resolution is whether it is proper to
impose interest for an obligation that does not involve a
loan or forbearance of money in the absence of
stipulation of the parties.[if !supportFootnotes][24][endif]
On May 12, 2006, the CA rendered the assailed
Decision affirming the ruling of the RTC finding the (12%) per annum, computed from the
imposition of 6% interest proper.[if !supportFootnotes][25][endif] time the judgment becomes final and
However, the same shall start to run only from executory until it is fully satisfied. The
September 27, 2000 when respondent-spouses formally award of attorneys fees is hereby
demanded the return of their money and not from reduced to P100,000.00. Costs against
October 1993 when the contract was executed as held by the [petitioner].
the RTC. The CA also modified the RTCs ruling as
regards the liability of Arias. It held that Arias could not
be held solidarily liable with petitioner because he merely
acted as agent of the latter. Moreover, there was no
showing that he expressly bound himself to be personally
liable or that he exceeded the limits of his authority. More
importantly, there was even no showing that Arias was
authorized to act as agent of petitioner.[if
!supportFootnotes][26][endif] Anent the award of attorneys fees, SO ORDERED.[if !supportFootnotes][29][endif]
the CA found the award by the trial court (P50,000.00
plus 20% of the recoverable amount) excessive[if
!supportFootnotes][27][endif] and thus reduced the same to

P100,000.00.[if !supportFootnotes][28][endif]

The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is
MODIFIED. The rate of interest shall
be six percent (6%) per annum,
computed from September 27, 2000
until its full payment before finality of
the judgment. If the adjudged principal
and the interest (or any part thereof)
remain[s] unpaid thereafter, the interest
rate shall be adjusted to twelve percent
Petitioner moved for reconsideration which was denied in
the August 31, 2006 Resolution of the CA.
Hence, this petition raising the sole issue of whether the
imposition of interest and attorneys fees is proper.
Petitioners Arguments
Petitioner insists that she is not bound to pay interest on
the P3.5 million because the Conditional Deed of Sale
only provided for the return of the downpayment in case r
of failure to comply with her obligations. Petitioner also e
argues that the award of attorneys fees in favor of the s
respondent-spouses is unwarranted because it cannot be t
said that the latter won over the former since the CA
even sustained her contention that the imposition of 12% m
interest compounded annually is totally uncalled for. a
y
Respondent-spouses Arguments
b
Respondent-spouses aver that it is only fair that interest e
be imposed on the amount they paid considering that
petitioner failed to return the amount upon demand and i
had been using the P3.5 million for her benefit. Moreover, m
it is undisputed that petitioner failed to perform her p
obligations to relocate the house outside the perimeter of o
the subject property and to complete the necessary s
documents. As regards the attorneys fees, they claim e
that they are entitled to the same because they were d
forced to litigate when petitioner unjustly withheld the
amount. Besides, the amount awarded by the CA is even e
smaller compared to the filing fees they paid. v
e
Our Ruling n

The petition lacks merit. i

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 a
We sustain the ruling of both the RTC and the t
CA that it is proper to impose interest notwithstanding the
absence of stipulation in the contract. Article 2210 of the t
Civil Code expressly provides that [i]nterest may, in the h
discretion of the court, be allowed upon damages e
awarded for breach of contract. In this case, there is no
question that petitioner is legally obligated to return the r
P3.5 million because of her failure to fulfill the obligation a
under the Conditional Deed of Sale, despite demand. t
She has in fact admitted that the conditions were not e
fulfilled and that she was willing to return the full amount
of P3.5 million but has not actually done so. Petitioner o
enjoyed the use of the money from the time it was given f
to her[if !supportFootnotes][30][endif] until now. Thus, she is already
in default of her obligation from the date of demand, i.e., 1
on September 27, 2000. 2
%
T
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Anent the interest rate, the general rule is that
i the applicable rate of interest shall be computed in
n accordance with the stipulation of the parties.[if
!supportFootnotes][31][endif] Absent any stipulation, the applicable

t rate of interest shall be 12% per annum when the

h obligation arises out of a loan or a forbearance of money,
e goods or credits. In other cases, it shall be six percent
(6%).[if !supportFootnotes][32][endif] In this case, the parties did not
i stipulate as to the applicable rate of interest. The only
n question remaining therefore is whether the 6% as
s provided under Article 2209 of the Civil Code, or 12%
t under Central Bank Circular No. 416, is due.
a
n The contract involved in this case is admittedly
t not a loan but a Conditional Deed of Sale. However, the
contract provides that the seller (petitioner) must return
c the payment made by the buyer (respondent-spouses) if
a the conditions are not fulfilled. There is no question that
s they have in fact, not been fulfilled as the seller
e (petitioner) has admitted this. Notwithstanding demand
. by the buyer (respondent-spouses), the seller (petitioner)
has failed to return the money and

should be considered in default from the time that

demand was made on September 27, 2000.

Even if the transaction involved a Conditional

Deed of Sale, can the stipulation governing the return of
the money be considered as a forbearance of money
which required payment of interest at the rate of 12%?
We believe so.
In Crismina Garments, Inc. v. Court of Appeals,[if
!supportFootnotes][33][endif] forbearance was defined as a
contractual obligation of lender or creditor to refrain
during a given period of time, from requiring the borrower
or debtor to repay a loan or debt then due and payable.
This definition describes a loan where a debtor is given a
period within which to pay a loan or debt. In such case,
forbearance of money, goods or credits will have no
distinct definition from a loan. We believe however, that
the phrase forbearance of money, goods or credits is
meant to have a separate meaning from a loan,
otherwise there would have been no need to add that
phrase as a loan is already sufficiently defined in the Civil
Code.[if !supportFootnotes][34][endif] Forbearance of money, goods
or credits should therefore refer to arrangements other
than loan agreements, where a person acquiesces to the
temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain
conditions. In this case, the respondent-spouses parted
with their money even before the conditions were fulfilled.
They have therefore allowed or granted forbearance to
the seller (petitioner) to use their money pending
fulfillment of the conditions. They were deprived of the
use of their money for the period pending fulfillment of
the conditions and when those conditions were breached,
they are entitled not only to the return of the principal
amount paid, but also to compensation for the use of
their money. And the compensation for the use of their
money, absent any stipulation, should be the same rate
of legal interest applicable to a loan since the use or
deprivation of funds is similar to a loan.
Petitioners unwarranted withholding of the
money which rightfully pertains to respondent-spouses
amounts to forbearance of money which can be
considered as an involuntary loan. Thus, the applicable
rate of interest is 12% per annum. In Eastern Shipping
Lines, Inc. v. Court of Appeals,[if !supportFootnotes][35][endif]cited
in Crismina Garments, Inc. v. Court of Appeals,[if
!supportFootnotes][36][endif] the Court suggested the following
guidelines:
[if !supportLists]I. [endif]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.
[if !supportLists]II. [endif]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:
[if !supportLists]1. [endif]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.
[if !supportLists]2. [endif]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.
[if !supportLists]3. [endif]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.[if !supportFootnotes][37][endif]
Eastern Shipping Lines, Inc. v. Court of Appeals[if
!supportFootnotes][38][endif]and its predecessor case, Reformina
v. Tongol[if !supportFootnotes][39][endif] both involved torts cases
and hence, there was no forbearance of money, goods,
or credits. Further, the amount claimed (i.e., damages)
could not be established with reasonable certainty at the
time the claim was made. Hence, we arrived at a different
ruling in those cases.
Since the date of demand which is September
27, 2000 was satisfactorily established during trial, then
the interest rate of 12% should be reckoned from said
date of demand until the principal amount and the
interest thereon is fully satisfied.
T
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a Under Article 2208 of the Civil Code, attorneys fees may

t be recovered:
t
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s

f
e
e
s (2) When the defendants act or omission has
compelled the plaintiff to litigate
i with third persons or to incur
s expenses to protect his interest;

w
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e xxxx
d
.
 WHEREFORE, the Petition for Review is DENIED. The
May 12, 2006 Decision of the Court of Appeals in CA-
G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS
that the rate of interest shall be twelve percent (12%) per
[if !supportLists](11) [endif]In any other
annum, computed from September 27, 2000 until fully
case where the court deems it just and
satisfied. The award of attorneys fees is further reduced
equitable that attorneys fees and
to P50,000.00.
expenses of litigation should be
recovered.
SO ORDERED.

In all cases, the attorneys fees and expenses of

litigation must be reasonable.

Considering the circumstances of the instant

case, we find respondent-spouses entitled to recover
attorneys fees. There is no doubt that they were forced to
litigate to protect their interest, i.e., to recover their
money. However, we find the amount of P50,000.00
more appropriate in line with the policy enunciated in
Article 2208 of the Civil Code that the award of attorneys
fees must always be reasonable.