FACTS

GOYU was granted credit facilities and accommodations by the RCBC initially in the amount of P
30 million. Upon GOYU’s application, the credit was increased to P50 Million, then P90 Million, then
P117 Million. As security, GOYU executed 2 REM and 2 CM in favor of RCBC, which were registered with
the RD. Under the 4 contracts, GOYU committed itself to insure the mortgaged properties with an
insurance company approved by RCBC, and subsequently endorse and deliver the insurance policies to
RCBC. GOYU then obtained 10 policies from MICO. GOYU’s buildings were gutted by fire and it claimed
indemnity from MICO but the latter denied the claim on the ground that the insurance policies were
either attached pursuant to writs of attachments/garnishments issued by various courts or that the
proceeds were also claimed by other creditors of GOYU. GOYU, alleging better rights to the proceeds,
filed for specific performance and damges before the RTC of Manila Br 3. The trial court ruled in favor of
GOYU for the fire loss claims but ordered it to pay RCBC its loan obligations. On appeal to the CA, it
affirmed the ruling with regard to the liabilities of MICO and RCBC. The trial court and appellate courts
both held that, since the endorsements do not bear the signature of any officer of GOYU, they
concluded that the endorsements are defective. The CA then ordered GOYU to pay its obligation to
RCBC without any interest, surcharges and penalties.

ISSUE

Whether or not the ruling of the appellate court is correct.

HELD

The Court held in the negative. The essence or rationale for the payment of interest or cost of money is
separate and distinct from that of surcharges and penalties. The charging of interest for loans forms a
very essential and fundamental element of the banking business.

02 FIRST FIL-SIN LENDING CORPORATION, petitioner, vs. GLORIA D. PADILLO, respondent.

G.R. No. 160533 January 12, 2005

Topic: Interpretation of a contract or agreement

Ponente: YNARES-SANTIAGO, J.

DOCTRINE: When the terms of the agreement are clear and explicit that they do not justify an attempt
to read into it any alleged intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract. (Note this doctrine was cited in the 1st case: Gaisano Cagayan, Inc.
vs. Insurance Company of North America)

As between two parties to a written agreement, the party who gave rise to the mistake or error in the
provisions of the same is estopped from asserting a contrary intention to that contained therein.
_____________________________________________________________________________________
___

FACTS:

Respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending Corp.
Respondent obtained another P500,000.00 loan from petitioner. In both instances, respondent
executed a promissory note and disclosure statement.

For the first loan, respondent made 13 monthly interest payments of P22,500.00 each before she settled
the P500,000.00 outstanding principal obligation. As regards the second loan, respondent made 11
monthly interest payments of P25,000.00 each before paying the principal loan of P500,000.00. In sum,
respondent paid a total of P792,500.00 for the first loan and P775,000.00 for the second loan.

Respondent Padillo then filed an action for sum of money against herein petitioner before the RTC
alleging that she only agreed to pay interest at the rates of 4.5% and 5% per annum, respectively, for the
two loans, and not 4.5% and 5% per month. Respondent sought to recover the amounts she allegedly
paid in excess of her actual obligations.

The RTC dismissed respondent’s complaint and ordered her to pay petitioner P311,125.00 with legal
interest. On appeal, the CA reversed and set aside the decision of the RTC and ruled that, based on the
disclosure statements executed by respondent, the interest rates should be imposed on a monthly basis
but only for the 3-month term of the loan. Thereafter, the legal interest rate will apply. Hence, the
instant petition.

Petitioner maintains that the interest rates are to be imposed on a monthly and not on a per annum
basis and the monthly interest shall be imposed until the outstanding obligations have been fully paid.
On the other hand, respondent avers that the interest on the loans is per annum as expressly stated in
the promissory notes and disclosure statements. The provision as to annual interest rate is clear and
requires no room for interpretation. Respondent asserts that any ambiguity in the promissory notes and
disclosure statements should not favor petitioner since the loan documents were prepared by the latter.

ISSUE: Whether the interest on the loans is per annum, and not monthly, as expressly stated in the
promissory notes and disclosure statements YES.
RULING: We agree with respondent. Perusal of the promissory notes and the disclosure statements
pertinent to the loan obligations of respondent clearly and unambiguously provide for interest rates of
4.5% per annum and 5% per annum, respectively. Nowhere was it stated that the interest rates shall be
applied on a monthly basis.

Thus, when the terms of the agreement are clear and explicit that they do not justify an attempt to read
into it any alleged intention of the parties, the terms are to be understood literally just as they appear
on the face of the contract. It is only in instances when the language of a contract is ambiguous or
obscure that courts ought to apply certain established rules of construction in order to ascertain the
supposed intent of the parties. However, these rules will not be used to make a new contract for the
parties or to rewrite the old one, even if the contract is inequitable or harsh. They are applied by the
court merely to resolve doubts and ambiguities within the framework of the agreement.

The lower court and the CA mistook the Loan Transactions Summary for the Disclosure Statement. The
former was prepared exclusively by petitioner and merely summarizes the payments made by
respondent and the income earned by petitioner. There was no mention of any interest rates and having
been prepared exclusively by petitioner, the same is self serving. On the contrary, the Disclosure
Statements were signed by both parties and categorically stated that interest rates were to be imposed
annually, not monthly.

As such, since the terms and conditions contained in the promissory notes and disclosure statements
are clear and unambiguous, the same must be given full force and effect. The expressed intention of the
parties as laid down on the loan documents controls.

Notably, petitioner even admitted that it was solely responsible for the preparation of the loan
documents, and that it failed to correct the pro forma note p.a. to per month. Since the mistake is
exclusively attributed to petitioner, the same should be charged against it. This unilateral mistake
cannot be taken against respondent who merely affixed her signature on the pro forma loan
agreements. As between two parties to a written agreement, the party who gave rise to the mistake or
error in the provisions of the same is estopped from asserting a contrary intention to that contained
therein. The checks issued by respondent do not clearly and convincingly prove that the real intent of
the parties is to apply the interest rates on a monthly basis. Absent any proof of vice of consent, the
promissory notes and disclosure statements remain the best evidence to ascertain the real intent of the
parties.
The same promissory note provides that x x x any and all remaining amount due on the principal upon
maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid. The CA
thus properly imposed the legal interest of 12% per annum from the time the loans matured until the
same has been fully paid on February 2, 1999. As decreed in Eastern Shipping Lines, Inc. v. Court of
Appeals, in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default.

DISPOSITIVE: WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of
Appeals in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on the July
22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from petitioner First Fil-
Sin Lending Corporation be imposed and computed on a per annum basis, and upon their respective
maturities, the interest rate of 12% per annum shall be imposed until full payment. In addition, the
penalty at the rate of 12% per annum shall be imposed on the outstanding obligations from date of
default until full payment. SO ORDERED.

THE CONSOLIDATED BANK AND TRUST CORPORATION

(SOLIDBANK), petitioner, vs. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM
and SPOUSE, respondents.

DECISION
YNARES-SANTIAGO, J.:

The instant petition for review seeks to partially set aside the July 26, 1993
Decision[1] of respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it
orders petitioner to reimburse respondent Continental Cement Corporation the amount
of P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fully
paid. The petition also seeks to set aside the March 8, 1994 Resolution [2] of respondent
Court of Appeals denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter,
respondent Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained
from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-
23277 in the amount of P1,068,150.00 On the same date, respondent Corporation paid
a marginal deposit of P320,445.00 to petitioner. The letter of credit was used to
purchase around five hundred thousand liters of bunker fuel oil from Petrophil
Corporation, which the latter delivered directly to respondent Corporation in its
Bulacan plant. In relation to the same transaction, a trust receipt for the amount of
P1,001,520.93 was executed by respondent Corporation, with respondent Lim as
signatory.
Claiming that respondents failed to turn over the goods covered by the trust
receipt or the proceeds thereof, petitioner filed a complaint for sum of money with
application for preliminary attachment[3] before the Regional Trial Court of Manila. In
answer to the complaint, respondents averred that the transaction between them was a
simple loan and not a trust receipt transaction, and that the amount claimed by
petitioner did not take into account payments already made by them. Respondent Lim
also denied any personal liability in the subject transactions. In a Supplemental
Answer, respondents prayed for reimbursement of alleged overpayment to petitioner
of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trust receipt

transaction;

2) Whether or not the interest rates charged against the defendants by the plaintiff are
proper under the letter of credit, trust receipt and under existing rules or regulations of
the Central Bank;

3) Whether or not the plaintiff properly applied the previous payment of P300,456.27
by the defendant corporation on July 13, 1982 as payment for the latters account; and

4) Whether or not the defendants are personally liable under the transaction sued for
in this case.[4]

On September 17, 1990, the trial court rendered its Decision,[5] dismissing the
Complaint and ordering petitioner to pay respondents the following amounts under
their counterclaim: P490,228.90 representing overpayment of respondent Corporation,
with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00
as attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the
Decision by deleting the award of attorneys fees in favor of respondents and, instead,
ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys
fees and litigation expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED
INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT
THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE
PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF
ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS
APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW
CIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE

MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN
ACCORDANCE WITH BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE

FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE
JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRAL
BANK.

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT

GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR
AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL
ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH
RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT

GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES
LIABLE UNDER THE TRUST RECEIPT TRANSACTION.[6]

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower
court and respondent Court of Appeals, we stress the time-honored rule that findings
of fact by the Court of Appeals especially if they affirm factual findings of the trial
court will not be disturbed by this Court, unless these findings are not supported by
evidence.[7]
Petitioner decries the lack of computation by the lower court as basis for its ruling
that there was an overpayment made. While such a computation may not have
appeared in the Decision itself, we note that the trial courts finding of overpayment is
supported by evidence presented before it. At any rate, we painstakingly reviewed and
computed the payments together with the interest and penalty charges due thereon and
found that the amount of overpayment made by respondent Bank to
petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by the
lower court. However, since respondents did not file an appeal in this case, the
amount ordered reimbursed by the lower court should stand.
Moreover, petitioners contention that the marginal deposit made by respondent
Corporation should not be deducted outright from the amount of the letter of credit is
untenable. Petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interests and other charges. However, to sustain
petitioner on this score would be to countenance a clear case of unjust enrichment, for
while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is
not only able to use the same for its own purposes, interest-free, but is also able to
earn interest on the money loaned to respondent Corporation. Indeed, it would be
onerous to compute interest and other charges on the face value of the letter of credit
which the petitioner issued, without first crediting or setting off the marginal deposit
which the respondent Corporation paid to it. Compensation is proper and should take
effect by operation of law because the requisites in Article 1279 of the Civil Code are
present and should extinguish both debts to the concurrent amount.[8]
Hence, the interests and other charges on the subject letter of credit should be
computed only on the balance of P681,075.93, which was the portion actually loaned
by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside
as invalid the floating rate of interest exhorted by petitioner to be applicable. The
pertinent provision in the trust receipt agreement of the parties fixing the interest rate
states:

I, WE jointly and severally agree to any increase or decrease in the interest rate which
may occur after July 1, 1981, when the Central Bank floated the interest rate, and to
pay additionally the penalty of 1% per month until the amount/s or installment/s due
and unpaid under the trust receipt on the reverse side hereof is/are fully paid.[9]

We agree with respondent Court of Appeals that the foregoing stipulation is

invalid, there being no reference rate set either by it or by the Central Bank, leaving
the determination thereof at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and instead
be made dependent upon prevailing market conditions, there should always be a
reference rate upon which to peg such variable interest rates. An example of such a
valid variable interest rate was found in Polotan, Sr. v. Court of Appeals.[10] In that
case, the contractual provision stating that if there occurs any change in the prevailing
market rates, the new interest rate shall be the guiding rate in computing the
interest due on the outstanding obligation without need of serving notice to the
Cardholder other than the required posting on the monthly statement served to the
Cardholder[11] was considered valid. The aforequoted provision was upheld
notwithstanding that it may partake of the nature of an escalation clause, because at
the same time it provides for the decrease in the interest rate in case the prevailing
market rates dictate its reduction. In other words, unlike the stipulation subject of the
instant case, the interest rate involved in the Polotan case is designed to be based on
the prevailing market rate. On the other hand, a stipulation ostensibly signifying an
agreement to any increase or decrease in the interest rate, without more, cannot be
accepted by this Court as valid for it leaves solely to the creditor the determination of
what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent
Corporation is really a trust receipt transaction instead of merely a simple loan, as
found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals[12] appears to be foursquare with
the facts obtaining in the case at bar. There, we found that inasmuch as the debtor
received the goods subject of the trust receipt before the trust receipt itself was entered
into, the transaction in question was a simple loan and not a trust receipt
agreement. Prior to the date of execution of the trust receipt, ownership over the goods
was already transferred to the debtor. This situation is inconsistent with what normally
obtains in a pure trust receipt transaction, wherein the goods belong in ownership to
the bank and are only released to the importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the
goods subject of the trust receipt occurred long before the trust receipt itself was
executed. More specifically, delivery of the bunker fuel oil to respondent
Corporations Bulacan plant commenced on July 7, 1982 and was completed by July
19, 1982.[13] Further, the oil was used up by respondent Corporation in its normal
operations by August, 1982.[14] On the other hand, the subject trust receipt was only
executed nearly two months after full delivery of the oil was made to respondent
Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was
explained in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to
the prejudice of another regardless of whether the latter is the owner.Here, it is crystal
clear that on the part of Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the
money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in dealing with PBC and never did they
evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought
favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for
re-sale, contrary to the express provision embodied in the trust receipt. They are
contractors who obtained the fungible goods for their construction project. At no time
did title over the construction materials pass to the bank, but directly to the Petitioners
from CM Builders Centre. This impresses upon the trust receipt in question vagueness
and ambiguity, which should not be the basis for criminal prosecution in the event of
violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable
to pay it may be unjust and inequitable, if not reprehensible.Such agreements are
contracts of adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy
of banks, and is prone to misinterpretation, as had happened in this case. Eventually,
PBC showed its true colors and admitted that it was only after collection of the
money, as manifested by its Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in its

dealings with petitioner. Neither has it been shown that it has evaded payment of its
obligations. Indeed, it continually endeavored to meet the same, as shown by the
various receipts issued by petitioner acknowledging payment on the loan. Certainly,
the payment of the sum of P1,832,158.38 on a loan with a principal amount of only
P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of
funds on the part of respondent Corporation, which are the gravamen of a trust receipt
violation. Furthermore, respondent Corporation is not an importer which acquired the
bunker fuel oil for re-sale; it needed the oil for its own operations. More importantly,
at no time did title over the oil pass to petitioner, but directly to respondent
Corporation to which the oil was directly delivered long before the trust receipt was
executed. The fact that ownership of the oil belonged to respondent Corporation,
through its President, Gregory Lim, was acknowledged by petitioners own account
officer on the witness stand, to wit:
Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the
defendants thereby paying the value of the bunker fuel oil what transpired next after that?
 A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the
bunker fuel oil were transferred to them.
Q - You mentioned them to whom are you referring to?
A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the
ownership of the bunker fuel oil this should be acceptable for whatever disposition he may make.
Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?
A - By the Continental Cement Corp.
Q - So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that
question has already been answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A - Gregory Lim.[15]
By all indications, then, it is apparent that there was really no trust receipt
transaction that took place. Evidently, respondent Corporation was required to sign
the trust receipt simply to facilitate collection by petitioner of the loan it had extended
to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse
should be personally liable under the subject trust receipt. Petitioners argument that
respondent Corporation and respondent Lim and his spouse are one and the same
cannot be sustained. The transactions sued upon were clearly entered into by
respondent Lim in his capacity as Executive Vice President of respondent
Corporation. We stress the hornbook law that corporate personality is a shield against
personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and
his spouse cannot be made personally liable since respondent Lim entered into and
signed the contract clearly in his official capacity as Executive Vice President. The
personality of the corporation is separate and distinct from the persons composing it.[16]
 WHEREFORE, in view of all the foregoing, the instant Petition for Review is
DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV
No. 29950 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
Pardo J., no part.