Civ II*Set I* Obli to Delay cases * Page 1 of 35
OBLIGATIONS case for Estafa through False Pretences, Misrepresentation, Deceit, and Use of
SECOND DIVISION
G.R. No. 183204 January 13, 2014
THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.
DECISION
DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid
upon demand by the depositor.2
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails
the April 2, 2008 Decision4and the May 30, 2008 Resolution5 of he Court of
Appeals CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation
duly organized and existing under the laws of the Philippines.6 Respondent Ana
Grace Rosales (Rosales) is the owner of China Golden Bridge Travel Services,7 a
travel agency.8 Respondent Yo Yuk To is the mother of respondent Rosales.9
In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo
Branch.11 As of August 4, 2004, respondents’ Joint Peso Account showed a balance
of ₱2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a
Taiwanese National applying for a retiree’s visa from the Philippine Leisure and
Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings
account, as required by the PLRA.13 Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter for her.14
On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint
Dollar Account15 with an initial deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against respondents’
accounts.17
On September 3, 2003, petitioner, through its Special Audit Department Head
Antonio Ivan Aguirre, filed before the Office of the Prosecutor of Manila a criminal
Falsified Documents, docketed as I.S. No. 03I-25014,18 against respondent
Rosales.19 Petitioner accused respondent Rosales and an unidentified woman as the
ones responsible for the unauthorized and fraudulent withdrawal of US$75,000.00
from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch.20 Petitioner
alleged that on February 5, 2003, its branch in Escolta received from the PLRA a
Withdrawal Clearance for the dollar account of Liu Chiu Fang;21 that in the
afternoon of the same day, respondent Rosales went to petitioner’s Escolta Branch to
inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was
going to withdraw her dollar deposits in cash;22 that Gutierrez told respondent
Rosales to come back the following day because the bank did not have enough
dollars;23 that on February 6, 2003, respondent Rosales accompanied an unidentified
impostor of Liu Chiu Fang to the bank;24 that the impostor was able to withdraw Liu
Chiu Fang’s dollar deposit in the amount of US$75,000.00;25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank later
discovered that the serial numbers of the dollar notes deposited by respondents in the
amount of US$11,800.00 were the same as those withdrawn by the impostor.26
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fang.27 Respondent Rosales
claimed that she did not go to the bank on February 5, 2003.28 Neither did she
inform Gutierrez that Liu Chiu Fang was going to close her account.29 Respondent
Rosales further claimed that after Liu Chiu Fang opened an account with petitioner,
she lost track of her.30Respondent Rosales’ version of the events that transpired
thereafter is as follows:
On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu
Fang was at the bank to close her account.31 At noon of the same day, respondent
Rosales went to the bank to make a transaction.32While she was transacting with the
teller, she caught a glimpse of a woman seated at the desk of the Branch Operating
Officer, Melinda Perez (Perez).33 After completing her transaction, respondent
Rosales approached Perez who informed her that Liu Chiu Fang had closed her
account and had already left.34 Perez then gave a copy of the Withdrawal Clearance
issued by the PLRA to respondent Rosales.35 On June 16, 2003, respondent Rosales
received a call from Liu Chiu Fang inquiring about the extension of her PLRA Visa
and her dollar account.36 It was only then that Liu Chiu Fang found out that her
account had been closed without her knowledge.37 Respondent Rosales then went to
the bank to inform Gutierrez and Perez of the unauthorized withdrawal.38 On June
23, 2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where
they were informed that the Withdrawal Clearance was issued on the basis of a
Special Power of Attorney (SPA) executed by Liu Chiu Fang in favor of a certain
Richard So.39 Liu Chiu Fang, however, denied executing the SPA.40 The following
day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA
 Civ II*Set I* Obli to Delay cases * Page 2 of 35

Office to discuss the unauthorized withdrawal.41 During the conference, the bank damages of ₱50,000.00, exemplary damages of ₱30,000.00 and 10% of the amount
officers assured Liu Chiu Fang that the money would be returned to her.42 due [respondents] as and for attorney’s fees plus the cost of suit.

On December 15, 2003, the Office of the City Prosecutor of Manila issued a The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.SO
Resolution dismissing the criminal case for lack of probable cause.43 Unfazed, ORDERED.59
petitioner moved for reconsideration.
Ruling of the Court of Appeals
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of
Manila a Complaint44 for Breach of Obligation and Contract with Damages, Aggrieved, petitioner appealed to the CA.
docketed as Civil Case No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to withdraw their deposits but On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of
were unable to because petitioner had placed their accounts under "Hold Out" actual damages because "the basis for [respondents’] claim for such damages is the
status.45 No explanation, however, was given by petitioner as to why it issued the
professional fee that they paid to their legal counsel for [respondent] Rosales’
"Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that
defense against the criminal complaint of [petitioner] for estafa before the Office of
they be allowed to withdraw their deposits.47 They likewise prayed for actual,
the City Prosecutor of Manila and not this case."60 Thus, the CA disposed of the
moral, and exemplary damages, as well as attorney’s fees.48
case in this wise:

Petitioner alleged that respondents have no cause of action because it has a valid
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the
reason for issuing the "Hold Out" order.49 It averred that due to the fraudulent
RTC, Branch 21, Manila in Civil Case No. 04-110895 is AFFIRMED with
scheme of respondent Rosales, it was compelled to reimburse Liu Chiu Fang the
MODIFICATION that the award of actual damages to [respondents] Rosales and Yo
amount of US$75,000.0050 and to file a criminal complaint for Estafa against
Yuk To is hereby DELETED.SO ORDERED.61
respondent Rosales.51
Petitioner sought reconsideration but the same was denied by the CA in its May 30,
While the case for breach of contract was being tried, the City Prosecutor of Manila
2008 Resolution.62
issued a Resolution dated February 18, 2005, reversing the dismissal of the criminal
complaint.52 An Information, docketed as Criminal Case No. 05-236103,53 was
then filed charging respondent Rosales with Estafa before Branch 14 of the RTC of Issues
Manila.54
Hence, this recourse by petitioner raising the following issues:
Ruling of the Regional Trial Court
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT"
On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for PROVISION IN THE APPLICATION AND AGREEMENT FOR
damages for breach of contract.56 The RTC ruled that it is the duty of petitioner to DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
release the deposit to respondents as the act of withdrawal of a bank deposit is an act
of demand by the creditor.57 The RTC also said that the recourse of petitioner is B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S
against its negligent employees and not against respondents.58 The dispositive EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU FANG’S
portion of the Decision reads: FUNDS.

WHEREFORE, premises considered, judgment is hereby rendered ordering C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL
[petitioner] METROPOLITAN BANK & TRUST COMPANY to allow DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEY’S FEES.63
[respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their Savings
and Time Deposits with the agreed interest, actual damages of ₱50,000.00, moral Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause
stipulated in the Application and Agreement for Deposit Account.64 It posits that the
said clause applies to any and all kinds of obligation as it does not distinguish
between obligations arising ex contractu or ex delictu.65 Petitioner also contends
that the fraud committed by respondent Rosales was clearly established by
evidence;66 thus, it was justified in issuing the "Hold-Out" order.67 Petitioner
likewise denies that its employees were negligent in releasing the dollars.68It claims
that it was the deception employed by respondent Rosales that caused petitioner’s
employees to release Liu Chiu Fang’s funds to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages and
attorney’s fees. It insists that respondents failed to prove that it acted in bad faith or
in a wanton, fraudulent, oppressive or malevolent manner.70
Respondents’ Arguments
Respondents, on the other hand, argue that there is no legal basis for petitioner to
withhold their deposits because they have no monetary obligation to
petitioner.71 They insist that petitioner miserably failed to prove its accusations
against respondent Rosales.72 In fact, no documentary evidence was presented to
show that respondent Rosales participated in the unauthorized withdrawal.73 They
also question the fact that the list of the serial numbers of the dollar notes
fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by the
alleged impostor.74 Respondents likewise maintain that what was established during
the trial was the negligence of petitioner’s employees as they allowed the withdrawal
of the funds without properly verifying the identity of the depositor.75 Furthermore,
respondents contend that their deposits are in the nature of a loan; thus, petitioner
had the obligation to return the deposits to them upon demand.76 Failing to do so
makes petitioner liable to pay respondents moral and exemplary damages, as well as
attorney’s fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner breached its
contract with respondents, and (2) if so, whether it is liable for damages. The issue of
whether petitioner’s employees were negligent in allowing the withdrawal of Liu
Chiu Fang’s dollar deposits has no bearing in the resolution of this case. Thus, we
find no need to discuss the same.
The "Hold Out" clause does not apply
Civ II*Set I* Obli to Delay cases * Page 3 of 35
to the instant case.
Petitioner claims that it did not breach its contract with respondents because it has a
valid reason for issuing the "Hold Out" order. Petitioner anchors its right to withhold
respondents’ deposits on the Application and Agreement for Deposit Account, which
reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all obligations
with the Bank, all monies, properties or securities of the Depositor now in or which
may hereafter come into the possession or under the control of the Bank, whether left
with the Bank for safekeeping or otherwise, or coming into the hands of the Bank in
any way, for so much thereof as will be sufficient to pay any or all obligations
incurred by Depositor under the Account or by reason of any other transactions
between the same parties now existing or hereafter contracted, to sell in any public or
private sale any of such properties or securities of Depositor, and to apply the
proceeds to the payment of any Depositor’s obligations heretofore mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without notice to all of the
Depositors, assert a lien on any balance of the Account and apply all or any part
thereof against any indebtedness, matured or unmatured, that may then be owing to
the Bank by any or all of the Depositors. It is understood that if said indebtedness is
only owing from any of the Depositors, then this provision constitutes the consent by
all of the depositors to have the Account answer for the said indebtedness to the
extent of the equal share of the debtor in the amount credited to the Account.78
Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for
Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 115779 of the Civil
Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a criminal case was
filed by petitioner against respondent Rosales, this is not enough reason for petitioner
to issue a "Hold Out" order as the case is still pending and no final judgment of
conviction has been rendered against respondent Rosales. In fact, it is significant to
note that at the time petitioner issued the "Hold Out" order, the criminal complaint
had not yet been filed. Thus, considering that respondent Rosales is not liable under

any of the five sources of obligation, there was no legal basis for petitioner to issue
the "Hold Out" order. Accordingly, we agree with the findings of the RTC and the
CA that the "Hold Out" clause does not apply in the instant case.
In view of the foregoing, we find that petitioner is guilty of breach of contract when
it unjustifiably refused to release respondents’ deposit despite demand. Having
breached its contract with respondents, petitioner is liable for damages.
Respondents are entitled to moral and
exemplary damages and attorney’s fees.1âwphi1
In cases of breach of contract, moral damages may be recovered only if the
defendant acted fraudulently or in bad faith,80 or is "guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligations."81
In this case, a review of the circumstances surrounding the issuance of the "Hold
Out" order reveals that petitioner issued the "Hold Out" order in bad faith. First of
all, the order was issued without any legal basis. Second, petitioner did not inform
respondents of the reason for the "Hold Out."82 Third, the order was issued prior to
the filing of the criminal complaint. Records show that the "Hold Out" order was
issued on July 31, 2003,83 while the criminal complaint was filed only on September
3, 2003.84 All these taken together lead us to conclude that petitioner acted in bad
faith when it breached its contract with respondents. As we see it then, respondents
are entitled to moral damages.
As to the award of exemplary damages, Article 222985 of the Civil Code provides
that exemplary damages may be imposed "by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory
damages." They are awarded only if the guilty party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner when it refused to release the deposits of
respondents without any legal basis. We need not belabor the fact that the banking
industry is impressed with public interest.87 As such, "the highest degree of
diligence is expected, and high standards of integrity and performance are even
required of it."88 It must therefore "treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship
with them."89 For failing to do this, an award of exemplary damages is justified to
set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1, Article
220890 of the Civil Code.
Civ II*Set I* Obli to Delay cases * Page 4 of 35
In closing, it must be stressed that while we recognize that petitioner has the right to
protect itself from fraud or suspicions of fraud, the exercise of his right should be
done within the bounds of the law and in accordance with due process, and not in
bad faith or in a wanton disregard of its contractual obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision
and the May 30, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086
are hereby AFFIRMED. SO ORDERED.
OBLIGATION TO GIVE
G.R. No. 189316 June 1, 2013
PHILIPPINE NATIONAL BANK, Petitioner, vs.
SPOUSES BERNARD and CRESENCIA MARANON, Respondents.
RESOLUTION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court,
assailing the Decision2 dated June 18, 2008 and Resolution3 dated August 10, 2009
of the Court of Appeals (CA) in CA-G.R. SP No. 02513, which affirmed in toto the
Orders dated September 8, 20064 and December 6, 20065 of the Regional Trial Court
(RTC) of Bacolod City, Branch 54, directing petitioner Philippine National Bank
(PNB) to release in favor of Spouses Bernard and Cresencia Marafion (Spouses
Marafion) the rental fees it received amounting to Thirty Thousand Pesos
(₱30,000.00).
The Facts
The controversy at bar involves a 152-square meter parcel of land located at Cuadra-
Smith Streets, Downtown, Bacolod (subject lot) erected with a building leased by
various tenants. The subject lot was among the properties mortgaged by Spouses
Rodolfo and Emilie Montealegre (Spouses Montealegre) to PNB as a security for a
loan. In their transactions with PNB, Spouses Montealegre used Transfer Certificate
of Title (TCT) No. T-156512 over the subject lot purportedly registered in the name
of Emilie Montealegre (Emilie).6
When Spouses Montealegre failed to pay the loan, PNB initiated foreclosure
proceedings on the mortgaged properties, including the subject lot. In the auction
sale held on August 16, 1991, PNB emerged as the highest bidder. It was issued the
corresponding Certificate of Sale dated December 17, 1991 7 which was subsequently
registered on February 4, 1992.8
Before the expiration of the redemption period or on July 29, 1992, Spouses
Marañon filed before the RTC a complaint for Annulment of Title, Reconveyance
and Damages9 against Spouses Montealegre, PNB, the Register of Deeds of Bacolod
City and the Ex-Officio Provincial Sheriff of Negros Occidental. The complaint,

docketed as Civil Case No. 7213, alleged that Spouses Marañon are the true
registered owners of the subject lot by virtue of TCT No. T-129577 which was
illegally cancelled by TCT No. T-156512 under the name of Emilie who used a
falsified Deed of Sale bearing the forged signatures of Spouse Marañon 10 to effect
the transfer of title to the property in her name.
In its Answer,11 PNB averred that it is a mortgagee in good faith and for value and
that its mortgage lien on the property was registered thus valid and binding against
the whole world.
As reflected in the Pre-trial Order12 dated March 12, 1996, the parties stipulated,
among others, that the period for legal redemption of the subject lot has already
expired.
While the trial proceedings were ongoing, Paterio Tolete (Tolete), one of the tenants
of the building erected on the subject lot deposited his rental payments with the
Clerk of Court of Bacolod City which, as of October 24, 2002, amounted to
₱144,000.00.
On June 2, 2006, the RTC rendered its Decision13 in favor of the respondents after
finding, based on the expert testimony of Colonel Rodolfo Castillo, Head of the
Forensic Technology Section of Bacolod City Philippine National Police, that the
signatures of Spouses Marañon in the Deed of Sale presented by Spouses
Montealegre before the Register of Deeds to cause the cancellation of TCT No. T-
129577 were forged. Hence, the RTC concluded the sale to be null and void and as
such it did not transfer any right or title in law. PNB was adjudged to be a mortgagee
in good faith whose lien on the subject lot must be respected. Accordingly, the
Decision disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs herein
respondents:
1. The cancellation of TCT No. 129577 over Lot 177-A-1 Bacolod Cadastre
in the name of Bernard Marañon and the issuance of new TCT No. 156512
in the name of defendant Emilie Montealegre are hereby declared null and
void;
2. The defendant Emilie Montealegre is ordered to reconvey the title over
Lot No. 177-A-1, Bacolod Cadastre back to the plaintiffs Marañon herein
respondents;
Civ II*Set I* Obli to Delay cases * Page 5 of 35
3. The Real Estate Mortgage lien of the Philippine National Bank registered
on the title of Lot No. 177-A-1 Bacolod Cadastre shall stay and be
respected; and
4. The defendants - Emilie Montealegre and spouse are ordered to pay
attorney’s fees in the sum of Php50,000.00, and to pay the costs of the suit.
SO ORDERED.14
Neither of the parties sought a reconsideration of the above decision or any portion
thereof nor did they elevate the same for appellate review.
What precipitated the controversy at hand were the subsequent motions filed by
Spouses Marañon for release of the rental payments deposited with the Clerk of
Court and paid to PNB by Tolete.
On June 13, 2006, Spouses Marañon filed an Urgent Motion for the Withdrawal of
Deposited Rentals15 praying that the ₱144,000.00 rental fees deposited by Tolete
with the Clerk of Court be released in their favor for having been adjudged as the
real owner of the subject lot. The RTC granted the motion in its Order 16 dated June
28, 2006.
On September 5, 2006, Spouses Marañon again filed with the RTC an Urgent Ex-
Parte Motion for Withdrawal of Deposited Rentals17 praying that the ₱30,000.00
rental fees paid to PNB by Tolete on December 12, 1999 be released in their favor.
The said lease payments were for the five (5)-month period from August 1999 to
December 1999 at the monthly lease rate of ₱6,000.00.
The RTC granted the motion in its Order18 dated September 8, 2006 reasoning that
pursuant to its Decision dated June 2, 2006 declaring Spouses Marañon to be the true
registered owners of the subject lot, they are entitled to its fruits.
The PNB differed with the RTC’s ruling and moved for reconsideration averring that
as declared by the RTC in its Decision dated June 2, 2006, its mortgage lien should
be carried over to the new title reconveying the lot to Spouses Marañon. PNB further
argued that with the expiration of the redemption period on February 4, 1993, or one
(1) year from the registration of the certificate of sale, PNB is now the owner of the
subject lot hence, entitled to its fruits. PNB prayed that (1) the Order dated
September 8, 2006 be set aside, and (2) an order be issued directing Spouses
Marañon to turn over to PNB the amount of ₱144,000.00 released in their favor by
the Clerk of Court.19

On November 20, 2006, the RTC issued an Order again directing PNB to release to
Spouses Marañon the ₱30,000.00 rental payments considering that they were
adjudged to have retained ownership over the property. 20
On December 6, 2006, the RTC issued another Order denying PNB’s motion for
reconsideration and reiterating the directives in its Order dated September 8, 2006. 21
Aggrieved, PNB sought recourse with the CA via a petition for certiorari and
mandamus22 claiming that as the lawful owner of the subject lot per the RTC’s
judgment dated June 2, 2006, it is entitled to the fruits of the same such as rentals
paid by tenants hence, the ruling that "the real estate mortgage lien of the PNB
registered on the title of Lot No. 177-A-1 Bacolod Cadastre shall stay and be
respected." PNB also contended that it is an innocent mortgagee.
In its Decision23 dated June 18, 2008, the CA denied the petition and affirmed the
RTC’s judgment ratiocinating that not being parties to the mortgage transaction
between PNB and Spouses Montealegre, Spouses Marañon cannot be deprived of the
fruits of the subject lot as the same will amount to deprivation of property without
due process of law. The RTC further held that PNB is not a mortgagee in good faith
because as a financial institution imbued with public interest, it should have looked
beyond the certificate of title presented by Spouses Montealegre and conducted an
inspection on the circumstances surrounding the transfer to Spouses Montealegre.
The decretal portion of the Decision thus read:
WHEREFORE, in view of the foregoing, the petition is hereby DISMISSED. The
Orders dated September 8, 2006 and December 6, 2006, rendered by the respondent
Presiding Judge of the Regional Trial Court, Branch 54, Bacolod City, in Civil Case
NO. 7213 directing the release of the deposited rental in the amount of THIRTY
THOUSAND PESOS ([P]30,000.00) to private respondents are hereby
AFFIRMED.SO ORDERED.24
PNB moved for reconsideration25 but the motion was denied in the CA Resolution
dated August 10, 2009.26 Hence, the present recourse whereby PNB argues that the
RTC Decision dated June 2, 2006 lapsed into finality when it was not appealed or
submitted for reconsideration. As such, all conclusions therein are immutable and
can no longer be modified by any court even by the RTC that rendered the same. The
CA however erroneously altered the RTC Decision by reversing the pronouncement
that PNB is a mortgagee-in-good-faith.
PNB further asseverates that its mortgage lien was carried over to the new title
issued to Spouses Marañon and thus it retained the right to foreclose the subject lot
upon non-payment of the secured debt. PNB asserts that it is entitled to the rent
Civ II*Set I* Obli to Delay cases * Page 6 of 35
because it became the subject lot’s new owner when the redemption period expired
without the property being redeemed.
Ruling of the Court
We deny the petition.
It is readily apparent from the facts at hand that the status of PNB’s lien on the
subject lot has already been settled by the RTC in its Decision dated June 2, 2006
where it was adjudged as a mortgagee in good faith whose lien shall subsist and be
respected. The decision lapsed into finality when neither of the parties moved for its
reconsideration or appealed.
Being a final judgment, the dispositions and conclusions therein have become
immutable and unalterable not only as against the parties but even the courts. This is
known as the doctrine of immutability of judgments which espouses that a judgment
that has acquired finality becomes immutable and unalterable, and may no longer be
modified in any respect even if the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made by the court that rendered it or
by the highest court of the land.27 The significance of this rule was emphasized in
Apo Fruits Corporation v. Court of Appeals,28 to wit:
The reason for the rule is that if, on the application of one party, the court could
change its judgment to the prejudice of the other, it could thereafter, on application
of the latter, again change the judgment and continue this practice indefinitely. The
equity of a particular case must yield to the overmastering need of certainty and
unalterability of judicial pronouncements.
The doctrine of immutability and inalterability of a final judgment has a two-fold
purpose: (1) to avoid delay in the administration of justice and thus, procedurally, to
make orderly the discharge of judicial business and (2) to put an end to judicial
controversies, at the risk of occasional errors, which is precisely why courts exist.
Controversies cannot drag on indefinitely. The rights and obligations of every
litigant must not hang in suspense for an indefinite period of time. The doctrine is
not a mere technicality to be easily brushed aside, but a matter of public policy as
well as a time-honored principle of procedural law.29 (Citations omitted)
Hence, as correctly argued by PNB, the issue on its status as a mortgagee in good
faith have been adjudged with finality and it was error for the CA to still delve into
and, worse, overturn, the same. The CA had no other recourse but to uphold the
status of PNB as a mortgagee in good faith regardless of its defects for the sake of
maintaining stability of judicial pronouncements. "The main role of the courts of
justice is to assist in the enforcement of the law and in the maintenance of peace and

order by putting an end to judiciable controversies with finality. Nothing better
serves this role than the long established doctrine of immutability of judgments." 30
Further, it must be remembered that what reached the CA on certiorari were RTC
resolutions issued long after the finality of the Decision dated June 2, 2006. The
RTC Orders dated September 8, 2006 and December 6, 2006 were implements of the
pronouncement that Spouses Marañon are still the rightful owners of the subject lot,
a matter that has been settled with finality as well. This notwithstanding, the Court
agrees with the ultimate outcome of the CA’s assailed resolutions.
Rent is a civil fruit31 that belongs to the owner of the property32 producing it by right
of accession33.34 The rightful recipient of the disputed rent in this case should thus be
the owner of the subject lot at the time the rent accrued. It is beyond question that
Spouses Marañon never lost ownership over the subject lot. This is the precise
consequence of the final and executory judgment in Civil Case No. 7213 rendered by
the RTC on June 3, 2006 whereby the title to the subject lot was reconveyed to them
and the cloud thereon consisting of Emilie’s fraudulently obtained title was removed.
Ideally, the present dispute can be simply resolved on the basis of such
pronouncement. However, the application of related legal principles ought to be
clarified in order to settle the intervening right of PNB as a mortgagee in good faith.
The protection afforded to PNB as a mortgagee in good faith refers to the right to
have its mortgage lien carried over and annotated on the new certificate of title
issued to Spouses Marañon35 as so adjudged by the RTC. Thereafter, to enforce such
lien thru foreclosure proceedings in case of non-payment of the secured debt,36 as
PNB did so pursue. The principle, however, is not the singular rule that governs real
estate mortgages and foreclosures attended by fraudulent transfers to the mortgagor.
Rent, as an accessory follow the principal.37 In fact, when the principal property is
mortgaged, the mortgage shall include all natural or civil fruits and improvements
found thereon when the secured obligation becomes due as provided in Article 2127
of the Civil Code, viz:
Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person.
Consequently, in case of non-payment of the secured debt, foreclosure proceedings
shall cover not only the hypothecated property but all its accessions and accessories
Civ II*Set I* Obli to Delay cases * Page 7 of 35
as well. This was illustrated in the early case of Cu Unjieng e Hijos v. Mabalacat
Sugar Co.38 where the Court held:
That a mortgage constituted on a sugar central includes not only the land on which it
is built but also the buildings, machinery, and accessories installed at the time the
mortgage was constituted as well as the buildings, machinery and accessories
belonging to the mortgagor, installed after the constitution thereof x x x .39
Applying such pronouncement in the subsequent case of Spouses Paderes v. Court of
Appeals,40 the Court declared that the improvements constructed by the mortgagor
on the subject lot are covered by the real estate mortgage contract with the
mortgagee bank and thus included in the foreclosure proceedings instituted by the
latter.41
However, the rule is not without qualifications. In Castro, Jr. v. CA42 the Court
explained that Article 2127 is predicated on the presumption that the ownership of
accessions and accessories also belongs to the mortgagor as the owner of the
principal. After all, it is an indispensable requisite of a valid real estate mortgage that
the mortgagor be the absolute owner of the encumbered property, thus:
All improvements subsequently introduced or owned by the mortgagor on the
encumbered property are deemed to form part of the mortgage. That the
improvements are to be considered so incorporated only if so owned by the
mortgagor is a rule that can hardly be debated since a contract of security, whether,
real or personal, needs as an indispensable element thereof the ownership by the
pledgor or mortgagor of the property pledged or mortgaged. x x x. 43 (Citation
omitted)
Otherwise stated, absent an adverse claimant or any evidence to the contrary, all
accessories and accessions accruing or attached to the mortgaged property are
included in the mortgage contract and may thus also be foreclosed together with the
principal property in case of non-payment of the debt secured.
Corollary, any evidence sufficiently overthrowing the presumption that the
mortgagor owns the mortgaged property precludes the application of Article 2127.
Otherwise stated, the provision is irrelevant and inapplicable to mortgages and their
resultant foreclosures if the mortgagor is later on found or declared to be not the true
owner of the property, as in the instant case.1âwphi1
It is beyond question that PNB’s mortgagors, Spouses Montealegre, are not the true
owners of the subject lot much less of the building which produced the disputed rent.
The foreclosure proceedings on August 16, 1991 caused by PNB could not have,
thus, included the building found on the subject lot and the rent it yields. PNB’s lien

as a mortgagee in good faith pertains to the subject lot alone because the rule that
improvements shall follow the principal in a mortgage under Article 2127 of the
Civil Code does not apply under the premises. Accordingly, since the building was
not foreclosed, it remains a property of Spouses Marañon; it is not affected by non-
redemption and is excluded from any consolidation of title made by PNB over the
subject lot. Thus, PNB’s claim for the rent paid by Tolete has no basis.
It must be remembered that there is technically no juridical tie created by a valid
mortgage contract that binds PNB to the subject lot because its mortgagor was not
the true owner. But by virtue of the mortgagee in good faith principle, the law allows
PNB to enforce its lien. We cannot, however, extend such principle so as to create a
juridical tie between PNB and the improvements attached to the subject lot despite
clear and undeniable evidence showing that no such juridical tie exists.
Lastly, it is worthy to note that the effects of the foreclosure of the subject lot is in
fact still contentious considering that as a purchaser in the public sale, PNB was only
substituted to and acquired the right, title, interest and claim of the mortgagor to the
property as of the time of the levy.44 There being already a final judgment
reconveying the subject lot to Spouses Marañon and declaring as null and void
Emilie's purported claim of ownership, the legal consequences of the foreclosure
sale, expiration of the redemption period and even the consolidation of the subject
lot's title in PNB's name shall be subjected to such final judgment. This is the clear
import of the ruling in Unionbank of the Philippines v. Court of Appeals: 45
This is because as purchaser at a public auction, UNIONBANK is only substituted to
and acquires the right, title, interest and claim of the judgment debtors or mortgagors
to the property at the time of levy. Perforce, the judgment in the main action for
reconveyance will not be rendered ineffectual by the consolidation of ownership and
the issuance of title in the name of UNIONBANK.46 (Citation omitted)
Nonetheless, since the present recourse stemmed from a mere motion claiming
ownership of rent and not from a main action for annulment of the foreclosure sale or
of its succeeding incidents, the Court cannot proceed to make a ruling on the bearing
of the CA's Decision dated June 18, 2008 to PNB's standing as a purchaser in the
public auction. Such matter will have to be threshed out in the proper forum.
All told, albeit the dispositive portions of the assailed CA decision and resolution are
differently premised, they ought to be upheld as they convey the similar conclusion
that Spouses Marañon are the rightful owners of the rent earned by the building on
the subject lot.
Civ II*Set I* Obli to Delay cases * Page 8 of 35
WHEREFORE, foregoing considered, the petition is hereby DENIED. The Decision
dated June 18, 2008 and Resolution dated August 10, 2009 of the Court of Appeals
in CA-G.R. SP No. 02513 are AFFIRMED.SO ORDERED.
G.R. No. 172346 July 24, 2013
DELAY
SPOUSES NAMEAL and LOURDES BONROSTRO, Petitioners,
vs.
SPOUSES JUAN and CONSTANCIA LUNA, Respondents.
DECISION
DEL CASTILLO, J.:
Questioned in this case is the Court of Appeals' (CA) disquisition on the matter of
interest.
Petitioners spouses Nameal and Lourdes Bonrostro (spouses Bonrostro) assail
through this Petition for Review on Certiorari1 the April 15, 2005 Decision2 of the
CA in CA-G.R. CV No. 56414 which affirmed with modifications the April 4, 1997
Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 104 in Civil
Case No. Q-94-18895. They likewise question the CA April17, 2006
Resolution4 denying their motion for partial reconsideration.
Factual Antecedents
In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract
to Sell5 with Bliss Development Corporation (Bliss) involving a house and lot
identified as Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City.
Barely a year after, Constancia, this time as the seller, entered into another Contract
to Sell6with petitioner Lourdes Bonrostro (Lourdes) concerning the same property
under the following terms and conditions:
1. The stipulated price of ₱1,250,000.00 shall be paid by the VENDEE to
the VENDOR in the following manner:
(a) ₱200,000.00 upon signing x x x the Contract To Sell,
(b) ₱300,000.00 payable on or before April 30, 1993,
(c) ₱330,000.00 payable on or before July 31, 1993,
(d) ₱417,000.00 payable to the New Capitol Estate, for 15 years at
₱6,867.12 a month,
2. x x x In the event the VENDEE fails to pay the second installment on
time, the VENDEE will pay starting May 1, 1993 a 2% interest on the

₱300,000.00 monthly. Likewise, in the event the VENDEE fails to pay the
amount of ₱630,000.00 on the stipulated time, this CONTRACT TO SELL
shall likewise be deemed cancelled and rescinded and x x x 5% of the total
contract price of ₱1,250,000.00 shall be deemed forfeited in favor of the
VENDOR. Unpaid monthly amortization shall likewise be deducted from
the initial down payment in favor of the VENDOR.7
Immediately after the execution of the said second contract, the spouses Bonrostro
took possession of the property. However, except for the ₱200,000.00 down
payment, Lourdes failed to pay any of the stipulated subsequent amortization
payments.
Ruling of the Regional Trial Court
On January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses
Luna), filed before the RTC a Complaint8 for Rescission of Contract and Damages
against the spouses Bonrostro praying for the rescission of the contract, delivery of
possession of the subject property, payment by the latter of their unpaid obligation,
and awards of actual, moral and exemplary damages, litigation expenses and
attorney’s fees.
In their Answer with Compulsory Counterclaim,9 the spouses Bonrostro averred that
they were willing to pay their total balance of ₱630,000.00 to the spouses Luna after
they sought from them a 60-day extension to pay the same.10 However, during the
time that they were ready to pay the said amount in the last week of October 1993,
Constancia and her lawyer, Atty. Arlene Carbon (Atty. Carbon), did not show up at
their rendezvous. On November 24, 1993, Lourdes sent Atty. Carbon a
letter11 expressing her desire to pay the balance, but received no response from the
latter. Claiming that they are still willing to settle their obligation, the spouses
Bonrostro prayed that the court fix the period within which they can pay the spouses
Luna.
The spouses Bonrostro likewise belied that they were not paying the monthly
amortization to New Capitol Estates and asserted that on November 18, 1993, they
paid Bliss, the developer of New Capitol Estates, the amount of ₱46,303.44. Later
during trial, Lourdes testified that Constancia instructed Bliss not to accept
amortization payments from anyone as evidenced by her March 4, 1993 letter 12 to
Bliss.
On April 4, 1997, the RTC rendered its Decision13 focusing on the sole issue of
whether the spouses Bonrostro’s delay in their payment of the installments
constitutes a substantial breach of their obligation under the contract warranting
rescission. The RTC ruled that the delay could not be considered a substantial breach
considering that Lourdes (1) requested for an extension within which to pay; (2) was
Civ II*Set I* Obli to Delay cases * Page 9 of 35
willing and ready to pay as early as the last week of October 1993 and even wrote
Atty. Carbon about this on November 24, 1993; (3) gave Constancia a down
payment of ₱200,000.00; and, (4) made payment to Bliss.
The dispositive portion of the said Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1.) Declaring the Contract to Sell executed by the plaintiff Constancia and
defendant Lourdes with respect to the house and lot located at Blk. 26, Lot
19, New Capitol Estates, Diliman, Quezon City to be in force and effect.
And that Lourdes Bonrostro must remain in the possession of the premises.
2.) Ordering the defendants to pay plaintiffs within 60 days from receipt of
this decision the sum of ₱300,000.00 plus an interest of 2% per month from
April 1993 to November 1993.
3.) Ordering the defendants to pay plaintiffs within sixty (60) days from
receipt of this decision the sum of ₱330,000.00 plus an interest of 2% per
month from July 1993 to November 1993.
4.) Ordering the defendants to reimburse plaintiffs the sum of ₱214,492.62
which plaintiffs paid to Bliss Development Corporation.
No pronouncement as to Cost.SO ORDERED.14
As their Motion for Reconsideration15 was likewise denied in an Order16 dated July
15, 1997, the spouses Luna appealed to the CA.17
Ruling of the Court of Appeals
In its Decision18 of April 15, 2005, the CA concluded that since the contract entered
into by and between the parties is a Contract to Sell, rescission is not the proper
remedy. Moreover, the subject contract being specifically a contract to sell a real
property on installment basis, it is governed by Republic Act No. 6552 19 or the
Maceda Law, Section 4 of which states:
Sec. 4. In case where less than two years of installment were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the installment
became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the contract by a notarial act.
(Emphases supplied)
The CA held that while the spouses Luna sent the spouses Bonrostro
letters20 rescinding the contract for non-payment of the sum of ₱630,000.00, the
same could not be considered as valid and effective cancellation under the Maceda
Law since they were made within the 60-day grace period and were not notarized.
The CA concluded that there being no cancellation effected in accordance with the
procedure prescribed by law, the contract therefore remains valid and subsisting.
The CA also affirmed the RTC’s finding that Lourdes was ready to pay her
obligation on November 24, 1993.
However, the CA modified the RTC Decision with respect to interest, viz:
Nevertheless, there is a need to modify the appealed decision insofar as (i) the
interest imposed on the sum of ₱300,000.00 is only for the period April 1993 to
November 1993; (ii) the interest imposed on the sum of ₱330,000.00 is 2% per
month and is only for the period July 1993 to November 1993; (iii) it does not
impose interest on the amount of ₱214,492.62 which was paid by Constancia to
BLISS in behalf of Lourdes x x x
The rule is that ‘no interest shall be due unless it has been expressly stipulated in
writing’ (Art. 1956, Civil Code). However, the contract does not provide for interest
in case of default in payment of the sum of ₱330,000.00 to Constancia and the
monthly amortizations to BLISS.
Considering that Lourdes had incurred x x x delay in the performance of her
obligations, she should pay (i) interest at the rate of 2% per month on the sum of
₱300,000.00 from May 1, 1993 until fully paid and (ii) interest at the legal rate on
the amounts of ₱330,000.00 and ₱214,492.62 from the date of default (August 1,
1993 and April 4, 1997 date of the appealed decision, respectively) until the same are
fully paid x x x21
Hence, the dispositive portion of the said Decision:
WHEREFORE, the appealed decision is AFFIRMED with the MODIFICATIONS
that paragraphs 2, 3, and 4 of its dispositive portion shall now read:
Civ II*Set I* Obli to Delay cases * Page 10 of 35
2.) Ordering the defendants to pay plaintiffs the sum of ₱300,000.00 plus
interest thereon at the rate of 2% per month from May 1, 1993 until fully
paid;
3.) Ordering the defendants to pay plaintiffs the sum of ₱330,000.00 plus
interest thereon at the legal rate from August 1, 1993 until fully paid; and
4.) Ordering the defendants to reimburse plaintiffs the sum of ₱214,492.62,
which plaintiffs paid to Bliss Development Corporation, plus interest
thereon at the legal rate from filing of the complaint until fully
reimbursed.SO ORDERED.22
The spouses Luna no longer assailed the ruling. On the other hand, the spouses
Bonrostro filed a Partial Motion for Reconsideration23 questioning the above-
mentioned modifications. The CA, however, denied for lack of merit the said motion
in a Resolution24 dated April 17, 2006.
Hence, this Petition for Review on Certiorari.
Issue
The basic issue in this case is whether the CA correctly modified the RTC Decision
with respect to interests.
The Parties’ Arguments
As may be recalled, the RTC under paragraphs 2 and 3 of the dispositive portion of
its Decision ordered the spouses Bonrostro to pay the spouses Luna the sums of
₱300,000.00 plus interest of 2% per month from April 1993 to November 1993 and
₱330,000.00 plus interest of 2% per month from July 1993 to November 1993,
respectively. The CA modified these by reckoning the payment of the 2% interest on
the ₱300,000.00 from May 1, 1993 until fully paid and by imposing interest at the
legal rate on the ₱330,000.00 reckoned from August 1, 1993 until fully paid.
The spouses Bonrostro harp on the factual finding of the RTC, as affirmed by the
CA, that Lourdes was willing and ready to pay her obligation as evidenced by her
November 24, 1993 letter to Atty. Carbon. They also assert that the sending of the
said letter constitutes a valid tender of payment on their part. Hence, they argue that
they should not be assessed any interest subsequent to the date of the said letter.
Neither should they be ordered to pay interest on the amount of ₱214,492.62 which
covers the amortizations paid by the spouses Luna to Bliss. They point out that it was
Constancia who prevented them from fulfilling their obligation to pay the
amortizations when she instructed Bliss not to accept payment from them.25
The spouses Luna, on the other hand, aver that the November 24, 1993 letter of
Lourdes is not equivalent to tender of payment since the mere sending of a letter

expressing the intention to pay, without the accompanying payment, cannot be
considered a valid tender of payment. Also, if the spouses Bonrostro were really
willing and ready to pay at that time and assuming that the spouses Luna indeed
refused to accept payment, the former should have resorted to consignation. Anent
the payment of amortization, the spouses Luna explain that under the parties’
Contract to Sell, Lourdes was to assume Constancia’s balance to Bliss by paying the
monthly amortization in order to avoid the cancellation of the earlier Contract to Sell
entered into by Constancia with Bliss.26 However, since Lourdes was remiss in
paying the same, the spouses Luna were constrained to pay the amortization. They
thus assert that reimbursement to them of the said amount with interest is proper
considering that by reason of such payment, the spouses Bonrostro were spared from
the interests and penalties which would have been imposed by Bliss if the
amortizations remained unpaid.
Our Ruling
The Petition lacks merit.
The spouses Bonrostro’s reliance on the RTC’s factual finding that Lourdes was
willing and ready to pay on November 24, 1993 is misplaced.
As mentioned, the RTC in resolving the Complaint focused on the sole issue of
whether the failure of spouses Bonrostro to pay the installments of ₱300,000.00 on
April 30, 1993 and ₱330,000.00 on July 31, 1993 is a substantial breach of their
obligation under the contract as to warrant the rescission of the same. 27 The said
court ratiocinated, viz:
After careful evaluation of the evidence testimonial and documentary, the Court
believes that the defendants’ delay in the payment of the two installments is not so
substantial as to warrant rescission of contract. Although, the defendant failed to pay
the two installments in due time, she was able to communicate with the plaintiffs
through letters requesting for an extension of two months within which to pay the
installments. In fact, on November 24, 1993 defendant informed Atty. Arlene Carbon
that she was ready to pay the installments and the money is ready for pick-up.
However, plaintiff did not bother to get or pick-up the money without any valid
reason. It would be very prejudicial on the part of the defendant if the contract to sell
be rescinded considering that she made a downpayment of ₱200,000.00 and made
partial amortization to the Bliss Development Corporation. In fact, the defendant
testified that she is willing and ready to pay the balance including the interest on
November 24, 1993.
The Court is of the opinion that the delay in the payment of the balance of the
purchase price of the house and lot is not so substantial as to warrant the rescission
of the contract to sell. The question of whether a breach of contract is substantial
depends upon the attendant circumstance. x x x28
Civ II*Set I* Obli to Delay cases * Page 11 of 35
Clearly, the RTC arrived at the above-quoted conclusion based on its mistaken
premise that rescission is applicable to the case. Hence, its determination of whether
there was substantial breach. As may be recalled, however, the CA, in its assailed
Decision, found the contract between the parties as a contract to sell, specifically of a
real property on installment basis, and as such categorically declared rescission to be
not the proper remedy. This is considering that in a contract to sell, payment of the
price is a positive suspensive condition, failure of which is not a breach of contract
warranting rescission under Article 119129 of the Civil Code but rather just an event
that prevents the supposed seller from being bound to convey title to the supposed
buyer.30 Also, and as correctly ruled by the CA, Article 1191 cannot be applied to
sales of real property on installment since they are governed by the Maceda Law. 31
There being no breach to speak of in case of non-payment of the purchase price in a
contract to sell, as in this case, the RTC’s factual finding that Lourdes was willing
and able to pay her obligation – a conclusion arrived at in connection with the said
court’s determination of whether the non-payment of the purchase price in
accordance with the terms of the contract was a substantial breach warranting
rescission – therefore loses significance. The spouses Bonrostro’s reliance on the
said factual finding is thus misplaced. They cannot invoke their readiness and
willingness to pay their obligation on November 24, 1993 as an excuse from being
made liable for interest beyond the said date.
The spouses Bonrostro are liable for interest on the installments due from the date of
default until fully paid.
The spouses Bonrostro assert that Lourdes’ letter of November 24, 1993 amounts to
tender of payment of the remaining balance amounting to ₱630,000.00. Accordingly,
thenceforth, accrual of interest should be suspended.
Tender of payment "is the manifestation by the debtor of a desire to comply with or
pay an obligation. If refused without just cause, the tender of payment will discharge
the debtor of the obligation to pay but only after a valid consignation of the sum due
shall have been made with the proper court." 32 "Consignation is the deposit of the
proper amount with a judicial authority in accordance with rules prescribed by law,
after the tender of payment has been refused or because of circumstances which
render direct payment to the creditor impossible or inadvisable." 33
"Tender of payment, without more, produces no effect." 34 "To have the effect of
payment and the consequent extinguishment of the obligation to pay, the law
requires the companion acts of tender of payment and consignation." 35
As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino
explained as follows:

When a tender of payment is made in such a form that the creditor could have
immediately realized payment if he had accepted the tender, followed by a prompt
attempt of the debtor to deposit the means of payment in court by way of
consignation, the accrual of interest on the obligation will be suspended from the
date of such tender. But when the tender of payment is not accompanied by the
means of payment, and the debtor did not take any immediate step to make a
consignation, then interest is not suspended from the time of such tender. x x x
x36(Emphasis supplied)
Here, the subject letter merely states Lourdes’ willingness and readiness to pay but it
was not accompanied by payment. She claimed that she made numerous telephone
calls to Atty. Carbon reminding the latter to collect her payment, but, neither said
lawyer nor Constancia came to collect the payment. After that, the spouses Bonrostro
took no further steps to effect payment. They did not resort to consignation of the
payment with the proper court despite knowledge that under the contract, non-
payment of the installments on the agreed date would make them liable for interest
thereon. The spouses Bonrostro erroneously assumed that their notice to pay would
excuse them from paying interest. Their claimed tender of payment did not produce
any effect whatsoever because it was not accompanied by actual payment or
followed by consignation. Hence, it did not suspend the running of interest. The
spouses Bonrostro are therefore liable for interest on the subject installments from
the date of default until full payment of the sums of ₱300,000.00 and ₱330,000.00.
The spouses Bonrostro are likewise liable for interest on the amount paid by the
spouses Luna to Bliss as amortization.
The spouses Bonrostro want to be relieved from paying interest on the amount of
₱214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that
they were prevented by the latter from fulfilling such obligation. They invoke Art.
1186 of the Civil Code which provides that "the condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment."
However, the Court finds Art. 1186 inapplicable to this case. The said provision
explicitly speaks of a situation where it is the obligor who voluntarily prevents
fulfillment of the condition. Here, Constancia is not the obligor but the obligee.
Moreover, even if this significant detail is to be ignored, the mere intention to
prevent the happening of the condition or the mere placing of ineffective obstacles to
its compliance, without actually preventing fulfillment is not sufficient for the
application of Art. 1186.37 Two requisites must concur for its application, to wit: (1)
intent to prevent fulfillment of the condition; and, (2) actual prevention of
compliance.38
Civ II*Set I* Obli to Delay cases * Page 12 of 35
In this case, while it is undisputed that Constancia indeed instructed Bliss on March
4, 1994 not to accept payment from anyone but her, there is nothing on record to
show that Bliss heeded the instruction of Constancia as to actually prevent the
spouses Bonrostro from making payments to Bliss. There is no showing that
subsequent to the said letter, the spouses Bonrostro attempted to make payment to
and was refused by Bliss. Neither was there a witness presented to prove that Bliss
indeed gave effect to the instruction contained in Constancia’s letter. While Bliss’
Project Development Officer, Mr. Ariel Cordero, testified during trial, nothing could
be gathered from his testimony regarding this except for the fact that Bliss received
the said letter.39 In view of these, the spouses Luna could not be said to have placed
an effective obstacle as to actually prevent the spouses Bonrostro from making
amortization payments to Bliss.
On the other hand, there are telling circumstances which militate against the spouses
Bonrostro’s claimed keenness to comply with their obligation to pay the monthly
amortization. After the execution of the contract in January 1993, they immediately
took possession of the property but failed to make amortization payments. It was
only after seven months or on November 18, 1993 that they made payments to Bliss
in the amount of ₱46,303.44.40 Whether the same covers previous unpaid
amortizations is also not clear as the receipt does not indicate the same41 and per
Statement of Account42 as of March 8, 1994 issued by Bliss, the unpaid monthly
amortizations for February to November 1993 in the total amount of ₱78,271.69
remained outstanding. There was also no payment made of the amortizations due on
December 4, 1993 and January 4, 199443 before the filing of the Complaint on
January 11, 1994.
On the part of the spouses Luna, it is understandable that they paid the amortizations
due.1âwphi1 The assumption of payment of the monthly amortization to Bliss was
made part of the obligations of the spouses Bonrostro under their contract with the
spouses Luna precisely to avoid the cancellation of the earlier contract entered into
by Constancia with Bliss. But as the spouses Bonrostro failed in this obligation, the
spouses Luna were constrained to pay Bliss to avoid the adverse effect of such
failure. This act of the spouses Luna proved to be even more beneficial to the
spouses Bonrostro as the cancellation of the Contract to Sell between Constancia and
Bliss would result in the cancellation of the subsequent Contract to Sell between
Constancia and Lourdes. Also, the spouses Bonrostro were relieved from paying the
penalties that would have been imposed by Bliss if the monthly amortizations
covered by the said payment remained unpaid. The Statements of Account 44 issued
by Bliss clearly state that each monthly amortization is due on or before the fourth
day of every month and a penalty equivalent to 1/10th of 1% per day of delay shall
be imposed for all payments made after due date. That translates to 3% monthly or
36% per annum rate of interest, three times higher than the 12% per annum rate of
interest correctly imposed by the CA.

Hence, the resulting situation is that the spouses Luna are constrained to part with
their money while the spouses Bonrostro, despite being remiss in their obligation to
pay the monthly amortization, are relieved from paying higher penalties at the
expense of the former. This is aside from the fact that the spouses Bonrostro are in
continued possession of the subject property and are enjoying the beneficial use
thereof. Under the circumstances and considering that the spouses Bonrostro are
obviously in delay in complying with their obligation to pay the amortizations due
from February 1993 to January 1995 for which the spouses Luna paid
₱214,492.62,45 the CA correctly ordered the reimbursement to the latter of the said
amount with interest. "Delay in the performance of an obligation is looked upon with
disfavor because, when a party to a contract incurs delay, the other party who
performs his part of the contract suffers damages thereby." 46 As discussed, the
spouses Luna obviously suffered damages brought about by the failure of the
spouses Bonrostro to comply with their obligation on time. "And, sans elaboration of
the matter at hand, damages take the form of interest x x x." 47
Under Article 2209 of the Civil Code, "if the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest x x x." There being no stipulation
on interest in case of delay in the payment of amortization, the CA thus correctly
imposed interest at the legal rate which is now 12% per annum.
WHEREFORE, the Petition for Review on Certiorari is DENIED and the assailed
Decision dated April 15, 2005 and the Resolution dated April 17, 2006 of the Court
of Appeals in CA-G.R. CV No. 56414 are AFFIRMED.SO ORDERED.
G.R. No. 160758 January 15, 2014
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT
CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal
obligation is premature, and should be undone for being void and ineffectual. The
mortgagee who has been meanwhile given possession of the mortgaged property by
virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may
be required to restore the possession of the property to the mortgagor and to pay
reasonable rent for the use of the property during the intervening period.
The Case
Civ II*Set I* Obli to Delay cases * Page 13 of 35
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the
adverse decision promulgated on March 26, 2003 in C.A.-G.R. CV No.
59491,1 whereby the Court of Appeals (CA) upheld the judgment rendered on
January 6, 19982 by the Regional Trial Court, Branch 25, in Iloilo City (RTC)
annulling the extra-judicial foreclosure of the real estate and chattel mortgages at the
instance of DBP because the debtor-mortgagor, Guariña Agricultural and Realty
Development Corporation (Guariña Corporation), had not yet defaulted on its
obligations in favor of DBP.
Antecedents
In July 1976, Guariña Corporation applied for a loan from DBP to finance the
development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, in the
amount of ₱3,387,000.00, was approved on August 5, 1976. 3Guariña Corporation
executed a promissory note that would be due on November 3, 1988. 4 On October 5,
1976, Guariña Corporation executed a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. On May 17,
1977, Guariña Corporation executed a chattel mortgage over the personal properties
existing at the resort complex and those yet to be acquired out of the proceeds of the
loan, also to secure the performance of the obligation.5 Prior to the release of the
loan, DBP required Guariña Corporation to put up a cash equity of ₱1,470,951.00 for
the construction of the buildings and other improvements on the resort complex.
The loan was released in several instalments, and Guariña Corporation used the
proceeds to defray the cost of additional improvements in the resort complex. In all,
the amount released totalled ₱3,003,617.49, from which DBP withheld ₱148,102.98
as interest.6
Guariña Corporation demanded the release of the balance of the loan, but DBP
refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the
latter's objection. DBP found upon inspection of the resort project, its developments
and improvements that Guariña Corporation had not completed the construction
works.7 In a letter dated February 27, 1978,8 and a telegram dated June 9,
1978,9 DBP thus demanded that Guariña Corporation expedite the completion of the
project, and warned that it would initiate foreclosure proceedings should Guariña
Corporation not do so.10
Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings. A notice of foreclosure sale was sent to
Guariña Corporation. The notice was eventually published, leading the clients and
patrons of Guariña Corporation to think that its business operation had slowed down,
and that its resort had already closed.11

On January 6, 1979, Guariña Corporation sued DBP in the RTC to demand specific
performance of the latter's obligations under the loan agreement, and to stop the
foreclosure of the mortgages (Civil Case No. 12707).12However, DBP moved for the
dismissal of the complaint, stating that the mortgaged properties had already been
sold to satisfy the obligation of Guariña Corporation at a public auction held on
January 15, 1979 at the Costa Mario Resort Beach Resort in Oton, Iloilo. 13 Due to
this, Guariña Corporation amended the complaint on February 6, 1979 14 to seek the
nullification of the foreclosure proceedings and the cancellation of the certificate of
sale. DBP filed its answer on December 17, 1979, 15 and trial followed upon the
termination of the pre-trial without any agreement being reached by the parties. 16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC.
At first, the RTC denied the application but later granted it upon DBP's motion for
reconsideration. Aggrieved, Guariña Corporation assailed the granting of the
application before the CA on certiorari (C.A.-G.R. No. 12670-SP entitled Guariña
Agricultural and Realty Development Corporation v. Development Bank of the
Philippines). After the CA dismissed the petition for certiorari, DBP sought the
implementation of the order for the issuance of the writ of possession. Over Guariña
Corporation's opposition, the RTC issued the writ of possession on June 16, 1982. 17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707,
disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial
sales of the mortgaged properties of the plaintiff by the Office of the Provincial
Sheriff of Iloilo on January 15, 1979 are null and void, so with the consequent
issuance of certificates of sale to the defendant of said properties, the registration
thereof with the Registry of Deeds and the issuance of the transfer certificates of title
involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its representative the
actual possession and enjoyment of all the properties foreclosed and possessed by it.
To pay the plaintiff the reasonable rental for the use of its beach resort during the
period starting from the time it (defendant) took over its occupation and use up to the
time possession is actually restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as
it takes possession and management of the beach resort and resume its business
operation.
Civ II*Set I* Obli to Delay cases * Page 14 of 35
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of ₱50,000.00.So
ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC,
and insisted that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN
DECLARING DBP'S FORECLOSURE OF THE MORTGAGED PROPERTIES AS
INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS
INVOKED BY DBP TO JUSTIFY FORECLOSURE AS "NOT SUFFICIENT." ON
THE CONTRARY, THE MORTGAGE WAS FORECLOSED BY EXPRESS
AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE CONTRACT AND
SECTION 2 OF P.D. 385 IN ADDITION TO THE QUESTIONED PAR. NO. 26
PRINTED AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE
CONRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE
MORTGAGED PROPERTIES TO DBP AS INVALID UNDER ARTICLES 2113
AND 2141 OF THE CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE]
ERROR IN ORDERING DBP TO RETURN TO PLAINTIFF THE ACTUAL
POSSESSION AND ENJOYMENT OF ALL THE FORECLOSED PROPERTIES
AND TO PAY PLAINTIFF REASONABLE RENTAL FOR THE USE OF THE
FORECLOSED BEACH RESORT.
V
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST
DBP WHICH MERELY EXERCISED ITS RIGHTS UNDER THE MORTGAGE
CONTRACT.19
In its decision promulgated on March 26, 2003,20 however, the CA sustained the
RTC's judgment but deleted the award of attorney's fees, decreeing:
WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998,
rendered by the Regional Trial Court of Iloilo City, Branch 25 in Civil Case No.
12707 for Specific Performance with Preliminary Injunction is hereby AFFIRMED
with MODIFICATION, in that the award for attorney's fees is deleted.SO
ORDERED.21

DBP timely filed a motion for reconsideration, but the CA denied its motion on
October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration, namely:
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED
MARCH 26, 2003 AND ITS RESOLUTION DATED OCTOBER 9, DENYING
PETITIONER'S MOTION FOR RECONSIDERATION WERE ISSUED IN
ACCORDANCE WITH LAW, PREVAILING JURISPRUDENTIAL DECISION
AND SUPPORTED BY EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO
THE USUAL COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R.
CV NO. 59491 AND THEREFORE IN ACCORDANCE WITH THE "LAW OF
THE CASE DOCTRINE."22
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit financing
scheme for the development of a beach resort, and the releases of the proceeds would
be subject to conditions that included the verification of the progress of works in the
project to forestall diversion of the loan proceeds; and that under Stipulation No. 26
of the mortgage contract, further loan releases would be terminated and the account
would be considered due and demandable in the event of a deviation from the
purpose of the loan,23 including the failure to put up the required equity and the
diversion of the loan proceeds to other purposes. 24 It assails the declaration by the
CA that Guariña Corporation had not yet been in default in its obligations despite
violations of the terms of the mortgage contract securing the promissory note.
Guariña Corporation counters that it did not violate the terms of the promissory note
and the mortgage contracts because DBP had fully collected the interest
notwithstanding that the principal obligation did not yet fall due and become
demandable.25
The submissions of DBP lack merit and substance.
The agreement between DBP and Guariña Corporation was a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to
another who acquires ownership thereof, on the condition that the same amount or
Civ II*Set I* Obli to Delay cases * Page 15 of 35
quality shall be paid.26 Loan is a reciprocal obligation, as it arises from the same
cause where one party is the creditor, and the other the debtor. 27 The obligation of
one party in a reciprocal obligation is dependent upon the obligation of the other, and
the performance should ideally be simultaneous. This means that in a loan, the
creditor should release the full loan amount and the debtor repays it when it becomes
due and demandable.28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security,
executed real estate and chattel mortgages. However, it was never established that
appellee was already in default. Appellant, in a telegram to the appellee reminded the
latter to make good on its construction works, otherwise, it would foreclose the
mortgage it executed. It did not mention that appellee was already in default. The
records show that appellant did not make any demand for payment of the promissory
note. It appears that the basis of the foreclosure was not a default on the loan but
appellee's failure to complete the project in accordance with appellant's standards. In
fact, appellant refused to release the remaining balance of the approved loan after it
found that the improvements introduced by appellee were below appellant's
expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the
instant case bound itself to grant appellee the loan amount of ₱3,387,000.00
condition on appellee's payment of the amount when it falls due. Furthermore, the
loan was evidenced by the promissory note which was secured by real estate
mortgage over several properties and additional chattel mortgage. Reciprocal
obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other (Areola vs. Court of Appeals, 236 SCRA 643). They are
to be performed simultaneously such that the performance of one is conditioned
upon the simultaneous fulfilment of the other (Jaime Ong vs. Court of Appeals, 310
SCRA 1). The promise of appellee to pay the loan upon due date as well as to
execute sufficient security for said loan by way of mortgage gave rise to a reciprocal
obligation on the part of appellant to release the entire approved loan amount. Thus,
appellees are entitled to receive the total loan amount as agreed upon and not an
incomplete amount.
The appellant did not release the total amount of the approved loan. Appellant
therefore could not have made a demand for payment of the loan since it had yet to
fulfil its own obligation. Moreover, the fact that appellee was not yet in default
rendered the foreclosure proceedings premature and improper.

The properties which stood as security for the loan were foreclosed without any
demand having been made on the principal obligation. For an obligation to become
due, there must generally be a demand. Default generally begins from the moment
the creditor demands the performance of the obligation. Without such demand,
judicial or extrajudicial, the effects of default will not arise (Namarco vs. Federation
of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of Misamis
Occidental, 88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of
the approved loan. As a consequence, the real estate mortgage of appellee becomes
unenforceable, as it cannot be entirely foreclosed to satisfy appellee's total debt to
appellant (Central Bank of the Philippines vs. Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows
that appellee is still entitled to possession of the foreclosed properties. However,
appellant took possession of the same by virtue of a writ of possession issued in its
favor during the pendency of the case. Thus, the trial court correctly ruled when it
ordered appellant to return actual possession of the subject properties to appellee or
its representative and to pay appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's
fees is the exception rather than the rule and counsel's fees are not to be awarded
every time a party wins a suit. Attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to
litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38). 29
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed the factual findings of the
RTC, the Court is bound to uphold such findings, for it is axiomatic that the trial
court's factual findings as affirmed by the CA are binding on appeal due to the Court
not being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had
no right yet to exact on Guariña Corporation the latter's compliance with its own
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does
not perform its obligation, the other party cannot be obliged to perform what is
expected of it while the other's obligation remains unfulfilled. 30 In other words, the
latter party does not incur delay.31
Civ II*Set I* Obli to Delay cases * Page 16 of 35
Still, DBP called upon Guariña Corporation to make good on the construction works
pursuant to the acceleration clause written in the mortgage contract (i.e., Stipulation
No. 26),32 or else it would foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a
mortgage constituted on real or personal property to protect the creditor's interest in
case of the default of the debtor. By its nature, however, a mortgage remains an
accessory contract dependent on the principal obligation, 33 such that enforcement of
the mortgage contract will depend on whether or not there has been a violation of the
principal obligation. While a creditor and a debtor could regulate the order in which
they should comply with their reciprocal obligations, it is presupposed that in a loan
the lender should perform its obligation - the release of the full loan amount - before
it could demand that the borrower repay the loaned amount. In other words, Guariña
Corporation would not incur in delay before DBP fully performed its reciprocal
obligation.34
Considering that it had yet to release the entire proceeds of the loan, DBP could not
yet make an effective demand for payment upon Guariña Corporation to perform its
obligation under the loan. According to Development Bank of the Philippines v.
Licuanan,35 it would only be when a demand to pay had been made and was
subsequently refused that a borrower could be considered in default, and the lender
could obtain the right to collect the debt or to foreclose the
mortgage.1âwphi1 Hence, Guariña Corporation would not be in default without the
demand.
Assuming that DBP could already exact from the latter its compliance with the loan
agreement, the letter dated February 27, 1978 that DBP sent would still not be
regarded as a demand to render Guariña Corporation in default under the principal
contract because DBP was only thereby requesting the latter "to put up the
deficiency in the value of improvements." 36
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the
mortgaged properties at its instance were premature, and, therefore, void and
ineffectual.37
Being a banking institution, DBP owed it to Guariña Corporation to exercise the
highest degree of diligence, as well as to observe the high standards of integrity and
performance in all its transactions because its business was imbued with public
interest.38 The high standards were also necessary to ensure public confidence in the
banking system, for, according to Philippine National Bank v. Pike: 39 "The stability
of banks largely depends on the confidence of the people in the honesty and
efficiency of banks." Thus, DBP had to act with great care in applying the
stipulations of its agreement with Guariña Corporation, lest it erodes such public

confidence. Yet, DBP failed in its duty to exercise the highest degree of diligence by
prematurely foreclosing the mortgages and unwarrantedly causing the foreclosure
sale of the mortgaged properties despite Guariña Corporation not being yet in
default. DBP wrongly relied on Stipulation No. 26 as its basis to accelerate the
obligation of Guariña Corporation, for the stipulation was relevant to an Omnibus
Agricultural Loan, to Guariña Corporation's loan which was intended for a project
other than agricultural in nature.
Even so, Guariña Corporation did not elevate the actionability of DBP's negligence
to the CA, and did not also appeal the CA's deletion of the award of attorney's fees
allowed by the RTC.1âwphi1 With the decision of the CA consequently becoming
final and immutable as to Guariña Corporation, we will not delve any further on
DBP's actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already
constituted the law of the case. Hence, the CA could not decide the appeal in C.A.-
G.R. CV No. 59491 differently.
Guariña Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not
constitute the law of the case because C.A.-G.R. No. 12670-SP concerned the issue
of possession by DBP as the winning bidder in the foreclosure sale, and had no
bearing whatsoever to the legal issues presented in C.A.-G.R. CV No. 59491.
Law of the case has been defined as the opinion delivered on a former appeal, and
means, more specifically, that whatever is once irrevocably established as the
controlling legal rule of decision between the same parties in the same case continues
to be the law of the case, whether correct on general principles or not, so long as the
facts on which such decision was predicated continue to be the facts of the case
before the court.40
The concept of law of the case is well explained in Mangold v. Bacon, 41 an
American case, thusly:
The general rule, nakedly and boldly put, is that legal conclusions announced on a
first appeal, whether on the general law or the law as applied to the concrete facts,
not only prescribe the duty and limit the power of the trial court to strict obedience
and conformity thereto, but they become and remain the law of the case in all other
steps below or above on subsequent appeal. The rule is grounded on convenience,
experience, and reason. Without the rule there would be no end to criticism,
Civ II*Set I* Obli to Delay cases * Page 17 of 35
reagitation, reexamination, and reformulation. In short, there would be endless
litigation. It would be intolerable if parties litigants were allowed to speculate on
changes in the personnel of a court, or on the chance of our rewriting propositions
once gravely ruled on solemn argument and handed down as the law of a given case.
An itch to reopen questions foreclosed on a first appeal would result in the
foolishness of the inquisitive youth who pulled up his corn to see how it grew.
Courts are allowed, if they so choose, to act like ordinary sensible persons. The
administration of justice is a practical affair. The rule is a practical and a good one of
frequent and beneficial use.
The doctrine of law of the case simply means, therefore, that when an appellate court
has once declared the law in a case, its declaration continues to be the law of that
case even on a subsequent appeal, notwithstanding that the rule thus laid down may
have been reversed in other cases.42 For practical considerations, indeed, once the
appellate court has issued a pronouncement on a point that was presented to it with
full opportunity to be heard having been accorded to the parties, the pronouncement
should be regarded as the law of the case and should not be reopened on remand of
the case to determine other issues of the case, like damages. 43 But the law of the
case, as the name implies, concerns only legal questions or issues thereby
adjudicated in the former appeal.
The foregoing understanding of the concept of the law of the case exposes DBP's
insistence to be unwarranted.
To start with, the ex parte proceeding on DBP's application for the issuance of the
writ of possession was entirely independent from the judicial demand for specific
performance herein. In fact, C.A.-G.R. No. 12670-SP, being the interlocutory appeal
concerning the issuance of the writ of possession while the main case was pending,
was not at all intertwined with any legal issue properly raised and litigated in C.A.-
G.R. CV No. 59491, which was the appeal to determine whether or not DBP's
foreclosure was valid and effectual. And, secondly, the ruling in C.A.-G.R. No.
12670-SP did not settle any question of law involved herein because this case for
specific performance was not a continuation of C.A.-G.R. No. 12670-SP (which was
limited to the propriety of the issuance of the writ of possession in favor of DBP),
and vice versa.
3.
Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
Having found and pronounced that the extrajudicial foreclosure by DBP was
premature, and that the ensuing foreclosure sale was void and ineffectual, the Court
affirms the order for the restoration of possession to Guarifia Corporation and the

payment of reasonable rentals for the use of the resort. The CA properly held that the
premature and invalid foreclosure had unjustly dispossessed Guarifia Corporation of
its properties. Consequently, the restoration of possession and the payment of
reasonable rentals were in accordance with Article 561 of the Civil Code, which
expressly states that one who recovers, according to law, possession unjustly lost
shall be deemed for all purposes which may redound to his benefit to have enjoyed it
without interruption.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003;
and ORDERS the petitioner to pay the costs of suit.SO ORDERED.
FIRST DIVISION
G.R. No. 213014, October 14, 2015
MAYBANK PHILIPPINES, INC. (FORMERLY PNB-REPUBLIC
BANK1), Petitioner, v. SPOUSES OSCAR AND NENITA
TARROSA, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari2 are the Decision3 dated November
29, 2013 and the Resolution4 dated May 13, 2014 of the Court of Appeals (CA) in
CA-G.R. CV No. 02211, which affirmed the Decision5 dated June 16, 2005 of the
Regional Trial Court of Bacolod City, Branch 41 (RTC) in Civil Case No. 98-10451
declaring the extrajudicial foreclosure sale of the property covered by Transfer
Certificate of Title (TCT) No. T-5649 as null and void for being barred by
prescription.
The Facts
On December 15, 1980, respondents-spouses Oscar and Nenita Tarrosa (Sps.
Tarrosa) obtained from then PNB-Republic Bank, now petitioner Maybank
Philippines, Inc. (Maybank), a loan in the amount of P91,000.00. The loan was
secured by a Real Estate Mortgage6 dated January 5, 1981 (real estate mortgage)
over a 500-square meter parcel of land situated in San Carlos City, Negros
Occidental (subject property), covered by TCT No. T-5649,7 and the improvements
thereon.8
After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained
another loan from Maybank in the amount of P60,000.00 (second loan), 9 payable on
March 11, 1984.10 However, Sps. Tarrosa failed to settle the second loan upon
maturity.11
Sometime in April 1998, Sps. Tarrosa received a Final Demand Letter12 dated March
Civ II*Set I* Obli to Delay cases * Page 18 of 35
4, 1998 (final demand letter) from Maybank requiring them to settle their
outstanding loan in the aggregate amount of P564,579.91, inclusive of principal,
interests, and penalty charges.13 They offered to pay a lesser amount, which
Maybank refused.14 Thereafter, or on June 25, 1998, Maybank commenced
extrajudicial foreclosure proceedings15 before the office of Ex-Officio Provincial
Sheriff Ildefonso Villanueva, Jr. (Sheriff Villanueva). The subject property was
eventually sold in a public auction sale held on July 29, 199816 for a total bid price of
P600,000.00, to the highest bidder, Philmay Property, Inc. (PPI), which was
thereafter issued a Certificate of Sale17 dated July 30, 1998.18
On September 7, 1998, Sps. Tarrosa filed a complaint19 for declaration of nullity and
invalidity of the foreclosure of real estate and of public auction sale proceedings and
damages with prayer for preliminary injunction against Maybank, PPI, Sheriff
Villanueva, and the Registry of Deeds of San Carlos City, Negros Occidental (RD-
San Carlos), before the RTC, docketed as Civil Case No. 98-10451. They
averred, inter alia, that: (a) the second loan was a clean or unsecured loan; (b) after
receiving the final demand letter, they tried to pay the second loan, including the
agreed interests and charges, but Maybank unjustly refused their offers of payment;
and (c) Maybank's right to foreclose had prescribed or is barred by laches. 20
On the other hand, Maybank and PPI countered 21 that: (a) the second loan was
secured by the same real estate mortgage under a continuing security provision
therein; (b) when the loan became past due, Sps. Tarrosa promised to pay and
negotiated for a restructuring of their loan, but failed to pay despite demands; and (c)
Sps. Tarrosa's positive acknowledgment and admission of their indebtedness
controverts the defense of prescription.
The RTC Ruling
In a Decision23 dated June 16, 2005, the RTC held that the second loan was subject
to the continuing security provision in the real estate mortgage.24 However, it ruled
that Maybank's right to foreclose, reckoned from the time the mortgage indebtedness
became due and payable on March 11, 1984, had already prescribed, considering the
lack of any timely judicial action, written extrajudicial demand or written
acknowledgment by the debtor of his debt that could interrupt the prescriptive
period.25Accordingly, it declared the extrajudicial foreclosure proceedings affecting
the subject property as null and void, and ordered Maybank to pay Sps. Tarrosa
moral and exemplary damages, as well as attorney's fees and litigation expenses. 26
Maybank filed a motion for reconsideration27 which was, however, denied in an
Order28 dated December 9, 2005, prompting it to appeal29 to the CA.
The CA Ruling

In a Decision30 dated November 29, 2013, the CA affirmed the RTC ruling that
Maybank's right to foreclose the real estate mortgage over the subject property is
already barred by prescription. It held that the prescriptive period should be reckoned
from March 11, 1984 when the second loan had become past due and remained
unpaid since demand was not a condition sine qua non for the accrual of the latter's
right to foreclose under paragraph 5 of the real estate mortgage. It observed that
Maybank failed to present evidence of any timely written extrajudicial demand or
written acknowledgment by the debtors of their debt that could have effectively
interrupted the running of the prescriptive period. 31
Undaunted, Maybank moved for reconsideration, 32 which was denied in a
Resolution33 dated May 13, 2014; hence this petition.
The Issues Before the Court
The essential issue for the Court's resolution is whether or not the CA committed
reversible error in finding that Maybank's right to foreclose the real estate mortgage
over the subject property was barred by prescription.chanrobleslaw
The Court's Ruling
The petition is meritorious.
An action to enforce a right arising from a mortgage should be enforced within
ten (10) years from the time the right of action accrues, i.e., when the mortgagor
defaults in the payment of his obligation to the mortgagee; otherwise, it will be
barred by prescription and the mortgagee will lose his rights under the
mortgage.34 However, mere delinquency in payment does not necessarily mean
delay in the legal concept. To be in default is different from mere delay in the
grammatical sense, because it involves the beginning of a special condition or status
which has its own peculiar effects or results.35
In order that the debtor may be in default, it is necessary that: (a) the obligation be
demandable and already liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or extrajudicially, 36unless demand is not
necessary - i.e., when there is an express stipulation to that effect; where the law so
provides; when the period is the controlling motive or the principal inducement for
the creation of the obligation; and where demand would be useless. Moreover, it is
not sufficient that the law or obligation fixes a date for performance; it must further
state expressly that after the period lapses, default will commence. Thus, it is only
when demand to pay is unnecessary in case of the aforementioned
circumstances, or when required, such demand is made and subsequently
refused that the mortgagor can be considered in default and the mortgagee
Civ II*Set I* Obli to Delay cases * Page 19 of 35
obtains the right to file an action to collect the debt or foreclose the mortgage.38
In the present case, both the CA and the RTC reckoned the accrual of Maybank's
cause of action to foreclose the real estate mortgage over the subject property from
the maturity of the second loan on May 11, 1984. The CA further held that demand
was unnecessary for the accrual of the cause of action in light of paragraph 5 of the
real estate mortgage, which pertinently provides:
5. In the event that the Mortgagor herein should fail or refuse to pay any of the sums
of money secured by this mortgage, or any part thereof, in accordance with the terms
and conditions herein set forth, or should he/it fail to perform any of the conditions
stipulated herein, then and in any such case, the Mortgagee shall have the right, at its
election to foreclose this mortgage, [x x x].39
However, this provision merely articulated Maybank's right to elect foreclosure upon
Sps. Tarrosa's failure or refusal to comply with the obligation secured, which is one
of the rights duly accorded to mortgagees in a similar situation. 40 In no way did it
affect the general parameters of default, particularly the need of prior demand under
Article 116941 of the Civil Code, considering that it did not expressly declare: (a) that
demand shall not be necessary in order that the mortgagor may be in default; or (b)
that default shall commence upon mere failure to pay on the maturity date of the
loan. Hence, the CA erred in construing the above provision as one through which
the parties had dispensed with demand as a condition sine qua non for the accrual of
Maybank's right to foreclose the real estate mortgage over the subject property, and
thereby, mistakenly reckoned such right from the maturity date of the loan on March
11, 1984. In the absence of showing that demand is unnecessary for the loan
obligation to become due and demandable, Maybank's right to foreclose the real
estate mortgage accrued only after the lapse of the period indicated in its final
demand letter for Sps. Tarrosa to pay, i.e., after the lapse of five (5) days from
receipt of the final demand letter dated March 4, 1998. 42 Consequently, both the CA
and the RTC committed reversible error in declaring that Maybank's right to
foreclose the real estate mortgage had already prescribed.
Thus, considering that the existence of the loan had been admitted, the default on the
part of the debtors-mortgagors had been duly established, and the foreclosure
proceedings had been initiated within the prescriptive period as afore-discussed, the
Court finds no reason to nullify the extrajudicial foreclosure sale of the subject
property.
WHEREFORE, the petition is GRANTED. The Decision dated
November 29, 2013 and the Resolution dated May 13, 2014 of the Court of Appeals
in CA-G.R. CV No. 02211 are hereby REVERSED AND SET ASIDE. The

complaint in Civil Case No. 98-10451 isDISMISSED.
SO ORDERED.
THIRD DIVISION
G.R. No. 194507 September 8, 2014
FEDERAL BUILDERS, INC., Petitioner, vs.FOUNDATION SPECIALISTS,
INC., Respondent,
x-----------------------x
G.R. No. 194621
FOUNDATION SPECIALISTS, INC., Petitioner, vs.FEDERAL BUILDERS,
INC., Respondent.
DECISION
PERALTA, J.:
Before the Court are two consolidated cases, namely: (1) Petition for review on
certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 194507, filed by
Federal Builders, Inc., assailing the Decision1 and Resolution,2dated July 15, 2010
and November 23, 2010, respectively, of the Court of Appeals (CA) in CA-G.R. CV
No. 70849, which affirmed with modification the Decision3 dated May 3, 2001 of the
Regional Trial Court (RTC) in Civil Case No. 92-075; and (2) Petition for review on
certiorari under Rule 45 of the Rules of Court,docketed as G.R. No. 194621, filed by
Foundation Specialists, Inc., assailing the same Decision4 and Resolution,5 dated
July 15, 2010 and November 23, 2010,respectively, of the CA in CA- G.R. CV No.
70849, which affirmed with modification the Decision6 dated May 3, 2001 of the
RTC in Civil Case No. 92-075.
The antecedent facts are as follows:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with
Foundation Specialists, Inc. (FSI) whereby the latter, as subcontractor, undertook the
construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar
Plaza located at Salcedo Village, Makati City (the Project), for a total contract price
of Seven Million Four Hundred Thousand Pesos (₱7,400,000.00). 7 Under the
agreement,8 FBI was to pay a downpayment equivalent to twenty percent (20%) of
the contract price and the balance, through a progress billing every fifteen (15) days,
payable not later than one (1) week from presentation of the billing.
On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the
RTC of Makati City seeking to collect the amount of One Million Six Hundred
Thirty-Five Thousand Two Hundred Seventy-Eight Pesos and Ninety-One Centavos
(₱1,635,278.91), representing Billings No. 3 and 4, with accrued interest from
August 1, 1991 plus moral and exemplary damages with attorney’s fees. 9 In its
complaint,FSI alleged that FBI refused to pay said amount despite demand and
itscompletion of ninety-seven percent (97%) of the contracted works.
Civ II*Set I* Obli to Delay cases * Page 20 of 35
In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five
percent (85%) of the contracted works, failing to finish the diaphragm wall and
component works in accordance with the plans and specifications and abandoning
the jobsite. FBI maintains that because of FSI’s inadequacy, its schedule in finishing
the Project has been delayed resulting in the Project owner’s deferment of its own
progress billings.10 It further interposed counterclaims for amounts it spent for the
remedial works on the alleged defects in FSI’s work.
On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in
favor of FSI, the dispositive portion of its Decision reads:
WHEREFORE, on the basis of the foregoing, judgment is rendered ordering
defendant to pay plaintiff the following:
1. The sum of ₱1,024,600.00 representing billings 3 and 4, less the amount
of ₱33,354.40 plus 12% legal interest from August 30, 1991;
2. The sum of ₱279,585.00 representing the cost of undelivered cement;
3. The sum of ₱200,000.00 as attorney’s fees; and
4. The cost of suit.
Defendant’s counterclaim is deniedfor lack of factual and legal basis.
SO ORDERED.11
On appeal, the CA affirmed the Decision of the lower court, but deleted the sum of
₱279,585.00 representing the cost of undelivered cement and reduced the award of
attorney’s fees to ₱50,000.00. In its Decision12 dated July 15, 2010, the CA
explained that FSI failed to substantiate how and in what manner it incurred the cost
of cement by stressing that its claim was not supported by actual receipts. Also, it
found that while the trial court did not err in awarding attorney’s fees, the same
should be reduced for being unconscionable and excessive. On FBI’s rejection of the
12% annual interest rate on the amount of Billings 3 and 4, the CA ruled that the
lower court did not err in imposing the same in the following wise:
x x x The rule is well-settled that when an obligation is breached, and it consists in
the payment of a sum of money, the interest due shall itself earn legal interest from
the time it is judicially demanded (BPI Family Savings Bank, Inc. vs. First Metro
Investment Corporation, 429 SCRA 30). When there is no rate of interest stipulated,
such as in the present case, the legal rate of interest shall be imposed, pursuant to
Article 2209 of the New Civil Code. In the absence of a stipulated interest rate on a
loan due, the legal rate of interest shall be 12% per annum. 13
Both parties filed separate Motions for Reconsideration assailing different portions
of the CADecision, but to no avail.14 Undaunted, they subsequently elevated their
claims withthis Court via petitions for review on certiorari.

On the one hand, FSI asserted that the CA should not have deleted the sum of
₱279,585.00 representing the cost of undelivered cement and reduced the award of
attorney’s fees to ₱50,000.00, since it was an undisputed fact that FBI failed to
deliver the agreed quantity of cement. On the other hand, FBI faulted the CA for
affirming the decision of the lower court insofar as the award of the sum representing
Billings 3 and 4, the interest imposed thereon, and the rejection of his counterclaim
were concerned. In a Resolution15 dated February 21, 2011, however, this Court
denied, with finality, the petition filed by FSI in G.R. No. 194621 for having been
filed late.
Hence, the present petition filed byFBI in G.R. No. 194507 invoking the following
arguments:
I.
THE COURT OF APPEALS COMMITTED A CLEAR, REVERSABLE ERROR
WHEN IT AFFIRMED THE TRIAL COURT’S JUDGMENT THAT FEDERAL
BUILDERS, INC. WAS LIABLE TO PAY THE BALANCE OF ₱1,024,600.00
LESS THE AMOUNT OF ₱33,354.40 NOTWITHSTANDING THAT THE
DIAPHRAGM WALL CONSTRUCTED BY FOUNDATION SPECIALIST, INC.
WAS CONCEDEDLY DEFECTIVE AND OUT-OF-SPECIFICATIONS AND
THAT PETITIONER HAD TO REDO IT AT ITS OWN EXPENSE.
II.
THE COURT OF APPEALS COMMITTED SERIOUS, REVERSABLE ERROR
WHEN IT IMPOSED THE 12% LEGAL INTEREST FROM AUGUST 30, 1991
ON THE DISPUTED CLAIM OF ₱1,024,600.00 LESS THE AMOUNT OF
₱33,354.40 DESPITE THE FACT THAT THERE WAS NO STIPULATION IN
THE AGREEMENT OF THE PARTIES WITH REGARD TO INTEREST AND
DESPITE THE FACT THAT THEIR AGREEMENT WAS NOT A "LOAN OR
FORBEARANCE OF MONEY."
III.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS
REVERSABLE ERROR WHEN IT DISMISSED THE COUNTERCLAIM OF
PETITIONER NOTWITHSTANDING OVERWHELMING EVIDENCE
SUPPORTING ITS CLAIM OF ₱8,582,756.29 AS ACTUAL DAMAGES.
The petition is partly meritorious.
We agree with the courts below and reject FBI’s first and third arguments. Well-
entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respectand considered conclusive between the parties, save for the following
exceptional and meritorious circumstances: (1) when the factual findings of the
Civ II*Set I* Obli to Delay cases * Page 21 of 35
appellate court and the trial court are contradictory; (2) whenthe findings of the trial
court are grounded entirely on speculation, surmises or conjectures; (3) when the
lower court’s inference from its factual findings is manifestly mistaken, absurd or
impossible; (4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the findings of the appellate court go beyond the issues of the case, or fail
to notice certain relevant facts which, if properly considered, will justify a different
conclusion; (6) when there is a misappreciation of facts; (7) when the findings of fact
are themselves conflicting; and (8) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on record. 16
None of the aforementioned exceptions are present herein. In the assailed Decision,
the RTC meticulouslydiscussed the obligations of each party, the degree of their
compliance therewith, as well as their respective shortcomings, all of which were
properly substantiated with the corresponding documentary and testimonial
evidence.
Under the construction agreement, FSI’s scope of workconsisted in (1) the
construction of the guide walls, diaphragm walls, and capping beam; and (2) the
installation of steel props.17 As the lower courts aptly observed from the records at
hand, FSI had, indeed, completed ninety-seven percent (97%) of its contracted works
and the non-completion of the remaining three percent (3%), as well as the alleged
defects in the said works, are actually attributable to FBI’s own fault such as, but not
limited to, the failure to deliver the needed cement as agreed upon in the contract, to
wit:
On March 8, 1991, plaintiff had finished the construction of the guide wall and
diaphragm wall (Exh. "R") but had not yet constructed the capping beam as of April
22, 1991 for defendant’s failure to deliver the needed cement in accordance with
their agreement(Exhibit "I"). The diaphragm wall had likewise been concrete tested
and was found to have conformed with the required design strength (Exh. "R").
Subsequently, plaintiff was paid the aggregate amount of ₱5,814,000.00. But as of
May 30, 1991, plaintiff’s billings numbers 3 and 4 had remained unpaid (Exhs. "L",
"M", and "M-1").
xxxx
On the misaligned diaphragm wall from top to bottom and inbetween panels,
plaintiff explained thatin the excavation of the soil where the rebar cages are lowered
and later poured with concrete cement, the characteristics of the soil is not the same
or homogenous all throughout. Because of this property of the soil,in the process of
excavation, it may erode in some places that may cause spaces that the cement may
fill or occupy which would naturally cause bulges, protrusions and misalignment in
the concrete cast into the excavated ground(tsn., June 1, 2000, pp 14-18). This, in

fact was anticipated when the agreement was executed and included as provision 6.4
thereof.
The construction of the diaphragm wall panel by panel caused misalignment and the
chipping off of the portions misaligned is considered a matter of course. Defendant,
as the main contractor of the project, has the responsibility of chopping or chipping
off of bulges(tsn., ibid, pp 20-21). Wrong location of rebar dowels was anticipated
by both contractor and subcontractor as the latter submitted a plan called "Detail of
Sheer Connectors" (Exh "T") which was approved.The plan provided two
alternatives by which the wrong location of rebar dowels may be remedied. Hence,
defendant, aware of the possibility of inaccurate location of these bars, cannot
therefore ascribe the same to the plaintiff as defective work.
Construction of the capping beam required the use of cement. Records, however,
show that from September 14, 1990 up to May 30, 1991 (Exhs. "B" to "L"), plaintiff
had repeatedly requested defendant to deliver cement. Finally, on April 22, 1991,
plaintiff notified defendant of its inability to construct the capping beam for the
latter’s failure to deliver the cement as provided in their agreement(Exh. "I").
Although records show that there was mention of revision of design, there was no
evidence presented to show such revision required less amount of cement than what
was agreed on by plaintiff and defendant.
The seventh phase of the construction of the diaphragm wall is the construction of
the steel props which could be installed only after the soil has been excavated by the
main contractor. When defendant directed plaintiff to install the props, the latter
requested for a site inspection to determine if the excavation of the soil was finished
up to the 4th level basement. Plaintiff, however, did not receive any response.It later
learned that defendant had contracted out that portion of work to another sub-
contractor (Exhs. "O" and "P"). Nevertheless, plaintiff informed defendant of its
willingness to execute that portion of its work.18
It is clear from the foregoing that contrary to the allegations of FBI, FSI had indeed
completed its assigned obligations, with the exception of certain assigned tasks,
which was due to the failure of FBI to fulfil its end of the bargain.
It can similarly be deduced that the defects FBI complained of, such as the
misaligned diaphragm wall and the erroneous location of the rebar dowels, were not
only anticipated by the parties, having stipulated alternative plans to remedy the
same, but more importantly, are also attributable to the very actions of FBI.
Accordingly, considering that the alleged defects in FSI’s contracted works were not
so much due to the fault or negligence of the FSI, but were satisfactorily proven to be
caused by FBI’s own acts, FBI’s claim of ₱8,582,756.29 representing the cost of the
measures it undertook to rectify the alleged defects must necessarily fail. In fact, as
Civ II*Set I* Obli to Delay cases * Page 22 of 35
the lower court noted, at the time when FBI had evaluated FSI’s works, it did not
categorically pose any objection thereto, viz:
Defendant admitted that it had paid ₱6 million based on its evaluation of plaintiff’s
accomplishments (tsn., Sept. 28, 2000, p. 17) and its payment was made without
objection on plaintiff’s works, the majority of which were for the accomplishments
in the construction of the diaphragm wall (tsn., ibid, p. 70).
xxxx
While there is no evidence to show the scope of work for these billings, it is safe to
assume that these were also works in the construction of the diaphragm wall
considering that as of May 16, 1991, plaintiff had only the installation of the steel
props and welding works to complete (Exh. "H"). If defendant was able to evaluate
the work finished by plaintiff the majority of which was the construction of the
diaphragm wall and paid it about ₱6 million as accomplishment, there was no reason
why it could not evaluate plaintiff’s works covered by billings 3 and 4.In other
words, defendants did nothave to excavate in order to determine and evaluate
plaintiff’s works. Hence, defendant’s refusal to pay was not justified and the alleged
defects of the diaphragm wall (tsn, Sept. 28, 2000, p. 17) which it claims to have
discovered only after January 1992 were mere afterthoughts. 19
Thus, in the absence of any record to otherwise prove FSI’s neglect in the fulfilment
of its obligations under the contract, this Court shall refrain from reversing the
findings of the courts below, which are fully supported by and deducible from, the
evidence on record. Indeed, FBI failed to present any evidence to justify its refusal to
pay FSI for the works it was contracted to perform. As such, We do not see any
reason to deviate from the assailed rulings.
Anent FBI’s second assignment of error, however, We find merit in the argument
that the 12% interest rateis inapplicable, since this case does not involve a loan or
forbearance ofmoney. In the landmark case of Eastern Shipping Lines, Inc. v. Court
of Appeals,20 We laid down the following guidelines in 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 Article1169 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.21
In line, however, with the recent circular of the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP-MB) No. 799, we have modified the guidelines in Nacar v.
Gallery Frames,22 as follows:
I. When an obligation, regardless of itssource, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annumto be
computed from default, i.e., from judicial or extrajudicial demand
Civ II*Set I* Obli to Delay cases * Page 23 of 35
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 6% per annumfrom 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.23
It should be noted, however, 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.
Thus, the need to determine whether the obligation involved herein is a loanand
forbearance of money nonetheless exists.
In S.C. Megaworld Construction and Development Corporation v. Engr.
Parada,24 We clarified the meaning of obligations constituting loans or forbearance
of money in the following wise:
As further clarified in the case of Sunga-Chan v. CA, a loan or forbearance of
money, goods or credit describes a contractual obligation whereby a lender or
creditor has refrained during a given period from requiring the borrower or debtor to
repay the loan or debt then due and payable. Thus:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum
under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving
the loan or forbearance of money. And for transactions involving payment of
indemnities in the concept of damages arising from default in the performance of
obligations in general and/or for money judgment not involving a loan or
forbearance of money, goods, or credit, the governing provision is Art. 2209 of the
Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has been described as a
contractual obligation ofa lender or creditor to refrain, during a given period of time,
from requiring the borrower or debtor to repay the loan or debt then due and
payable.25
Forbearance of money, goods or credits, therefore, refers to arrangements other than
loan agreements, where a person acquiesces to the temporary use of his money,
goods orcredits pending the happening of certain events or fulfilment of certain
conditions.26 Consequently, if those conditions are breached, said person is entitled
not only to the return of the principal amount paid, but also to compensation for the
use of his money which would be the same rateof legal interest applicable to a loan
since the use or deprivation of funds therein is similar to a loan. 27
This case, however, does not involve an acquiescence to the temporary use of a
party’s money but a performance of a particular service, specifically the construction
of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza.
A review of similar jurisprudence would tell us that this Court had repeatedly
recognized this distinction and awarded interest at a rate of 6% on actual or
compensatory damages arising from a breach not only of construction
contracts,28 such as the one subject ofthis case, but also of contracts wherein one of
the parties reneged on its obligation to perform messengerial services,29 deliver
certain quantities of molasses,30 undertake the reforestation of a denuded forest
land,31 as well as breaches of contracts of carriage,32 and trucking agreements.33 We
have explained therein that the reason behind such is that said contracts do not
partake of loans or forbearance of money but are more in the nature of contracts of
service.
Thus, in the absence of any stipulation as to interest in the agreement between the
parties herein, the matter of interest award arising from the dispute in this case would
Civ II*Set I* Obli to Delay cases * Page 24 of 35
actually fall under the second paragraph of the above-quoted guidelines inthe
landmark case of Eastern Shipping Lines, which necessitates the imposition of
interestat the rate of 6%, instead of the 12% imposed by the courts below.
The 6% interest rate shall further be imposed from the finality of the judgment herein
until satisfaction thereof, in light of our recent ruling in Nacar v. Gallery Frames. 34
Note, however, that contrary to FBI’sassertion, We find no error in the RTC’s ruling
that the interest shall begin to run from August 30, 1991 as this is the date when FSI
extrajudicially made its claim against FBI through a letter demanding payment for its
services.35
In view of the foregoing, therefore, We find no compelling reason to disturb the
factual findings of the RTC and the CA, which are fully supported by and deducible
from, the evidence on record, insofar as the sum representing Billings 3 and 4 is
concerned. As to the rate of interest due thereon, however, We note that the same
should be reduced to 6% per annum considering the fact that the obligation involved
herein does not partake of a loan or forbearance of money.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision
and Resolution, dated July 15, 2010 and November 23, 2010, respectively, of the
Court of Appeals in CA-G.R. CV No. 70849 are hereby AFFIRMED with
MODIFICATION. Federal Builders, Inc. is ORDERED to pay Foundation
Specialists, Inc. the sum of Pl ,024,600.00 representing billings 3 and 4, less the
amount of ₱33,354.40, plus interest at six percent (6%) per annum reckoned from
August 30, 1991 until full payment thereof.SO ORDERED.
G.R. No. 184458 January 14, 2015
RODRIGO RIVERA, Petitioner, vs. SPOUSES SALVADOR CHUA AND
VIOLETA S. CHUA, Respondents.
x-----------------------x
G.R. No. 184472
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners, vs. RODRIGO
RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision1 of the Court of Appeals in CA-G.R. SP No.
90609 which affirmed with modification the separate rulings of the Manila City trial
courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and the
Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No. 163661, 3 a case for
collection of a sum of money due a promissory note. While all three (3) lower courts
upheld the validity and authenticity of the promissory note as duly signed by the

obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate court
modified the trial courts’ consistent awards: (1) the stipulated interest rate of sixty
percent (60%) reduced to twelve percent (12%) per annumcomputed from the date of
judicial or extrajudicial demand, and (2) reinstatement of the award of attorney’s fees
also in a reduced amount of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid
promissory note and questions the entire ruling of the lower courts. On the other
hand, petitioners in G.R. No. 184472, Spouses Salvador and Violeta Chua (Spouses
Chua), take exception to the appellate court’s reduction of the stipulated interest rate
of sixty percent (60%) to twelve percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since 1973:
Rivera and Salvador are kumpadres, the former is the godfather of the Spouses
Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses
SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred
Twenty Thousand Philippine Currency (₱120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of (120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay
the sum equivalent to FIVE PERCENT (5%) interest monthly from the date of
default until the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further sum
equivalent to twenty percent (20%) of the total amount due and payable as and for
attorney’s fees which in no case shall be less than ₱5,000.00 and to pay in addition
the cost of suit and other incidental litigation expense.
Any action which may arise in connection with this note shall be brought in the
proper Court of the City of Manila.
Manila, February 24, 1995[.]
Civ II*Set I* Obli to Delay cases * Page 25 of 35
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the
promissory note, Rivera, as partial payment for the loan, issued and delivered to the
SpousesChua, as payee, a check numbered 012467, dated 30 December 1998, drawn
against Rivera’s current account with the Philippine Commercial International Bank
(PCIB) in the amount of ₱25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably issued
by Rivera, likewise drawn against Rivera’s PCIB current account, numbered 013224,
duly signed and dated, but blank as to payee and amount. Ostensibly, as per
understanding by the parties, PCIB Check No. 013224 was issued in the amount of
₱133,454.00 with "cash" as payee. Purportedly, both checks were simply partial
payment for Rivera’s loan in the principal amount of ₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason
"account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at ₱366,000.00
covering the principal of ₱120,000.00 plus five percent (5%) interest per month from
1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera
to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled before the MeTC,
Branch 30, Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never
executed the subject Promissory Note; (2) in all instances when he obtained a loan
from the Spouses Chua, the loans were always covered by a security; (3) at the time
of the filing of the complaint, he still had an existing indebtedness to the Spouses
Chua, secured by a real estate mortgage, but not yet in default; (4) PCIB Check No.
132224 signed by him which he delivered to the Spouses Chua on 21 December
1998, should have been issued in the amount of only 1,300.00, representing the
amount he received from the Spouses Chua’s saleslady; (5) contrary to the supposed
agreement, the Spouses Chua presented the check for payment in the amount of
₱133,454.00; and (6) there was no demand for payment of the amount of
₱120,000.00 prior to the encashment of PCIB Check No. 0132224. 5
In the main, Rivera claimed forgery of the subject Promissory Note and denied his
indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective witnesses:

[The spouses Chua’s] evidence include[s] documentary evidence and oral evidence
(consisting of the testimonies of [the spouses] Chua and NBI Senior Documents
Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI (1987);
NBI document examiner (1989); NBI Senior Document Examiner (1994 to the date
he testified); registered criminologist; graduate of 18th Basic Training Course [i]n
Questioned Document Examination conducted by the NBI; twice attended a seminar
on US Dollar Counterfeit Detection conducted by the US Embassy in Manila;
attended a seminar on Effective Methodology in Teaching and Instructional design
conducted by the NBI Academy; seminar lecturer on Questioned Documents,
Signature Verification and/or Detection; had examined more than a hundred
thousand questioned documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of
[Rivera] appearing in the Promissory Note and compared the signature thereon with
the specimen signatures of [Rivera] appearing on several documents. After a
thorough study, examination, and comparison of the signature on the questioned
document (Promissory Note) and the specimen signatures on the documents
submitted to him, he concluded that the questioned signature appearing in the
Promissory Note and the specimen signatures of [Rivera] appearing on the other
documents submitted were written by one and the same person. In connection with
his findings, Magbojos prepared Questioned Documents Report No. 712-1000 dated
8 January 2001, with the following conclusion: "The questioned and the standard
specimen signatures RODGRIGO RIVERA were written by one and the same
person."
[Rivera] testified as follows: he and [respondent] Salvador are "kumpadres;" in May
1998, he obtained a loan from [respondent] Salvador and executed a real estate
mortgage over a parcel of land in favor of [respondent Salvador] as collateral; aside
from this loan, in October, 1998 he borrowed ₱25,000.00 from Salvador and issued
PCIB Check No. 126407 dated 30 December 1998; he expressly denied execution of
the Promissory Note dated 24 February 1995 and alleged that the signature appearing
thereon was not his signature; [respondent Salvador’s] claim that PCIB Check No.
0132224 was partial payment for the Promissory Note was not true, the truth being
that he delivered the check to [respondent Salvador] with the space for amount left
blank as he and [respondent] Salvador had agreed that the latter was to fill it in with
the amount of ₱1,300.00 which amount he owed [the spouses Chua]; however, on 29
December 1998 [respondent] Salvador called him and told him that he had written
₱133,454.00 instead of ₱1,300.00; x x x. To rebut the testimony of NBI Senior
Document Examiner Magbojos, [Rivera] reiterated his averment that the signature
appearing on the Promissory Note was not his signature and that he did not execute
the Promissory Note.6
Civ II*Set I* Obli to Delay cases * Page 26 of 35
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: ₱120,000.00 plus
stipulated interest at the rate of 5% per month from 1 January 1996, and legal interest
at the rate of 12% percent per annum from 11 June 1999, as actual and compensatory
damages; 20% of the whole amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the
MeTC, but deleted the award of attorney’s fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted,
the rest of the Decision dated October 21, 2002 is hereby AFFIRMED. 8
Both trial courts found the Promissory Note as authentic and validly bore the
signature of Rivera. Undaunted, Rivera appealed to the Court of Appeals which
affirmed Rivera’s liability under the Promissory Note, reduced the imposition of
interest on the loan from 60% to 12% per annum, and reinstated the award of
attorney’s fees in favor of the Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the
MODIFICATION that the interest rate of 60% per annum is hereby reduced to12%
per annum and the award of attorney’s fees is reinstated atthe reduced amount of
₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No.
184458 and the Spouses Chua in G.R. No. 184472, respectively raising the following
issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THE RULING OF THE RTC AND M[e]TC THAT THERE WAS A
VALID PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT DEMAND IS NO LONGER NECESSARY AND IN
APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
AWARDING ATTORNEY’S FEES DESPITE THE FACT THAT THE SAME
HAS NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT

[THE SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION OF THE
RTC DELETING THE AWARD OF ATTORNEY’S FEES. 10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED
GROSS LEGAL ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT
BY REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12% PER
ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER RAISED IN HIS
ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE OF
INTEREST IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE,
INEQUITABLE, ILLEGAL, IMMORAL OR VOID. 11
As early as 15 December 2008, wealready disposed of G.R. No. 184472 and denied
the petition, via a Minute Resolution, for failure to sufficiently show any reversible
error in the ruling of the appellate court specifically concerning the correct rate of
interest on Rivera’s indebtedness under the Promissory Note. 12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera
questioning the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims that given
his friendship withthe Spouses Chua who were money lenders, he has been able to
maintain a loan account with them. However, each of these loan transactions was
respectively "secured by checks or sufficient collateral."
Rivera points out that the Spouses Chua "never demanded payment for the loan nor
interest thereof (sic) from [Rivera] for almost four (4) years from the time of the
alleged default in payment [i.e., after December 31, 1995]." 13
On the issue of the supposed forgery of the promissory note, we are not inclined to
depart from the lower courts’ uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory
note was forged, only that the signature is not his and varies from his usual signature.
He likewise makes a confusing defense of having previously obtained loans from the
Spouses Chua who were money lenders and who had allowed him a period of
"almost four (4) years" before demanding payment of the loan under the Promissory
Note.
Civ II*Set I* Obli to Delay cases * Page 27 of 35
First, we cannot give credence to such a naked claim of forgery over the testimony of
the National Bureau of Investigation (NBI) handwriting expert on the integrity of the
promissory note. On that score, the appellate court aptly disabled Rivera’s
contention:
[Rivera] failed to adduce clear and convincing evidence that the signature on the
promissory note is a forgery. The fact of forgery cannot be presumed but must be
proved by clear, positive and convincing evidence. Mere variance of signatures
cannot be considered as conclusive proof that the same was forged. Save for the
denial of Rivera that the signature on the note was not his, there is nothing in the
records to support his claim of forgery. And while it is true that resort to experts is
not mandatory or indispensable to the examination of alleged forged documents, the
opinions of handwriting experts are nevertheless helpful in the court’s determination
of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the
promissory note and the testimony of the NBI witness. In fact, even a perfunctory
comparison of the signatures offered in evidence would lead to the conclusion that
the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must establish
his case by preponderance of evidence, which simply means "evidence which is of
greater weight, or more convincing than that which is offered in opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses Chua] have
established a prima faciecase in their favor, hence, the burden of evidence has shifted
to [Rivera] to prove his allegation of forgery. Unfortunately for [Rivera], he failed to
substantiate his defense.14 Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the appellate court, are
accorded the highest degree of respect and are considered conclusive between the
parties.15 A review of such findings by this Court is not warranted except upon a
showing of highly meritorious circumstances, such as: (1) when the findings of a
trial court are grounded entirely on speculation, surmises or conjectures; (2) when a
lower court's inference from its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts;
(4) when the findings of the appellate court go beyond the issues of the case, or fail
to notice certain relevant facts which, if properly considered, will justify a different
conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact
are conclusions without mention of the specific evidence on which they are based,
are premised on the absence of evidence, or are contradicted by evidence on
record.16 None of these exceptions obtains in this instance. There is no reason to
depart from the separate factual findings of the three (3) lower courts on the validity
of Rivera’s signature reflected in the Promissory Note.

Indeed, Rivera had the burden ofproving the material allegations which he sets up in
his Answer to the plaintiff’s claim or cause of action, upon which issue is joined,
whether they relate to the whole case or only to certain issues in the case. 17
In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the
testimony of a handwriting expert from the NBI. While it is true that resort to experts
is not mandatory or indispensable to the examination or the comparison of
handwriting, the trial courts in this case, on its own, using the handwriting expert
testimony only as an aid, found the disputed document valid. 18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following:
categorical statement of [respondent] Salvador that [Rivera] signed the Promissory
Note before him, in his ([Rivera’s]) house; the conclusion of NBI Senior Documents
Examiner that the questioned signature (appearing on the Promissory Note) and
standard specimen signatures "Rodrigo Rivera" "were written by one and the same
person"; actual view at the hearing of the enlarged photographs of the questioned
signature and the standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it is beyond
logic for a money lender to extend another loan on May 4, 1998 secured by a real
estate mortgage, when he was already in default and has not been paying any interest
for a loan incurred in February 1995." 20
We disagree.
It is likewise likely that precisely because of the long standing friendship of the
parties as "kumpadres," Rivera was allowed another loan, albeit this time secured by
a real estate mortgage, which will cover Rivera’s loan should Rivera fail to pay.
There is nothing inconsistent with the Spouses Chua’s two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage and the other,
secured by only a Promissory Note.
Also completely plausible is thatgiven the relationship between the parties, Rivera
was allowed a substantial amount of time before the Spouses Chua demanded
payment of the obligation due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of
forgery and a discordant defense to assail the authenticity and validity of the
Promissory Note. Although the burden of proof rested on the Spouses Chua having
instituted the civil case and after they established a prima facie case against Rivera,
Civ II*Set I* Obli to Delay cases * Page 28 of 35
the burden of evidence shifted to the latter to establish his defense. 21 Consequently,
Rivera failed to discharge the burden of evidence, refute the existence of the
Promissory Note duly signed by him and subsequently, that he did not fail to pay his
obligation thereunder. On the whole, there was no question left on where the
respective evidence of the parties preponderated—in favor of plaintiffs, the Spouses
Chua. Rivera next argues that even assuming the validity of the Promissory Note,
demand was still necessary in order to charge him liable thereunder. Rivera argues
that it was grave error on the part of the appellate court to apply Section 70 of the
Negotiable Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable instrument and the
provisions of the NIL do not apply to this case. Section 1 of the NIL requires the
concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note
is: SECTION 184. Promissory Note, Defined. – A negotiable promissory note within
the meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a note
is drawn to the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua
as payees. However, even if Rivera’s Promissory Note is not a negotiable instrument
and therefore outside the coverage of Section 70 of the NIL which provides that
presentment for payment is not necessary to charge the person liable on the
instrument, Rivera is still liable under the terms of the Promissory Note that he
issued.
The Promissory Note is unequivocal about the date when the obligation falls due and
becomes demandable—31 December 1995. As of 1 January 1996, Rivera had
already incurred in delay when he failed to pay the amount of ₱120,000.00 due to the
Spouses Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins.
(Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in
default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement
for the creation of the obligation; and (4) where demand would be useless. In the first
two paragraphs, it is not sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the period lapses, default will
commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of
(₱120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I
agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly from the
date of default until the entire obligation is fully paid for. 23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the
"date of default" until the entire obligation is fully paid for. The parties evidently
agreed that the maturity of the obligation at a date certain, 31 December 1995, will
give rise to the obligation to pay interest. The Promissory Note expressly provided
Civ II*Set I* Obli to Delay cases * Page 29 of 35
that after 31 December 1995, default commences and the stipulation on payment of
interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following
31 December 1995, the due date of the obligation. On that date, Rivera became liable
for the stipulated interest which the Promissory Note says is equivalent to 5% a
month. In sum, until 31 December 1995, demand was not necessary before Rivera
could be held liable for the principal amount of ₱120,000.00. Thereafter, on 1
January 1996, upon default, Rivera became liable to pay the Spouses Chua damages,
in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of
delay, in the performance of their obligations is laid down on Article 1170 24 of the
Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as
an indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for
a sum of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or
before 31 December 1995; and (3) the Promissory Note provides for an indemnity
for damages upon default of Rivera which is the payment of a 5%monthly interest
from the date of default.
We do not consider the stipulation on payment of interest in this case as a penal
clause although Rivera, as obligor, assumed to pay additional 5% monthly interest on
the principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if
there isno stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.

The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.
The penal clause is generally undertaken to insure performance and works as either,
or both, punishment and reparation. It is an exception to the general rules on
recovery of losses and damages. As an exception to the general rule, a penal clause
must be specifically set forth in the obligation.25
In high relief, the stipulation in the Promissory Note is designated as payment of
interest, not as a penal clause, and is simply an indemnity for damages incurred by
the Spouses Chua because Rivera defaulted in the payment of the amount of
₱120,000.00. The measure of damages for the Rivera’s delay is limited to the interest
stipulated in the Promissory Note. In apt instances, in default of stipulation, the
interest is that provided by law.26
In this instance, the parties stipulated that in case of default, Rivera will pay interest
at the rate of 5% a month or 60% per annum. On this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states the date of
payment tobe 31 December 1995. Given this circumstance, demand by the creditor
isno longer necessary in order that delay may exist since the contract itself already
expressly so declares. The mere failure of [Spouses Chua] to immediately demand or
collect payment of the value of the note does not exonerate [Rivera] from his liability
therefrom. Verily, the trial court committed no reversible error when it imposed
interest from 1 January 1996 on the ratiocination that [Spouses Chua] were relieved
from making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum
in addition to legal interests and attorney’s fees is, indeed, highly iniquitous and
unreasonable. Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. Since the interest rate
agreed upon is void, the parties are considered to have no stipulation regarding the
interest rate, thus, the rate of interest should be 12% per annum computed from the
date of judicial or extrajudicial demand.27
The appellate court found the 5% a month or 60% per annum interest rate, on top of
the legal interest and attorney’s fees, steep, tantamount to it being illegal, iniquitous
and unconscionable. Significantly, the issue on payment of interest has been squarely
disposed of in G.R. No. 184472 denying the petition of the Spouses Chua for failure
to sufficiently showany reversible error in the ruling of the appellate court,
specifically the reduction of the interest rate imposed on Rivera’s indebtedness under
the Promissory Note. Ultimately, the denial of the petition in G.R. No. 184472 is res
Civ II*Set I* Obli to Delay cases * Page 30 of 35
judicata in its concept of "bar by prior judgment" on whether the Court of Appeals
correctly reduced the interest rate stipulated in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the following
requisites concur: (1) the former judgment or order must be final; (2) the judgment or
order must be on the merits; (3) the decision must have been rendered by a court
having jurisdiction over the subject matter and the parties; and (4) there must be,
between the first and the second action, identity of parties, of subject matter and of
causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of
parties and subject matter raising specifically errors in the Decision of the Court of
Appeals. Where the Court of Appeals’ disposition on the propriety of the reduction
of the interest rate was raised by the Spouses Chua in G.R. No. 184472, our ruling
thereon affirming the Court of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default under the
Promissory Note, the then prevailing rate of legal interest was 12% per annum under
Central Bank (CB) Circular No. 416 in cases involving the loan or for bearance of
money.29 Thus, the legal interest accruing from the Promissory Note is 12% per
annum from the date of default on 1 January 1996. However, the 12% per annumrate
of legal interest is only applicable until 30 June 2013, before the advent and
effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013
reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar
v. Gallery Frames,30 BSP Circular No. 799 is prospectively applied from 1 July
2013. In short, the applicable rate of legal interest from 1 January 1996, the date
when Rivera defaulted, to date when this Decision becomes final and executor is
divided into two periods reflecting two rates of legal interest: (1) 12% per annum
from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM 1 July 2013 to
date when this Decision becomes final and executory.
As for the legal interest accruing from 11 June 1999, when judicial demand was
made, to the date when this Decision becomes final and executory, such is likewise
divided into two periods: (1) 12% per annum from 11 June 1999, the date of judicial
demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this
Decision becomes final and executor.31 We base this imposition of interest on
interest due earning legal interest on Article 2212 of the Civil Code which provides
that "interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera
to the Spouses Chua could already be determined with reasonable certainty given the
wording of the Promissory Note.32
 Civ II*Set I* Obli to Delay cases * Page 31 of 35

We cite our recent ruling in Nacar v. Gallery Frames:33 2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
I. When an obligation, regardless of its source, i.e., law, contracts, may be imposed at the discretion of the court at the rate of 6% per
quasicontracts, delicts or quasi-delicts is breached, the contravenor can be annum.1âwphi1 No interest, however, shall be adjudged on
held liable for damages. The provisions under Title XVIII on "Damages" of unliquidated claims or damages, except when or until the demand
the Civil Code govern in determining the measure of recoverable damages. 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
Face value of Stipulated Interest Interest due earning Attorney’s Total extrajudicially (Art. 1169, Civil Code), but when such certainty
the Promissory A&B legal interest A & B fees Amount cannot be so reasonably established at the time the demand is
Note made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
February 24, A. January 1, 1996 A. June 11, 1999 Wholesale
damages may be deemed to have been reasonably ascertained).
1995 to to (date of judicial Amount
The actual base for the computation of legal interest shall, in any
December 31, June 30, 2013 demand) to June
case, be on the amount finally adjudged. 3. When the judgment of
1995 30, 2013
the court awarding a sum of money becomes final and executory,
B. July 1 2013 to B. July 1, 2013 to
the rate of legal interest, whether the case falls under paragraph 1
date when this date when this
or paragraph 2, above, shall be 6% per annum from such finality
Decision becomes Decision becomes
until its satisfaction, this interim period being deemed to be by then
final and executory final and executory
an equivalent to a for bearance of credit. And, in addition to the
₱120,000.00 A. 12 % per A. 12% per ₱50,000.00 Total above, judgments that have become final and executory prior to
annumon the annumon the total amount of July 1, 2013, shall not be disturbed and shall continue to be
principal amount of amount of column Columns implemented applying the rate of interest fixed therein. (Emphasis
₱120,000.00 2 1-4 supplied)
B. 6% per annumon B. 6% per annumon
the principal the total amount of On the reinstatement of the award of attorney’s fees based on the stipulation in the
amount of column 235 Promissory Note, weagree with the reduction thereof but not the ratiocination of the
₱120,000.00 appellate court that the attorney’s fees are in the nature of liquidated damages or
II. With regard particularly to an award of interest in the concept of actual penalty. The interest imposed in the Promissory Note already answers as liquidated
and compensatory damages, the rate of interest, as well as the accrual damages for Rivera’s default in paying his obligation. We award attorney’s fees,
thereof, is imposed, as follows: albeit in a reduced amount, in recognition that the Spouses Chua were compelled to
litigate and incurred expenses to protect their interests.34Thus, the award of
₱50,000.00 as attorney’s fees is proper.
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or for bearance of money, the
interest due should be that which may have been stipulated in For clarity and to obviate confusion, we chart the breakdown of the total amount
writing. Furthermore, the interest due shall itself earn legal interest owed by Rivera to the Spouses Chua:
from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be The total amount owing to the Spouses Chua set forth in this Decision shall further
computed from default, i.e., from judicial or extra judicial demand earn legal interest at the rate of 6% per annum computed from its finality until full
under and subject to the provisions ofArticle 1169 of the Civil payment thereof, the interim period being deemed to be a forbearance of credit.
Code.
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the
Court of Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo

Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the
following:
(1) the principal amount of ₱120,000.00;
(2) legal interest of 12% per annumof the principal amount of ₱120,000.00
reckoned from 1 January 1996 until 30 June 2013;
(3) legal interest of 6% per annumof the principal amount of ₱120,000.00
form 1 July 2013 to date when this Decision becomes final and executory;
(4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11 June
1999, date of judicial demand, to 30 June 2013, as interest due earning legal
interest;
(5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from 1
July 2013 to date when this Decision becomes final and executor, asinterest
due earning legal interest;
(6) Attorney’s fees in the amount of ₱50,000.00; and
(7) 6% per annum interest on the total of the monetary awards from the
finality of this Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.SO ORDERED.
THIRD DIVISION
G.R. No. 201927, February 17, 2016
VICENTE D. CABANTING AND LALAINE V.
CABANTING, Petitioners, v. BPI FAMILY SAVINGS BANK,
INC., Respondent.
DECISION
PERALTA, J.:
This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of
Court praying that the Decision1 of the Court of Appeals (CA), promulgated on
September 28, 2011, and the Resolution2 dated May 16, 2012, denying petitioner's
motion for reconsideration thereof, be reversed and set aside.
The antecedent facts are as follows:
On January 14, 2003, petitioners bought on installment basis from Diamond Motors
Corporation a 2002 Mitsubishi Adventure SS MT and for value received, petitioners
also signed, executed and delivered to Diamond Motors a Promissory Note with
Chattel Mortgage. Therein, petitioners jointly and severally obligated themselves to
pay Diamond Motors the sum of P836,032.00, payable in monthly installments in
accordance with the schedule of payment indicated therein, and which obligation is
secured by a chattel mortgage on the aforementioned motor vehicle. On the day of
Civ II*Set I* Obli to Delay cases * Page 32 of 35
the execution of the document, Diamond Motors, with notice to petitioners, executed
a Deed of Assignment, thereby assigning to BPI Family Savings Bank, Inc. (BPI
Family) all its rights, title and interest to the Promissory Note with Chattel Mortgage.
Come October 16, 2003, however, a Complaint was filed by BPI Family against
petitioners for Replevin and damages before the Regional Trial Court of Manila
(RTC), praying that petitioners be ordered to pay the unpaid portion of the vehicle's
purchase price, accrued interest thereon at the rate of 36% per annum as of August
26, 2003, 25% attorney's fees and 25% liquidated damages, as stipulated on the
Promissory Note with Chattel Mortgage. BPI Family likewise prayed for the
issuance of a writ of replevin but it failed to file a bond therefor, hence, the writ was
never issued. BPI Family alleged that petitioners failed to pay three (3) consecutive
installments and despite written demand sent to petitioners through registered mail,
petitioners failed to comply with said demand to pay or to surrender possession of
the vehicle to BPI Family.
In their Answer, petitioners alleged that they sold the subject vehicle to one Victor S.
Abalos, with the agreement that the latter shall assume the obligation to pay the
remaining monthly installments. It was then Abalos who made payments to BPI
Family through his personal checks, and BPI Family accepted the post-dated checks
delivered to it by Abalos. The checks issued by Abalos for the months of May 2003
to October 2003 were made good, but subsequent checks were dishonored and not
paid. Petitioners pointed out that BPI Family should have sued Abalos instead of
them.
Trial ensued, where BPI Family dispensed with the testimony of its sole witness and
formally offered its documentary evidence. When it was petitioners' turn to present
its defense, several hearing dates were cancelled, sometimes due to failure of either
or both the petitioners' and/or respondent's counsels to appear. What is clear, though,
is that despite numerous opportunities given to petitioners to present evidence, they
were never able to present their witness, Jacobina T. Alcantara, despite the court's
issuance of a subpoena duces tecum ad testificandum. Said failure to present
evidence on several hearing dates and petitioners' absence at the hearing on February
13, 2008 prompted BPI Family to move that petitioners' right to present evidence be
deemed waived. On the same date, the RTC granted said motion and the case was
submitted for decision. There is nothing on record to show that petitioners ever
moved for reconsideration of the Order dated February 13, 2008.
On April 14, 2008, the RTC rendered a Decision, the dispositive portion of which
reads as follows:
WHEREFORE, and in the view of the foregoing considerations, judgment is hereby
rendered in favor of the plaintiff BPI Family Savings Bank, Inc. and against the
defendantsVICENTE D. CABANTING and LALAINE V. CABANTING, by

ordering the latter to pay the plaintiff Bank the sum of Php742,022.92, with interest
at the rate of 24% per annumfrom the filing of the Complaint, until its full
satisfaction, as well as the amount of P20,000.00 for and as attorney's fees.
With costs against the defendants.
SO ORDERED.3
Aggrieved by the RTC's Decision, herein petitioners appealed to the CA. However,
in its Decision dated September 28, 2011, the appellate court affirmed with
modification the judgment of the trial court, to wit:
WHEREFORE, premises considered, the appeal is DISMISSED. The Decision of
the Regional Trial Court dated April 14, 2008 is AFFIRMED but with
MODIFICATION. The defendants-appellants are ordered to pay the plaintiff-
appellee the sum of Seven Hundred Forty Thousand One Hundred Fifty-Five
Pesos and Eighteen Centavos (P740,155.18), in Philippine currency, with legal
interest of 12% per annum from the filing of the Complaint, until its full
satisfaction. The award of Twenty Thousand Pesos (P20,000.00) as attorney's fees is
DELETED.
Costs against the defendants-appellants.
SO ORDERED.4
The CA ruled that a preponderance of evidence was in favor of respondent, as the
evidence, coupled with petitioners' admission in their Answer, established that
petitioners indeed executed a Promissory Note with Chattel Mortgage and then failed
to pay the forty-three (43) monthly amortizations. Moreover, since petitioners were
deemed to have waived their right to present evidence, there is nothing on record to
prove their claim that there was a valid assumption of obligation by one Victor S.
Abalos. Petitioners' motion for reconsideration of the CA Decision was denied per
Resolution dated May 16, 2012.
Elevating the matter to this Court via a petition for review on certiorari, petitioners
now raise the following issues:
1. Whether or not respondent bank may be held entitled to the possession of the
motor vehicle subject of the instant case for replevin, or the payment of its value and
damages, without proof of prior demand;
2. Whether or not petitioners were deprived of their right to due process when they
were deemed to have waived their right to present evidence in their behalf. 5
The petition is devoid of merit.
The CA is correct that no prior demand was necessary to make petitioners' obligation
Civ II*Set I* Obli to Delay cases * Page 33 of 35
due and payable. The Promissory Note with Chattel Mortgage clearly stipulated that
"[i]n case of my/our [petitioners'] failure to pay when due and payable, any sum
which I/We x x x or any of us may now or in the future owe to the holder of this note
x x x then the entire sum outstanding under this note shall immediately become due
and payable without the necessity of notice or demand which I/We hereby
waive."6Petitioners argue that such stipulation should be deemed invalid as the
document they executed was a contract of adhesion. It is important to stress the
Court's ruling in Dio v. St. Ferdinand Memorial Park, Inc.,7 to wit:
A contract of adhesion, wherein one party imposes a ready-made form of contract on
the other, is not strictly against the law. A contract of adhesion is as binding as
ordinary contracts, the reason being that the party who adheres to the contract
is free to reject it entirely. Contrary to petitioner's contention, not every contract of
adhesion is an invalid agreement. As we had the occasion to state in Development
Bank of the Philippines v. Perez:
x x x In discussing the consequences of a contract of adhesion, we held inRizal
Commercial Banking Corporation v. Court of Appeals:
chanRoblesvirtualLawlibrary
It bears stressing that a contract of adhesion is just as binding as ordinary contracts.
It is true that we have, on occasion, struck down such contracts as void when the
weaker party is imposed upon in dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing, Nevertheless, contracts of adhesion are
not invalid per se; they arc not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent.
The validity or cnforceability of the impugned contracts will have to be
determined by the peculiar circumstances obtaining in each case and the
situation of the parties concerned. Indeed, Article 24 of the New Civil Code
provides that "[in] all contractual, property or other relations, when one of the parties
is at a disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age, or other handicap, the courts must be vigilant for his
protection." x x x8ChanRoblesVirtualawlibrary
Here, there is no proof that petitioners were disadvantaged, uneducated or utterly
inexperienced in dealing with financial institutions; thus, there is no reason for the
court to step in and protect the interest of the supposed weaker party.
Verily, petitioners are bound by the aforementioned stipulation in the Promissory
Note with Chattel Mortgage waiving the necessity of notice and demand to make the
obligation due and payable. Agner v. BPI Family Savings Bank, Inc.,9 which is
closely similar to the present case, is squarely applicable. Petitioners therein also

executed a Promissory Note with Chattel Mortgage containing the stipulation
waiving the need for notice and demand. The Court ruled:
xxx Even assuming, for argument's sake, that no demand letter was sent by
respondent, there is really no need for it because petitioners legally waived the
necessity of notice or demand in the Promissory Note with Chattel Mortgage, which
they voluntarily and knowingly signed in favor of respondent's predecessor-in-
interest. Said contract expressly stipulates:
chanRoblesvirtualLawlibrary
In case of my/our failure to pay when due and payable, any sum which I/We are
obliged to pay under this note and/or any other obligation which I/We or any of us
may now or in the future owe to the holder of this note or to any other party whether
as principal or guarantor xxx then the entire sum outstanding under this note
shall, without prior notice or demand, immediately become due and payable.
(Emphasis and underscoring supplied)
A provision on waiver of notice or demand has been recognized as legal and valid
in Bank of the Philippine Islands v. Court of Appeals, wherein We held:
The Civil Code in Article 1169 provides that one incurs in delay or is in default from
the time the obligor demands the fulfillment of the obligation from the obligee.
However, the law expressly provides that demand is not necessary under certain
circumstances, and one of these circumstances is when the parties expressly waive
demand. Hence, since the co-signors expressly waived demand in the promissory
notes, demand was unnecessary for them to be in default.
Further, the Court even ruled in Navarro v. Escobido that prior demand is not a
condition precedent to an action for a writ of replevin, since there is nothing in
Section 2, Rule 60 of the Rules of Court that requires the applicant to make a
demand on the possessor of the property before an action for a writ of replevin could
be filed.10
Clearly, as stated above, Article 1169 (1) of the Civil Code allows a party to waive
the need for notice and demand. Petitioners' argument that their liability cannot be
deemed due and payable for lack of proof of demand must be struck down.
There is likewise no merit to petitioners' claim that they were deprived of due
process when they were deemed to have waived their right to present evidence. Time
and again, the Court has stressed that there is no deprivation of due process when a
party is given an opportunity to be heard, not only through hearings but even through
pleadings, so that one may explain one's side or arguments; or an opportunity to seek
reconsideration of the action or ruling being assailed.11 The records bear out that
herein petitioners were given several opportunities to present evidence, but said
opportunities were frittered away. We stress the fact that petitioners did not even
Civ II*Set I* Obli to Delay cases * Page 34 of 35
bother to move for reconsideration of the Order dated February 13, 2008, deeming
petitioners to have waived their right to present evidence. Such is glaring proof of
their propensity to waste the opportunities granted them to present their evidence.
Lastly, the CA is correct that the interest rate being charged by respondent under the
Promissory Note with Chattel Mortgage is quite unreasonable. In New Sampaguita
Builders Construction, Inc. (NSBCI) v. Philippine National Bank,12 the Court ruled
that "the interest ranging from 26 percent to 35 percent in the statements of
account - 'must be equitably reduced for being iniquitous, unconscionable and
exorbitant.' Rates found to be iniquitous or unconscionable are void, as if it
there were no express contract thereon. Above all, it is undoubtedly against public
policy to charge excessively for the use of money." However, pursuant to prevailing
jurisprudence and banking regulations, the Court must modify the lower court's
award of legal interest. In Nacar v. Gallery Frames,13 the Court held, thus:
xxx the guidelines laid down in the case of Eastern Shipping Lines 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.
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:
chanRoblesvirtualLawlibrary
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 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.
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
 Civ II*Set I* Obli to Delay cases * Page 35 of 35

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 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.14

Thus, legal interest, effective July 1, 2013, was set at six percent (6%) per annum in
accordance withBangko Sentral ng Pilipinas - Monetary Board Circular No. 799,
Series of 2013.chanrobleslaw

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals,

promulgated on September 28, 2011, and the Resolution dated May 16, 2012 in CA-
G.R. CV No. 91814 are AFFIRMED with MODIFICATION by ordering payment
of legal interest at the rate of twelve percent (12%) per annumfrom the time of filing
of the complaint up to June 30, 2013, and thereafter, at the lower rate of six percent
(6%) per annum from July 1, 2013 until full satisfaction, pursuant to Bangko Sentral
ng Pilipinas- Monetary Board Circular No. 799, Series of 2013 and applicable
jurisprudence.
SO ORDERED.cralawlawlibrary