G.R. No.
26085 August 12, 1927
SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants,
vs.
BENITO GONZALEZ SY CHIAM, defendants-appellee.
Araneta and Zaragoza for appellants.
Eusebio Orense for appelle.
JOHNSON, J.:
PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL
The principal questions presented by this appeal are:
(a) Is the contract in question a pacto de retro or a mortgage?
(b) Under a pacto de retro, when the vendor becomes a tenant of the
purchaser and agrees to pay a certain amount per month as rent,
may such rent render such a contract usurious when the amount
paid as rent, computed upon the purchase price, amounts to a higher
rate of interest upon said amount than that allowed by law?
(c) May the contract in the present case may be modified by
parol evidence?
ANTECEDENT FACTS
Sometime prior to the 28th day of November, 1922, the appellants purchased
of the Luzon Rice Mills, Inc., a piece or parcel of land with
the camarin located thereon, situated in the municipality of Tarlac of the
Province of Tarlac for the price of P25,000, promising to pay therefor in three
installments. The first installment of P2,000 was due on or before the 2d day
of May, 1921; the second installment of P8,000 was due on or before 31st
day of May, 1921; the balance of P15,000 at 12 per cent interest was due
and payable on or about the 30th day of November, 1922. One of the
conditions of that contract of purchase was that on failure of the purchaser
(plaintiffs and appellants) to pay the balance of said purchase price or any of
the installments on the date agreed upon, the property bought would revert to
the original owner.
The payments due on the 2d and 31st of May, 1921, amounting to P10,000
were paid so far as the record shows upon the due dates. The balance of
P15,000 due on said contract of purchase was paid on or about the 1st day
of December, 1922, in the manner which will be explained below. On the
date when the balance of P15,000 with interest was paid, the vendor of said
property had issued to the purchasers transfer certificate of title to said
property, No. 528. Said transfer certificate of title (No. 528) was transfer
certificate of title from No. 40, which shows that said land was originally
registered in the name of the vendor on the 7th day of November, 1913.
PRESENT FACTS
On the 7th day of November, 1922 the representative of the vendor of the
property in question wrote a letter to the appellant Potenciana Manio (Exhibit
A, p. 50), notifying the latter that if the balance of said indebtedness was not
paid, an action would be brought for the purpose of recovering the property,
together with damages for non compliance with the condition of the contract
of purchase. The pertinent parts of said letter read as follows:
Sirvase notar que de no estar liquidada esta cuenta el dia 30 del
corriente, procederemos judicialmente contra Vd. para reclamar la
devolucion del camarin y los daos y perjuicios ocasionados a la
compaia por su incumplimiento al contrato.
Somos de Vd. atentos y S. S.
SMITH, BELL & CO., LTD.
By (Sgd.) F. I. HIGHAM
Treasurer.
General Managers
LUZON RICE MILLS INC.
According to Exhibits B and D, which represent the account rendered by the
vendor, there was due and payable upon said contract of purchase on the
30th day of November, 1922, the sum P16,965.09. Upon receiving the letter
of the vendor of said property of November 7, 1922, the purchasers, the
appellants herein, realizing that they would be unable to pay the balance
due, began to make an effort to borrow money with which to pay the balance
due, began to make an effort to borrow money with which to pay the balance
of their indebtedness on the purchase price of the property involved. Finally
an application was made to the defendant for a loan for the purpose of
satisfying their indebtedness to the vendor of said property. After some
negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs
the sum of P17,500 upon condition that the plaintiffs execute and deliver to
him a pacto de retro of said property.
In accordance with that agreement the defendant paid to the plaintiffs by
means of a check the sum of P16,965.09. The defendant, in addition to said
amount paid by check, delivered to the plaintiffs the sum of P354.91 together
with the sum of P180 which the plaintiffs paid to the attorneys for drafting
said contract of pacto de retro, making a total paid by the defendant to the
plaintiffs and for the plaintiffs of P17,500 upon the execution and delivery of
said contract. Said contracts was dated the 28th day of November, 1922, and
is in the words and figures following:
Sepan todos por la presente:
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Que nosotros, los conyuges Severino Tolentino y Potenciana Manio,
ambos mayores de edad, residentes en el Municipio de Calumpit,
Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de
Manila, de una parte, y de otra, Benito Gonzalez Sy Chiam, mayor
de edad, casado con Maria Santiago, comerciante y vecinos de esta
Ciudad de Manila.
MANIFESTAMOS Y HACEMOS CONSTAR:
Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por
y en consideracion a la cantidad de diecisiete mil quinientos pesos
(P17,500) moneda filipina, que en este acto hemos recibido a
nuestra entera satisfaccion de Don Benito Gonzalez Sy Chiam,
cedemos, vendemos y traspasamos a favor de dicho Don Benito
Gonzalez Sy Chiam, sus herederos y causahabientes, una finca
que, segun el Certificado de Transferencia de Titulo No. 40 expedido
por el Registrador de Titulos de la Provincia de Tarlac a favor de
"Luzon Rice Mills Company Limited" que al incorporarse se
donomino y se denomina "Luzon Rice Mills Inc.," y que esta
corporacion nos ha transferido en venta absoluta, se describe como
sigue:
Un terreno (lote No. 1) con las mejoras existentes en el mismo,
situado en el Municipio de Tarlac. Linda por el O. y N. con propiedad
de Manuel Urquico; por el E. con propiedad de la Manila Railroad
Co.; y por el S. con un camino. Partiendo de un punto marcado 1 en
el plano, cuyo punto se halla al N. 41 gds. 17' E.859.42 m. del mojon
de localizacion No. 2 de la Oficina de Terrenos en Tarlac; y desde
dicho punto 1 N. 81 gds. 31' O., 77 m. al punto 2; desde este punto
N. 4 gds. 22' E.; 54.70 m. al punto 3; desde este punto S. 86 gds. 17'
E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42' E., 61.48 m.
al punto de partida; midiendo una extension superficcial de cuatro
mil doscientos diez y seis metros cuadrados (4,216) mas o menos.
Todos los puntos nombrados se hallan marcados en el plano y sobre
el terreno los puntos 1 y 2 estan determinados por mojones de P. L.
S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P.
L. S. B. L.: la orientacion seguida es la verdadera, siendo la
declinacion magnetica de 0 gds. 45' E. y la fecha de la medicion, 1.
de febrero de 1913.
Segundo. Que es condicion de esta venta la de que si en el plazo de
cinco (5) aos contados desde el dia 1. de diciembre de 1922,
devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido
precio de diecisiete mil quinientos pesos (P17,500) queda obligado
dicho Sr. Benito Gonzalez y Chiam a retrovendernos la finca arriba
descrita; pero si transcurre dicho plazo de cinco aos sin ejercitar el
derecho de retracto que nos hemos reservado, entonces quedara
esta venta absoluta e irrevocable.
Tercero. Que durante el expresado termino del retracto tendremos
en arrendamiento la finca arriba descrita, sujeto a condiciones
siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades
vencidas a Don Benito Gonzalez Sy Chiam y en su
domicilio, era de trescientos setenta y cinco pesos (P375)
moneda filipina, cada mes.
(b) El amillaramiento de la finca arrendada sera por cuenta
de dicho Don Benito Gonzalez Sy Chiam, asi como tambien
la prima del seguro contra incendios, si el conviniera al
referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.
(c) La falta de pago del alquiler aqui estipulado por dos
meses consecutivos dara lugar a la terminacion de este
arrendamieno y a la perdida del derecho de retracto que nos
hemos reservado, como si naturalmente hubiera expirado el
termino para ello, pudiendo en su virtud dicho Sr. Gonzalez
Sy Chiam tomar posesion de la finca y desahuciarnos de la
misma.
Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que
acepto esta escritura en los precisos terminos en que la dejan
otorgada los conyuges Severino Tolentino y Potenciana Manio.
En testimonio de todo lo cual, firmamos la presente de nuestra mano
en Manila, por cuadruplicado en Manila, hoy a 28 de noviembre de
1922.
(Fdo.) SEVERINO TOLENTINO
(Fda.) POTENCIANA MANIO
(Fdo.) BENITO GONZALEZ SY CHIAM
Firmado en presencia de:
2
 (Fdos.) MOISES M. BUHAIN
B. S. BANAAG
An examination of said contract of sale with reference to the first question
above, shows clearly that it is a pacto de retro and not a mortgage. There is
no pretension on the part of the appellant that said contract, standing alone,
is a mortgage. The pertinent language of the contract is:
Segundo. Que es condicion de esta venta la de que si en el plazo de
cinco (5) aos contados desde el dia 1. de diciembre de 1922,
devolvemos al expresado Don Benito Gonzales Sy Chiam el referido
precio de diecisiete mil quinientos pesos (P17,500) queda obligado
dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arriba
descrita; pero si transcurre dicho plazo de cinco (5) aos sin ejercitar
al derecho de retracto que nos hemos reservado, entonces quedara
esta venta absoluta e irrevocable.
Language cannot be clearer. The purpose of the contract is expressed
clearly in said quotation that there can certainly be not doubt as to the
purpose of the plaintiff to sell the property in question, reserving the right only
to repurchase the same. The intention to sell with the right to repurchase
cannot be more clearly expressed.
It will be noted from a reading of said sale of pacto de retro, that the vendor,
recognizing the absolute sale of the property, entered into a contract with the
purchaser by virtue of which she became the "tenant" of the purchaser. That
contract of rent appears in said quoted document above as follows:
Tercero. Que durante el expresado termino del retracto tendremos
en arrendamiento la finca arriba descrita, sujeto a condiciones
siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades
vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, sera
de trescientos setenta y cinco pesos (P375) moneda filipina, cada
mes.
(b) El amillaramiento de la finca arrendada sera por cuenta de dicho
Don Benito Gonzalez Sy Chiam, asi como tambien la prima del
seguro contra incendios, si le conviniera al referido Sr. Benito
Gonzalez Sy Chiam asegurar dicha finca.
From the foregoing, we are driven to the following conclusions: First, that the
contract of pacto de retro is an absolute sale of the property with the right to
repurchase and not a mortgage; and, second, that by virtue of the said
contract the vendor became the tenant of the purchaser, under the conditions
mentioned in paragraph 3 of said contact quoted above.
It has been the uniform theory of this court, due to the severity of a contract
of pacto de retro, to declare the same to be a mortgage and not a sale
whenever the interpretation of such a contract justifies that conclusion. There
must be something, however, in the language of the contract or in the
conduct of the parties which shows clearly and beyond doubt that they
intended the contract to be a "mortgage" and not a pacto de retro.
(International Banking Corporation vs. Martinez, 10 Phil., 252;
Padilla vs. Linsangan, 19 Phil., 65; Cumagun vs. Alingay, 19 Phil., 415;
Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42 Phil., 925;
Velazquez vs. Teodoro, 46 Phil., 757; Villa vs.Santiago, 38 Phil., 157.)
We are not unmindful of the fact that sales with pacto de retro are not
favored and that the court will not construe an instrument to one of sale
with pacto de retro, with the stringent and onerous effect which follows,
unless the terms of the document and the surrounding circumstances require
it.
While it is general rule that parol evidence is not admissible for the purpose
of varying the terms of a contract, but when an issue is squarely presented
that a contract does not express the intention of the parties, courts will, when
a proper foundation is laid therefor, hear evidence for the purpose of
ascertaining the true intention of the parties.
In the present case the plaintiffs allege in their complaint that the contract in
question is a pacto de retro. They admit that they signed it. They admit they
sold the property in question with the right to repurchase it. The terms of the
contract quoted by the plaintiffs to the defendant was a "sale" with pacto de
retro, and the plaintiffs have shown no circumstance whatever which would
justify us in construing said contract to be a mere "loan" with guaranty. In
every case in which this court has construed a contract to be a mortgage or a
loan instead of a sale with pacto de retro, it has done so, either because the
terms of such contract were incompatible or inconsistent with the theory that
said contract was one of purchase and sale. (Olino vs. Medina, supra;
Padilla vs. Linsangan, supra; Manlagnit vs. Dy Puico, 34 Phil., 325;
Rodriguez vs. Pamintuan and De Jesus, 37 Phil., 876.)
In the case of Padilla vs. Linsangan the term employed in the contract to
indicate the nature of the conveyance of the land was "pledged" instead of
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"sold". In the case of Manlagnit vs. Dy Puico, while the vendor used to the
terms "sale and transfer with the right to repurchase," yet in said contract he
described himself as a "debtor" the purchaser as a "creditor" and the contract
as a "mortgage". In the case of Rodriguez vs. Pamintuan and De Jesus the
person who executed the instrument, purporting on its face to be a deed of
sale of certain parcels of land, had merely acted under a power of attorney
from the owner of said land, "authorizing him to borrow money in such
amount and upon such terms and conditions as he might deem proper, and
to secure payment of the loan by a mortgage." In the case of Villa vs.
Santiago (38 Phil., 157), although a contract purporting to be a deed of sale
was executed, the supposed vendor remained in possession of the land and
invested the money he had obtained from the supposed vendee in making
improvements thereon, which fact justified the court in holding that the
transaction was a mere loan and not a sale. In the case of Cuyugan vs.
Santos (39 Phil., 970), the purchaser accepted partial payments from the
vendor, and such acceptance of partial payments is absolutely incompatible
with the idea of irrevocability of the title of ownership of the purchaser at the
expiration of the term stipulated in the original contract for the exercise of the
right of repurchase."
Referring again to the right of the parties to vary the terms of written contract,
we quote from the dissenting opinion of Chief Justice Cayetano S. Arellano in
the case of Government of the Philippine Islands vs. Philippine Sugar
Estates Development Co., which case was appealed to the Supreme Court
of the United States and the contention of the Chief Justice in his dissenting
opinion was affirmed and the decision of the Supreme Court of the Philippine
Islands was reversed. (See decision of the Supreme Court of the United
States, June 3, 1918.)1 The Chief Justice said in discussing that question:
According to article 1282 of the Civil Code, in order to judge of the intention
of the contracting parties, consideration must chiefly be paid to those acts
executed by said parties which are contemporary with and subsequent to the
contract. And according to article 1283, however general the terms of a
contract may be, they must not be held to include things and cases different
from those with regard to which the interested parties agreed to contract.
"The Supreme Court of the Philippine Islands held the parol evidence was
admissible in that case to vary the terms of the contract between the
Government of the Philippine Islands and the Philippine Sugar Estates
Development Co. In the course of the opinion of the Supreme Court of the
United States Mr. Justice Brandeis, speaking for the court, said:
It is well settled that courts of equity will reform a written contract
where, owing to mutual mistake, the language used therein did not
fully or accurately express the agreement and intention of the
parties. The fact that interpretation or construction of a contract
presents a question of law and that, therefore, the mistake was one
of law is not a bar to granting relief. . . . This court is always disposed
to accept the construction which the highest court of a territory or
possession has placed upon a local statute. But that disposition may
not be yielded to where the lower court has clearly erred. Here the
construction adopted was rested upon a clearly erroneous
assumption as to an established rule of equity. . . . The burden of
proof resting upon the appellant cannot be satisfied by mere
preponderance of the evidence. It is settled that relief by way of
reformation will not be granted unless the proof of mutual mistake be
of the clearest and most satisfactory character.
The evidence introduced by the appellant in the present case does not meet
with that stringent requirement. There is not a word, a phrase, a sentence or
a paragraph in the entire record, which justifies this court in holding that the
said contract of pacto de retro is a mortgage and not a sale with the right to
repurchase. Article 1281 of the Civil Code provides: "If the terms of a
contract are clear and leave no doubt as to the intention of the contracting
parties, the literal sense of its stipulations shall be followed." Article 1282
provides: "in order to judge as to the intention of the contracting parties,
attention must be paid principally to their conduct at the time of making the
contract and subsequently thereto."
We cannot thereto conclude this branch of our discussion of the question
involved, without quoting from that very well reasoned decision of the late
Chief Justice Arellano, one of the greatest jurists of his time. He said, in
discussing the question whether or not the contract, in the case of Lichauco
vs. Berenguer (20 Phil., 12), was a pacto de retro or a mortgage:
The public instrument, Exhibit C, in part reads as follows: "Don
Macarion Berenguer declares and states that he is the proprietor in
fee simple of two parcels of fallow unappropriated crown land
situated within the district of his pueblo. The first has an area of
73 quiones, 8 balitas and 8 loanes, located in the sitio of Batasan,
and its boundaries are, etc., etc. The second is in the sitio of
Panantaglay, barrio of Calumpang has as area of 73 hectares, 22
ares, and 6 centares, and is bounded on the north, etc., etc."
In the executory part of the said instrument, it is stated:
'That under condition of right to repurchase (pacto de retro)
he sells the said properties to the aforementioned Doa
Cornelia Laochangco for P4,000 and upon the following
4
 conditions: First, the sale stipulated shall be for the period of
two years, counting from this date, within which time the
deponent shall be entitled to repurchase the land sold upon
payment of its price; second, the lands sold shall, during the
term of the present contract, be held in lease by the
undersigned who shall pay, as rental therefor, the sum of
400 pesos per annum, or the equivalent in sugar at the
option of the vendor; third, all the fruits of the said lands shall
be deposited in the sugar depository of the vendee, situated
in the district of Quiapo of this city, and the value of which
shall be applied on account of the price of this sale; fourth,
the deponent acknowledges that he has received from the
vendor the purchase price of P4,000 already paid, and in
legal tender currency of this country . . .; fifth, all the taxes
which may be assessed against the lands surveyed by
competent authority, shall be payable by and constitute a
charge against the vendor; sixth, if, through any unusual
event, such as flood, tempest, etc., the properties
hereinbefore enumerated should be destroyed, wholly or in
part, it shall be incumbent upon the vendor to repair the
damage thereto at his own expense and to put them into a
good state of cultivation, and should he fail to do so he binds
himself to give to the vendee other lands of the same area,
quality and value.'
xxx xxx xxx
The opponent maintained, and his theory was accepted by the trial
court, that Berenguer's contract with Laochangco was not one of sale
with right of repurchase, but merely one of loan secured by those
properties, and, consequently, that the ownership of the lands in
questions could not have been conveyed to Laochangco, inasmuch
as it continued to be held by Berenguer, as well as their possession,
which he had not ceased to enjoy.
Such a theory is, as argued by the appellant, erroneous. The
instrument executed by Macario Berenguer, the text of which has
been transcribed in this decision, is very clear. Berenguer's heirs
may not go counter to the literal tenor of the obligation, the exact
expression of the consent of the contracting contained in the
instrument, Exhibit C. Not because the lands may have continued in
possession of the vendor, not because the latter may have assumed
the payment of the taxes on such properties, nor yet because the
same party may have bound himself to substitute by another any one
of the properties which might be destroyed, does the contract cease
to be what it is, as set forth in detail in the public instrument. The
vendor continued in the possession of the lands, not as the owner
thereof as before their sale, but as the lessee which he became after
its consummation, by virtue of a contract executed in his favor by the
vendee in the deed itself, Exhibit C. Right of ownership is not implied
by the circumstance of the lessee's assuming the responsibility of the
payment is of the taxes on the property leased, for their payment is
not peculiarly incumbent upon the owner, nor is such right implied by
the obligation to substitute the thing sold for another while in his
possession under lease, since that obligation came from him and he
continues under another character in its possessiona reason why
he guarantees its integrity and obligates himself to return the thing
even in a case of force majeure. Such liability, as a general rule, is
foreign to contracts of lease and, if required, is exorbitant, but
possible and lawful, if voluntarily agreed to and such agreement
does not on this account involve any sign of ownership, nor other
meaning than the will to impose upon oneself scrupulous diligence in
the care of a thing belonging to another.
The purchase and sale, once consummated, is a contract which by
its nature transfers the ownership and other rights in the thing sold.
A pacto de retro, or sale with right to repurchase, is nothing but a
personal right stipulated between the vendee and the vendor, to the
end that the latter may again acquire the ownership of the thing
alienated.
It is true, very true indeed, that the sale with right of repurchase is
employed as a method of loan; it is likewise true that in practice
many cases occur where the consummation of a pacto de retro sale
means the financial ruin of a person; it is also, unquestionable that
in pacto de retro sales very important interests often intervene, in the
form of the price of the lease of the thing sold, which is stipulated as
an additional covenant. (Manresa, Civil Code, p. 274.)
But in the present case, unlike others heard by this court, there is no
proof that the sale with right of repurchase, made by Berenguer in
favor of Laonchangco is rather a mortgage to secure a loan.
We come now to a discussion of the second question presented above, and
that is, stating the same in another form: May a tenant charge his landlord
with a violation of the Usury Law upon the ground that the amount of rent he
pays, based upon the real value of the property, amounts to a usurious rate
of interest? When the vendor of property under a pacto de retro rents the
5
property and agrees to pay a rental value for the property during the period of
his right to repurchase, he thereby becomes a "tenant" and in all respects
stands in the same relation with the purchaser as a tenant under any other
contract of lease.
The appellant contends that the rental price paid during the period of the
existence of the right to repurchase, or the sum of P375 per month, based
upon the value of the property, amounted to usury. Usury, generally
speaking, may be defined as contracting for or receiving something in excess
of the amount allowed by law for the loan or forbearance of moneythe
taking of more interest for the use of money than the law allows. It seems
that the taking of interest for the loan of money, at least the taking of
excessive interest has been regarded with abhorrence from the earliest
times. (Dunham vs. Gould, 16 Johnson [N. Y.], 367.) During the middle ages
the people of England, and especially the English Church, entertained the
opinion, then, current in Europe, that the taking of any interest for the loan of
money was a detestable vice, hateful to man and contrary to the laws of God.
(3 Coke's Institute, 150; Tayler on Usury, 44.)
Chancellor Kent, in the case of Dunham vs. Gould, supra, said: "If we look
back upon history, we shall find that there is scarcely any people, ancient or
modern, that have not had usury laws. . . . The Romans, through the greater
part of their history, had the deepest abhorrence of usury. . . . It will be
deemed a little singular, that the same voice against usury should have been
raised in the laws of China, in the Hindu institutes of Menu, in the Koran of
Mahomet, and perhaps, we may say, in the laws of all nations that we know
of, whether Greek or Barbarian."
The collection of a rate of interest higher than that allowed by law is
condemned by the Philippine Legislature (Acts Nos. 2655, 2662 and 2992).
But is it unlawful for the owner of a property to enter into a contract with the
tenant for the payment of a specific amount of rent for the use and
occupation of said property, even though the amount paid as "rent," based
upon the value of the property, might exceed the rate of interest allowed by
law? That question has never been decided in this jurisdiction. It is one of
first impression. No cases have been found in this jurisdiction answering that
question. Act No. 2655 is "An Act fixing rates of interest upon 'loans' and
declaring the effect of receiving or taking usurious rates."
It will be noted that said statute imposes a penalty upon a "loan" or
forbearance of any money, goods, chattels or credits, etc. The central idea of
said statute is to prohibit a rate of interest on "loans." A contract of "loan," is
very different contract from that of "rent". A "loan," as that term is used in the
statute, signifies the giving of a sum of money, goods or credits to another,
with a promise to repay, but not a promise to return the same thing. To
"loan," in general parlance, is to deliver to another for temporary use, on
condition that the thing or its equivalent be returned; or to deliver for
temporary use on condition that an equivalent in kind shall be returned with a
compensation for its use. The word "loan," however, as used in the statute,
has a technical meaning. It never means the return of the same thing. It
means the return of an equivalent only, but never the same thing loaned. A
"loan" has been properly defined as an advance payment of money, goods or
credits upon a contract or stipulation to repay, not to return, the thing loaned
at some future day in accordance with the terms of the contract. Under the
contract of "loan," as used in said statute, the moment the contract is
completed the money, goods or chattels given cease to be the property of
the former owner and becomes the property of the obligor to be used
according to his own will, unless the contract itself expressly provides for a
special or specific use of the same. At all events, the money, goods or
chattels, the moment the contract is executed, cease to be the property of
the former owner and becomes the absolute property of the obligor.
A contract of "loan" differs materially from a contract of "rent." In a contract of
"rent" the owner of the property does not lose his ownership. He simply loses
his control over the property rented during the period of the contract. In a
contract of "loan" the thing loaned becomes the property of the obligor. In a
contract of "rent" the thing still remains the property of the lessor. He simply
loses control of the same in a limited way during the period of the contract of
"rent" or lease. In a contract of "rent" the relation between the contractors is
that of landlord and tenant. In a contract of "loan" of money, goods, chattels
or credits, the relation between the parties is that of obligor and obligee.
"Rent" may be defined as the compensation either in money, provisions,
chattels, or labor, received by the owner of the soil from the occupant
thereof. It is defined as the return or compensation for the possession of
some corporeal inheritance, and is a profit issuing out of lands or tenements,
in return for their use. It is that, which is to paid for the use of land, whether in
money, labor or other thing agreed upon. A contract of "rent" is a contract by
which one of the parties delivers to the other some nonconsumable thing, in
order that the latter may use it during a certain period and return it to the
former; whereas a contract of "loan", as that word is used in the statute,
signifies the delivery of money or other consumable things upon condition of
returning an equivalent amount of the same kind or quantity, in which cases it
is called merely a "loan." In the case of a contract of "rent," under the civil
law, it is called a "commodatum."
From the foregoing it will be seen that there is a while distinction between a
contract of "loan," as that word is used in the statute, and a contract of "rent"
6
even though those words are used in ordinary parlance as interchangeable
terms.
The value of money, goods or credits is easily ascertained while the amount
of rent to be paid for the use and occupation of the property may depend
upon a thousand different conditions; as for example, farm lands of exactly
equal productive capacity and of the same physical value may have a
different rental value, depending upon location, prices of commodities,
proximity to the market, etc. Houses may have a different rental value due to
location, conditions of business, general prosperity or depression,
adaptability to particular purposes, even though they have exactly the same
original cost. A store on the Escolta, in the center of business, constructed
exactly like a store located outside of the business center, will have a much
higher rental value than the other. Two places of business located in different
sections of the city may be constructed exactly on the same architectural
plan and yet one, due to particular location or adaptability to a particular
business which the lessor desires to conduct, may have a very much higher
rental value than one not so located and not so well adapted to the particular
business. A very cheap building on the carnival ground may rent for more
money, due to the particular circumstances and surroundings, than a much
more valuable property located elsewhere. It will thus be seen that the rent to
be paid for the use and occupation of property is not necessarily fixed upon
the value of the property. The amount of rent is fixed, based upon a thousand
different conditions and may or may not have any direct reference to the
value of the property rented. To hold that "usury" can be based upon the
comparative actual rental value and the actual value of the property, is to
subject every landlord to an annoyance not contemplated by the law, and
would create a very great disturbance in every business or rural community.
We cannot bring ourselves to believe that the Legislature contemplated any
such disturbance in the equilibrium of the business of the country.
In the present case the property in question was sold. It was an absolute sale
with the right only to repurchase. During the period of redemption the
purchaser was the absolute owner of the property. During the period of
redemption the vendor was not the owner of the property. During the period
of redemption the vendor was a tenant of the purchaser. During the period of
redemption the relation which existed between the vendor and the vendee
was that of landlord and tenant. That relation can only be terminated by a
repurchase of the property by the vendor in accordance with the terms of the
said contract. The contract was one of rent. The contract was not a loan, as
that word is used in Act No. 2655.
As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts
have no right to make contracts for parties. They made their own contract in
the present case. There is not a word, a phrase, a sentence or paragraph,
which in the slightest way indicates that the parties to the contract in question
did not intend to sell the property in question absolutely, simply with the right
to repurchase. People who make their own beds must lie thereon.
What has been said above with reference to the right to modify contracts by
parol evidence, sufficiently answers the third questions presented above. The
language of the contract is explicit, clear, unambiguous and beyond question.
It expresses the exact intention of the parties at the time it was made. There
is not a word, a phrase, a sentence or paragraph found in said contract which
needs explanation. The parties thereto entered into said contract with the full
understanding of its terms and should not now be permitted to change or
modify it by parol evidence.
With reference to the improvements made upon said property by the plaintiffs
during the life of the contract, Exhibit C, there is hereby reserved to the
plaintiffs the right to exercise in a separate action the right guaranteed to
them under article 361 of the Civil Code.
For all of the foregoing reasons, we are fully persuaded from the facts of the
record, in relation with the law applicable thereto, that the judgment appealed
from should be and is hereby affirmed, with costs. So ordered.
[G.R. No. 123031. October 12, 1999]
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,
vs. COURT OF APPEALS, VICENTE ALEGRE, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails respondent appellate courts
Decision,[1] dated December 8, 1995, in CA G.R. CV No. 44085, which
affirmed the ruling of the Regional Trial Court of Makati, Branch 132. The
dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is hereby rendered ordering defendant [herein
petitioner] to pay plaintiff [herein private respondent]:
7
 (1) the principal sum of P514,390.94 with legal interest thereon
computed from August 6, 1991 until fully paid; and
(2) the costs of suit.
SO ORDERED.[2]
Based on the records, the following are the pertinent facts of the case:
Cebu International Finance Corporation (CIFC), a quasi-banking
institution, is engaged in money market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with
CIFC, five hundred thousand (P500,000.00) pesos, in cash. Petitioner issued
a promissory note to mature on May 27, 1991. The note for five hundred
sixteen thousand, two hundred thirty-eight pesos and sixty-seven centavos
(P516,238.67) covered private respondents placement plus interest at twenty
and a half (20.5%) percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the
CHECK) for five hundred fourteen thousand, three hundred ninety pesos and
ninety-four centavos (P514,390.94) in favor of the private respondent as
proceeds of his matured investment plus interest. The CHECK was drawn
from petitioners current account number 0011-0803-59, maintained with the
Bank of the Philippine Islands (BPI), main branch at Makati City.
On June 17, 1991, private respondents wife deposited the CHECK with
Rizal Commercial Banking Corp. (RCBC), in Puerto Princesa, Palawan. BPI
dishonored the CHECK with the annotation, that the Check (is) Subject of an
Investigation. BPI took custody of the CHECK pending an investigation of
several counterfeit checks drawn against CIFCs aforestated checking
account. BPI used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored CHECK
and demanded, on several occasions, that he be paid in cash. CIFC refused
the request, and instead instructed private respondent to wait for its ongoing
bank reconciliation with BPI. Thereafter, private respondent, through counsel,
made a formal demand for the payment of his money market placement. In
turn, CIFC promised to replace the CHECK but required an impossible
condition that the original must first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint [3] for
recovery of a sum of money against the petitioner with the Regional Trial Court
of Makati (RTC-Makati), Branch 132.
On July 13, 1992, CIFC sought to recover its lost funds and formally filed
against BPI, a separate civil action[4] for collection of a sum of money with the
RTC-Makati, Branch 147. The collection suit alleged that BPI unlawfully
deducted from CIFCs checking account, counterfeit checks amounting to one
million, seven hundred twenty-four thousand, three hundred sixty-four pesos
and fifty-eight centavos (P1,724,364.58). The action included the prayer to
collect the amount of the CHECK paid to Vicente Alegre but dishonored by
BPI.
Meanwhile, in response to Alegres complaint with RTC-Makati, Branch
132, CIFC filed a motion for leave of court to file a third-party complaint against
BPI. BPI was impleaded by CIFC to enforce a right, for contribution and
indemnity, with respect to Alegres claim. CIFC asserted that the CHECK it
issued in favor of Alegre was genuine, valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFCs motion. However, BPI
moved to dismiss the third-party complaint on the ground of pendency of
another action with RTC-Makati, Branch 147. Acting on the motion, the trial
court dismissed the third-party complaint on November 4, 1992, after finding
that the third party complaint filed by CIFC against BPI is similar to its ancillary
claim against the bank, filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May
27, and June 22, 1993, Vito Arieta, Bank Manager of BPI, testified that the
bank, indeed, dishonored the CHECK, retained the original copy and
forwarded only a certified true copy to RCBC. When Arieta was recalled on
July 20, 1993, he testified that on July 16, 1993, BPI encashed and deducted
the said amount from the account of CIFC, but the proceeds, as well as the
CHECK remained in BPIs custody. The banks move was in accordance with
the Compromise Agreement[5] it entered with CIFC to end the litigation in RTC-
Makati, Branch 147. The compromise agreement, which was submitted for the
approval of the said court, provided that:
1. Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of
P1,724,364.58 plus P 20,000 litigation expenses as full and final
settlement of all of plaintiffs claims as contained in the Amended
Complaint dated September 10, 1992. The aforementioned
amount shall be credited to plaintiffs current account No. 0011-
0803-59 maintained at defendants Main Branch upon execution
of this Compromise Agreement.
2. Thereupon, defendant shall debit the sum of P 514,390.94 from
the aforesaid current account representing payment/discharge of
BPI Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case
No. 92-515 arising from the alleged dishonor of BPI Check No.
513397, plaintiff cannot go after the defendant: otherwise stated,
the defendant shall not be liable to the plaintiff.Plaintiff [CIFC]
8
 may however set-up the defense of payment/discharge stipulated
in par. 2 above.[6]
On July 27, 1993, BPI filed a separate collection suit[7] against Vicente
Alegre with the RTC-Makati, Branch 62. The complaint alleged that Vicente
Alegre connived with certain Lina A. Pena and Lita A. Anda and forged several
checks of BPIs client, CIFC. The total amount of counterfeit checks was P
1,724,364.58. BPI prevented the encashment of some checks amounting to
two hundred ninety five thousand, seven hundred seventy-five pesos and
seven centavos (P295,775.07). BPI admitted that the CHECK, payable to
Vicente Alegre for P514,390.94, was deducted from BPIs claim, hence, the
balance of the loss incurred by BPI was nine hundred fourteen thousand, one
hundred ninety-eight pesos and fifty-seven centavos (P914,198.57), plus costs
of suit for twenty thousand (P20,000.00) pesos. The records are silent on the
outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in
favor of Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The
respondent court affirmed the decision of the trial court.
Hence this appeal,[8] in which petitioner interposes the following
assignments of errors:
1. The Honorable Court of Appeals erred in affirming the finding of
the Honorable Trial Court holding that petitioner was not
discharged from the liability of paying the value of the subject
check to private respondent after BPI has debited the value
thereof against petitioners current account.
2. The Honorable Court of Appeals erred in applying the provisions
of paragraph 2 of Article 1249 of the Civil Code in the instant
case. The applicable law being the Negotiable Instruments Law.
3. The Honorable Court of Appeals erred in affirming the Honorable
Trial Courts findings that the petitioner was guilty of negligence
and delay in the performance of its obligation to the private
respondent.
4. The Honorable Court of Appeals erred in affirming the Honorable
Trial Courts decision ordering petitioner to pay legal interest and
the cost of suit.
5. The Honorable Court of Appeals erred in affirming the Honorable
Trial Courts dismissal of petitioners third-party complaint against
BPI.
These issues may be synthesized into three:
1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE
APPLIES IN THE PRESENT CASE;
2. WHETHER OR NOT BPI CHECK NO. 513397 WAS VALIDLY
DISCHARGED; and
3. WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY
COMPLAINT OF PETITIONER AGAINST BPI BY REASON
OF LIS PENDENS WAS PROPER?
On the first issue, petitioner contends that the provisions of the
Negotiable Instruments Law (NIL) are the pertinent laws to govern its money
market transaction with private respondent, and not paragraph 2 of Article
1249 of the Civil Code.Petitioner stresses that it had already been discharged
from the liability of paying the value of the CHECK due to the following
circumstances:
1) There was ACCEPTANCE of the subject check by BPI, the
drawee bank, as defined under the Negotiable Instruments
Law, and therefore, BPI, the drawee bank, became primarily
liable for the payment of the check, and consequently, the
drawer, herein petitioner, was discharged from its liability
thereon;
2) Moreover, BPI, the drawee bank, has not validly DISHONORED
the subject check; and,
3) The act of BPI, the drawee bank of debiting/deducting the value
of the check from petitioners account amounted to and/or
constituted a discharge of the drawers (petitioners) liability
under the instrument/subject check.[9]
Petitioner cites Section 137 of the Negotiable Instruments Law, which
states:
Liability of drawee retaining or destroying bill - Where a drawee to whom a
bill is delivered for acceptance destroys the same, or refuses within twenty-
four hours after such delivery or such other period as the holder may allow,
to return the bill accepted or non-accepted to the Holder, he will be deemed
to have accepted the same.
Petitioner asserts that since BPI accepted the instrument, the bank became
primarily liable for the payment of the CHECK.Consequently, when BPI offset
the value of CHECK against the losses from the forged checks allegedly
committed by the private respondent, the check was deemed paid.
9
 Article 1249 of the New Civil Code deals with a mode of extinction of an
obligation and expressly provides for the medium in the payment of debts. It
provides that:
The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency, which is
legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be held
in abeyance.
Considering the nature of a money market transaction, the above-quoted
provision should be applied in the present controversy. As held in Perez vs.
Court of Appeals,[10] a money market is a market dealing in standardized short-
term creditinstruments (involving large amounts) where lenders and borrowers
do not deal directly with each other but through a middle man or dealer in open
market. In a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.[11]
In the case at bar, the money market transaction between the petitioner
and the private respondent is in the nature of a loan. The private respondent
accepted the CHECK, instead of requiring payment in money. Yet, when he
presented it to RCBC for encashment, as early as June 17, 1991, the same
was dishonored by non-acceptance, with BPIs annotation: Check (is) subject
of an investigation. These facts were testified to by BPIs manager. Under
these circumstances, and after the notice of dishonor, [12] the holder has an
immediate right of recourse against the drawer, [13] and consequently could
immediately file an action for the recovery of the value of the check.
In a loan transaction, the obligation to pay a sum certain in money may
be paid in money, which is the legal tender or, by the use of a check. A check
is not a legal tender, and therefore cannot constitute valid tender of
payment. In the case of Philippine Airlines, Inc. vs. Court of Appeals,[14] this
Court held:
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment
(citation omitted). A check, whether a managers check or ordinary check, is
not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or
creditor.Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until
the payment by commercial document is actually realized (Art. 1249, Civil
Code, par. 3.)[15]
Turning now to the second issue, when the bank deducted the amount of
the CHECK from CIFCs current account, this did not ipso facto operate as
a discharge or payment of the instrument. Although the value of the CHECK
was deducted from the funds of CIFC, it was not delivered to the payee,
Vicente Alegre. Instead, BPI offset the amount against the losses it incurred
from forgeries of CIFC checks, allegedly committed by Alegre. The
confiscation of the value of the check was agreed upon by CIFC and BPI. The
parties intended to amicably settle the collection suit filed by CIFC with the
RTC-Makati, Branch 147, by entering into a compromise agreement, which
reads:
xxx
2. Thereupon, defendant shall debit the sum of P 514,390.94 from
the aforesaid current account representing payment/discharge
of BPI Check No. 513397 payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in Civil Case
No. 92-515 arising from the alleged dishonor of BPI Check No.
513397, plaintiff cannot go after the defendant; otherwise
stated, the defendant shall not be liable to the plaintiff. Plaintiff
however (sic) set-up the defense of payment/discharge
stipulated in par. 2 above.[16]
A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.[17] It
is an agreement between two or more persons who, for preventing or putting
an end to a lawsuit, adjust their difficulties by mutual consent in the manner
which they agree on, and which everyone of them prefers in the hope of
gaining, balanced by the danger of losing.[18] The compromise agreement
could not bind a party who did not sign the compromise agreement nor avail
of its benefits.[19] Thus, the stipulations in the compromise agreement is
unenforceable against Vicente Alegre, not a party thereto. His money could
not be the subject of an agreement between CIFC and BPI.Although Alegres
money was in custody of the bank, the banks possession of it was not in the
concept of an owner. BPI cannot validly appropriate the money as its own. The
codal admonition on this issue is clear:
Art. 1317 -
10
No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.
A Contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party.[20]
BPIs confiscation of Alegres money constitutes garnishment without the
parties going through a valid proceeding in court. Garnishment is an
attachment by means of which the plaintiff seeks to subject to his claim the
property of the defendant in the hands of a third person or money owed to such
third person or a garnishee to the defendant.[21] The garnishment procedure
must be upon proper order of RTC-Makati, Branch 62, the court who had
jurisdiction over the collection suit filed by BPI against Alegre. In effect, CIFC
has not yet tendered a valid payment of its obligation to the private
respondent. Tender of payment involves a positive and unconditional act by
the obligor of offering legal tender currency as payment to the obligee for the
formers obligation and demanding that the latter accept the same.[22] Tender
of payment cannot be presumed by a mere inference from surrounding
circumstances.
With regard to the third issue, for litis pendentia to be a ground for the
dismissal of an action, the following requisites must concur: (a) identity of
parties or at least such as to represent the same interest in both actions; (b)
identity of rights asserted and relief prayed for, the relief being founded on the
same acts; and (c) the identity in the two cases should be such that the
judgment which may be rendered in one would, regardless of which party is
successful, amount to res judicata in the other.[23]
The trial courts ruling as adopted by the respondent court states, thus:
A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu
International Finance Corporation vs. Bank of the Philippine Islands now
pending before Branch 147 of this Court and the Third Party Complaint in the
instant case would readily show that the parties are not only identical but also
the cause of action being asserted, which is the recovery of the value of BPI
Check No. 513397 is the same. In Civil Case No. 92-1940 and in the Third
Party Complaint the rights asserted and relief prayed for, the reliefs being
founded on the facts, are identical.
xxx
WHEREFORE, the motion to dismiss is granted and consequently, the Third
Party Complaint is hereby ordered dismissed on ground of lis pendens.[24]
We agree with the observation of the respondent court that, as between
the third party claim filed by the petitioner against BPI in Civil Case No. 92-515
and petitioners ancillary claim against the bank in Civil Case No. 92-1940,
there is identity of parties as well as identity of rights asserted, and that any
judgment that may be rendered in one case will amount to res judicata in
another.
The compromise agreement between CIFC and BPI, categorically
provided that In case plaintiff is adjudged liable to Vicente Alegre in Civil Case
No. 92-515 arising from the alleged dishonor of BPI Check No. 513397, plaintiff
(CIFC) cannot go after the defendant (BPI); otherwise stated, the defendant
shall not be liable to the plaintiff.[25] Clearly, this stipulation expressed that
CIFC had already abandoned any further claim against BPI with respect to the
value of BPI Check No. 513397. To ask this Court to allow BPI to be a party in
the case at bar, would amount to res judicata and would violate terms of the
compromise agreement between CIFC and BPI. The general rule is that a
compromise has upon the parties the effect and authority of res judicata, with
respect to the matter definitely stated therein, or which by implication from its
terms should be deemed to have been included therein.[26] This holds true
even if the agreement has not been judicially approved.[27]
WHEREFORE, the instant petition is hereby DENIED. The Decision of
the Court of Appeals in CA-G.R. CV No. 44085 is AFFIRMED. Costs against
petitioner.
SO ORDERED.
[G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and
AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing
the decision of the Sixteenth Division of the respondent Court of Appeals
11
promulgated on 21 December 1994[1], which affirmed in toto the decision
handed down by the Regional Trial Court (RTC) of Pasay City. [2]
The case arose when on 11 August 1981, private respondent Aurora
Queao (Queao) filed a complaint before the Pasay City RTC for cancellation
of a Real Estate Mortgage she had entered into with petitioner Celestina
Naguiat (Naguiat). The RTC rendered a decision, declaring the
questioned Real Estate Mortgage void, which Naguiat appealed to the Court
of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat
instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred
Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980,
Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00),
which was earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No. 065314, to the
order of Queao, also dated 11 August 1980 and for the amount of Ninety Five
Thousand Pesos (P95,000.00). The proceeds of these checks were to
constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered to the
latter the owners duplicates of the titles covering the mortgaged
properties.[4] On the same day, the mortgage deed was notarized, and Queao
issued to Naguiat a promissory note for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00), with interest at 12% per annum, payable
on 11 September 1980.[5] Queao also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of
Naguiat.
Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12 September
1980, Queao requested Security Bank to stop payment of her postdated
check, but the bank rejected the request pursuant to its policy not to honor
such requests if the check is drawn against insufficient funds. [6]
On 16 October 1980, Queao received a letter from Naguiats lawyer,
demanding settlement of the loan. Shortly thereafter, Queao and one Ruby
Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queao told
Naguiat that she did not receive the proceeds of the loan, adding that the
checks were retained by Ruebenfeldt, who purportedly was Naguiats agent. [7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the
Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14
August 1981. Three days before the scheduled sale, Queao filed the case
before the Pasay City RTC,[8] seeking the annulment of the mortgage
deed. The trial court eventually stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of
Real Estate Mortgage null and void, and ordering Naguiat to return to Queao
the owners duplicates of her titles to the mortgaged lots.[10] Naguiat appealed
the decision before the Court of Appeals, making no less than eleven
assignments of error. The Court of Appeals promulgated the decision now
assailed before us that affirmed in toto the RTC decision. Hence, the present
petition.
Naguiat questions the findings of facts made by the Court of Appeals,
especially on the issue of whether Queao had actually received the loan
proceeds which were supposed to be covered by the two checks Naguiat had
issued or indorsed. Naguiat claims that being a notarial instrument or public
document, the mortgage deed enjoys the presumption that the recitals therein
are true. Naguiat also questions the admissibility of various representations
and pronouncements of Ruebenfeldt, invoking the rule on the non-binding
effect of the admissions of third persons.[11]
The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does not
exercise in an appeal by certiorari. Under Rule 45 which governs appeal by
certiorari, only questions of law may be raised[12] as the Supreme Court is not
a trier of facts.[13] The resolution of factual issues is the function of lower courts,
whose findings on these matters are received with respect and are in fact
generally binding on the Supreme Court.[14] A question of law which the Court
may pass upon must not involve an examination of the probative value of the
evidence presented by the litigants.[15] There is a question of law in a given
case when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question of fact when the doubt or difference arises as
to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness
of the findings of facts of the lower courts.[17] But Naguiats case does not fall
under any of the exceptions. In any event, both the decisions of the appellate
and trial courts are supported by the evidence on record and the applicable
laws.
Against the common finding of the courts below, Naguiat vigorously
insists that Queao received the loan proceeds. Capitalizing on the status of
the mortgage deed as a public document, she cites the rule that a public
document enjoys the presumption of validity and truthfulness of its
contents. The Court of Appeals, however, is correct in ruling that the
12
presumption of truthfulness of the recitals in a public document was defeated
by the clear and convincing evidence in this case that pointed to the absence
of consideration.[18] This Court has held that the presumption of truthfulness
engendered by notarized documents is rebuttable, yielding as it does to clear
and convincing evidence to the contrary, as in this case.[19]
On the other hand, absolutely no evidence was submitted by Naguiat that
the checks she issued or endorsed were actually encashed or deposited. The
mere issuance of the checks did not result in the perfection of the contract of
loan. For the Civil Code provides that the delivery of bills of exchange and
mercantile documents such as checks shall produce the effect of payment only
when they have been cashed.[20] It is only after the checks have produced the
effect of payment that the contract of loan may be deemed perfected. Art. 1934
of the Civil Code provides:
An accepted promise to deliver something by way of commodatum or simple
loan is binding upon the parties, but the commodatum or simple loan itself shall
not be perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract. [21] In this case,
the objects of the contract are the loan proceeds which Queao would enjoy
only upon the encashment of the checks signed or indorsed by Naguiat. If
indeed the checks were encashed or deposited, Naguiat would have certainly
presented the corresponding documentary evidence, such as the returned
checks and the pertinent bank records. Since Naguiat presented no such
proof, it follows that the checks were not encashed or credited to Queaos
account.
Naguiat questions the admissibility of the various written representations
made by Ruebenfeldt on the ground that they could not bind her following
the res inter alia acta alteri nocere non debet rule. The Court of Appeals
rejected the argument, holding that since Ruebenfeldt was an authorized
representative or agent of Naguiat the situation falls under a recognized
exception to the rule.[22] Still, Naguiat insists that Ruebenfeldt was not her
agent.
Suffice to say, however, the existence of an agency relationship between
Naguiat and Ruebenfeldt is supported by ample evidence. As correctly pointed
out by the Court of Appeals, Ruebenfeldt was not a stranger or an
unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao
the checks she issued or indorsed to Queao, pending delivery by the latter of
additional collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaos friend, Marilou Farralese, and it was in connection with
that transaction that Queao came to know Naguiat.[23] It was also Ruebenfeldt
who accompanied Queao in her meeting with Naguiat and on that occasion,
on her own and without Queao asking for it, Reubenfeldt actually drew a check
for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by
estoppel[25] citing Article 1873 of the Civil Code.[26] Apparently, it considered
that at the very least, as a consequence of the interaction between Naguiat
and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of
Naguiat, but Naguiat did nothing to correct Queaos impression. In that
situation, the rule is clear. One who clothes another with apparent authority as
his agent, and holds him out to the public as such, cannot be permitted to deny
the authority of such person to act as his agent, to the prejudice of innocent
third parties dealing with such person in good faith, and in the honest belief
that he is what he appears to be.[27] The Court of Appeals is correct in invoking
the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat
and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or
indorsed to Queao were never encashed or deposited to her account of
Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a
quo that the lender did not remit and the borrower did not receive the proceeds
of the loan. That being the case, it follows that the mortgage which is supposed
to secure the loan is null and void. The consideration of the mortgage contract
is the same as that of the principal contract from which it receives life, and
without which it cannot exist as an independent contract. [28] A mortgage
contract being a mere accessory contract, its validity would depend on the
validity of the loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed decision is
affirmed. Costs against petitioner.
SO ORDERED.
G.R. Nos. 173654-765 August 28, 2008
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
TERESITA PUIG and ROMEO PORRAS, respondents.
DECISION
CHICO-NAZARIO, J.:
13
This is a Petition for Review under Rule 45 of the Revised Rules of Court
with petitioner People of the Philippines, represented by the Office of the
Solicitor General, praying for the reversal of the Orders dated 30 January
2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6th Judicial
Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified
Theft filed against respondents Teresita Puig and Romeo Porras, and
denying petitioners Motion for Reconsideration, in Criminal Cases No. 05-
3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before
Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft
against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who
were the Cashier and Bookkeeper, respectively, of private complainant Rural
Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-
3054 to 05-3165.
The allegations in the Informations1 filed before the RTC were uniform and
pro-forma, except for the amounts, date and time of commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of
Pototan, Province of Iloilo, Philippines, and within the jurisdiction of
this Honorable Court, above-named [respondents], conspiring,
confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank
of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or
consent of the management of the Bank and with intent of gain, did
then and there willfully, unlawfully and feloniously take, steal and
carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00),
Philippine Currency, to the damage and prejudice of the said bank in
the aforesaid amount.
After perusing the Informations in these cases, the trial court did not find the
existence of probable cause that would have necessitated the issuance of a
warrant of arrest based on the following grounds:
(1) the element of taking without the consent of the owners was
missing on the ground that it is the depositors-clients, and not the
Bank, which filed the complaint in these cases, who are the owners
of the money allegedly taken by respondents and hence, are the real
parties-in-interest; and
(2) the Informations are bereft of the phrase alleging "dependence,
guardianship or vigilance between the respondents and the
offended party that would have created a high degree of
confidence between them which the respondents could have
abused."
It added that allowing the 112 cases for Qualified Theft filed against the
respondents to push through would be violative of the right of the
respondents under Section 14(2), Article III of the 1987 Constitution which
states that in all criminal prosecutions, the accused shall enjoy the right to be
informed of the nature and cause of the accusation against him. Following
Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC
dismissed the cases on 30 January 2006 and refused to issue a warrant of
arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order3 denying petitioners Motion for Reconsideration
was issued by the RTC, finding as follows:
Accordingly, the prosecutions Motion for Reconsideration should be,
as it hereby, DENIED. The Order dated January 30, 2006 STANDS
in all respects.
Petitioner went directly to this Court via Petition for Review
on Certiorari under Rule 45, raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED
THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING
WITHOUT THE CONSENT OF THE OWNER, AND THE
QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF
CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the
Orders dated 30 January 2006 and 9 June 2006 issued by the trial court, and
that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, "fixed,
savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loans." Corollary thereto,
14
Article 1953 of the same Code provides that "a person who receives a loan
of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality."
Thus, it posits that the depositors who place their money with the bank are
considered creditors of the bank. The bank acquires ownership of the money
deposited by its clients, making the money taken by respondents as
belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the elements
of the crime of qualified theft, citing that a perusal of the Informations will
show that they specifically allege that the respondents were the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they
took various amounts of money with grave abuse of confidence, and without
the knowledge and consent of the bank, to the damage and prejudice of the
bank.
Parenthetically, respondents raise procedural issues. They challenge the
petition on the ground that a Petition for Review on Certiorari via Rule 45 is
the wrong mode of appeal because a finding of probable cause for the
issuance of a warrant of arrest presupposes evaluation of facts and
circumstances, which is not proper under said Rule.
Respondents further claim that the Department of Justice (DOJ), through the
Secretary of Justice, is the principal party to file a Petition for Review on
Certiorari, considering that the incident was indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to
insufficiency of the Informations and, therefore, because of this defect, there
is no basis for the existence of probable cause which will justify the issuance
of the warrant of arrest. Petitioner assails the dismissal contending that the
Informations for Qualified Theft sufficiently state facts which constitute (a) the
qualifying circumstance of grave abuse of confidence; and (b) the element of
taking, with intent to gain and without the consent of the owner, which is the
Bank.
In determining the existence of probable cause to issue a warrant of arrest,
the RTC judge found the allegations in the Information inadequate. He ruled
that the Information failed to state facts constituting the qualifying
circumstance of grave abuse of confidence and the element of taking without
the consent of the owner, since the owner of the money is not the Bank, but
the depositors therein. He also cites People v. Koc Song,4 in which this Court
held:
There must be allegation in the information and proof of a relation, by
reason of dependence, guardianship or vigilance, between the
respondents and the offended party that has created a high degree
of confidence between them, which the respondents abused.
At this point, it needs stressing that the RTC Judge based his conclusion that
there was no probable cause simply on the insufficiency of the allegations in
the Informations concerning the facts constitutive of the elements of the
offense charged. This, therefore, makes the issue of sufficiency of the
allegations in the Informations the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised
Penal Code, is committed as follows, viz:
ART. 310. Qualified Theft. The crime of theft shall be punished by
the penalties next higher by two degrees than those respectively
specified in the next preceding article, if committed by a domestic
servant, or with grave abuse of confidence, or if the property stolen is
motor vehicle, mail matter or large cattle or consists of coconuts
taken from the premises of a plantation, fish taken from a fishpond or
fishery or if property is taken on the occasion of fire, earthquake,
typhoon, volcanic eruption, or any other calamity, vehicular accident
or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the
physical taking of anothers property without violence or intimidation against
persons or force upon things. The elements of the crime under this Article
are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon
things.
To fall under the crime of Qualified Theft, the following elements must
concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
15
 4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or intimidation
against persons, nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of
Court requires, inter alia, that the information must state the acts or
omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule
110 of the Rules of Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions
complained of as constituting the offense and the qualifying and
aggravating circumstances must be stated in ordinary and concise
language and not necessarily in the language used in the statute but
in terms sufficient to enable a person of common understanding to
know what offense is being charged as well as its qualifying and
aggravating circumstances and for the court to pronounce judgment.
It is evident that the Information need not use the exact language of the
statute in alleging the acts or omissions complained of as constituting the
offense. The test is whether it enables a person of common understanding to
know the charge against him, and the court to render judgment properly. 5
The portion of the Information relevant to this discussion reads:
A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank x x x.
It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees
of a Bank who come into possession of the monies deposited therein enjoy
the confidence reposed in them by their employer. Banks, on the other hand,
where monies are deposited, are considered the owners thereof. This is very
clear not only from the express provisions of the law, but from established
jurisprudence. The relationship between banks and depositors has been held
to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil
Code, as appropriately pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to
the creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions
concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly
established the nature of possession by the Bank of the money deposits
therein, and the duties being performed by its employees who have custody
of the money or have come into possession of it. The Court has consistently
considered the allegations in the Information that such employees acted with
grave abuse of confidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as sufficient to
make out a case of Qualified Theft. For a graphic illustration, we cite Roque
v. People,6 where the accused teller was convicted for Qualified Theft based
on this Information:
That on or about the 16th day of November, 1989, in the municipality
of Floridablanca, province of Pampanga, Philippines and within the
jurisdiction of his Honorable Court, the above-named accused
ASUNCION GALANG ROQUE, being then employed as teller of the
Basa Air Base Savings and Loan Association Inc. (BABSLA) with
office address at Basa Air Base, Floridablanca, Pampanga, and as
such was authorized and reposed with the responsibility to receive
and collect capital contributions from its member/contributors of said
corporation, and having collected and received in her capacity as
teller of the BABSLA the sum of TEN THOUSAND PESOS
(P10,000.00), said accused, with intent of gain, with grave abuse of
confidence and without the knowledge and consent of said
corporation, did then and there willfully, unlawfully and feloniously
take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of
Antonio Salazar withdrew from his Savings Account No. 1359, when
in truth and in fact said Antonio Salazar did not withdr[a]w the said
amount of P10,000.00 to the damage and prejudice of BABSLA in
the total amount of P10,000.00, Philippine currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the bank
places money in the tellers possession due to the confidence
reposed on the teller, the felony of qualified theft would be
committed.7
Also in People v. Sison,8 the Branch Operations Officer was convicted of the
crime of Qualified Theft based on the Information as herein cited:
16
 That in or about and during the period compressed between January
24, 1992 and February 13, 1992, both dates inclusive, in the City of
Manila, Philippines, the said accused did then and there wilfully,
unlawfully and feloniously, with intent of gain and without the
knowledge and consent of the owner thereof, take, steal and carry
away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations
belonging to the PHILIPPINE COMMERCIAL INTERNATIONAL
BANK (PCIBank for brevity), Luneta Branch, Manila represented by
its Branch Manager, HELEN U. FARGAS, to the damage and
prejudice of the said owner in the aforesaid amount
of P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused acted
with grave abuse of confidence and unfaithfulness, he being
the Branch Operation Officer of the said complainant and as such he
had free access to the place where the said amount of money was
kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the
Philippine Commercial and Industrial Bank (PCIB), is Qualified Theft.
Appellant could not have committed the crime had he not been
holding the position of Luneta Branch Operation Officer which gave
him not only sole access to the bank vault xxx. The management of
the PCIB reposed its trust and confidence in the appellant as its
Luneta Branch Operation Officer, and it was this trust and confidence
which he exploited to enrich himself to the damage and prejudice of
PCIB x x x.9
From another end, People v. Locson,10 in addition to People v. Sison,
described the nature of possession by the Bank. The money in this case was
in the possession of the defendant as receiving teller of the bank, and the
possession of the defendant was the possession of the Bank. The Court held
therein that when the defendant, with grave abuse of confidence, removed
the money and appropriated it to his own use without the consent of the
Bank, there was taking as contemplated in the crime of Qualified Theft.11
Conspicuously, in all of the foregoing cases, where the Informations merely
alleged the positions of the respondents; that the crime was committed with
grave abuse of confidence, with intent to gain and without the knowledge and
consent of the Bank, without necessarily stating the phrase being
assiduously insisted upon by respondents, "of a relation by reason of
dependence, guardianship or vigilance, between the respondents and
the offended party that has created a high degree of confidence
between them, which respondents abused,"12 and without employing the
word "owner" in lieu of the "Bank" were considered to have satisfied the test
of sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper
of the Bank in this case, there is even no reason to quibble on the allegation
in the Informations that they acted with grave abuse of confidence. In fact,
the Information which alleged grave abuse of confidence by accused herein
is even more precise, as this is exactly the requirement of the law in
qualifying the crime of Theft.
In summary, the Bank acquires ownership of the money deposited by its
clients; and the employees of the Bank, who are entrusted with the
possession of money of the Bank due to the confidence reposed in them,
occupy positions of confidence. The Informations, therefore, sufficiently
allege all the essential elements constituting the crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file
the instant petition, the ruling in Mobilia Products, Inc. v. Hajime
Umezawa13 is instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State, the
interest of the private complainant or the offended party is limited to
the civil liability arising therefrom. Hence, if a criminal case is
dismissed by the trial court or if there is an acquittal, a
reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect
thereof is concerned and may be made only by the public
prosecutor; or in the case of an appeal, by the State only, through
the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state that the
rule is well-settled that in appeals by certiorari under Rule 45 of the Rules of
Court, only errors of law may be raised,14 and herein petitioner certainly
raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in
these cases, a closer look at the records of the preliminary investigation
conducted will show that, indeed, probable cause exists for the indictment of
17
herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court,
the judge shall issue a warrant of arrest only upon a finding of probable
cause after personally evaluating the resolution of the prosecutor and its
supporting evidence. Soliven v. Makasiar,15 as reiterated in Allado v.
Driokno,16 explained that probable cause for the issuance of a warrant of
arrest is the existence of such facts and circumstances that would lead a
reasonably discreet and prudent person to believe that an offense has been
committed by the person sought to be arrested.17 The records reasonably
indicate that the respondents may have, indeed, committed the offense
charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal
or the judge, as the case may be, to relieve the respondents from the pain of
going through a trial once it is ascertained that no probable cause exists to
form a sufficient belief as to the guilt of the respondents, conversely, it is also
equally imperative upon the judge to proceed with the case upon a showing
that there is a prima faciecase against the respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is
hereby GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of
the RTC dismissing Criminal Cases No. 05-3054 to 05-
3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of
Arrest issue against herein respondents TERESITA PUIG and ROMEO
PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to
proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive,
with reasonable dispatch. No pronouncement as to costs.
SO ORDERED.
EQUITABLE PCI BANK,* G.R. No. 171545
AIMEE YU and BEJAN
LIONEL APAS,
Petitioners, Present:
PUNO, C.J., Chairperson,
- v e r s u s - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE
CASTRO, JJ.
NG SHEUNG NGOR** doing
business under the name
and style KEN MARKETING, Promulgated:
KEN APPLIANCE DIVISION,
INC. and BENJAMIN E. GO,
Respondents. December 19, 2007
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - x
DECISION
CORONA, J.:
This petition for review on certiorari[1] seeks to set aside the decision[2] of the
Court of Appeals (CA) in CA-G.R. SP No. 83112 and its resolution[3] denying
reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance
Division, Inc. and Benjamin E. Go filed an action for annulment and/or
reformation of documents and contracts[5] against petitioner Equitable PCI
Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the
Regional Trial Court (RTC), Branch 16 of Cebu City. [6] They claimed that
Equitable induced them to avail of its peso and dollar credit facilities by offering
low interest rates[7] so they accepted Equitable's proposal and signed the
bank's pre-printed promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained identical escalation
clauses granting Equitable authority to increase interest rates without their
consent.[8]
Equitable, in its answer, asserted that respondents knowingly accepted all the
terms and conditions contained in the promissory notes.[9] In fact, they
continuously availed of and benefited from Equitable's credit facilities for five
years.[10]
After trial, the RTC upheld the validity of the promissory notes. It found that, in
2001 alone, Equitable restructured respondents' loans amounting to
US$228,200 and P1,000,000.[11] The trial court, however, invalidated the
escalation clause contained therein because it violated the principle of
mutuality of contracts.[12] Nevertheless, it took judicial notice of the steep
depreciation of the peso during the intervening period[13] and declared the
existence of extraordinary deflation.[14] Consequently, the RTC ordered the
use of the 1996 dollar exchange rate in computing respondents' dollar-
denominated loans.[15]Lastly, because the business reputation of
respondents was (allegedly) severely damaged when Equitable froze their
accounts,[16] the trial court awarded moral and exemplary damages to them.[17]
The dispositive portion of the February 5, 2004 RTC decision[18] provided:
WHEREFORE, premises considered, judgment is hereby
rendered:
18
 A) Ordering [Equitable] to reinstate and return the
amount of [respondents'] deposit placed on hold
status;
B) Ordering [Equitable] to pay [respondents] the sum
of P12 [m]illion [p]esos as moral damages;
C) Ordering [Equitable] to pay [respondents] the sum
of P10 [m]illion [p]esos as exemplary damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel]
Apas to pay [respondents], jointly and severally, the
sum of [t]wo [m]illion [p]esos as moral and exemplary
damages;
E) Ordering [Equitable, Aimee Yu and Bejan Lionel
Apas], jointly and severally, to pay [respondents']
attorney's fees in the sum of P300,000; litigation
expenses in the sum of P50,000 and the cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken
Marketing to pay [Equitable] the unpaid principal
obligation for the peso loan as well as the unpaid
obligation for the dollar denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken
Marketing to pay [Equitable] interest as follows:
1) 12% per annum for the peso loans;
2) 8% per annum for the dollar loans. The basis for
the payment of the dollar obligation is the
conversion rate of P26.50 per dollar availed of at
the time of incurring of the obligation in
accordance with Article 1250 of the Civil Code of
the Philippines;
H) Dismissing [Equitable's] counterclaim except the
payment of the aforestated unpaid principal loan
obligations and interest.
SO ORDERED.[19]
Equitable and respondents filed their respective notices of appeal. [20]
In the March 1, 2004 order of the RTC, both notices were denied due course
because Equitable and respondents failed to submit proof that they paid their
respective appeal fees.[21]
WHEREFORE, premises considered, the appeal
interposed by defendants from the Decision in the above-
entitled case is DENIED due course. As of February 27,
2004, the Decision dated February 5, 2004, is considered
final and executory in so far as [Equitable, Aimee Yu and
Bejan Lionel Apas] are concerned.[22] (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the
RTC[23] on the ground that it did in fact pay the appeal fees. Respondents, on
the other hand, prayed for the issuance of a writ of execution.[24]
On March 24, 2004, the RTC issued an omnibus order denying Equitable's
motion for reconsideration for lack of merit[25] and ordered the issuance of a
writ of execution in favor of respondents.[26] According to the RTC, because
respondents did not move for the reconsideration of the previous order
(denying due course to the parties notices of appeal),[27] the February 5, 2004
decision became final and executory as to both parties and a writ of execution
against Equitable was in order.[28]
A writ of execution was thereafter issued[29] and three real properties of
Equitable were levied upon.[30]
On March 26, 2004, Equitable filed a petition for relief in the RTC from the
March 1, 2004 order.[31] It, however, withdrew that petition on March 30,
2004[32] and instead filed a petition for certiorari with an application for an
injunction in the CA to enjoin the implementation and execution of the March
24, 2004 omnibus order.[33]
On June 16, 2004, the CA granted Equitable's application for injunction. A writ
of preliminary injunction was correspondingly issued.[34]
Notwithstanding the writ of injunction, the properties of Equitable previously
levied upon were sold in a public auction on July 1, 2004. Respondents were
the highest bidders and certificates of sale were issued to them.[35]
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale
and to cite the sheriffs who conducted the sale in contempt for proceeding with
the auction despite the injunction order of the CA.[36]
19
On October 28, 2005, the CA dismissed the petition for certiorari. [37] It found
Equitable guilty of forum shopping because the bank filed its petition for
certiorari in the CA several hours before withdrawing its petition for relief in the
RTC.[38] Moreover, Equitable failed to disclose, both in the statement of
material dates and certificate of non-forum shopping (attached to its petition
for certiorari in the CA), that it had a pending petition for relief in the RTC. [39]
Equitable moved for reconsideration[40] but it was denied.[41] Thus, this
petition.
Equitable asserts that it was not guilty of forum shopping because the petition
for relief was withdrawn on the same day the petition for certiorari was
filed.[42] It likewise avers that its petition for certiorari was meritorious because
the RTC committed grave abuse of discretion in issuing the March 24, 2004
omnibus order which was based on an erroneous assumption. The March 1,
2004 order denying its notice of appeal for non payment of appeal fees was
erroneous because it had in fact paid the required fees. [43] Thus, the RTC, by
issuing its March 24, 2004 omnibus order, effectively prevented Equitable from
appealing the patently wrong February 5, 2004 decision.[44]
This petition is meritorious.
EQUITABLE
WAS NOT
GUILTY OF
FORUM
SHOPPING
Forum shopping exists when two or more actions involving the same
transactions, essential facts and circumstances are filed and those actions
raise identical issues, subject matter and causes of action. [45] The test is
whether, in two or more pending cases, there is identity of parties, rights or
causes of actions and reliefs.[46]
Equitable's petition for relief in the RTC and its petition for certiorari in the CA
did not have identical causes of action. The petition for relief from the denial of
its notice of appeal was based on the RTCs judgment or final order preventing
it from taking an appeal by fraud, accident, mistake or excusable
negligence.[47] On the other hand, its petition for certiorari in the CA, a special
civil action, sought to correct the grave abuse of discretion amounting to lack
of jurisdiction committed by the RTC.[48]
In a petition for relief, the judgment or final order is rendered by a court
with competent jurisdiction. In a petition for certiorari, the order is rendered by
a court without or in excess of its jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum
shopping when it moved to withdraw its petition for relief in the RTC on the
same day (in fact just four hours and forty minutes after) it filed the petition for
certiorari in the CA. Even if Equitable failed to disclose that it had a pending
petition for relief in the RTC, it rectified what was doubtlessly a careless
oversight by withdrawing the petition for relief just a few hours after it filed its
petition for certiorari in the CA a clear indication that it had no intention of
maintaining the two actions at the same time.
THE TRIAL
COURT
COMMITTED
GRAVE
ABUSE OF
DISCRETION
IN ISSUING ITS
MARCH 1, 2004
AND
MARCH24, 200
4 ORDERS
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board
or officer exercising judicial or quasi-judicial function has
acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, nor any plain, speedy
or adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings
of such tribunal, board or officer, and granting such incidental
reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of
the judgment, order or resolution subject thereof, copies of all
pleadings and documents relevant and pertinent thereto, and
a sworn certificate of non-forum shopping as provided in the
third paragraph of Section 3, Rule 46.
20

There are two substantial requirements in a petition for certiorari. These are:
1. that the tribunal, board or officer exercising judicial
or quasi-judicial functions acted without or in excess
of his or its jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction;
and
2. that there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper,
petitioner must show that the public respondent patently and grossly abused
his discretion and that abuse amounted to an evasion of positive duty or a
virtual refusal to perform a duty enjoined by law or to act at all in contemplation
of law, as where the power was exercised in an arbitrary and despotic manner
by reason of passion or hostility.[49]
The March 1, 2004 order denied due course to the notices of appeal of both
Equitable and respondents. However, it declared that the February 5, 2004
decision was final and executory only with respect to Equitable. [50] As
expected, the March 24, 2004 omnibus order denied Equitable's motion for
reconsideration and granted respondents' motion for the issuance of a writ of
execution.[51]
The March 1, 2004 and March 24, 2004 orders of the RTC were
obviously intended to prevent Equitable, et al. from appealing the February 5,
2004 decision. Not only that. The execution of the decision was undertaken
with indecent haste, effectively obviating or defeating Equitable's right to avail
of possible legal remedies. No matter how we look at it, the RTC committed
grave abuse of discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy
in the ordinary course of law, we hold that there was none. The RTC denied
due course to its notice of appeal in the March 1, 2004 order. It affirmed that
denial in the March 24, 2004 omnibus order. Hence, there was no way
Equitable could have possibly appealed the February 5, 2004 decision. [52]
Although Equitable filed a petition for relief from the March 24, 2004 order, that
petition was not a plain, speedy and adequate remedy in the ordinary course
of law.[53] A petition for relief under Rule 38 is an equitable remedy allowed
only in exceptional circumstances or where there is no other available or
adequate remedy.[54]
Thus, we grant Equitable's petition for certiorari and consequently give due
course to its appeal.
EQUITABLE
RAISED PURE
QUESTIONS
OF LAW IN ITS
PETITION FOR
REVIEW
The jurisdiction of this Court in Rule 45 petitions is limited to questions of
law.[55] There is a question of law when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of facts; or when the
issue does not call for the probative value of the evidence presented, the truth
or falsehood of facts being admitted.[56]
Equitable does not assail the factual findings of the trial court. Its arguments
essentially focus on the nullity of the RTCs February 5, 2004 decision.
Equitable points out that that decision was patently erroneous, specially the
exorbitant award of damages, as it was inconsistent with existing law and
jurisprudence.[57]
THE
PROMISSORY
NOTES
WERE VALID
The RTC upheld the validity of the promissory notes despite
respondents assertion that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party.[58] The participation of the other party is limited to affixing
his signature or his adhesion to the contract.[59] For this reason, contracts of
adhesion are strictly construed against the party who drafted it.[60]
It is erroneous, however, to conclude that contracts of adhesion are invalid per
se. They are, on the contrary, as binding as ordinary contracts. A party is in
reality free to accept or reject it. A contract of adhesion becomes void only
when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal footing. [61]
21
That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would
have walked out and negotiated with another bank at the first available
instance. But they did not. Instead, they continuously availed of Equitable's
credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar-
and peso-denominated loans with Equitable, it, however, failed to ascertain
the total amount due (principal, interest and penalties, if any) as of July 9,
2001. The trial court did not explain how it arrived at the amounts of
US$228,200 and P1,000,000.[62] In Metro Manila Transit Corporation v. D.M.
Consunji,[63] we reiterated that this Court is not a trier of facts and it shall pass
upon them only for compelling reasons which unfortunately are not present in
this case.[64] Hence, we ordered the partial remand of the case for the sole
purpose of determining the amount of actual damages.[65]
ESCALATIO
CLAUSE
VIOLATED
THE
PRINCIPLE OF
MUTUALITY O
F CONTRACTS
Escalation clauses are not void per se. However, one which grants the creditor
an unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important
modification in the agreement is void. Clauses of that nature violate the
principle of mutuality of contracts.[66] Article 1308[67] of the Civil Code holds that
a contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.[68]
For this reason, we have consistently held that a valid escalation clause
provides:
1. that the rate of interest will only be increased if
the applicable maximum rate of interest is increased
by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced
if the applicable maximum rate of interest is reduced
by law or by the Monetary Board (de-escalation
clause).[69]
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for
subsequent extensions shall be at such rate as shall be
determined by the bank.[70]
Equitable dictated the interest rates if the term (or period for
repayment) of the loan was extended. Respondents had no choice but to
accept them. This was a violation of Article 1308 of the Civil Code.
Furthermore, the assailed escalation clause did not contain the necessary
provisions for validity, that is, it neither provided that the rate of interest would
be increased only if allowed by law or the Monetary Board, nor allowed de-
escalation. For these reasons, the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v.
Philippine National Bank[71] we held that, because the escalation clause was
annulled, the principal amount of the loan was subject to the original or
stipulated rate of interest. Upon maturity, the amount due was subject to legal
interest at the rate of 12% per annum.[72]
Consequently, respondents should pay Equitable the interest rates of 12.66%
p.a. for their dollar-denominated loans and 20% p.a. for their peso-
denominated loans from January 10, 2001 to July 9, 2001. Thereafter,
Equitable was entitled to legal interest of 12% p.a. on all amounts due.
THERE WAS
NO
EXTRAORDIN
ARY DEFLATI
ON
Extraordinary inflation exists when there is an unusual decrease in the
purchasing power of currency (that is, beyond the common fluctuation in the
value of currency) and such decrease could not be reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation, on the other hand, involves an inverse
situation.[73]
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of
the currency stipulated should intervene, the value of the
currency at the time of the establishment of the obligation
22
 shall be the basis of payment, unless there is an agreement
to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the
following requisites must be proven:
1. that there was an official declaration of
extraordinary inflation or deflation from the Bangko
Sentral ng Pilipinas (BSP);[74]
2. that the obligation was contractual in nature;[75] and
3. that the parties expressly agreed to consider the
effects of the extraordinary inflation or deflation.[76]
Despite the devaluation of the peso, the BSP never declared a situation of
extraordinary inflation.Moreover, although the obligation in this instance arose
out of a contract, the parties did not agree to recognize the effects of
extraordinary inflation (or deflation).[77] The RTC never mentioned that there
was a such stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar-denominated loans at the
exchange rate fixed by the BSP on the date of maturity.[78]
THE AWARD OF
MORAL AND
EXEMPLARY
DAMAGES
LACKED BASIS
Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered, not to impose a penalty to the
wrongdoer.[79] To be entitled to moral damages, a claimant must prove:
1. That he or she suffered besmirched reputation, or
physical, mental or psychological suffering
sustained by the claimant;
2. That the defendant committed a wrongful act or
omission;
3. That the wrongful act or omission was the
proximate cause of the damages the claimant
sustained;
4. The case is predicated on any of the instances
expressed or envisioned by Article 2219[80] and
2220[81]. [82]
In culpa contractual or breach of contract, moral damages are
recoverable only if the defendant acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations.[83] The breach must be wanton,
reckless, malicious or in bad faith, and oppressive or abusive.[84]
The RTC found that respondents did not pay Equitable the interest due on
February 9, 2001 (or any month thereafter prior to the maturity of the loan)[85] or
the amount due (principal plus interest) due on July 9, 2001.[86] Consequently,
Equitable applied respondents' deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and
debtor.[87] For this reason, a bank has the right to set-off the deposits in its
hands for the payment of a depositor's indebtedness.[88]
Respondents indeed defaulted on their obligation. For this reason, Equitable
had the option to exercise its legal right to set-off or compensation. However,
the RTC mistakenly (or, as it now appears, deliberately) concluded that
Equitable acted fraudulently or in bad faith or in wanton disregard of its
contractual obligations despite the absence of proof. The undeniable fact was
that, whatever damage respondents sustained was purely the consequence
of their failure to pay their loans. There was therefore absolutely no basis
for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents
were not entitled to moral damages, neither should they be awarded
exemplary damages.[89] And if respondents were not entitled to moral and
exemplary damages, neither could they be awarded attorney's fees and
litigation expenses.[90]
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court
of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET
ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16,
Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being
23
rendered with grave abuse of discretion amounting to lack or excess of
jurisdiction. All proceedings undertaken pursuant thereto are likewise declared
null and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City
in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners
Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due
course.
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu
City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment
is hereby entered:
1. ordering respondents Ng Sheung Ngor, doing business
under the name and style of Ken Marketing, Ken Appliance
Division, Inc. and Benjamin E. Go to pay petitioner Equitable
PCI Bank the principal amount of their dollar- and peso-
denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business
under the name and style of Ken Marketing, Ken Appliance
Division, Inc. and Benjamin E. Go to pay petitioner Equitable
PCI Bank interest at:
a) 12.66% p.a. with respect to their dollar-
denominated loans from January 10, 2001 to July 9,
2001;
b) 20% p.a. with respect to their peso-denominated
loans from January 10, 2001 to July 9, 2001;[91]
c) pursuant to our ruling in Eastern Shipping Lines
v. Court of Appeals,[92] the total amount due on July
9, 2001 shall earn legal interest at 12% p.a. from the
time petitioner Equitable PCI Bank demanded
payment, whether judicially or extra-judicially; and
d) after this Decision becomes final and executory,
the applicable rate shall be 12% p.a.until full
satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall
compute the exact amounts due on the respective dollar-denominated and
peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor,
doing business under the name and style of Ken Marketing, Ken Appliance
Division and Benjamin E. Go.
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
24
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.
25
 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.
26
 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;
27
 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
28
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
29
 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
30
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.
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.
31
 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
32
 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:
The Court of Appeals thus affirmed in toto the judgment of the court
WHEREFORE, PREMISES CONSIDERED,
a quo.
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.)
33
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 17341 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 decided3 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)
34
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 Court6 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
35
 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 Court8 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 Court10 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 Court11 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
36
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 Court12 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. Ruiz13 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,14decided 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
Court15 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 forbearance16 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
37
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,17depending 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-delicts18 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 116923 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 court24 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. 138677. February 12, 2002]
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON.
COURT OF APPEALS & SECURITY BANK & TRUST
COMPANY, respondents.
38
 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,[1] 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.[2]
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[3] 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.[4] 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.
39
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 Ligutanand 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.[5]
On 16 November 1998, petitioners filed an omnibus motion for
reconsideration and to admit newly discovered evidence, [6] 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.[7]
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.[8]
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.[9]
A penalty clause, expressly recognized by law,[10] 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[11] 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.[12] 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.[13]
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,[14] just
40
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. [15] The stipulated
penalty might even be deleted such as when there has been substantial
performance in good faith by the obligor,[16] when the penalty clause itself
suffers from fatal infirmity, or when exceptional circumstances so exist as to
warrant it.[17]
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. [18]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.[19]
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.[20]
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.[21] 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.[22] 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.[23] 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. [24]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,[25] or from a sale to one of loan;[26] (2) the
object or principal conditions, such as a change of the nature of the prestation;
41
or (3) the subjects, such as the substitution of a debtor [27] 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. 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 (3,000,000.00) 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
(6,400,000.00). 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
3.4 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 3,000,000.00 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 7,000,000.00 should the
property be sold at a price more than 7 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 3
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.
42
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
Order13dated 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, 100,000.00 moral,
corrective and exemplary damages and 200,000.00 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 70,000.00
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 100,000.00 by way
of moral, corrective and exemplary damages.
4) Ordering defendant to pay plaintiff attorneys fees of 100,000.00
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 30,000.00 as premium for the issuance of the
attachment bond, 20,000.00 for its renewal in 1994, and 20,000.00 for the
43
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
44
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 142,326.43 loan. In Garcia v. Court of Appeals,31 we
sustained the agreement of the parties to a 24% per annum interest on an
8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by
the CA to a 2 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
45
respondent.35 Such statement remained a bare statement. It was not proven the bases for awarding attorneys fees when the trial court failed to discuss in
at all since Atty. Lozada had not taken the stand to corroborate her claim. In its Decision the reasons for awarding the same. Consequently, the award of
fact, even petitioners own witness, Benilda Ynfante (Ynfante), was not able attorney's fees should be deleted.
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 WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002
petitioner, the latter passed it on to her and she placed it in petitioners and the Resolution dated September 11, 2002 of the Court of Appeals in CA-
attach case36and did not bother to look at the envelope.37 G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of
attorneys fees is DELETED.
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 No pronouncement as to costs.
owners duplicate copy of TCT No. 168173. Petitioners actuation would have
deprived respondent of the security for her loan were it not for respondents SO ORDERED.
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. SEBASTIAN SIGA-AN, G.R. No. 173227
Petitioner,
Present:
The entitlement to moral damages having been established, the award of
exemplary damages is proper.38Exemplary damages may be imposed upon YNARES-SANTIAGO,
petitioner by way of example or correction for the public good. 39 The RTC Chairperson,
awarded the amount of 100,000.00 as moral and exemplary damages.
AUSTRIA-MARTINEZ,
While the award of moral and exemplary damages in an aggregate amount -versus CHICO-NAZARIO,
may not be the usual way of awarding said damages,40 no error has been
NACHURA, and
committed by CA. There is no question that respondent is entitled to moral LEONARDO-DE CASTRO,* JJ.
and exemplary damages.

Petitioner argues that the CA erred in awarding attorneys fees because the Promulgated:
trial courts decision did not explain the findings of facts and law to justify the ALICIA VILLANUEVA,
award of attorneys fees as the same was mentioned only in the dispositive Respondent. January 20, 2009
portion of the RTC decision. x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

We agree.
Article220841 of the New Civil Code enumerates the instances where such
may be awarded and, in all cases, it must be reasonable, just and equitable if
the same were to be granted.42 Attorney's fees as part of damages are not
meant to enrich the winning party at the expense of the losing litigant. They
are not awarded every time a party prevails in a suit because of the policy
that no premium should be placed on the right to litigate.43 The award of
attorney's fees is the exception rather than the general rule. As such, it is
necessary for the trial court to make findings of facts and law that would bring
the case within the exception and justify the grant of such award. The matter
of attorney's fees cannot be mentioned only in the dispositive portion of the
decision.44 They must be clearly explained and justified by the trial court in
the body of its decision. On appeal, the CA is precluded from supplementing
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision,[2] dated 16 December 2005,
and Resolution,[3] dated 19 June 2006 of the Court of Appeals in CA-G.R. CV
No. 71814, which affirmed in toto the Decision,[4] dated 26 January 2001, of
the Las Pinas City Regional Trial Court, Branch 255, in Civil Case No. LP-98-
0068.
The facts gathered from the records are as follows:
46
 On 30 March 1998, respondent Alicia Villanueva filed a complaint[5] for
sum of money against petitioner Sebastian Siga-an before the Las Pinas City
Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-
0068. Respondent alleged that she was a businesswoman engaged in
supplying office materials and equipments to the Philippine Navy Office (PNO)
located at Fort Bonifacio, Taguig City, while petitioner was a military officer
and comptroller of the PNO from 1991 to 1996.
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 capital for her business transactions with the PNO, she accepted
petitioners proposal. The loan agreement was not reduced in writing. Also,
there was no stipulation as to the payment of interest for the loan.[6]
On 31 August 1993, respondent issued a check 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.[7]
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.[8]
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.[9]
In his answer[10] 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.[11]
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). [12]
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
47
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.[13]
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 foregoing evidence and
in the light of the provisions of law and jurisprudence on the
matter, judgment is hereby rendered in favor of the plaintiff
and against the defendant as follows:
(1) 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;
(2) Ordering defendant to pay plaintiff the amount
of P300,000.00 as moral damages;
(3) Ordering defendant to pay plaintiff the amount
of P50,000.00 as exemplary damages;
(4) Ordering defendant to pay plaintiff the amount
equivalent to 25% of P660,000.00 as attorneys fees; and
(5) Ordering defendant to pay the costs of suit.[14]
Petitioner appealed to the Court of Appeals. On 16 December 2005,
the appellate court promulgated its Decision affirming in toto the RTC
Decision, thus:
WHEREFORE, the foregoing considered, the instant
appeal is hereby DENIED and the assailed decision [is]
AFFIRMED in toto.[15]
Petitioner filed a motion for reconsideration of the appellate courts
decision but this was denied.[16]Hence, petitioner lodged the instant petition
before us assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN
RULING THAT NO INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN
APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.[17]
Interest is a compensation fixed by the parties for the use or
forbearance of money. This is referred to as monetary interest. Interest may
also be imposed by law or by courts as penalty or indemnity for damages. This
is called compensatory interest.[18] 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.[19]
Article 1956 of the Civil Code, which refers to monetary
interest,[20] 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
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.[21]
It appears that petitioner and respondent did not agree on the payment
of interest for the loan. Neither 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.[22]
Petitioner presented a handwritten promissory note dated 12
September 1994[23] 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
48
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.[24] 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.[25]
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.[26] 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. [27] 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.[28] Respondent did not categorically declare in the same
case that she and respondent made an expressstipulation 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.[29] 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.[30]
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.[31] The principle of solutio indebiti applies
where (1) a payment is made when there exists no binding relation between
49
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.[32]We have held that the principle of solutio indebiti applies
in case of erroneous payment of undue interest.[33]
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.[34]Respondent issued two checks with a total
worth of P700,000.00 in favor of petitioner as payment of the loan. [35] These
checks were subsequently encashed by petitioner.[36] 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.[37] Although no
receipts reflecting the same were presented because petitioner refused to
issue such to respondent, petitioner, nonetheless, admitted in his Reply-
Affidavit[38] 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.[39]
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.[40] 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.[41]
Jurisprudence instructs that in awarding attorneys fees, the trial court
must state the factual, legal or equitable justification for awarding the
same.[42] 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.[43] Further, respondent testified that she agreed
to compensate her lawyer handling the instant case such amount. [44] 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.
50

[45]
We held in Eastern Shipping Lines, Inc. v. Court of Appeals, 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,[46] 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.
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 158,919.92. 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

G.R. No. 189871 August 13, 2013 Rate = 198/day

Date of Decision = Aug. 18, 1998

DARIO NACAR, PETITIONER,
vs. Length of Service = 8 yrs. & 1 month
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
198.00 x 26 days x 8 months = 41,184.00
DECISION BACKWAGES

PERALTA, J.: Date Dismissed = January 24, 1997

Rate per day = 196.00

51
 Date of Decisions = Aug. 18, 1998 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
a) 1/24/97 to 2/5/98 = 12.36 mos. denied the petition in the Resolution dated April 17, 2002.8

196.00/day x 12.36 mos. = 62,986.56 An Entry of Judgment was later issued certifying that the resolution became
final and executory on May 27, 2002.9The case was, thereafter, referred
b) 2/6/98 to 8/18/98 = 6.4 months
back to the Labor Arbiter. A pre-execution conference was consequently
Prevailing Rate per day = 62,986.00 scheduled, but respondents failed to appear.10

198.00 x 26 days x 6.4 mos. = 32,947.20 On November 5, 2002, petitioner filed a Motion for Correct Computation,
praying that his backwages be computed from the date of his dismissal on
TOTAL = 95.933.76 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
xxxx of the NLRC arrived at an updated amount in the sum of 471,320.31.12

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 (62,986.56) 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 (95,933.36) 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 a Resolution dismissing the petition.
Respondents filed a Motion for Reconsideration, but it was likewise denied in
a Resolution dated May 8, 2001.7
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
471,320.31. Respondents filed a Motion to Quash Writ of Execution,
arguing, among other things, that since the Labor Arbiter awarded separation
pay of 62,986.56 and limited backwages of 95,933.36, 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 Execution 16 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
471,320.31.18
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 147,560.19.

Petitioner then moved that a writ of execution be issued ordering

respondents to pay him the original amount as determined by the Labor

52
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
147,560.19, 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 11,459.73. 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 158,919.92 that should be executed. Thus, since petitioner
already received 147,560.19, he is only entitled to the balance of
11,459.73.
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 Resolution 23dated
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 the awards made, and whether this violated the principle of immutability of
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 said
awards. Respondents insist that since the decision 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 158,919.92. 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
judgment. Like in the present case, it was a distinct feature of the judgment
53
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
54
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.
55
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 Lines40and 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
56
 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.
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
57
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. 114411seeking 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
58
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.
59
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.
60
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;"37that "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
61
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
62
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.
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[1] 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
63
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
64
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
65
 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)"[2]
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."[3]
Their Motion for Reconsideration[4] 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.
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."[5]
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[6] 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
66
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.[7] 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.[8] 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.[9] 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."[10]
Anent the second issue as to whether the respondents are entitled to recover
the alleged overpayments of interest, we find that they are despite the
absence of any prayer therefor. This Court has ruled that it is the material
allegations of fact in the complaint, not the legal conclusion made therein or
the prayer that determines the relief to which the plaintiff is entitled.[11] It is
67
the allegations of the pleading which determine the nature of the action and
the Court shall grant relief warranted by the allegations and the proof even if
no such relief is prayed for.[12] Thus, even if the complaint seeks the
declaration of nullity of the contract, the Court of Appeals correctly ruled that
the factual allegations contained therein ultimately seek the return of the
excess interests paid.
The amended complaint[13] of herein private respondents specifically allege
that the contracts of loan entered into by them and the petitioner were
contrary to and signed in violation of the Usury Law[14] and consequentially
pray that said contracts be declared null and void. The amended complaint
reads:
"6. The aforementioned loans granted by defendant Banco
Filipino to the plaintiffs as stated on the face of the
promissory note and real estate mortgage (Annexes "B" to
"D", inclusive) were not actually received by the plaintiffs
because interests, charges, etc. were deducted in advance
from the face value of the loans not in accordance with the
contracts;
7. Even the loan contracts (Annexes "B" to "D", inclusive)
required by defendant Banco Filipino to be signed by the
plaintiffs were contrary to and in violation of the then Usury
Law, as amended;
8. Assuming arguendo that the loan contracts between
plaintiffs and defendant Banco Filipino are valid, the extra-
judicial foreclosure of the properties of the plaintiffs on May
24, 1979 was null and void for having been conducted in
clear violation of the law (Act 3135), namely: a) lack of roper
notice to the plaintiffs; b) lack of proper publication and
posting as required by law; c) the alleged sale was
conducted at the place other than that prescribed by law,
among others;
9. On May 27, 1990, defendant Banco Filipino purportedly
executed in favor of defendant FGU Insurance Corporation a
Deed of Redemption over the foreclosed properties of the
plaintiffs, again, without notice to the latter, as evidenced by
the said Deed of Redemption, copy of which is hereto
attached and marked as Annex "F".
10. The Deed of Redemption (Annex "F") is clearly null and
void for having been executed in violation of Rule 39, Rules
of Court, and other related provisions of the Rules of
Court."[15]
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. [16] 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.[17]
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)[18]
In Banco Filipino Savings & Mortgage Bank vs. Navarro,[19] which involved a
similar escalation clause[20], 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.[21]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.
68
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.[22] It forms a precedent, which
must be adhered to under the doctrine of stare decisis.[23] 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.
The only issue posed before us is the propriety of the imposition of interest
and attorneys fees.
Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is the
May 12, 2006 Decision[2] 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 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 unpaid thereafter, the interest rate shall be adjusted
to twelve percent (12%) per annum, computed from the time the
judgment becomes final and executory until it is fully satisfied. The
award of attorneys fees is hereby reduced to P100,000.00. Costs
against the defendants-appellants.

SO ORDERED.[3]
Also assailed is the August 31, 2006 Resolution[4] denying the motion for
reconsideration.
HERMOJINA ESTORES, G.R. No. 175139
Factual Antecedents
Petitioner,
Present: On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo
and Laura Supangan entered into a Conditional Deed of Sale[5] whereby petitioner
offered to sell, and respondent-spouses offered to buy, a parcel of land covered by
CORONA, C.J., Chairperson, Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum
- versus - LEONARDO-DE CASTRO, of P4.7 million. The parties likewise stipulated, among others, to wit:

BERSAMIN, xxxx
DEL CASTILLO, and
1. Vendor will secure approved clearance from DAR requirements
VILLARAMA, JR., JJ. of which are (sic):
SPOUSES ARTURO and a) Letter request
LAURA SUPANGAN, Promulgated: b) Title
c) Tax Declaration
Respondents. April 18, 2012 d) Affidavit of Aggregate Landholding Vendor/Vendee
x--------------------------------------------------------------- e) Certification from the Provl. Assessors as to Landholdings of
----x Vendor/Vendee
f) Affidavit of Non-Tenancy
DECISION g) Deed of Absolute Sale

DEL CASTILLO, J.: xxxx

69
 4. Vendee shall be informed as to the status of DAR clearance Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint, respondent-
within 10 days upon signing of the documents. spouses prayed that petitioner and Arias be ordered to:

xxxx 1. Pay the principal amount of P3,500,000.00 plus

interest of 12% compounded annually starting
6. Regarding the house located within the perimeter of the subject October 1, 1993 or an estimated amount
[lot] owned by spouses [Magbago], said house shall be moved of P8,558,591.65;
outside the perimeter of this subject property to the 300 sq. m.
area allocated for [it]. Vendor hereby accepts the responsibility 2. Pay the following items of damages:
of seeing to it that such agreement is carried out before full
payment of the sale is made by vendee. a) Moral damages in the amount
of P100,000.00;
7. If and after the vendor has completed all necessary documents b) Actual damages in the amount
for registration of the title and the vendee fails to complete of P100,000.00;
payment as per agreement, a forfeiture fee of 25% or c) Exemplary damages in the amount
downpayment, shall be applied. However, if the vendor fails to of P100,000.00;
complete necessary documents within thirty days without any d) [Attorneys] fee in the amount of P50,000.00
sufficient reason, or without informing the vendee of its status, plus 20% of recoverable amount from the
vendee has the right to demand return of full amount of down [petitioner].
payment. e) [C]ost of suit.[11]

xxxx
9. As to the boundaries and partition of the lots (15,018 sq. m. and
300 sq. m.) Vendee shall be informed immediately of its
approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of
ownership.
xxxx [6]
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
still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9
and 10 of the contract. Hence, in a letter[7] dated September 27, 2000, respondent-
spouses demanded the return of the amount of P3.5 million within 15 days from
receipt of the letter. In reply,[8] petitioner acknowledged receipt of the P3.5 million and
promised to return the same within 120 days. Respondent-spouses were amenable
to the proposal provided an interest of 12% compounded annually shall be imposed
on the P3.5 million.[9] When petitioner still failed to return the amount despite demand,
respondent-spouses were constrained to file a Complaint[10] 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
In their Answer with Counterclaim,[12] petitioner and Arias averred that they
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,[13] 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.[14]
In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties
agreed that the principal amount of 3.5 million pesos should be returned to the
[respondent-spouses] by the [petitioner] and the issue remaining [is] whether x x x
[respondent-spouses] are entitled to legal interest thereon, damages and attorneys
fees.[16]
Trial ensued thereafter. After the presentation of the respondent-spouses
evidence, the trial court set the presentation of Arias and petitioners evidence on
September 3, 2003.[17] However, despite several postponements, petitioner and Arias
failed to appear hence they were deemed to have waived the presentation of their
evidence.Consequently, the case was deemed submitted for decision.[18]
Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision[19] finding respondent-spouses
entitled to interest but only at the rate of 6% per annum and not 12% as prayed by
70
them.[20] It also found respondent-spouses entitled to attorneys fees as they were
compelled to litigate to protect their interest.[21]
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:
1. 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.[22]
Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of appeal.[23] 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.[24]
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling
of the RTC finding the imposition of 6% interest proper.[25] However, the same shall
start to run only from September 27, 2000 when respondent-spouses formally
demanded the return of their money and not from October 1993 when the contract
was executed as held by 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.[26]Anent the award of attorneys fees, the CA found the award
by the trial court (P50,000.00 plus 20% of the recoverable amount) excessive[27] and
thus reduced the same to P100,000.00.[28]
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 (12%) per annum, computed from the
time the judgment becomes final and executory until it is fully
satisfied. The award of attorneys fees is hereby reduced
to P100,000.00. Costs against the [petitioner].
SO ORDERED.[29]
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 of
failure to comply with her obligations. Petitioner also argues that the award of attorneys
fees in favor of the respondent-spouses is unwarranted because it cannot be said that
the latter won over the former since the CA even sustained her contention that the
imposition of 12% interest compounded annually is totally uncalled for.
Respondent-spouses Arguments
Respondent-spouses aver that it is only fair that interest be imposed on the amount
they paid considering that petitioner failed to return the amount upon demand and had
been using the P3.5 million for her benefit. Moreover, it is undisputed that petitioner
failed to perform her obligations to relocate the house outside the perimeter of the
subject property and to complete the necessary documents. As regards the attorneys
fees, they claim that they are entitled to the same because they were forced to litigate
when petitioner unjustly withheld the amount. Besides, the amount awarded by the
CA is even smaller compared to the filing fees they paid.
Our Ruling
The petition lacks merit.
Interest may be
imposed even in the
absence of
71
stipulation in the
contract.
We sustain the ruling of both the RTC and the CA that it is proper to impose
interest notwithstanding the absence of stipulation in the contract. Article 2210 of the
Civil Code expressly provides that [i]nterest may, in the discretion of the court, be
allowed upon damages awarded for breach of contract. In this case, there is no
question that petitioner is legally obligated to return the P3.5 million because of her
failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She
has in fact admitted that the conditions were not fulfilled and that she was willing to
return the full amount of P3.5 million but has not actually done so. Petitioner enjoyed
the use of the money from the time it was given to her[30] until now. Thus, she is already
in default of her obligation from the date of demand, i.e., on September 27, 2000.
The interest at the
rate of 12% is
applicable in the
instant case.
Anent the interest rate, the general rule is that the applicable rate of interest
shall be computed in accordance with the stipulation of the parties.[31] Absent any
stipulation, the applicable rate of interest shall be 12% per annum when the obligation
arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall
be six percent (6%).[32] In this case, the parties did not stipulate as to the applicable
rate of interest. The only question remaining therefore is whether the 6% as provided
under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is
due.
The contract involved in this case is admittedly not a loan but a Conditional
Deed of Sale. However, the contract provides that the seller (petitioner) must return
the payment made by the buyer (respondent-spouses) if the conditions are not
fulfilled. There is no question that they have in fact, not been fulfilled as the seller
(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,[33] 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.[34] 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,[35]cited in Crismina Garments, Inc. v. Court of
Appeals,[36] the Court suggested the following guidelines:
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
72
 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.[37]
Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor
case, Reformina v. Tongol[39] 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.
The award of
attorneys fees is
warranted.
Under Article 2208 of the Civil Code, attorneys fees may be recovered:
xxxx
(2) When the defendants act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his
interest;
xxxx
(11) In any other case where the court deems it just and
equitable that attorneys fees and expenses of litigation should
be recovered.
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.
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 annum, computed from September 27, 2000 until fully satisfied. The award
of attorneys fees is further reduced to P50,000.00.
SO ORDERED.
SPOUSES DAVID B. CARPO G.R. Nos. 150773 &
and RECHILDA S. CARPO, 153599
Petitioners,
Present:
73
- versus - PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
ELEANOR CHUA and TINGA, and
ELMA DY NG, CHICO-NAZARIO, JJ.
Respondents.
Promulgated:
September 30, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before this Court are two consolidated petitions for review. The first,
docketed as G.R. No. 150773, assails the Decision[1] of the Regional Trial
Court (RTC), Branch 26 of Naga City dated 26 October 2001 in Civil Case No.
99-4376. RTC Judge Filemon B. Montenegro dismissed the 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
74
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 contract. Being a mere accessory contract, the validity of
the mortgage contract would depend on the validity of the loan secured by it.[16]
Notably in Medel, the Court did not invalidate the entire loan obligation despite
the inequitability of the stipulated interest, but instead reduced the rate of
interest to the more reasonable rate of 12% per annum. The same remedial
approach to the wrongful interest rates involved was employed or affirmed by
the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.
The Courts ultimate affirmation in the cases cited of the validity of the principal
loan obligation side by side with the invalidation of the interest rates thereupon
is congruent with the rule that a usurious loan transaction is not a complete
nullity but defective only with respect to the agreed interest.
We are aware that the Court of Appeals, on certain occasions, had ruled that
a usurious loan is wholly null and void both as to the loan and as to the usurious
interest.[17]However, this Court adopted the contrary rule,
75
as comprehensively discussed in Briones v. Cammayo:[18]
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court
likewise declared that, in any event, the debtor in a usurious
contract of loan should pay the creditor the amount which he justly
owes him, citing in support of this ruling its previous decisions in
Go Chioco,Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and
Delgado vs. Duque Valgona, 44 Phil. 739.
....
Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil.
249, We also held that the standing jurisprudence of this Court on
the question under consideration was clearly to the effect that the
Usury Law, by its letter and spirit, did not deprive the lender of his
right to recover from the borrower the money actually loaned to
and enjoyed by the latter. This Court went further to say that the
Usury Law did not provide for the forfeiture of the capital in favor
of the debtor in usurious contracts, and that while the forfeiture
might appear to be convenient as a drastic measure to eradicate
the evil of usury, the legal question involved should not be
resolved on the basis of convenience.
Other cases upholding the same principle are Palileo vs.
Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554, January 31,
1964, 10 SCRA 199, 200-202. In the latter We expressly held that
when a contract is found to be tainted with usury "the only right of
the respondent (creditor) . . . was merely to collect the amount of
the loan, plus interest due thereon."
The view has been expressed, however, that the ruling
thus consistently adhered to should now be abandoned because
Article 1957 of the new Civil Code a subsequent law provides that
contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury, shall be void, and
that in such cases "the borrower may recover in accordance with
the laws on usury." From this the conclusion is drawn that the
whole contract is void and that, therefore, the creditor has no right
to recover not even his capital.
The meaning and scope of our ruling in the cases
mentioned heretofore is clearly stated, and the view referred to in
the preceding paragraph is adequately answered, in Angel Jose,
etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On
the question of whether a creditor in a usurious contract may or
may not recover the principal of the loan, and, in the affirmative,
whether or not he may also recover interest thereon at the legal
rate, We said the following:
....
Appealing directly to Us, defendants raise
two questions of law: (1) In a loan with usurious
interest, may the creditor recover the principal of
the loan? (2) Should attorney's fees be awarded
in plaintiff's favor?"
Great reliance is made by appellants on
Art. 1411 of the New Civil Code . . . .
Since, according to the appellants, a usurious
loan is void due to illegality of cause or object, the
rule of pari delicto expressed in Article
1411, supra, applies, so that neither party can
bring action against each other. Said rule,
however, appellants add, is modified as to the
borrower, by express provision of the law (Art.
1413, New Civil Code), allowing the borrower to
recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no
exception is made to the rule; hence, he cannot
recover on the contract. So they continue the New
Civil Code provisions must be upheld as against
the Usury Law, under which a loan with usurious
interest is not totally void, because of Article 1961
of the New Civil Code, that: "Usurious contracts
shall be governed by the Usury Law and other
special laws, so far as they are not inconsistent
with this Code."
We do not agree with such reasoning.
Article 1411 of the New Civil Code is not new; it is
the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for
departing from previous interpretation that, as
provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not
totally void only as to the interest.
76
 . . . [a]ppellants fail to consider that a
contract of loan with usurious interest
consists of principal and accessory
stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay
interest thereon.
And said two stipulations are divisible
in the sense that the former can still stand
without the latter. Article 1273, Civil Code,
attests to this: "The renunciation of the
principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall
leave the former in force."
The question therefore to resolve is
whether the illegal terms as to payment of
interest likewise renders a nullity the legal
terms as to payments of the principal debt.
Article 1420 of the New Civil Code provides in
this regard: "In case of a divisible contract, if
the illegal terms can be separated from the
legal ones, the latter may be enforced."
In simple loan with stipulation of
usurious interest, the prestation of the debtor
to pay the principal debt, which is the cause of
the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the
prestation to pay the stipulated interest;
hence, being separable, the latter only should
be deemed void, since it is the only one that is
illegal.
....
The principal debt remaining without
stipulation for payment of interest can thus be
recovered by judicial action. And in case of such
demand, and the debtor incurs in delay, the debt
earns interest from the date of the demand (in this
case from the filing of the complaint). Such
interest is not due to stipulation, for there was
none, the same being void. Rather, it is due to the
general provision of law that in obligations to pay
money, where the debtor incurs in delay, he has
to pay interest by way of damages (Art. 2209, Civil
Code). The court a quo therefore, did not err in
ordering defendants to pay the principal debt with
interest thereon at the legal rate, from the date of
filing of the complaint."[19]
The Courts wholehearted affirmation of the rule that the principal obligation
subsists despite the nullity of the stipulated interest is evinced by its
subsequent rulings, cited above, in all of which the main obligation was upheld
and the offending interest rate merely corrected. Hence, it is clear and settled
that the principal loan obligation still stands and remains valid. By the same
token, since the mortgage contract derives its vitality from the validity of the
principal obligation, the invalid stipulation on interest rate is similarly
insufficient to render void the ancillary mortgage contract.
It should be noted that had the Court declared the loan and mortgage
agreements void for being contrary to public policy, no prescriptive period
could have run.[20] Such benefit is obviously not available to petitioners.
Yet the RTC pronounced that the complaint was barred by the four-
year prescriptive period provided in Article 1391 of the Civil Code, which
governs voidable contracts. This conclusion was derived from the allegation in
the complaint that the consent of petitioners was vitiated through undue
influence. While the RTC correctly acknowledged the rule of prescription for
voidable contracts, it erred in applying the rule in this case. We are hard put to
conclude in this case that there was any undue influence in the first place.
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.
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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 Orderhad 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
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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.

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