1
of nullity of the increased interest rates and penalty charges plus damages,
LOAN
SPS BAYANNI ANDAL…………………………………….1
S.C. MEGAWORLD CONSTRUCTION………………….4
DARIO NACAR……………………………………………10
ADVOCATES FOR TRUTH IN LENDING, INC………14
FRANCISCO HERRERA…………………………………18
PRODUCERS BANK OF THE PHILIPPINES…………20
CATHOLIC VICAR APOSTOLIC………………………24
CASA FILIPINA…………………………………………..27
SECURITY BANK AND TRUST COMPANY…………29
SPOUSES JOVENAL……………………………………..30
LIAM LAW………………………………………………...32
Spouses PONCIANO ALMEDA………………………….33
LETICIA Y. MEDEL……………………………………...35
RESTITUTA M. IMPERIAL……………………………..37
PHILIPPINE NATIONAL BANK………………………..41
EQUITABLE PCI BANK…………………………………44
G.R. No. 194201 November 27, 2013
SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,
vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF
BATANGAS CITY JOSE C. CORALES, Respondents.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Court seeking to partially set aside the Decision,2 dated 30 March
2010, and the Resolution,3 dated 13 October 2010, of the Court of Appeals
(CA) in CA-G.R. CV No. 91250. The challenged Decision dismissed the
appeal of herein respondent Philippine National Bank (respondent bank) and
affirmed the decision of the Regional Trial Court (RTC), Branch 84, Batangas
City with the modification that the interest rate to be applied by respondent
bank on the principal loan obligation of petitioners Spouses Bayani H. Andal
and Gracia G. Andal (petitioners spouses) shall be 12% per annum, to be
computed from default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from
[respondent bank] in the amount of ₱21,805,000.00, for which they executed
twelve (12) promissory notes x x x [undertaking] to pay [respondent bank] the
principal loan with varying interest rates of 17.5% to 27% per interest period.
It was agreed upon by the parties that the rate of interest may be increased or
decreased for the subsequent interest periods, with prior notice to [petitioners-
spouses], in the event of changes in interest rates prescribed by law or the
Monetary Board x x x, or in the bank’s overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in favor
of [respondent bank] a real estate mortgage using as collateral five (5) parcels
of land including all improvements therein, all situated in Batangas City and
covered by Transfer Certificate of Title (TCT) Nos. T-641, T-32037, T-16730,
T-31193 and RT 363 (3351) of the Registry of Deeds of Batangas City, in the
name of [petitioners-spouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their
loan obligation, otherwise the former will declare the latter’s loan due and
demandable. On July 17, 2001, [petitioners-spouses] paid ₱14,800,000.00 to
[respondent bank] to avoid foreclosure of the properties subject of the real
estate mortgage. Accordingly, [respondent bank] executed a release of real
estate mortgage over the parcels of land covered by TCT Nos. T-31193 and
RT-363 (3351). However, despite payment x x x, [respondent bank]
proceeded to foreclose the real estate mortgage, particularly with respect to
the three (3) parcels of land covered by TCT Nos. T-641, T-32037 and T-
16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent
bank] emerging as the highest and winning bidder. Accordingly, on August
30, 2002, a certificate of sale of the properties involved was issued.
[Respondent bank] consolidated its ownership over the said properties and
TCT Nos. T-52889, T-52890, and T-52891 were issued in lieu of the
cancelled TCT[s] x x x. This prompted [petitioners-spouses] to file x x x a
complaint for annulment of mortgage, sheriff’s certificate of sale, declaration
with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to
religiously pay their loan obligation to [respondent bank], but the exorbitant
rate of interest unilaterally determined and imposed by the latter prevented the
former from paying their obligation. [Petitioners-spouses] also alleged that
they signed the promissory notes in blank, relying on the representation of
[respondent bank] that they were merely proforma [sic] bank requirements.
Further, [petitioners-spouses] alleged that the unilateral increase of interest
rates and exorbitant penalty charges are akin to unjust enrichment at their
expense, giving [respondent bank] no right to foreclose their mortgaged
properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the
allegations in the complaint. x x x [respondent bank] alleged that: the penalty
charges imposed on the loan was expressly stipulated under the credit
agreements and in the promissory notes; although [petitioners-spouses] paid to
[respondent bank] ₱14,800,000.00 on July 10, 2001, the former was still
indebted to the latter in the amount of ₱33,960,633.87; assuming arguendo
that the imposition was improper, the foreclosure of the mortgaged properties
is in order since [respondent bank’s] bid in the amount of ₱28,965,100.00 was
based on the aggregate appraised rates of the foreclosed properties. x x x4
After trial, the RTC rendered judgment5 in favor of petitioners-spouses and
against respondent bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in
accordance with Article 2209 of the Civil Code effective the next 30, 31 and
180 days respectively from the date of the twelve (12) promissory notes x x x
covered by the real estate x x x mortgages, to be applied on a declining
balance of the principal after the partial payments of ₱14,800,00.00 (paid July
17, 2001) and ₱2,000,000.006 (payments of ₱300,000.00 on October 1, 1999,
₱1,800,000.00 as [of] December 1, 1999, ₱700,000.00 [on] January 31, 2000)
per certification of [respondent bank] to be reckoned at (sic) the dates the said
payments were made, thus the corrected amounts of the liability for principal
balance and the said 6% charges per annum shall be the new basis for the
[petitioners-spouses] to make payments to the [respondent bank] x x x which
shall automatically extinguish and release the mortgage contracts and the
outstanding liabilities of the [petitioners-spouses]; [respondent bank] shall
then surrender the new transfer certificates of title x x x in its name to the
[c]ourt x x x, [c]anceling the penalty charges.
xxxx
3. Declaring as illegal and void the foreclosure sales x x x, the Certificates of
Sales and the consolidation of titles of the subject real properties, including
the cancellation of the new Transfer Certificates of Title x x x in the name of
the [respondent] bank and reinstating Transfer Certificates of Title Nos. T-
641, T-32037 and T-16730 in the names of the [petitioners-spouses]; the latter
acts to be executed by the Register of Deeds of Batangas City.7
The foregoing disposition of the RTC was based on the following findings of
fact:
As of this writing the [respondent] bank have (sic) not complied with the said
orders as to the interest rates it had been using on the loan of [petitioners-
spouses] and the monthly computation of interest vis a vis (sic) the total
shown in the statement of account as of Aug 30, 2002. Such refusal amounts
to suppression of evidence thus tending to show that the interest used by the
bank was unilaterally increased without the written consent of the [petitioners-
spouses]/borrower as required by law and Central Bank Circular No. 1171.
The latter circular provides that any increase of interest in a given interest
period will have to be expressly agreed to in writing by the borrower. The
mortgaged properties were subject of foreclosure and were sold on August 30,
2002 and the [respondent] bank’s statement of account as of August 30, 2002
x x x shows unpaid interest up to July 17, 2001 of ₱12,695,718.99 without
specifying the rate of interest for each interest period of thirty days. Another
statement of account of [respondent bank] x x x as [of] the date of foreclosure
on August 30, 2002 shows account balance of ₱20,505,916.51 with a bid price
of ₱28,965,100.00 and showing an interest of ₱16,163,281.65. Again, there
are no details of the interest used for each interest period from the time these
loans were incurred up to the date of foreclosure. These statements of account
together with the stated interest and expenses after foreclosure were furnished
by the [respondent] bank during the court hearings. The central legal question
is that there is no agreement in writing from the [petitioners-
spouses]/borrowers for the interest rate for each interest period neither from
the data coming from the Central Bank or the cost of money which is
understood to mean the interest cost of the bank deposits form the public.
Such imposition of the increased interest without the consent of the borrower
is null and void pursuant to Article 1956 of the Civil Code and as held in the
pronouncement of the Supreme Court in several cases and C.B. Circular No.

1191 that the interest rate for each re-pricing period under the floating rate of
interest is subject to mutual agreement in writing. Art. 1956 states that no
interest is due unless it has been expressly stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the
creditor/mortgagee, belongs to the class of potestative condition which is null
and void under Art. 1308 of the New Civil Code. The fulfillment of a
condition cannot be left to the sole will of [one of] the contracting parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure sale
for a higher amount than what is legally due is likewise null and void because
under the Civil Code, a mortgage may be foreclosed only to enforce the
fulfillment of the obligation for whose security it was constituted (Art. 2126,
Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of
interest since no interest may be collected based on the stipulation that is null
and void and legally inexistent and unenforceable. x x x. Since the interest
imposed is illegal and void only the rate of 6% interest per month shall be
imposed as liquidated damages under Art. 2209 of the Civil Code.
It is worth mentioning that these forms used by the bank are pre- printed
forms and therefore contracts of adhesion and x x x any dispute or doubt
concerning them shall be resolved in favor of the x x x borrower. This (sic)
circumstances tend to support the contention of the [petitioners-spouses] that
they were made to sign the real estate mortgages/promissory notes in blank
with respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses’] property
and any foreclosure thereof is illegal, unreasonable and void, since
[petitioners-spouses] are not and cannot be considered in default for their
inability to pay the arbitrarily, illegally, and unconscionably adjusted interest
rates and penalty charges unilaterally made and imposed by [respondent]
bank.
The [petitioners-spouses] submitted to the court certified copies of the
weighted average of Selected Domestic Interest Rates of the local banks
obtained from the Bangko Sentral ng Pilipinas Statistical Center and it shows
a declining balance of interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate
was ever used to increase or decrease the interest rates charged upon the
[petitioners-spouses’] mortgage loan for the 30 day re- pricing period
subsequent to the first 30 days from [the] dates of the promissory notes. These
documents submitted being certified public documents are entitled to being
taken cognizance of by the court as an aid to its decision making. x x x.8
Respondent bank appealed the above judgment of the trial court to the CA. Its
main contention is that the lower court erred in ordering the re-computation of
petitioners-spouses’ loans and applying the interest rate of 6% per annum.
According to respondent bank, the stipulation on the interest rates of 17.5% to
27%, subject to periodic adjustments, was voluntarily agreed upon by the
parties; hence, it was not left to the sole will of respondent bank. Thus, the
lower court erred in reducing the interest rate to 6% and in setting aside the
penalty charges, as such is contrary to the principle of the obligatory force of
contracts under Articles 1315 and 1159 of the Civil Code.9
The CA disposed of the issue in the following manner:
We partly agree with [respondent bank’s] contention.
Settled is the rule that the contracting parties are free to enter into stipulations,
clauses, terms and conditions as they may deem convenient, as long as these
are not contrary to law, morals, good customs, public order or public policy.
Pursuant to Article 1159 of the Civil Code, these obligations arising from such
contracts have the force of law between the parties and should be complied
with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly
stipulated in the promissory notes the rate of interest to be applied to the loan
obtained by the latter from the former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest rates
stated in the promissory notes since the latter voluntarily signed the same.
However, we find more credible and believable the version of [petitioners-
spouses] that they were made to sign the said promissory notes in blank with
respect to the rate of interest and penalty charges, and subsequently,
[respondent] bank filled in the blanks, imposing high interest rate beyond
which they were made to understand at the time of the signing of the
promissory notes.
xxxx
2
The signing by [petitioners-spouses] of the promissory notes in blank enabled
[respondent] bank to impose interest rates on the loan obligation without prior
notice to [petitioners-spouses]. The unilateral determination and imposition of
interest rates by [respondent] bank without [petitioners-spouses’] assent is
obviously violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code x x x.
xxxx
[Respondent bank’s] act converted the loan agreement into a contract of
adhesion where the parties do not bargain on equal footing, the weaker party’s
participation, herein [petitioners-spouses], being reduced to the alternative to
take it or leave it. [Respondent] bank tried to sidestep this issue by averring
that [petitioners-spouses], as businessmen, were on equal footing with
[respondent bank] as far as the subject loan agreements are concerned. That
may be true insofar as entering into the original loan agreements and mortgage
contracts are concerned. However, that does not hold true when it comes to
the unilateral determination and imposition of the escalated interest rates
imposed by [respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed
different rates in the twelve (12) promissory notes: interest rate of 18% in five
(5) promissory notes; 17.5% in two (2) promissory notes; 23% in one (1)
promissory note; and 27% in three (3) promissory notes. Obviously, the
interest rates are excessive and arbitrary. Thus, the foregoing interest rates
imposed on [petitioners-spouses’] loan obligation without their knowledge
and consent should be disregarded, not only for being iniquitous and
exorbitant, but also for being violative of the principle of mutuality of
contracts.
However, we do not agree with the trial court in fixing the rate of interest of
6%. It is well-settled that when an obligation is breached and consists in the
payment of a sum of money, i.e., loan or forbearance of money, the interest
due shall be that which may have been stipulated in writing. In the absence of
stipulation, the rate of interest shall be 12% interest per annum to be computed
from default, i.e., from judicial or extra-judicial demand and subject to the
provisions of Article 1169 of the Civil Code. Since the interest rates printed in
the promissory notes are void for the reasons above-stated, the rate of interest
to be applied to the loan should be 12% per annum only.10
The CA, consequently, dismissed respondent bank’s appeal and affirmed the
decision of the trial court with the modification that the rate of interest shall be
12% per annum instead of 6%. Respondent bank filed a Motion for
Reconsideration of the CA decision. Petitioners-spouses, on the other hand,
filed a comment praying for the denial of respondent bank’s motion for
reconsideration. They also filed an "Urgent Manifestation"11 calling the
attention of the CA to its respective decisions in the cases of Spouses Enrique
and Epifania Mercado v. China Banking Corporation, et. al. (CA-GR CV No.
75303)12 and Spouses Bonifacio Caraig and Ligaya Caraig v. The Ex-Officio
Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No. 76029).13
According to petitioners-spouses, in Spouses Mercado v. China Banking, the
Special Seventh Division of the CA held that where the interest rate is
potestative, the entire interest is null and void and no interest is due.
On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff of
RTC, Batangas City, the then Ninth Division of the CA ruled that under the
doctrine of operative facts, no interest is due after the auction sale because the
loan is paid in kind by the auction sale, and interest shall commence to run
again upon finality of the judgment declaring the auction sale null and void.14
The CA denied respondent bank’s Motion for Reconsideration for lack of
merit. It likewise found no merit in petitioners-spouses’ contention that no
interest is due on their principal loan obligation from the time of foreclosure
until finality of the judgment annulling the foreclosure sale. According to the
CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the
subject promissory notes after finding that the same are iniquitous and
exorbitant, and for being violative of the principle of mutuality of contracts.
Nevertheless, in Equitable PCI Bank v. Ng Sheung Ngor, the Supreme Court
ruled that because the escalation clause was annulled, the principal amount of
the loan was subject to the original or stipulated interest rate of interest, and
that upon maturity, the amount due was subject to legal interest at the rate of
12% per annum. In this case, while we similarly annulled the escalation clause
contained in the promissory notes, this Court opted not to impose the original
rates of interest stipulated therein for being excessive, the same being 17.5%
to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing
Corporation v. Spouses Cesario Gravador and Norma De Vera, et. al. that
stipulations authorizing the imposition of iniquitous or unconscionable interest
are contrary to morals, if not against the law. x x x. The nullity of the
stipulation on the usurious interest does not, however, affect the lender’s right

to recover the principal of the loan. The debt due is to be considered without
the stipulation of the excessive interest. A legal interest of 12% per annum
will be added in place of the excessive interest formerly imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the
imposition by this Court of a 12% rate of interest per annum on the principal
loan obligation of [petitioners-spouses], computed from the time of default, is
proper as it is consistent with prevailing jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division of
this Court in CA-G.R. CV No. 75303 and in CA-G.R. No. 76029 are final and
executory, the same merely have persuasive effect but do not outweigh the
decisions of the Supreme Court which we are duty-bound to follow,
conformably with the principle of stare decisis.
The doctrine of stare decisis enjoins adherence to judicial
precedents.1âwphi1 It requires courts in a country to follow the rule
established in a decision of the Supreme Court thereof. That decision becomes
a judicial precedent to be followed in subsequent cases by all courts in the
land. The doctrine of stare decisis is based on the principle that once a
question of law has been examined and decided, it should be deemed settled
and closed to further argument.15 (Emphasis supplied.)
Petitioners-spouses are now before us, reiterating their position that no interest
should be imposed on their loan, following the respective pronouncements of
the CA in the Caraig and Mercado Cases. Petitioners-spouses insist that "if the
application of the doctrine of operative facts is upheld, as applied in Caraig vs.
Alday, x x x, interest in the instant case would be computed only from the
finality of judgment declaring the foreclosure sale null and void. If Mercado
vs. China Banking Corporation x x x, applying by analogy the rule on void
usurious interest to void potestative interest rate, is further sustained, no
interest is due when the potestative interest rate stipulation is declared null and
void, as in the instant case.16
Our Ruling
We dismiss the appeal.
We cannot subscribe to the contention of petitioners-spouses that no interest
should be due on the loan they obtained from respondent bank, or that, at the
very least, interest should be computed only from the finality of the judgment
declaring the foreclosure sale null and void, on account of the exorbitant rate
of interest imposed on their loan.
It is clear from the contract of loan between petitioners-spouses and
respondent bank that petitioners-spouses, as borrowers, agreed to the payment
of interest on their loan obligation. That the rate of interest was subsequently
declared illegal and unconscionable does not entitle petitioners-spouses to
stop payment of interest.1âwphi1 It should be emphasized that only the rate of
interest was declared void. The stipulation requiring petitioners-spouses to pay
interest on their loan remains valid and binding. They are, therefore, liable to
pay interest from the time they defaulted in payment until their loan is fully
paid.
It is worth mentioning that both the RTC and the CA are one in saying that
"[petitioners-spouses] cannot be considered in default for their inability to pay
the arbitrary, illegal and unconscionable interest rates and penalty charges
unilaterally imposed by [respondent] bank."17 This is precisely the reason why
the foreclosure proceedings involving petitioners-spouses’ properties were
invalidated. As pointed out by the CA, "since the interest rates are null and
void, [respondent] bank has no right to foreclose [petitioners-spouses’]
properties and any foreclosure thereof is illegal. x x x. Since there was no
default yet, it is premature for [respondent] bank to foreclose the properties
subject of the real estate mortgage contract."18
Thus, for the purpose of computing the amount of liability of petitioners-
spouses, they are considered in default from the date the Resolution of the
Court in G.R. No. 194164 (Philippine National Bank v. Spouses Bayani H.
Andal and Gracia G. Andal) – which is the appeal interposed by respondent
bank to the Supreme Court from the judgment of the CA – became final and
executory. Based on the records of G.R. No. 194164, the Court denied herein
respondent bank’s appeal in a Resolution dated 10 January 2011. The
Resolution became final and executory on 20 May 2011.19
In addition, pursuant to Circular No. 799, series of 2013, issued by the Office
of the Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in
accordance with the ruling of the Supreme Court in the recent case of Dario
Nacar v. Gallery Frames and/or Felipe Bordey, Jr.,20 effective 1 July 2013, the
rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of an express contract as to such
rate of interest, shall be six percent (6%) per annum. Accordingly, the rate of
interest of 12% per annum on petitioners-spouses’ obligation shall apply from
20 May 2011 – the date of default – until 30 June 2013 only. From 1 July
2013 until fully paid, the legal rate of 6% per annum shall be applied to
petitioners-spouses’ unpaid obligation.
3
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment
of the Court of Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the
MODIFICATION that the 12% interest per annum shall be applied from the
date of default until 30 June 2013 only, after which date and until fully paid,
the outstanding obligation of petitioners-spouses shall earn interest at 6% per
annum. Let the records of this case be remanded to the trial court for the
proper computation of the amount of liability of petitioners Spouses Bayani H.
Andal and Gracia G. Andal, in accordance with the pronouncements of the
Court herein and with due regard to the payments previously made by
petitioners-spouses.
SO ORDERED.
G.R. No. 183804 September 11, 2013
S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT
CORPORATION, Petitioner,
vs.
ENGR. LUIS U. PARADA, represented by ENGR. LEONARDO A.
PARADA of GENLITE INDUSTRIES,Respondent.
DECISION
REYES, J.:
Before us on appeal by certiorari1 is the Decision2 dated April 30, 2008 of the
Court of Appeals (CA) in CA-G.R. CV No. 83811 which upheld the
Decision3 dated May 8, 2004 of the Regional Trial Court (RTC) of Quezon
City, Branch 100, in Civil Case No. Q-01-45212.
Factual Antecedents
S.C. Megaworld Construction and Development Corporation (petitioner)
bought electrical lighting materials from Gentile Industries, a sole
proprietorship owned by Engineer Luis U. Parada (respondent), for its Read-
Rite project in Canlubang, Laguna. The petitioner was unable to pay for the
above purchase on due date, but blamed it on its failure to collect under its
sub-contract with the Enviro KleenTechnologies, Inc. (Enviro Kleen). It was
however able to persuade Enviro Kleen to agree to settle its above purchase,
but after paying the respondent ₱250,000.00 on June 2, 1999,4 Enviro Kleen
stopped making further payments, leaving an outstanding balance of
₱816,627.00. It also ignored the various demands of the respondent, who then
filed a suit in the RTC, docketed as Civil Case No.Q-01-45212, to collect
from the petitioner the said balance, plus damages, costs and expenses, as
summarized in the RTC’s decision, as follows:
The petitioner in its answer denied liability, claiming that it was released from
its indebtedness to the respondent by reason of the novation of their contract,
which, it reasoned, took place when the latter accepted the partial payment of
Enviro Kleen in its behalf, and thereby acquiesced to the substitution of
Enviro Kleen as the new debtor in the petitioner’s place. After trial, the RTC
rendered judgment6 on May 28, 2004 in favor of the respondent, the fallo of
which reads, as follows:
WHEREFORE, judgment is hereby rendered for the respondent. The
petitioner is hereby ordered to pay the respondent the following:
A. the sum of ₱816,627.00 representing the principal obligation due;
B. the sum equivalent to twenty percent (20%)per month of the principal
obligation due from date of judicial demand until fully paid as and for interest;
and
C. the sum equivalent to twenty-five percent (25%) of the principal sum due
as and for attorney’s fees and other costs of suits. The compulsory
counterclaim interposed by the petitioner is hereby ordered dismissed for lack
of merit.
SO ORDERED.7 (Emphasis supplied)
On appeal to the CA, the petitioner maintained that the trial court erred in
ruling that no novation of the contract took place through the substitution of
Enviro Kleen as the new debtor. But for the first time, it further argued that
the trial court should have dismissed the complaint for failure of the
respondent to implead Genlite Industries as "a proper party in interest", as
provided in Section 2 of Rule 3 of the 1997 Rules of Civil Procedure. The said
section provides:
SEC. 2. Parties in interest. — A real party in interest is the party who stands to
be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. Unless otherwise authorized by law or these Rules, every
action must be prosecuted or defended in the name of the real party in interest.
In Section 1(g) of Rule 16 of the Rules of Court, it is also provided that the
defendant may move to dismiss the suit on the ground that it was not brought
in the name of or against the real party in interest, with the effect that the
complaint is then deemed to state no cause of action.
In dismissing the appeal, the CA noted that the petitioner in its answer below
raised only the defense of novation, and that at no stage in the proceedings did
it raise the question of whether the suit was brought in the name of the real
party in interest. Moreover, the appellate court found from the sales invoices

and receipts that the respondent is the sole proprietor of Genlite Industries,
and therefore the real party-plaintiff. Said the CA:
Settled is the rule that litigants cannot raise an issue for the first time on
appeal as this would contravene the basic rules of fair play and justice.
In any event, there is no question that respondent Engr.Luis U. Parada is the
proprietor of Genlite Industries, as shown on the sales invoice and delivery
receipts. There is also no question that a special power of attorney was
executed by respondent Engr.Luis U. Parada in favor of Engr. Leonardo A.
Parada authorizingthe latter to file a complaint against the
petitioner.8 (Citations omitted)
The petitioner also contended that a binding novation of the purchase contract
between the parties took place when the respondent accepted the partial
payment of Enviro Kleen of ₱250,000.00 in its behalf, and thus acquiesced to
the substitution by Enviro Kleen of the petitioner as the new debtor. But the
CA noted that there is nothing in the two (2) letters of the respondent to
Enviro Kleen, dated April 14, 1999 and June 16, 1999, which would imply
that he consented to the alleged novation, and, particularly, that he intended to
release the petitioner from its primary obligation to pay him for its purchase of
lighting materials. The appellate court cited the RTC’s finding9 that the
respondent informed Enviro Kleen in his first letter that he had served notice
to the petitioner that he would take legal action against it for its overdue
account, and that he retained his option to pull out the lighting materials and
charge the petitioner for any damage they might sustain during the pull-out:
Respondent x x x has served notice to the petitioner that unless the overdue
account is paid, the matter will be referred to its lawyers and there may be a
pull-out of the delivered lighting fixtures. It was likewise stated therein that
incidental damages that may result to the structure in the course of the pull-out
will be to the account of the petitioner.10
The CA concurred with the RTC that by retaining his option to seek
satisfaction from the petitioner, any acquiescence which the respondent had
made was limited to merely accepting Enviro Kleen as an additional debtor
from whom he could demand payment, but without releasing the petitioner as
the principal debtor from its debt to him.
On motion for reconsideration,11 the petitioner raised for the first time the
issue of the validity of the verification and certification of non-forum
shopping attached to the complaint. On July 18, 2008, the CA denied the said
motion for lack of merit.12
Petition for Review in the Supreme Court
In this petition, the petitioner insists, firstly, that the complaint should have
been dismissed outright by the trial court for an invalid non-forum shopping
certification; and, secondly, that the appellate court erred in not declaring that
there was a novation of the contract between the parties through substitution
of the debtor, which resulted in the release of the petitioner from its obligation
to pay the respondent the amount of its purchase.13
Our Ruling
The petition is devoid of merit.
The verification and certification of
non-forum shopping in the
complaint is not a jurisdictional but
a formal requirement, and any
objection as to non-compliance
therewith should be raised in the
proceedings below and not for the
first time on appeal.
"It is well-settled that no question will be entertained on appeal unless it has
been raised in the proceedings below. Points of law, theories, issues and
arguments not brought to the attention of the lower court, administrative
agency or quasi-judicial body, need not be considered by are viewing court, as
they cannot be raised for the first time at that late stage. Basic considerations
of fairness and due process impel this rule. Any issue raised for the first time
on appeal is barred by estoppel."14
Through a Special Power of Attorney (SPA), the respondent authorized Engr.
Leonardo A. Parada (Leonardo), the eldest of his three children, to perform
the following acts in his behalf: a) to file a complaint against the petitioner for
sum of money with damages; and b) to testify in the trial thereof and sign all
papers and documents related thereto, with full powers to enter into stipulation
and compromise.15 Incidentally, the respondent, a widower, died of cardio-
pulmonary arrest on January 21,2009,16 survived by his legitimate children,
namely, Leonardo, Luis, Jr., and Lalaine, all surnamed Parada. They have
since substituted him in this petition, per the Resolution of the Supreme Court
dated September 2, 2009.17 Also, on July 23, 2009, Luis, Jr. and Lalaine
Parada executed an SPA authorizing their brother Leonardo to represent them
in the instant petition.18
4
In the verification and certification of non-forum shopping attached to the
complaint in Civil Case No. Q01-45212, Leonardo as attorney-in-fact of his
father acknowledged as follows:
xxxx
That I/we am/are the Plaintiff in the above-captioned case;
That I/we have caused the preparation of this Complaint;
That I/we have read the same and that all the allegations therein are true and
correct to the best of my/our knowledge;
x x x x.19
In this petition, the petitioner reiterates its argument before the CA that the
above verification is invalid, since the SPA executed by the respondent did
not specifically include an authority for Leonardo to sign the verification and
certification of non-forum shopping, thus rendering the complaint defective
for violation of Sections 4 and 5 of Rule 7. The said sections provide, as
follows:
Sec. 4. Verification. — A pleading is verified by an affidavit that the affiant
has read the pleading and that the allegations therein are true and correct of his
personal knowledge or based on authentic records.
Sec. 5. Certification against forum shopping. –– The plaintiff or principal
party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not thereto fore commenced
any action or filed any claim involving the same issues in any court, or
tribunal x x x and, to the best of his knowledge, no such other action or claim
is pending therein; (b) if there is such other pending action or claim, a
complete statement of the present status thereof; and (c) if he should thereafter
learn that the same or similar action or claim has been filed or is pending, he
shall report that fact x x x to the court wherein his aforesaid complaint or
initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by
mere amendment of the complaint or other initiatory pleading but shall be
cause for the dismissal of the case without prejudice, unless otherwise
provided, upon motion and after hearing.
The petitioner’s argument is untenable. The petitioner failed to reckon that
any objection as to compliance with the requirement of verification in the
complaint should have been raised in the proceedings below, and not in the
appellate court for the first time.20 In KILUSAN-OLALIA v. CA,21 it was held
that verification is a formal, not a jurisdictional requisite:
We have emphasized, time and again, that verification is a formal, not a
jurisdictional requisite, as it is mainly intended to secure an assurance that the
allegations therein made are done in good faith or are true and correct and not
mere speculation. The Court may order the correction of the pleading, if not
verified, or act on the unverified pleading if the attending circumstances are
such that a strict compliance with the rule may be dispensed with in order that
the ends of justice may be served.
Further, in rendering justice, courts have always been, as they ought to be,
conscientiously guided by the norm that on the balance, technicalities take a
backseat vis-à-vis substantive rights, and not the other way around. x x
x.22(Citations omitted)
In Young v. John Keng Seng,23 it was also held that the question of forum
shopping cannot be raised in the CA and in the Supreme Court, since such an
issue must be raised at the earliest opportunity in a motion to dismiss or a
similar pleading. The high court even warned that "invoking it in the later
stages of the proceedings or on appeal may result in the dismissal of the action
x x x."24
Moreover, granting that Leonardo has no personal knowledge of the
transaction subject of the complaint below, Section 4 of Rule 7 provides that
the verification need not be based on the verifier’s personal knowledge but
even only on authentic records. Sales invoices, statements of accounts,
receipts and collection letters for the balance of the amount still due to the
respondent from the petitioner are such records. There is clearly substantial
compliance by the respondent’s attorney-in-fact with the requirement of
verification.
Lastly, it is well-settled that a strict compliance with the rules may be
dispensed with in order that the ends of substantial justice may be served. 25 It
is clear that the present controversy must be resolved on its merits, lest for a
technical oversight the respondent should be deprived of what is justly due
him.
A sole proprietorship has no
juridical personality separate and
distinct from that of its owner, and
need not be impleaded as a party-
plaintiff in a civil case.
On the question of whether Genlite Industries should have been impleaded as
a party-plaintiff, Section 1 of Rule 3 of the Rules of Court provides that only
 5

natural or juridical persons or entities authorized by law may be parties in a to transfer it to Enviro Kleen Technologies, Inc. The acquiescence of Enviro
civil case. Article 44 of the New Civil Code enumerates who are juridical Kleen Technologies, Inc. to assume the obligation of the petitioner to pay the
persons: unpaid balance of [P]816,627.00 to the respondent when there is clearly no
Art. 44. The following are juridical persons: agreement to release the petitioner will result merely to the addition of debtors
(1) The State and its political subdivisions; and not novation. Hence, the creditor can still enforce the obligation against
(2) Other corporations, institutions and entities for public interest or purpose, the original debtor x x x. A fact which points strongly to the conclusion that
created by law; their personality begins as soon as they have been constituted the respondent did not assent to the substitution of Enviro Kleen
according to law; Technologies, Inc. as the new debtor is the present action instituted by the
(3) Corporations, partnerships and associations for private interest or purpose respondent against the petitioner for the fulfillment of its obligation. A mere
to which the law grants a juridical personality, separate and distinct from that recital that the respondent has agreed or consented to the substitution of the
of each shareholder, partner or member. debtor is not sufficient to establish the fact that there was a novation. x x x. 32
Genlite Industries is merely the DTI-registered trade name or style of the The settled rule is that novation is never presumed,33 but must be clearly and
respondent by which he conducted his business. As such, it does not exist as a unequivocally shown.34 In order for a new agreement to supersede the old one,
separate entity apart from its owner, and therefore it has no separate juridical the parties to a contract must expressly agree that they are abrogating their old
personality to sue or be sued.26 As the sole proprietor of Genlite Industries, contract in favor of a new one.35 Thus, the mere substitution of debtors will
there is no question that the respondent is the real party in interest who stood not result innovation,36 and the fact that the creditor accepts payments from a
to be directly benefited or injured by the judgment in the complaint below. third person, who has assumed the obligation, will result merely in the
There is then no necessity for Genlite Industries to be impleaded as a party- addition of debtors and not novation, and the creditor may enforce the
plaintiff, since the complaint was already filed in the name of its proprietor, obligation against both debtors.37 If there is no agreement as to solidarity, the
Engr. Luis U. Parada. To heed the petitioner’s sophistic reasoning is to permit first and new debtors are considered obligated jointly.38 As explained in Reyes
a dubious technicality to frustrate the ends of substantial justice. v. CA39:
Novation is never presumed but The consent of the creditor to a novation by change of debtor is as
must be clearly and unequivocally indispensable as the creditor’s consent in conventional subrogation in order
shown. that a novation shall legally take place. The mere circumstance of AFP-MBAI
Novation is a mode of extinguishing an obligation by changing its objects or receiving payments from respondent Eleazar who acquiesced to assume the
principal obligations, by substituting a new debtor in place of the old one, or obligation of petitioner under the contract of sale of securities, when there is
by subrogating a third person to the rights of the creditor.27 It is "the clearly no agreement to release petitioner from her responsibility, does not
substitution of a new contract, debt, or obligation for an existing one between constitute novation. At most, it only creates a juridical relation of co-
the same or different parties."28 Article 1293 of the Civil Code defines debtorship or surety ship on the part of respondent Eleazar to the contractual
novation as follows: obligation of petitioner to AFP-MBAI and the latter can still enforce the
Art. 1293. Novation which consists in substituting a new debtor in the place of obligation against the petitioner. In Ajax Marketing and Development
the original one, may be made even without the knowledge or against the will Corporation vs. Court of Appeals which is relevant in the instant case, we
of the latter, but not without the consent of the creditor. Payment by the new stated that —
debtor gives him rights mentioned in Articles 1236and 1237. "In the same vein, to effect a subjective novation by a change in the person of
Thus, in order to change the person of the debtor, the former debtor must be the debtor, it is necessary that the old debtor be released expressly from the
expressly released from the obligation, and the third person or new debtor obligation, and the third person or new debtor assumes his place in the
must assume the former’s place in the contractual relation.29 Article 1293 relation. There is no novation without such release as the third person who has
speaks of substitution of the debtor, which may either be in the form of assumed the debtor’s obligation becomes merely a co-debtor or surety. xxx.
expromision or delegacion, as seems to be the case here. In both cases, the old Novation arising from a purported change in the person of the debtor must be
debtor must be released from the obligation, otherwise, there is no valid clear and express xxx."
novation. As explained in Garcia30: In the civil law setting, novatio is literally construed as to make new. So it is
In general, there are two modes of substituting the person of the debtor: (1) deeply rooted in the Roman Law jurisprudence, the principle – novatio non
expromision and (2) delegacion. In expromision, the initiative for the change praesumitur — that novation is never presumed. At bottom, for novation to be
does not come from—and may even be made without the knowledge of—the a jural reality, its animus must be ever present, debitum pro debito —
debtor, since it consists of a third person’s assumption of the obligation. As basically extinguishing the old obligation for the new one.40 (Citation omitted)
such, it logically requires the consent of the third person and the creditor. In The trial court found that the respondent never agreed to release the petitioner
delegacion, the debtor offers, and the creditor accepts, a third person who from its obligation, and this conclusion was upheld by the CA. We generally
consents to the substitution and assumes the obligation; thus, the consent of accord utmost respect and great weight to factual findings of the trial court
these three persons are necessary. Both modes of substitution by the debtor and the CA, unless there appears in the record some fact or circumstance of
require the consent of the creditor.31 (Citations omitted) weight and influence which has been overlooked, or the significance of which
From the circumstances obtaining below, we can infer no clear and has been misinterpreted, that if considered would have affected the result of
unequivocal consent by the respondent to the release of the petitioner from the the case.41 We find no such oversight in the appreciation of the facts below,
obligation to pay the cost of the lighting materials. In fact, from the letters of nor such a misinterpretation thereof, as would otherwise provide a clear and
the respondent to Enviro Kleen, it can be said that he retained his option to go unequivocal showing that a novation has occurred in the contract between the
after the petitioner if Enviro Kleen failed to settle the petitioner’s debt. As the parties resulting in the release of the petitioner.
trial court held: Pursuant to Article 2209 of the
The fact that Enviro Kleen Technologies, Inc. made payments to the Civil Code, except as provided
respondent and the latter accepted it does not ipso facto result innovation. under Central Bank Circular
Novation to be given its legal effect requires that the creditor should consent No. 905, and now under Bangko
to the substitution of a new debtor and the old debtor be released from its Sentral ng Pilipinas Circular
obligation (Art. 1293, New Civil Code). A reading of the letters dated 14 No. 799, which took effect on
April 1999 (Exh. 1) and dated 16 June 1999 (Exhs. 4 &4-a) sent by the July 1, 2013, the respondent may
respondent to Enviro Kleen Technologies, Inc. clearly shows that there was be awarded interest of six percent
nothing therein that would evince that the[respondent] has consented to the (6%) of the judgment amount by
exchange of the person of the debtor from the petitioner to Enviro Kleen way of actual and compensatory
Technologies, Inc. damages.
xxxx It appears from the recital of facts in the trial court’s decision that the
Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the respondent demanded interest of two percent (2%) per month upon the
respondent expressly stated that it has served notice to the petitioner that balance of the purchase price of ₱816,627.00, from judicial demand until full
unless the overdue account is paid, the matter will be referred to its lawyers payment. There is then an obvious clerical error committed in the fallo of the
and there may be a pull-out of the delivered lighting fixtures. It was likewise trial court’s decision, for it incorrectly ordered the defendant there into pay
stated therein that incident damages that may result to the structure in the "the sum equivalent to twenty percent (20%) per month of the principal
course of the pull-out will be to the account of the petitioner. obligation due from date of judicial demand until fully paid as and for
It is evident from the two (2) aforesaid letters that there is no indication of the interest."42
respondent’s intention to release the petitioner from its obligation to pay and

A clerical mistake is one which is visible to the eyes or obvious to the
understanding; an error made by a clerk or a transcriber; a mistake in copying
or writing.43 The Latin maxims Error placitandi aequitatem non tollit ("A
clerical error does not take away equity"), and Error scribentis nocere non
debit ("An error made by a clerk ought not to injure; a clerical error may be
corrected") are apt in this case.44 Viewed against the landmark case of Medel
v. CA45, an award of interest of 20% per month on the amount due is clearly
excessive and iniquitous. It could not have been the intention of the trial court,
not to mention that it is way beyond what the plaintiff had prayed for below.
It is settled that other than in the case of judgments which are void ab initio
for lack of jurisdiction, or which are null and void per se, and thus may be
questioned at any time, when a decision is final, even the court which issued it
can no longer alter or modify it, except to correct clerical errors or mistakes. 46
The foregoing notwithstanding, of more important consideration in the case
before us is the fact that it is nowhere stated in the trial court’s decision that
the parties had in fact stipulated an interest on the amount due to the
respondent. Even granting that there was such an agreement, there is no
finding by the trial court that the parties stipulated that the outstanding debt of
the petitioner would be subject to two percent (2%) monthly interest. The
most that the decision discloses is that the respondent demanded a monthly
interest of 2% on the amount outstanding.
Article 2209 of the Civil Code provides that "if the obligation consists in the
payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six percent per annum." Pursuant to the said provision, then, since
there is no finding of a stipulation by the parties as to the imposition of
interest, only the amount of 12% per annum47 may be awarded by the court by
way of damages in its discretion, not two percent(2%) per month, following
the guidelines laid down in the landmark case of Eastern Shipping Lines v.
Court of Appeals,48 to wit:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained).The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.49 (Citations omitted)
As further clarified in the case of Sunga-Chan v. CA,50 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.51 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,
6
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 of a 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.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of
interest, if proper, and the applicable rate, as follows: The12% per annum rate
under CB Circular No. 416 shall apply only to loans or forbearance of money,
goods, or credits, as well as to judgments involving such loan or forbearance
of money, goods, or credit, while the 6% per annum under Art. 2209 of the
Civil Code applies "when the transaction involves the payment of indemnities
in the concept of damage arising from the breach or a delay in the
performance of obligations in general," with the application of both rates
reckoned "from the time the complaint was filed until the adjudged amount is
fully paid." In either instance, the reckoning period for the commencement of
the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on
the award of interest."52 (Citations omitted and emphasis ours)
Pursuant, then, to Central Bank Circular No. 416, issued on July 29,1974, 53 in
the absence of a written stipulation, the interest rate to be imposed in
judgments involving a forbearance of credit shall be 12% per annum, up from
6% under Article 2209 of the Civil Code. This was reiterated in Central Bank
Circular No. 905, which suspended the effectivity of the Usury Law from
January 1, 1983.54 But if the judgment refers to payment of interest as
damages arising from a breach or delay in general, the applicable interest rate
is 6% per annum, following Article 2209 of the Civil Code.55 Both interest
rates apply from judicial or extrajudicial demand until finality of the
judgment. But from the finality of the judgment awarding a sum of money
until it is satisfied, the award shall be considered a forbearance of credit,
regardless of whether the award in fact pertained to one, and therefore during
this period, the interest rate of 12% per annum for forbearance of money shall
apply.56
But notice must be taken that in Resolution No. 796 dated May 16,2013, the
Monetary Board of the Bangko Sentral ng Pilipinas approved the revision of
the interest rate to be imposed for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest. Thus, under BSP Circular No.799,
issued on June 21, 2013 and effective on July 1, 2013, the said rate of interest
is now back at six percent (6%), viz:
BANGKO SENTRAL NG PILIPINAS
OFFICE OF THE GOVERNOR
CIRCULAR NO. 799
Series of 2013
Subject: Rate of interest in the absence of stipulation
The monetary Board, in its Resolution No. 796 dated 16 May 2013,approved
the following revisions governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.
FOR THE MONETARY BOARD:
DIWA C. GUINIGUNDO
Officer-In-Charge
The award of attorney’s fees is not proper.
Other than to say that the petitioner "unjustifiably failed and refused to pay the
respondent," the trial court did not state in the body of its decision the factual
or legal basis for its award of attorney’s fees to the respondent, as required
under Article 2208 of the New Civil Code, for which reason we have resolved
to delete the same. The rule is settled that the trial court must state the factual,
legal or equitable justification for its award of attorney’s fees. 57Indeed, the
matter of attorney’s fees cannot be stated only in the dispositive portion, but
the reasons must be stated in the body of the court’s decision. 58 This failure or
oversight of the trial court cannot even be supplied by the CA. As concisely
explained in Frias v. San Diego-Sison59:
Article 2208 of the New Civil Code enumerates the instances where such may
be awarded and, in all cases, it must be reasonable, just and equitable if the
same were to be granted. Attorney’s fees as part of damages are not meant to
enrich the winning party at the expense of the losing litigant. They are not

awarded every time a party prevails in a suit because of the policy that no
b) 2/6/98 to 8/18/98 = 6.4 months
premium should be placed on the right to litigate. The award of attorney’s fees
is the exception rather than the general rule. As such, it is necessary for the
Prevailing Rate per day
trial court to make findings of facts and law that would bring the case within
the exception and justify the grant of such award. The matter of attorney’s
₱198.00 x 26 days x 6.4 mos.
fees cannot be mentioned only in the dispositive portion of the decision. They
must be clearly explained and justified by the trial court in the body of itsT O T A L
decision. On appeal, the CA is precluded from supplementing the bases for
awarding attorney’s fees when the trial court failed to discuss in its Decision
the reasons for awarding the same.1âwphi1Consequently, the award of
attorney’s fees should be deleted.60 (Citations omitted)
WHEREFORE, premises considered, the Decision dated April 30, 2008 of the
Court of Appeals in CA-G.R. CV No. 83811 is AFFIRMED with
MODIFICATION. Petitioner S.C. Megaworld Construction and Development
Corporation is ordered to pay respondent Engr. Luis A. Parada, represented by
Engr. Leonardo A. Parada, the principal amount due of ₱816,627.00, plus
interest at twelve percent (12%) per annum, reckoned from judicial demand
until June 30, 2013, and six percent (6%) per an own from July 1, 2013 until
finality hereof, by way of actual and compensatory damages. Thereafter, the
principal amount due as adjusted by interest shall likewise earn interest at six
percent (6%) per annum until fully paid. The award of attorney's fees is
DELETED.
G.R. No. 189871 August 13, 2013
DARIO NACAR, PETITIONER,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY,
JR., RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision1 dated
September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591,
and the Resolution2 dated October 9, 2009 denying petitioner’s motion for
reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the
Arbitration Branch of the National Labor Relations Commission (NLRC)
against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed
as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of
petitioner and found that he was dismissed from employment without a valid
or just cause. Thus, petitioner was awarded backwages and separation pay in
lieu of reinstatement in the amount of ₱158,919.92. The dispositive portion of
the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge
the burden of showing that complainant was dismissed from employment for a
just or valid cause. All the more, it is clear from the records that complainant
was never afforded due process before he was terminated. As such, we are
perforce constrained to grant complainant’s prayer for the payments of
separation pay in lieu of reinstatement to his former position, considering the
strained relationship between the parties, and his apparent reluctance to be
reinstated, computed only up to promulgation of this decision as follows:
SEPARATION PAY
Date Hired = August 1990
Rate = ₱198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
₱196.00/day x 12.36 mos. = ₱62,986.56
7
= ₱62,986.00
= ₱32,947.20
= ₱95.933.76
xxxx
WHEREFORE, premises considered, judgment is hereby rendered finding
respondents guilty of constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two
thousand nine hundred eighty-six pesos and 56/100 (₱62,986.56) Pesos
representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five
thousand nine hundred thirty-three and 36/100 (₱95,933.36) representing his
backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in
the Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained
the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the
CA. On August 24, 2000, the CA issued a Resolution dismissing the petition.
Respondents filed a Motion for Reconsideration, but it was likewise denied in
a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as G.R.
No. 151332. Finding no reversible error on the part of the CA, this Court
denied the petition in the Resolution dated April 17, 2002. 8
An Entry of Judgment was later issued certifying that the resolution became
final and executory on May 27, 2002.9The case was, thereafter, referred back
to the Labor Arbiter. A pre-execution conference was consequently scheduled,
but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation,
praying that his backwages be computed from the date of his dismissal on
January 24, 1997 up to the finality of the Resolution of the Supreme Court on
May 27, 2002.11 Upon recomputation, the Computation and Examination Unit
of the NLRC arrived at an updated amount in the sum of ₱471,320.31. 12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter
ordering the Sheriff to collect from respondents the total amount of
₱471,320.31. Respondents filed a Motion to Quash Writ of Execution,
arguing, among other things, that since the Labor Arbiter awarded separation
pay of ₱62,986.56 and limited backwages of ₱95,933.36, no more
recomputation is required to be made of the said awards. They claimed that
after the decision becomes final and executory, the same cannot be altered or
amended anymore.14 On January 13, 2003, the Labor Arbiter issued an
Order15 denying the motion. Thus, an Alias Writ of Execution 16 was issued on
January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued
a Resolution17 granting the appeal in favor of the respondents and ordered the
recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the
Resolution of the NLRC to be final and executory. Consequently, another pre-
execution conference was held, but respondents failed to appear on time.
Meanwhile, petitioner moved that an Alias Writ of Execution be issued to
enforce the earlier recomputed judgment award in the sum of ₱471,320.31. 18
The records of the case were again forwarded to the Computation and
Examination Unit for recomputation, where the judgment award of petitioner
was reassessed to be in the total amount of only ₱147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents
to pay him the original amount as determined by the Labor Arbiter in his
Decision dated October 15, 1998, pending the final computation of his
backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to
satisfy the judgment award that was due to petitioner in the amount of
₱147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-
computation of the monetary award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion,
but only up to the amount of ₱11,459.73. The Labor Arbiter reasoned that it is
the October 15, 1998 Decision that should be enforced considering that it was
the one that became final and executory. However, the Labor Arbiter reasoned
that since the decision states that the separation pay and backwages are
computed only up to the promulgation of the said decision, it is the amount of

₱158,919.92 that should be executed. Thus, since petitioner already received
₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the
NLRC in its Resolution22 dated September 27, 2006. Petitioner filed a Motion
for Reconsideration, but it was likewise denied in the Resolution 23dated
January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-
G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision 24 denying the petition.
The CA opined that since petitioner no longer appealed the October 15, 1998
Decision of the Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed. The CA stated that there is
nothing left to be done except to enforce the said judgment. Consequently, it
can no longer be modified in any respect, except to correct clerical errors or
mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the
Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I [T]he Labor Arbiter of origin, in cases involving monetary awards and at all
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF DISCRETION
AND DECIDED CONTRARY TO LAW IN UPHOLDING THE
QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT
MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998
DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN
OPINION EXPRESSED IN THE BODY OF THE SAME DECISION. 26
Petitioner argues that notwithstanding the fact that there was a computation of
backwages in the Labor Arbiter’s decision, the same is not final until
reinstatement is made or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that the October 15, 1998
decision of the Labor Arbiter did not become final and executory until the
April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was
entered in the Book of Entries on May 27, 2002, the reckoning point for the
computation of the backwages and separation pay should be on May 27, 2002
and not when the decision of the Labor Arbiter was rendered on October 15,
1998. Further, petitioner posits that he is also entitled to the payment of
interest from the finality of the decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited
backwages were awarded to petitioner by the October 15, 1998 decision of the
Labor Arbiter, no more recomputation is required to be made of said awards.
Respondents insist that since the decision clearly stated that the separation pay
and backwages are "computed only up to [the] promulgation of this decision,"
and considering that petitioner no longer appealed the decision, petitioner is
only entitled to the award as computed by the Labor Arbiter in the total
amount of ₱158,919.92. Respondents added that it was only during the
execution proceedings that the petitioner questioned the award, long after the
decision had become final and executory. Respondents contend that to allow
the further recomputation of the backwages to be awarded to petitioner at this
point of the proceedings would substantially vary the decision of the Labor
Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast
Foods v. Court of Appeals (Sixth Division),27 wherein the issue submitted to
the Court for resolution was the propriety of the computation of the awards
made, and whether this violated the principle of immutability of judgment.
Like in the present case, it was a distinct feature of the judgment of the Labor
Arbiter in the above-cited case that the decision already provided for the
computation of the payable separation pay and backwages due and did not
further order the computation of the monetary awards up to the time of the
finality of the judgment. Also in Session Delights, the dismissed employee
failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of
execution of the labor arbiter's original computation of the awards made,
pegged as of the time the decision was rendered and confirmed with
modification by a final CA decision, is legally proper. The question is posed,
given that the petitioner did not immediately pay the awards stated in the
original labor arbiter's decision; it delayed payment because it continued with
the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case
proceeds from the way the original labor arbiter framed his decision. The
decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has
been confirmed with finality. This is the finding of the illegality of the
8
dismissal and the awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the
computation the labor arbiter made shows that it was time-bound as can be
seen from the figures used in the computation. This part, being merely a
computation of what the first part of the decision established and declared,
can, by its nature, be re-computed. This is the part, too, that the petitioner now
posits should no longer be re-computed because the computation is already in
the labor arbiter's decision that the CA had affirmed. The public and private
respondents, on the other hand, posit that a re-computation is necessary
because the relief in an illegal dismissal decision goes all the way up to
reinstatement if reinstatement is to be made, or up to the finality of the
decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal
dismissal had taken place, also made a computation of the award, is
understandable in light of Section 3, Rule VIII of the then NLRC Rules of
Procedure which requires that a computation be made. This Section in part
states:
events, as far as practicable, shall embody in any such decision or order the
detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality
of the labor arbiter's decision. As we noted above, this implication is apparent
from the terms of the computation itself, and no question would have arisen
had the parties terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all
counts - i.e., on the finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC which, in
turn, affirmed the labor arbiter's decision. By law, the NLRC decision is final,
reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on
jurisdictional grounds through a timely filed Rule 65 petition for certiorari.
The CA decision, finding that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal
dismissal portion of the original labor arbiter's decision, the implementing
labor arbiter ordered the award re-computed; he apparently read the figures
originally ordered to be paid to be the computation due had the case been
terminated and implemented at the labor arbiter's level. Thus, the labor arbiter
re-computed the award to include the separation pay and the backwages due
up to the finality of the CA decision that fully terminated the case on the
merits. Unfortunately, the labor arbiter's approved computation went beyond
the finality of the CA decision (July 29, 2003) and included as well the
payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA
issued the decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is
necessary as it essentially considered the labor arbiter's original decision in
accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary
consequences of the illegal dismissal, computed as of the time of the labor
arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision
which is sought to be executed by the petitioner, no essential change is made
by a recomputation as this step is a necessary consequence that flows from the
nature of the illegality of dismissal declared by the Labor Arbiter in that
decision.29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law – specifically, Article 279 of
the Labor Code and the established jurisprudence on this provision – that is
read into the decision. By the nature of an illegal dismissal case, the reliefs
continue to add up until full satisfaction, as expressed under Article 279 of the
Labor Code. The recomputation of the consequences of illegal dismissal upon
execution of the decision does not constitute an alteration or amendment of
the final decision being implemented. The illegal dismissal ruling stands; only
the computation of monetary consequences of this dismissal is affected, and
this is not a violation of the principle of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it continued
to seek recourses against the Labor Arbiter's decision. Article 279 provides for
the consequences of illegal dismissal in no uncertain terms, qualified only by
jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal
dismissal decision becomes the reckoning point instead of the reinstatement

that the law decrees. In allowing separation pay, the final decision effectively
declares that the employment relationship ended so that separation pay and
backwages are to be computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern
Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down the guidelines
regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment
of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued
Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion
of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved
the following revisions governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of
Regulations for Banks and Sections 4305Q.1,37 4305S.338 and 4303P.139 of the
Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for loans
or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum - as reflected in
the case of Eastern Shipping Lines40and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its
amendment by BSP-MB Circular No. 799 - but will now be six percent (6%)
per annum effective July 1, 2013. It should be noted, nonetheless, that the new
rate could only be applied prospectively and not retroactively. Consequently,
the twelve percent (12%) per annum legal interest shall apply only until June
30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall
be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and
Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this Court affirmed
the authority of the BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or
rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops, finance companies
and similar credit institutions. It even authorizes the BSP-MB to prescribe
different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries."
9
Nonetheless, with regard to those judgments that have become final and
executory prior to July 1, 2013, said judgments shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of
Eastern Shipping Lines42 are accordingly modified to embody BSP-MB
Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable
damages.1âwphi1
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages, except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008
of the Court of Appeals in CA-G.R. SP No. 98591, and the Resolution dated
October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered
to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on
January 24, 1997 up to May 27, 2002, when the Resolution of this Court in
G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate
of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and six percent (6%) per
annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the
total monetary benefits awarded and due to petitioner in accordance with this
Decision.
SO ORDERED.
G.R. No. 192986 January 15, 2013
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B.
OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD, represented by its
Chairman, GOVERNOR ARMANDO M. TETANGCO, JR., and its
incumbent members: JUANITA D. AMATONG, ALFREDO C.
ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO
R. BUNYE and CESAR V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance
to the public, filed directly with this Court this Petition for Certiorari under
Rule 65 of the 1997 Rules of Court, seeking to declare that the Bangko Sentral
ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank
Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no

authority to continue enforcing Central Bank Circular No. 905,1 issued by the
CB-MB in 1982, which "suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit,
non-stock corporation organized to engage in pro bono concerns and activities
relating to money lending issues. It was incorporated on July 9, 2010, 2 and a
month later, it filed this petition, joined by its founder and president, Eduardo
B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June
15, 1948, empowered the CB-MB to, among others, set the maximum interest
rates which banks may charge for all types of loans and other credit
operations, within limits prescribed by the Usury Law. Section 109 of R.A.
No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board
may fix the maximum rates of interest which banks may pay on deposits and
on other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix
the maximum rates of interest which banks may charge for different types of
loans and for any other credit operations, or may fix the maximum differences
which may exist between the interest or rediscount rates of the Central Bank
and the rates which the banks may charge their customers if the respective
credit documents are not to lose their eligibility for rediscount or advances in
the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing
or lending operations of the banks shall apply only to future operations and
not to those made prior to the date on which the modification becomes
effective.
In order to avoid possible evasion of maximum interest rates set by the
Monetary Board, the Board may also fix the maximum rates that banks may
pay to or collect from their customers in the form of commissions, discounts,
charges, fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree
(P.D.) No. 1684, giving the CB-MB authority to prescribe different maximum
rates of interest which may be imposed for a loan or renewal thereof or the
forbearance of any money, goods or credits, provided that the changes are
effected gradually and announced in advance. Thus, Section 1-a of Act No.
2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum
rate or rates of interest for the loan or renewal thereof or the forbearance of
any money, goods or credits, and to change such rate or rates whenever
warranted by prevailing economic and social conditions: Provided, That
changes in such rate or rates may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the Monetary Board may
prescribe higher maximum rates for loans of low priority, such as consumer
loans or renewals thereof as well as such loans made by pawnshops, finance
companies and other similar credit institutions although the rates prescribed
for these institutions need not necessarily be uniform. The Monetary Board is
also authorized to prescribe different maximum rate or rates for different types
of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries. (Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB
Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of
the Circular, under its General Provisions, removed the ceilings on interest
rates on loans or forbearance of any money, goods or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods, or credits, regardless
of maturity and whether secured or unsecured, that may be charged or
collected by any person, whether natural or juridical, shall not be subject to
any ceiling prescribed under or pursuant to the Usury Law, as amended.
(Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the CB’s "Manual of
Regulations for Banks and Other Financial Intermediaries" (Manual of
Regulations) by removing the applicable ceilings on specific interest rates.
Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I,
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing
the ceilings for interest and other charges, commissions, premiums, and fees
applicable to commercial banks; Sections 12 and 17 removed the interest
ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections 19 and 21
removed the ceilings applicable to rural banks (Book III, Subsection 3152.3-
c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank
financial intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1,
4303P).4
10
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The
repealing clause thereof, Section 135, reads:
Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46
and 132 of this Act, Republic Act No. 265, as amended, the provisions of any
other law, special charters, rule or regulation issued pursuant to said Republic
Act No. 265, as amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree No. 1792 is
likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to this
Court to secure a writ of certiorari, petitioners contend that the transcendental
importance of their Petition can readily be seen in the issues raised therein, to
wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the
statutory or constitutional authority to prescribe the maximum rates of interest
for all kinds of credit transactions and forbearance of money, goods or credit
beyond the limits prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB
Circular No. 905, which removed all interest ceilings and thus suspended Act
No. 2655 as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce
CB Circular No. 905.5
Petitioners attached to their petition copies of several Senate Bills and
Resolutions of the 10th Congress, which held its sessions from 1995 to 1998,
calling for investigations by the Senate Committee on Banks and Financial
Institutions into alleged unconscionable commercial rates of interest imposed
by these entities. Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator
Vicente C. Sotto III and the late Senator Blas F. Ople, respectively, sought to
amend Act No. 2655 by fixing the rates of interest on loans and forbearance of
credit; Philippine Senate Resolution (SR) No. 1053,8 10739 and 1102,10 filed
by Senators Ramon B. Magsaysay, Jr., Gregorio B. Honasan and Franklin M.
Drilon, respectively, urged the aforesaid Senate Committee to investigate
ways to curb the high commercial interest rates then obtaining in the country;
Senator Ernesto Maceda filed SB No. 1151 to prohibit the collection of more
than two months of advance interest on any loan of money; and Senator Raul
Roco filed SR No. 114411seeking an investigation into an alleged cartel of
commercial banks, called "Club 1821", reportedly behind the regime of high
interest rates. The petitioners also attached news clippings12 showing that in
February 1998 the banks’ prime lending rates, or interests on loans to their
best borrowers, ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by
P.D. No. 1684, the CB-MB was authorized only to prescribe or set the
maximum rates of interest for a loan or renewal thereof or for the forbearance
of any money, goods or credits, and to change such rates whenever warranted
by prevailing economic and social conditions, the changes to be effected
gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized
the CB-MB to lift or suspend the limits of interest on all credit transactions,
when it issued CB Circular No. 905. They further insist that under Section 109
of R.A. No. 265, the authority of the CB-MB was clearly only to fix the
banks’ maximum rates of interest, but always within the limits prescribed by
the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was promulgated
without the benefit of any prior public hearing, is void because it violated
Article 5 of the New Civil Code, which provides that "Acts executed against
the provisions of mandatory or prohibitory laws shall be void, except when
the law itself authorizes their validity."
They further claim that just weeks after the issuance of CB Circular No. 905,
the benchmark 91-day Treasury bills (T-bills),13 then known as "Jobo"
bills14 shot up to 40% per annum, as a result. The banks immediately followed
suit and re-priced their loans to rates which were even higher than those of the
"Jobo" bills. Petitioners thus assert that CB Circular No. 905 is also
unconstitutional in light of Section 1 of the Bill of Rights, which commands
that "no person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied the equal protection of the
laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision
similar to Section 109 of R.A. No. 265, and therefore, in view of the repealing
clause in Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the
power either to prescribe the maximum rates of interest which banks may
charge for different kinds of loans and credit transactions, or to suspend Act
No. 2655 and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.

The decision on whether or not to accept a petition for certiorari, as well as to
grant due course thereto, is addressed to the sound discretion of the court.15 A
petition for certiorari being an extraordinary remedy, the party seeking to avail
of the same must strictly observe the procedural rules laid down by law, and
non-observance thereof may not be brushed aside as mere technicality. 16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a
tribunal exercising judicial or quasi-judicial functions.17 Judicial functions are
exercised by a body or officer clothed with authority to determine what the
law is and what the legal rights of the parties are with respect to the matter in
controversy. Quasi-judicial function is a term that applies to the action or
discretion of public administrative officers or bodies given the authority to
investigate facts or ascertain the existence of facts, hold hearings, and draw
conclusions from them as a basis for their official action using discretion of a
judicial nature.18
The CB-MB (now BSP-MB) was created to perform executive functions with
respect to the establishment, operation or liquidation of banking and credit
institutions, and branches and agencies thereof.19 It does not perform judicial
or quasi-judicial functions. Certainly, the issuance of CB Circular No. 905
was done in the exercise of an executive function. Certiorari will not lie in the
instant case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a
given question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil
Procedure provides that "every action must be prosecuted or defended in the
name of the real party in interest," who is "the party who stands to be
benefited or injured by the judgment in the suit or the party entitled to the
avails of the suit." Succinctly put, a party’s standing is based on his own right
to the relief sought.21
Even in public interest cases such as this petition, the Court has generally
adopted the "direct injury" test that the person who impugns the validity of a
statute must have "a personal and substantial interest in the case such that he
has sustained, or will sustain direct injury as a result."22 Thus, while
petitioners assert a public right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to make out a sufficient
interest in the vindication of the public order and the securing of relief. It is
significant that in this petition, the petitioners do not allege that they sustained
any personal injury from the issuance of CB Circular No. 905.
Petitioners also do not claim that public funds were being misused in the
enforcement of CB Circular No. 905. In Kilosbayan, Inc. v.
Morato,23 involving the on-line lottery contract of the PCSO, there was no
allegation that public funds were being misspent, which according to the
Court would have made the action a public one, "and justify relaxation of the
requirement that an action must be prosecuted in the name of the real party-in-
interest." The Court held, moreover, that the status of Kilosbayan as a
people’s organization did not give it the requisite personality to question the
validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for
bringing this suit. It does not detract from the high regard for petitioners as
civic leaders to say that their interest falls short of that required to maintain an
action under the Rule 3, Sec. 2.24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good
Government,25 it was held that no question involving the constitutionality or
validity of a law or governmental act may be heard and decided by the court
unless there is compliance with the legal requisites for judicial inquiry,
namely: (a) that the question must be raised by the proper party; (b) that there
must be an actual case or controversy; (c) that the question must be raised at
the earliest possible opportunity; and (d) that the decision on the constitutional
or legal question must be necessary to the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the
requirements before taxpayers, voters, concerned citizens, and legislators can
be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds
or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of
the election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are
of transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.
While the Court may have shown in recent decisions a certain toughening in
its attitude concerning the question of legal standing, it has nonetheless always
made an exception where the transcendental importance of the issues has been
established, notwithstanding the petitioners’ failure to show a direct
11
injury.27 In CREBA v. ERC,28 the Court set out the following instructive
guides as determinants on whether a matter is of transcendental importance,
namely: (1) the character of the funds or other assets involved in the case; (2)
the presence of a clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or instrumentality of the
government; and (3) the lack of any other party with a more direct and
specific interest in the questions being raised. Further, the Court stated in
Anak Mindanao Party-List Group v. The Executive Secretary29 that the rule
on standing will not be waived where these determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the
implementation of CB Circular No. 905. Neither were borrowers who were
actually affected by the suspension of the Usury Law joined in this petition.
Absent any showing of transcendental importance, the petition must fail.
More importantly, the Court notes that the instant petition adverted to the
regime of high interest rates which obtained at least 15 years ago, when the
banks’ prime lending rates ranged from 26% to 31%, 30 or even 29 years ago,
when the 91-day Jobo bills reached 40% per annum. In contrast, according to
the BSP, in the first two (2) months of 2012 the bank lending rates averaged
5.91%, which implies that the banks’ prime lending rates were lower;
moreover, deposit interests on savings and long-term deposits have also gone
very low, averaging 1.75% and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be
approaching 0%.1âwphi1 In the auctions held on November 12, 2012, the
rates of 3-month, 6-month and 1-year T-bills have dropped to 0.150%,
0.450% and 0.680%, respectively.32 According to Manila Bulletin, this very
low interest regime has been attributed to "high liquidity and strong investor
demand amid positive economic indicators of the country."33
While the Court acknowledges that cases of transcendental importance
demand that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure,34 the delay of at least 15 years in the filing
of the instant petition has actually rendered moot and academic the issues it
now raises.
For its part, BSP-MB maintains that the petitioners’ allegations of
constitutional and statutory violations of CB Circular No. 905 are really mere
challenges made by petitioners concerning the wisdom of the Circular. It
explains that it was in view of the global economic downturn in the early
1980’s that the executive department through the CB-MB had to formulate
policies to achieve economic recovery, and among these policies was the
establishment of a market-oriented interest rate structure which would require
the removal of the government-imposed interest rate ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it
issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D.
No. 1684 has long been recognized and upheld in many cases. As the Court
explained in the landmark case of Medel v. CA,36 citing several cases, CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter’s effectivity;"37that "a CB Circular cannot repeal a
law, [for] only a law can repeal another law;"38 that "by virtue of CB Circular
No. 905, the Usury Law has been rendered ineffective;"39 and "Usury has been
legally non-existent in our jurisdiction. Interest can now be charged as lender
and borrower may agree upon."40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve,
Inc.41 cited in DBP v. Perez,42 we also belied the contention that the CB was
engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury
Law but simply suspended the latter’s effectivity. The illegality of usury is
wholly the creature of legislation. A Central Bank Circular cannot repeal a
law. Only a law can repeal another law. x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement
authorized the PNB to unilaterally increase the rate of interest to 25% per
annum, plus a penalty of 6% per annum on past dues, then to 30% on October
15, 1984, and to 42% on October 25, 1984. The Supreme Court invalidated
the rate increases made by the PNB and upheld the 12% interest imposed by
the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting
parties to stipulate freely regarding any subsequent adjustment in the interest
rate that shall accrue on a loan or forbearance of money, goods or credits. In
fine, they can agree to adjust, upward or downward, the interest previously
stipulated. x x x.45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No.
905 merely upheld the parties’ freedom of contract to agree freely on the rate
of interest. It cited Article 1306 of the New Civil Code, under which the
contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.

E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of
any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or
juridical, shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended." It does not purport to suspend the Usury Law only
as it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the
Usury Law, the new BSP-MB did not retain this power of its predecessor, in
view of Section 135 of R.A. No. 7653, which expressly repealed R.A. No.
265. The petitioners point out that R.A. No. 7653 did not reenact a provision
similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law, as amended,
the BSP-MB may prescribe the maximum rate or rates of interest for all loans
or renewals thereof or the forbearance of any money, goods or credits,
including those for loans of low priority such as consumer loans, as well as
such loans made by pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265,
now R.A. No. 7653, merely supplemented it as it concerns loans by banks and
other financial institutions. Had R.A. No. 7653 been intended to repeal
Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored,
because laws are presumed to be passed with deliberation and full knowledge
of all laws existing pertaining to the subject.46 An implied repeal is predicated
upon the condition that a substantial conflict or repugnancy is found between
the new and prior laws. Thus, in the absence of an express repeal, a
subsequent law cannot be construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy exists in the terms of the new and
old laws.47 We find no such conflict between the provisions of Act 2655 and
R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche
authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.48 As held in Castro v.
Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to
a repugnant spoliation and an iniquitous deprivation of property, repulsive to
the common sense of man. It has no support in law, in principles of justice, or
in the human conscience nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be sustained within the
sphere of public or private morals.50
Stipulations authorizing iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not against the
law.51 Indeed, under Article 1409 of the Civil Code, these contracts are
deemed inexistent and void ab initio, and therefore cannot be ratified, nor may
the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect
the lender’s right to recover the principal of a loan, nor affect the other terms
thereof.52 Thus, in a usurious loan with mortgage, the right to foreclose the
mortgage subsists, and this right can be exercised by the creditor upon failure
by the debtor to pay the debt due. The debt due is considered as without the
stipulated excessive interest, and a legal interest of 12% per annum will be
added in place of the excessive interest formerly imposed, 53following the
guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v.
Court of Appeals,54 regarding the manner of computing legal interest:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
12
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v. Court of
Appeals, 56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of
interest, if proper, and the applicable rate, as follows: The 12% per annum rate
under CB Circular No. 416 shall apply only to loans or forbearance of money,
goods, or credits, as well as to judgments involving such loan or forbearance
of money, goods, or credit, while the 6% per annum under Art. 2209 of the
Civil Code applies "when the transaction involves the payment of indemnities
in the concept of damage arising from the breach or a delay in the
performance of obligations in general," with the application of both rates
reckoned "from the time the complaint was filed until the [adjudged] amount
is fully paid." In either instance, the reckoning period for the commencement
of the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on
the award of interest."57 (Citations omitted)
G.R. No. L-48349 December 29, 1986
FRANCISCO HERRERA, plaintiff-appellant,
vs.
PETROPHIL CORPORATION, defendant-appellee.
Paterno R. Canlas Law Offices for plaintiff-appellant.
CRUZ, J.:
This is an appeal by the plaintiff-appellant from a decision rendered by the
then Court of First Instance of Rizal on a pure question of law. 1
The judgment appealed from was rendered on the pleadings, the parties
having agreed during the pretrial conference on the factual antecedents.
The facts are as follows: On December 5, 1969, the plaintiff-appellant and
ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation)
entered into a "Lease Agreement" whereby the former leased to the latter a
portion of his property for a period of twenty (20) years from said date,
subject inter alia to the following conditions:
3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per
month on 400 sqm. and are to be expropriated later on (sic) or P560 per month
and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total
of P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance
within the 1st twenty days of each year; provided, a financial aid in the sum of
P15,000 to clear the leased premises of existing improvements thereon is paid
in this manner; P10,000 upon execution of this lease and P5,000 upon delivery
of leased premises free and clear of improvements thereon within 30 days
from the date of execution of this agreement. The portion on the side of the
leased premises with an area of 365 sqrm. more or less, will be occupied by
LESSEE without rental during the lifetime of this lease. PROVIDED
FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70
per month discounted at 12% interest per annum or a total net amount of
P130,288.47 before registration of lease. Leased premises shall be delivered
within 30 days after 1st partial payment of financial aid. 2
On December 31, 1969, pursuant to the said contract, the defendant-appellee
paid to the plaintfff-appellant advance rentals for the first eight years,
subtracting therefrom the amount of P101,010.73, the amount it computed as
constituting the interest or discount for the first eight years, in the total sum
P180,288.47. On August 20, 1970, the defendant-appellee, explaining that
there had been a mistake in computation, paid to the appellant the additional
sum of P2,182.70, thereby reducing the deducted amount to only
P98,828.03. 3
On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for
the sum of P98,828.03, with interest, claiming this had been illegally deducted
from him in violation of the Usury Law. 4 He also prayed for moral damages
and attorney's fees. In its answer, the defendant-appellee admitted the factual
allegations of the complaint but argued that the amount deducted was not

usurious interest but a given to it for paying the rentals in advance for eight
years. 5 Judgment on the pleadings was rendered for the defendant. 6
Plaintiff-appellant now prays for a reversal of that judgment, insisting that the
lower court erred in the computation of the interest collected out of the rentals
paid for the first eight years; that such interest was excessive and violative of
the Usury Law; and that he had neither agreed to nor accepted the defendant-
appellant's computation of the total amount to be deducted for the eight years
advance rentals. 7
The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his
complaint, which read:
6. The interest collected by defendant out of the rentals for the first eight years
was excessive and beyond that allowable by law, because the total interest on
the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and
considering that the interest should be computed excluding the first year rental
because at the time the amount of P281, 199.20 was paid it was already due
under the lease contract hence no interest should be collected from the rental
for the first year, the amount of P29,536.42 only as the total interest should
have been deducted by defendant from the sum of P281,299.20.
The defendant maintains that the correct amount of the discount is P98,828.03
and that the same is not excessive and above that allowed by law.
As its title plainly indicates, the contract between the parties is one of lease
and not of loan. It is clearly denominated a "LEASE AGREEMENT."
Nowhere in the contract is there any showing that the parties intended a loan
rather than a lease. The provision for the payment of rentals in advance cannot
be construed as a repayment of a loan because there was no grant or
forbearance of money as to constitute an indebtedness on the part of the
lessor. On the contrary, the defendant-appellee was discharging its obligation
in advance by paying the eight years rentals, and it was for this advance
payment that it was getting a rebate or discount.
The provision for a discount is not unusual in lease contracts. As to its
validity, it is settled that the parties may establish such stipulations, clauses,
terms and condition as they may want to include; and as long as such
agreements are not contrary to law, morals, good customs, public policy or
public order, they shall have the force of law between them. 8
There is no usury in this case because no money was given by the defendant-
appellee to the plaintiff-appellant, nor did it allow him to use its money
already in his possession. 9 There was neither loan nor forbearance but a mere
discount which the plaintiff-appellant allowed the defendant-appellee to
deduct from the total payments because they were being made in advance for
eight years. The discount was in effect a reduction of the rentals which the
lessor had the right to determine, and any reduction thereof, by any amount,
would not contravene the Usury Law.
The difference between a discount and a loan or forbearance is that the former
does not have to be repaid. The loan or forbearance is subject to repayment
and is therefore governed by the laws on usury. 10
To constitute usury, "there must be loan or forbearance; the loan must be of
money or something circulating as money; it must be repayable absolutely and
in all events; and something must be exacted for the use of the money in
excess of and in addition to interest allowed by law." 11
It has been held that the elements of usury are (1) a loan, express or implied;
(2) an understanding between the parties that the money lent shall or may be
returned; that for such loan a greater rate or interest that is allowed by law
shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent
to take more than the legal rate for the use of money loaned. Unless these four
things concur in every transaction, it is safe to affirm that no case of usury can
be declared. 12
Concerning the computation of the deductible discount, the trial court
declared:
As above-quoted, the 'Lease Agreement' expressly provides that the lessee
(defendant) shag pay the lessor (plaintiff) eight (8) years in advance rentals
based on P2,930.20 per month discounted at 12% interest per annum. Thus,
the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12
months) and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied
by 12%). So, therefore, the total interest for the first eight (8) years should be
only P33,755.90 (P4,129.4880 multiplied by eight (8) years and not
P98,828.03 as the defendant claimed it to be.
The afore-quoted manner of computation made by plaintiff is patently
erroneous. It is most seriously misleading. He just computed the annual
discount to be at P4,129.4880 and then simply multiplied it by eight (8) years.
He did not take into consideration the naked fact that the rentals due on the
eight year were paid in advance by seven (7) years, the rentals due on the
seventh year were paid in advance by six (6) years, those due on the sixth year
by five (5) years, those due on the fifth year by four (4) years, those due on
the fourth year by three (3) years, those due on the third year by two (2) years,
and those due on the second year by one (1) year, so much so that the total
13
number of years by which the annual rental of P4,129.4880 was paid in
advance is twenty-eight (28), resulting in a total amount of P118,145.44
(P4,129.48 multiplied by 28 years) as the discount. However, defendant was
most fair to plaintiff. It did not simply multiply the annual rental discount by
28 years. It computed the total discount with the principal diminishing month
to month as shown by Annex 'A' of its memorandum. This is why the total
discount amount to only P 8,828.03.
The allegation of plaintiff that defendant made the computation in a
compounded manner is erroneous. Also after making its own computations
and after examining closely defendant's Annex 'A' of its memorandum, the
court finds that defendant did not charge 12% discount on the rentals due for
the first year so much so that the computation conforms with the provision of
the Lease Agreement to the effect that the rentals shall be 'payable yearly in
advance within the 1st 20 days of each year. '
We do not agree. The above computation appears to be too much technical
mumbo-jumbo and could not have been the intention of the parties to the
transaction. Had it been so, then it should have been clearly stipulated in the
contract. Contracts should be interpreted according to their literal meaning
and should not be interpreted beyond their obvious intendment. 13
The plaintfff-appellant simply understood that for every year of advance
payment there would be a deduction of 12% and this amount would be the
same for each of the eight years. There is no showing that the intricate
computation applied by the trial court was explained to him by the defendant-
appellee or that he knowingly accepted it.
The lower court, following the defendant-appellee's formula, declared that the
plaintiff-appellant had actually agreed to a 12% reduction for advance rentals
for all of twenty eight years. That is absurd. It is not normal for a person to
agree to a reduction corresponding to twenty eight years advance rentals when
all he is receiving in advance rentals is for only eight years.
The deduction shall be for only eight years because that was plainly what the
parties intended at the time they signed the lease agreement. "Simplistic" it
may be, as the Solicitor General describes it, but that is how the lessor
understood the arrangement. In fact, the Court will reject his subsequent
modification that the interest should be limited to only seven years because
the first year rental was not being paid in advance. The agreement was for
a uniform deduction for the advance rentals for each of the eight years, and
neither of the parties can deviate from it now.
On the annual rental of P35,168.40, the deducted 12% discount was
P4,220.21; and for eight years, the total rental was P281,347.20 from which
was deducted the total discount of P33,761.68, leaving a difference of
P247,585.52. Subtracting from this amount, the sum of P182,471.17 already
paid will leave a balance of P65,114.35 still due the plaintiff-appellant.
The above computation is based on the more reasonable interpretation of the
contract as a whole rather on the single stipulation invoked by the respondent
for the flat reduction of P130,288.47.
WHEREFORE, the decision of the trial court is hereby modified, and the
defendant-appellee Petrophil Corporation is ordered to pay plaintiff-appellant
the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-
Five Centavos (P65,114.35), with interest at the legal rate until fully paid, plus
Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against the
defendant-appellee.
G.R. No. 115324 February 19, 2003
PRODUCERS BANK OF THE PHILIPPINES (now FIRST
INTERNATIONAL BANK), petitioner,
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of
Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its
Resolution2 dated May 5, 1994, denying the motion for reconsideration of said
decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his
neighbor and friend Angeles Sanchez to help her friend and townmate, Col.
Arturo Doronilla, in incorporating his business, the Sterela Marketing and
Services ("Sterela" for brevity). Specifically, Sanchez asked private
respondent to deposit in a bank a certain amount of money in the bank account
of Sterela for purposes of its incorporation. She assured private respondent
that he could withdraw his money from said account within a month’s time.
Private respondent asked Sanchez to bring Doronilla to their house so that
they could discuss Sanchez’s request.3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella
Dumagpi, Doronilla’s private secretary, met and discussed the matter.
Thereafter, relying on the assurances and representations of Sanchez and

Doronilla, private respondent issued a check in the amount of Two Hundred
Thousand Pesos (₱200,000.00) in favor of Sterela. Private respondent
instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and
Sanchez in opening a savings account in the name of Sterela in the Buendia,
Makati branch of Producers Bank of the Philippines. However, only Sanchez,
Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with
them an authorization letter from Doronilla authorizing Sanchez and her
companions, "in coordination with Mr. Rufo Atienza," to open an account for
Sterela Marketing Services in the amount of ₱200,000.00. In opening the
account, the authorized signatories were Inocencia Vives and/or Angeles
Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued
to Mrs. Vives.4
Subsequently, private respondent learned that Sterela was no longer holding
office in the address previously given to him. Alarmed, he and his wife went
to the Bank to verify if their money was still intact. The bank manager
referred them to Mr. Rufo Atienza, the assistant manager, who informed them
that part of the money in Savings Account No. 10-1567 had been withdrawn
by Doronilla, and that only ₱90,000.00 remained therein. He likewise told
them that Mrs. Vives could not withdraw said remaining amount because it
had to answer for some postdated checks issued by Doronilla. According to
Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567,
Doronilla opened Current Account No. 10-0320 for Sterela and authorized the
Bank to debit Savings Account No. 10-1567 for the amounts necessary to
cover overdrawings in Current Account No. 10-0320. In opening said current
account, Sterela, through Doronilla, obtained a loan of ₱175,000.00 from the
Bank. To cover payment thereof, Doronilla issued three postdated checks, all
of which were dishonored. Atienza also said that Doronilla could assign or
withdraw the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.5
Private respondent tried to get in touch with Doronilla through Sanchez. On
June 29, 1979, he received a letter from Doronilla, assuring him that his
money was intact and would be returned to him. On August 13, 1979,
Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos
(₱212,000.00) in favor of private respondent. However, upon presentment
thereof by private respondent to the drawee bank, the check was dishonored.
Doronilla requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was again
dishonored.6
Private respondent referred the matter to a lawyer, who made a written
demand upon Doronilla for the return of his client’s money. Doronilla issued
another check for ₱212,000.00 in private respondent’s favor but the check was
again dishonored for insufficiency of funds.7
Private respondent instituted an action for recovery of sum of money in the
Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla,
Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No.
44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi
in the RTC. However, Sanchez passed away on March 16, 1985 while the case
was pending before the trial court. On October 3, 1995, the RTC of Pasig,
Branch 157, promulgated its Decision in Civil Case No. 44485, the dispositive
portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing
defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the
Philippines to pay plaintiff Franklin Vives jointly and severally –
(a) the amount of ₱200,000.00, representing the money deposited, with
interest at the legal rate from the filing of the complaint until the same is fully
paid;
(b) the sum of ₱50,000.00 for moral damages and a similar amount for
exemplary damages;
(c) the amount of ₱40,000.00 for attorney’s fees; and
(d) the costs of the suit.
SO ORDERED.8
Petitioner appealed the trial court’s decision to the Court of Appeals. In its
Decision dated June 25, 1991, the appellate court affirmed in toto the decision
of the RTC.9 It likewise denied with finality petitioner’s motion for
reconsideration in its Resolution dated May 5, 1994.10
On June 30, 1994, petitioner filed the present petition, arguing that –
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THAT THE TRANSACTION BETWEEN THE DEFENDANT
DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN
AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THAT PETITIONER’S BANK MANAGER, MR. RUFO ATIENZA,
CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING
14
PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE
UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE
ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND
AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS
OF THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING
THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29
SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR
ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE
DECISION OF THE LOWER COURT THAT HEREIN PETITIONER
BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEY’S FEES AND THE COSTS OF SUIT.11
Private respondent filed his Comment on September 23, 1994. Petitioner filed
its Reply thereto on September 25, 1995. The Court then required private
respondent to submit a rejoinder to the reply. However, said rejoinder was
filed only on April 21, 1997, due to petitioner’s delay in furnishing private
respondent with copy of the reply12 and several substitutions of counsel on the
part of private respondent.13 On January 17, 2001, the Court resolved to give
due course to the petition and required the parties to submit their respective
memoranda.14 Petitioner filed its memorandum on April 16, 2001 while
private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and
Doronilla is a simple loan (mutuum) since all the elements of a mutuum are
present: first, what was delivered by private respondent to Doronilla was
money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of ₱212,000.00, or ₱12,000 more than what private
respondent deposited in Sterela’s bank account. 15 Moreover, the fact that
private respondent sued his good friend Sanchez for his failure to recover his
money from Doronilla shows that the transaction was not merely gratuitous
but "had a business angle" to it. Hence, petitioner argues that it cannot be held
liable for the return of private respondent’s ₱200,000.00 because it is not
privy to the transaction between the latter and Doronilla.16
It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza, could
not be faulted for allowing Doronilla to withdraw from the savings account of
Sterela since the latter was the sole proprietor of said company. Petitioner
asserts that Doronilla’s May 8, 1979 letter addressed to the bank, authorizing
Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain
any authorization for these two to withdraw from said account. Hence, the
authority to withdraw therefrom remained exclusively with Doronilla, who
was the sole proprietor of Sterela, and who alone had legal title to the savings
account.17 Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that
private respondent deposited his ₱200,000.00 in Sterela’s account for
purposes of its incorporation.18 Hence, petitioner should not be held liable for
allowing Doronilla to withdraw from Sterela’s savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial
court’s decision since the findings of fact therein were not accord with the
evidence presented by petitioner during trial to prove that the transaction
between private respondent and Doronilla was a mutuum, and that it
committed no wrong in allowing Doronilla to withdraw from Sterela’s savings
account.19
Finally, petitioner claims that since there is no wrongful act or omission on its
part, it is not liable for the actual damages suffered by private respondent, and
neither may it be held liable for moral and exemplary damages as well as
attorney’s fees.20
Private respondent, on the other hand, argues that the transaction between him
and Doronilla is not a mutuum but an accommodation,21 since he did not
actually part with the ownership of his ₱200,000.00 and in fact asked his wife
to deposit said amount in the account of Sterela so that a certification can be
issued to the effect that Sterela had sufficient funds for purposes of its
incorporation but at the same time, he retained some degree of control over his
money through his wife who was made a signatory to the savings account and
in whose possession the savings account passbook was given.22

He likewise asserts that the trial court did not err in finding that petitioner,
Atienza’s employer, is liable for the return of his money. He insists that
Atienza, petitioner’s assistant manager, connived with Doronilla in defrauding
private respondent since it was Atienza who facilitated the opening of
Sterela’s current account three days after Mrs. Vives and Sanchez opened a
savings account with petitioner for said company, as well as the approval of
the authority to debit Sterela’s savings account to cover any overdrawings in
its current account.23
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised
in a petition for review filed with this Court. The Court has repeatedly held
that it is not its function to analyze and weigh all over again the evidence
presented by the parties during trial.24 The Court’s jurisdiction is in principle
limited to reviewing errors of law that might have been committed by the
Court of Appeals.25 Moreover, factual findings of courts, when adopted and
confirmed by the Court of Appeals, are final and conclusive on this Court
unless these findings are not supported by the evidence on record. 26 There is
no showing of any misapprehension of facts on the part of the Court of
Appeals in the case at bar that would require this Court to review and overturn
the factual findings of that court, especially since the conclusions of fact of the
Court of Appeals and the trial court are not only consistent but are also amply
supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the
transaction between private respondent and Doronilla was a commodatum and
not a mutuum. A circumspect examination of the records reveals that the
transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something
not consumable so that the latter may use the same for a certain time and
return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However,
there are some instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for
exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or
when the intention of the parties is to lend consumable goods and to have the
very same goods returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. 27 In case of
doubt, the contemporaneous and subsequent acts of the parties shall be
considered in such determination.28
As correctly pointed out by both the Court of Appeals and the trial court, the
evidence shows that private respondent agreed to deposit his money in the
savings account of Sterela specifically for the purpose of making it appear
"that said firm had sufficient capitalization for incorporation, with the promise
that the amount shall be returned within thirty (30) days."29 Private respondent
merely "accommodated" Doronilla by lending his money without
consideration, as a favor to his good friend Sanchez. It was however clear to
the parties to the transaction that the money would not be removed from
Sterela’s savings account and would be returned to private respondent after
thirty (30) days.
Doronilla’s attempts to return to private respondent the amount of
₱200,000.00 which the latter deposited in Sterela’s account together with an
additional ₱12,000.00, allegedly representing interest on the mutuum, did not
convert the transaction from a commodatum into a mutuum because such was
not the intent of the parties and because the additional ₱12,000.00 corresponds
to the fruits of the lending of the ₱200,000.00. Article 1935 of the Civil Code
expressly states that "[t]he bailee in commodatum acquires the use of the thing
loaned but not its fruits." Hence, it was only proper for Doronilla to remit to
private respondent the interest accruing to the latter’s money deposited with
petitioner.
Neither does the Court agree with petitioner’s contention that it is not
solidarily liable for the return of private respondent’s money because it was
not privy to the transaction between Doronilla and private respondent. The
15
nature of said transaction, that is, whether it is a mutuum or a commodatum,
has no bearing on the question of petitioner’s liability for the return of private
respondent’s money because the factual circumstances of the case clearly
show that petitioner, through its employee Mr. Atienza, was partly responsible
for the loss of private respondent’s money and is liable for its restitution.
Petitioner’s rules for savings deposits written on the passbook it issued Mrs.
Vives on behalf of Sterela for Savings Account No. 10-1567 expressly states
that—
"2. Deposits and withdrawals must be made by the depositor personally or
upon his written authority duly authenticated, and neither a deposit nor a
withdrawal will be permitted except upon the production of the depositor
savings bank book in which will be entered by the Bank the amount deposited
or withdrawn."30
Said rule notwithstanding, Doronilla was permitted by petitioner, through
Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner,
to withdraw therefrom even without presenting the passbook (which Atienza
very well knew was in the possession of Mrs. Vives), not just once, but
several times. Both the Court of Appeals and the trial court found that Atienza
allowed said withdrawals because he was party to Doronilla’s "scheme" of
defrauding private respondent:
XXX
But the scheme could not have been executed successfully without the
knowledge, help and cooperation of Rufo Atienza, assistant manager and
cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the
evidence indicates that Atienza had not only facilitated the commission of the
fraud but he likewise helped in devising the means by which it can be done in
such manner as to make it appear that the transaction was in accordance with
banking procedure.
To begin with, the deposit was made in defendant’s Buendia branch precisely
because Atienza was a key officer therein. The records show that plaintiff had
suggested that the ₱200,000.00 be deposited in his bank, the Manila Banking
Corporation, but Doronilla and Dumagpi insisted that it must be in
defendant’s branch in Makati for "it will be easier for them to get a
certification". In fact before he was introduced to plaintiff, Doronilla had
already prepared a letter addressed to the Buendia branch manager authorizing
Angeles B. Sanchez and company to open a savings account for Sterela in the
amount of ₱200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant
Manager of the Bank x x x" (Exh. 1). This is a clear manifestation that the
other defendants had been in consultation with Atienza from the inception of
the scheme. Significantly, there were testimonies and admission that Atienza
is the brother-in-law of a certain Romeo Mirasol, a friend and business
associate of Doronilla.1awphi1.nét
Then there is the matter of the ownership of the fund. Because of the
"coordination" between Doronilla and Atienza, the latter knew before hand
that the money deposited did not belong to Doronilla nor to Sterela. Aside
from such foreknowledge, he was explicitly told by Inocencia Vives that the
money belonged to her and her husband and the deposit was merely to
accommodate Doronilla. Atienza even declared that the money came from
Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records
disclose that the only ones empowered to withdraw the same were Inocencia
Vives and Angeles B. Sanchez. In the signature card pertaining to this account
(Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B.
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals
of savings deposits could only be made by persons whose authorized
signatures are in the signature cards on file with the bank. He, however, said
that this procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authority to withdraw by
virtue of such ownership. The Court is not inclined to agree with Atienza. In
the first place, he was all the time aware that the money came from Vives and
did not belong to Sterela. He was also told by Mrs. Vives that they were only
accommodating Doronilla so that a certification can be issued to the effect that
Sterela had a deposit of so much amount to be sued in the incorporation of the
firm. In the second place, the signature of Doronilla was not authorized in so
far as that account is concerned inasmuch as he had not signed the signature
card provided by the bank whenever a deposit is opened. In the third place,
neither Mrs. Vives nor Sanchez had given Doronilla the authority to
withdraw.
Moreover, the transfer of fund was done without the passbook having been
presented. It is an accepted practice that whenever a withdrawal is made in a
savings deposit, the bank requires the presentation of the passbook. In this
case, such recognized practice was dispensed with. The transfer from the
savings account to the current account was without the submission of the
passbook which Atienza had given to Mrs. Vives. Instead, it was made to
appear in a certification signed by Estrella Dumagpi that a duplicate passbook

was issued to Sterela because the original passbook had been surrendered to
the Makati branch in view of a loan accommodation assigning the savings
account (Exh. C). Atienza, who undoubtedly had a hand in the execution of
this certification, was aware that the contents of the same are not true. He
knew that the passbook was in the hands of Mrs. Vives for he was the one
who gave it to her. Besides, as assistant manager of the branch and the bank
official servicing the savings and current accounts in question, he also was
aware that the original passbook was never surrendered. He was also
cognizant that Estrella Dumagpi was not among those authorized to withdraw
so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also
demonstrate that Atienza’s active participation in the perpetration of the fraud
and deception that caused the loss. The records indicate that this account was
opened three days later after the ₱200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and posted regarding
the opening of the current account considering that Doronilla was all the while
in "coordination" with him. That it was he who facilitated the approval of the
authority to debit the savings account to cover any overdrawings in the current
account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss
subject of this case. x x x.31
Under Article 2180 of the Civil Code, employers shall be held primarily and
solidarily liable for damages caused by their employees acting within the
scope of their assigned tasks. To hold the employer liable under this provision,
it must be shown that an employer-employee relationship exists, and that the
employee was acting within the scope of his assigned task when the act
complained of was committed.32 Case law in the United States of America has
it that a corporation that entrusts a general duty to its employee is responsible
to the injured party for damages flowing from the employee’s wrongful act
done in the course of his general authority, even though in doing such act, the
employee may have failed in its duty to the employer and disobeyed the
latter’s instructions.33
There is no dispute that Atienza was an employee of petitioner. Furthermore,
petitioner did not deny that Atienza was acting within the scope of his
authority as Assistant Branch Manager when he assisted Doronilla in
withdrawing funds from Sterela’s Savings Account No. 10-1567, in which
account private respondent’s money was deposited, and in transferring the
money withdrawn to Sterela’s Current Account with petitioner. Atienza’s acts
of helping Doronilla, a customer of the petitioner, were obviously done in
furtherance of petitioner’s interests34 even though in the process, Atienza
violated some of petitioner’s rules such as those stipulated in its savings
account passbook.35 It was established that the transfer of funds from Sterela’s
savings account to its current account could not have been accomplished by
Doronilla without the invaluable assistance of Atienza, and that it was their
connivance which was the cause of private respondent’s loss.
The foregoing shows that the Court of Appeals correctly held that under
Article 2180 of the Civil Code, petitioner is liable for private respondent’s
loss and is solidarily liable with Doronilla and Dumagpi for the return of the
₱200,000.00 since it is clear that petitioner failed to prove that it exercised due
diligence to prevent the unauthorized withdrawals from Sterela’s savings
account, and that it was not negligent in the selection and supervision of
Atienza. Accordingly, no error was committed by the appellate court in the
award of actual, moral and exemplary damages, attorney’s fees and costs of
suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and
Resolution of the Court of Appeals are AFFIRMED.
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND
JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of
Appeals promulgated a long time ago can properly be considered res
judicata by respondent Court of Appeals in the present two cases between
petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31,
1987 of the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No.
05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No.
16
3655 (429)], both for Recovery of Possession, which affirmed the Decision of
the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of
Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655
(429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic
Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of
Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same
Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo
Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or
damages is hereby denied. Said defendant is ordered to pay costs. (p. 36,
Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained
the trial court's conclusions that the Decision of the Court of Appeals, dated
May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the
Supreme Court, touched on the ownership of lots 2 and 3 in question; that the
two lots were possessed by the predecessors-in-interest of private respondents
under claim of ownership in good faith from 1906 to 1951; that petitioner had
been in possession of the same lots as bailee in commodatum up to 1951,
when petitioner repudiated the trust and when it applied for registration in
1962; that petitioner had just been in possession as owner for eleven years,
hence there is no possibility of acquisitive prescription which requires 10
years possession with just title and 30 years of possession without; that the
principle of res judicata on these findings by the Court of Appeals will bar a
reopening of these questions of facts; and that those facts may no longer be
altered.
Petitioner's motion for reconsideation of the respondent appellate court's
Decision in the two aforementioned cases (CA G.R. No. CV-05418 and
05419) was denied.
The facts and background of these cases as narrated by the trail court are as
follows —
... The documents and records presented reveal that the whole controversy
started when the defendant Catholic Vicar Apostolic of the Mountain Province
(VICAR for brevity) filed with the Court of First Instance of Baguio Benguet
on September 5, 1962 an application for registration of title over Lots 1, 2, 3,
and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet,
docketed as LRC N-91, said Lots being the sites of the Catholic Church
building, convents, high school building, school gymnasium, school
dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan
Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on
Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After
trial on the merits, the land registration court promulgated its Decision, dated
November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3,
and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and
the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607)
appealed the decision of the land registration court to the then Court of
Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered
its decision, dated May 9, 1977, reversing the decision of the land registration
court and dismissing the VICAR's application as to Lots 2 and 3, the lots
claimed by the two sets of oppositors in the land registration case (and two
sets of plaintiffs in the two cases now at bar), the first lot being presently
occupied by the convent and the second by the women's dormitory and the
sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration
praying the Court of Appeals to order the registration of Lot 3 in the names of
the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan
Valdez and Pacita Valdez filed their motion for reconsideration praying that
both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan
Valdez and Pacita Valdez. On August 12,1977, the Court of Appeals denied
the motion for reconsideration filed by the Heirs of Juan Valdez on the ground
that there was "no sufficient merit to justify reconsideration one way or the
other ...," and likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his (its)
application for registration of Lots 2 and 3, docketed as G.R. No. L-46832,
entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of
Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration
the Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with
the Supreme Court a petition for review, docketed as G.R. No. L-46872,
entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar,
Heirs of Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both
petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita
Valdez on the other) for lack of merit. Upon the finality of both Supreme

Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of
Octaviano filed with the then Court of First Instance of Baguio, Branch II, a
Motion For Execution of Judgment praying that the Heirs of Octaviano be
placed in possession of Lot 3. The Court, presided over by Hon. Salvador J.
Valdez, on December 7, 1978, denied the motion on the ground that the Court
of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of
Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a
petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R,
entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and
Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed the
petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio
Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of
possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655
(429) on September 24, 1979, likewise for recovery of possession of Lot 2
(Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio
Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the
alleged ownership of the land in question (Lot 3) by their predecessor-in-
interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B—B-4 ) to
defendant Vicar for the return of the land to them; and the reasonable rentals
for the use of the land at P10,000.00 per month. On the other hand, defendant
Vicar presented the Register of Deeds for the Province of Benguet, Atty.
Nicanor Sison, who testified that the land in question is not covered by any
title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The
defendant dispensed with the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the witness stand, would testify
that defendant Vicar has been in possession of Lot 3, for seventy-five (75)
years continuously and peacefully and has constructed permanent structures
thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in
dispute, submitted the case on the sole issue of whether or not the decisions of
the Court of Appeals and the Supreme Court touching on the ownership of Lot
2, which in effect declared the plaintiffs the owners of the land constitute res
judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from
setting up the defense of ownership and/or long and continuous possession of
the two lots in question since this is barred by prior judgment of the Court of
Appeals in CA-G.R. No. 038830-R under the principle of res judicata.
Plaintiffs contend that the question of possession and ownership have already
been determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No.
038830-R) and affirmed by the Supreme Court (Exh. 1, Minute Resolution of
the Supreme Court). On his part, defendant Vicar maintains that the principle
of res judicata would not prevent them from litigating the issues of long
possession and ownership because the dispositive portion of the prior
judgment in CA-G.R. No. 038830-R merely dismissed their application for
registration and titling of lots 2 and 3. Defendant Vicar contends that only the
dispositive portion of the decision, and not its body, is the controlling
pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to
petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS
2 AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT
DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED
LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED
ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND
OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE
RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT
LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE
PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE
RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS
SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3
ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER
ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR
ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF
APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME
COURT;
17
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830
TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE
RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION
OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH
FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN
POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER)
IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND
BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND
REIMBURSEMENT AND IS BARRED BY THE FINALITY AND
CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R.
Nos. 05148 and 05149, when it clearly held that it was in agreement with the
findings of the trial court that the Decision of the Court of Appeals dated May
4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and
3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-R)
did not positively declare private respondents as owners of the land, neither
was it declared that they were not owners of the land, but it held that the
predecessors of private respondents were possessors of Lots 2 and 3, with
claim of ownership in good faith from 1906 to 1951. Petitioner was in
possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When
petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive
prescription requires possession for ten years, but always with just title.
Extraordinary acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the
Court of Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no
error in respondent appellate court's ruling that said findings are res
judicatabetween the parties. They can no longer be altered by presentation of
evidence because those issues were resolved with finality a long time ago. To
ignore the principle of res judicata would be to open the door to endless
litigations by continuous determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First
Division 5 in CA-G.R. No. 38830-R, shows that it reversed the trial court's
Decision 6 finding petitioner to be entitled to register the lands in question
under its ownership, on its evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30
years possession for acquisitive prescription over Lots 2 and 3. Neither did it
satisfy the requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. The appellate court did not
believe the findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio
Octaviano by petitioner Vicar because there was absolutely no documentary
evidence to support the same and the alleged purchases were never mentioned
in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by
Valdez and Octaviano. Both Valdez and Octaviano had Free Patent
Application for those lots since 1906. The predecessors of private
respondents, not petitioner Vicar, were in possession of the questioned lots
since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in
question, but not Lots 2 and 3, because the buildings standing thereon were
only constructed after liberation in 1945. Petitioner Vicar only declared Lots 2
and 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were
paid for by the Bishop but said Bishop was appointed only in 1947, the church
was constructed only in 1951 and the new convent only 2 years before the trial
in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest
offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by
request of petitioner Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was
borrowed by petitioner Vicar after the church and the convent were destroyed.
They never asked for the return of the house, but when they allowed its free
use, they became bailors in commodatum and the petitioner the bailee. The
bailees' failure to return the subject matter of commodatum to the bailor did
not mean adverse possession on the part of the borrower. The bailee held in
trust the property subject matter of commodatum. The adverse claim of
petitioner came only in 1951 when it declared the lots for taxation purposes.
The action of petitioner Vicar by such adverse claim could not ripen into title
by way of ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private
respondents were possessors under claim of ownership in good faith from

1906; that petitioner Vicar was only a bailee in commodatum; and that the
adverse claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in
CA-G.R. No. 38830-R. Its findings of fact have become incontestible. This
Court declined to review said decision, thereby in effect, affirming it. It has
become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less
grave abuse of discretion, when it held that the Decision of the Court of
Appeals in CA-G.R. No. 38830-R is governing, under the principle of res
judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R.
No. 05149. The facts as supported by evidence established in that decision
may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is
DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos.
05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs
against petitioner.
G.R. No. 96494 May 28, 1992
CASA FILIPINA DEVELOPMENT CORPORATION, petitioner,
vs.
THE DEPUTY EXECUTIVE SECRETARY, OFFICE OF THE
PRESIDENT, MALACAÑANG, MANILA, AND JOSE VALENZUELA,
JR., respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari (treated as a petition for certiorari)
seeking reversal of the decision of the Office of the President dated April 11,
1989, in O.P. Case No. 3722, entitled "Casa Filipina Development
Corporation, Respondent-Appellant, v. Jose Valenzuela, Jr., Complainant-
Appellee," which affirmed the decision of the Housing and Land Use
Regulatory Board dated October 6, 1987; and its resolution dated September
26, 1989, which denied the motion for reconsideration for Lack of merit.
The antecedent facts are, as follows:
On June 30, 1986, private respondent Jose Valenzuela, Jr. filed a complaint
against petitioner Casa Filipina Development Corporation before the Office of
Appeals, Adjudication and Legal Affairs (OAALA) of the then Human
Settlements Regulatory Commission (now Housing and Land Use Regulatory
Board) for its failure to execute and deliver the deed of sale and transfer
certificate of title. He alleged therein that on May 2, 1984, he entered into a
contract to sell with petitioner for the purchase of a 120 sq. m. lot
denominated as Lot 8, Block 9, Phase II of Casa Filipina, Sucat II, Bo. San
Dionisio, Parañaque, Metro Manila, for a total purchase price of P68,400.00
with P16,416.00 as downpayment and the balance of P51,984.00 to be paid in
12 equal monthly installments of P4,915.16 with 24% interest per
annum starting September 3, 1984; that on October 7, 1985, he made his full
and final payment under O.R. No. 6266; that despite full payment of the lot,
petitioner refused to execute the necessary deed of absolute sale and deliver
the corresponding transfer certificate of title to him; that since October 1985,
he had offered to pay for or reimburse petitioner the expenses for the transfer
of the title but the latter refuses to accept the same; and that he was
constrained to hire a lawyer for a fee to protect his interests.
For petitioner's defense, it contended that private respondent's action is
premature because of his failure to comply with the other conditional
requirements of their contract such as payment of transfer expenses, and that
had the latter paid said fees, it would have been very much willing to effect
the transfer of the title.
On January 21, 1987, the OAALA rendered judgment in favor of private
respondent, relying on Section 25 of Presidential Decree No. 957 (Regulating
the Sale of Subdivision Lots and Condominiums, Providing Penalties for
Violations thereof), which provides:
Sec. 25. Issuance of Title –– The owner or developer shall deliver the title of
the lot or unit to the buyer upon full payment of the lot or unit. No fee except
those required for the registration of the deed of sale in the Registry of deeds
shall be collected for the issuance of such title. In the event a mortgage over
the lot or unit is outstanding at the time of the issuance of the title to the
buyer, the owner of or developer shall redeem the mortgage or the
corresponding portion thereof within six months from such issuance in order
that the title over any fully paid lot or unit may be secured and delivered to the
buyer in accordance herewith.
The dispositive portion of its decision reads (p. 19, Rollo):
WHEREFORE, PREMISES CONSIDERED, judgment is rendered ordering
respondent, within 15 days from finality of this decision, to execute the deed
of absolute sale for Lot 8, Block 9, Phase II, Casa Filipina, Sucat II, Bo. San
Dionisio, Parañaque, Metro Manila in favor of the complainant and thereafter
to bill complainant the total amount due for the registration and transfer
expenses of the title. Respondent is further ordered, within 15 days from
18
receipt of complainant's payment for registration and transfer expenses, to
deliver to the latter the transfer certificate of title of subject lot free from all
liens and encumbrances. In the event respondent is unable to deliver the title
to the said lot, respondent is hereby ordered to refund (to) complainant his
total payments amounting to SEVENTY SIX THOUSAND ONE HUNDRED
EIGHTY PESOS and 82/100 (P76,180.82) plus 24% interest per annum from
June 30, 1986, the date of the filing of the complaint, until fully paid.
Respondent is likewise ordered to pay complainant TWO THOUSAND
PESOS (P2,000.00) by way of attorney's fees, for compelling the latter to
litigate and incur expenses in the protection of his rights.
It is SO ORDERED.
Petitioner then filed an appeal before the Housing and Land Use Regulatory
Board. In petitioner's memorandum, it narrated the events that transpired
which led to its failure to deliver the title, namely: its original mortgagee bank
was Royal Savings Bank which was absorbed by Comsavings Bank
apparently due to bankrun; Comsavings Bank is not amenable to petitioner's
earlier arrangement with Royal Savings Bank on individual redemption of
title, thus, it demanded that petitioner's obligations should be paid prior to the
release of any individual title; petitioner cannot seasonably meet such demand
due to the inability of the past administration to put up a viable and
progressive economic program that brought it into a fix situation wherein it
has no participation either intentionally or by negligence.
On October 6, 1987, the HLURB dismissed petitioner's appeal for lack of
merit and affirmed in toto the questioned decision of the OAALA (p.
23, Rollo). It opined that (ibid):
. . . Suffice it to state that the payment in full by the complainant-appellee of
the purchased (sic) price of the lot should warrant the immediate delivery of
the title to the lot so purchased. Section 25 of P.D. 957 clearly provides that
the redemption by the mortgagor or (sic) any mortgage (sic) property shall be
within a period of six (6) months from (the) date of issuance of the title in
favor of the buyer. Obviously from the moment full payment is made by the
buyer to (sic) his purchased lot, the maximum period contemplated by law for
delivery of title is only six (6) months. Within this period it becomes
mandatory upon the owner or developer of a subdivision to deliver (the) title
to the lot buyer. In the case at bar, full payment was made on October 7, 1985
and despite the lapse of one (1) year more or less from (the) date of full
payment, delivery of (the) title is still uncertain.
The defense of the respondent-appellant that its failure to deliver the title
allegedly due to the inability of the past administration to put up a viable and
progressive economic program which led to the closure of the Royal Savings
Bank as its original mortgagee bank in not well-taken since there is no proof
submitted to this Board to sunbstantiate appellant's claim. On the contrary it
was only the OAALA decision that made the respondent-appellant change its
line of justification which happened to be just an allegation which need not be
passed upon by this Board.
Petitioner appealed further to the Office of the President. Again, on April 11,
1989, its appeal was dismissed for lack of merit and the questioned decision of
the HLURB was affirmed (p. 32, Rollo). On September 26, 1989, the motion
for reconsideration was denied for lack of merit (p. 36, Rollo). Hence, the
present petition, wherein petitioner raises the following issues (pp. 9-
10 Rollo):
1. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE
RESPECT ERRED IN NOT APPLYING SETTLED JURISPRUDENCE
AND THE PROVISION OF LAW APPLICABLE IN THIS CASE.
2. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE
RESPECT, ERRED IN ARRIVING AT A CONCLUSION
CONTRADICTORY OF (sic) THE FACTS AND EVIDENCE,
AMOUNTING TO GRAVE ABUSE OF DISCRETION.
Mainly, petitioner asseverates that in granting both remedies of specific
performance and rescission, public respondent ignored a well-pronounced rule
that these remedies cannot be availed of at the same time. There is no
evidence showing that private respondent had offered to pay the expenses for
the transfer of the title. Furthermore the amount of 24% interest imposed by
the OAALA in case of refund is high and without basis: firstly, HLURB
Resolution No. R-421, series of 1988, strictly enjoins the maximum interest to
be awarded in case of refund to 12%; secondly, although condition no. 1 of
their contract to sell provides for said rate of interest, it merely applies to
interest on installment payments but not with respect to refunds; thirdly, since
the contract between them is not a forbearance of money or loan, the doctrine
laid down in the case of Reformina v. Tomol, Jr., G.R. No. 59096, 139 SCRA
260 applies, that is, except where the action involves forbearance of money or
loan, interest which courts may award is only up to 12% (should be 6%).
Finally, inasmuch as issuance of the title has not yet been effected because of
the take over by Comsavings Bank of Royal Savings Bank, the period

specified under Section 25 of P.D. No. 957 has not begun to run for the
purpose of redemption.
The arguments advanced by petitioner utterly lack merit.
It is plain enough in the OAALA decision that rescission is being ordered only
in the event specific performance is not feasible. Moreover, petitioner is
already estopped from raising this issue because in its appeal memorandum
submitted before the HLURB, it leaded that (p. 28, Rollo):
5. Appellant prays that it be given a period/time to redeem the title or the
demand for issuance of title be suspended from the Comsavings Bank before
any deed of absolute sale be executed so that the Transfer Certificate of Title
be issued and/or refund be ordered.
The OAALA found as a fact that "the complaint-appellee was ready, willing
and able to pay for the expenses for the transfer of title as stipulated in the
Contract to Sell . . . " (p. 22, Rollo). We accord respect and finality to this
finding (Filipinas Manufacturers Bank v. NLRC, et al., G.R. No. 72805,
February 28, 1990, 182 SCRA 848; Vda. de Pineda, et al. v. Peña, etc., et al.,
G.R. No. 57665, July 2, 1990, 187 SCRA 22).
We adopt the disposition of the Office of the Solicitor General on the correct
rate of interest as Our own (pp. 124-125, Rollo):
The ruling in Reformina v. Tomol, it must be underscored, deals exclusively
with cases where damages in the form of interest is due but no specific rate
has been previously set by the parties. In such cases, the legal interest of
12% per annum must be applied. In the present case, however, the interest rate
of 24% per annum was mutually agreed upon by petitioner and private
respondent in their contract to sell — this was the interest rate imposed on
private respondent for the payment of the installments on the contract price
and there is no reason why this same interest rate should not be equally
applied to petitioner which is guilty of violating the reciprocal obligation.
In Solid Homes Inc. v. Court of Appeals (170 SCRA 63 [1989]), a subdivision
owner, in violation of their Offsetting Agreement, incurred delay in the
delivery of a house and lot to the supplier of the construction materials. On
review, the issue of which rate of interest — the 6% per annum which was
then the legal interest or the stipulated interest rate of 12% — was raised. This
Honorable Court ruled:
On the matter of interest, we agree with the trial court and the Court of
Appeals that the proper rate of interest is twelve (12%) per centum per
annum, which is the rate of interest expressly agreed upon in writing by the
parties, as appearing in the invoices (Exhibits "C" and "D"), and sanctioned
by Art. 2209 of the Civil Code, . . .(Emphasis supplied)
It is, thus, evident that if a particular rate of interest has been expressly
stipulated by the parties, that interest, not the legal rate of interest, shall be
applied.
Section 25 of P.D. No. 957 imposes an obligation on the part of the owner or
developer, in the event the mortgage over the lot or unit is outstanding at the
time of the issuance of the title to the buyer, to redeem the mortgage or the
corresponding portion thereof within six months from such issuance. We
focus Our attention on the period of "six months" to be reckoned "from the
issuance of the title." Supposing there is no such issuance of the title, as in this
case, from what event is the six month period to be counted? Or, will this
period not begin to run at all unless the title has been issued? The argument of
petitioner that the issuance of the title is a prerequisite to the running of the six
month period of redemption, fails to convince Us. Otherwise, the owner or
developer can readily concoct a thousand and one reasons as justifications for
its failure to issue the title and in the process, prolong the period within which
to deliver the title to the buyer free from any liens or encumbrances.
Additionally, by not issuing/delivering the title of the lot to private respondent
upon full payment thereof, petitioner has already violated the explicit mandate
of the first sentence of Section 25 of P.D. No. 957. If We were to count the six
month period of redemption from the belated issuance of the title, petitioner
will have a lot to gain from its own non-observance of said provision. We
shall not countenance such absurdity. Of equal importance as the preceding
ratiocination are the reasons behind the enactment of P.D. No. 957, as
expressed succinctly in its "whereas" clauses, to wit:
WHEREAS, reports of alarming magnitude also show cases of swindling and
fraudulent manipulations perpetrated by unscrupulous subdivision and
condominium sellers and operators, such as failure to deliver titles to the
buyers or titles free from liens and encumbrances, and to pay real estate taxes,
and fraudulent sales of the same subdivision lots to different innocent
purchasers for value;
WHEREAS, these acts not only undermine the land and housing program of
the government but also defeat the objectives of the New Society, particularly
the promotion of peace and order and the enhancement of the economic,
social and moral condition of the Filipino people;
WHEREAS, this state of affairs has rendered it imperative that the real estate
subdivision and condominium businesses be closely supervised and regulated,
19
and that penalties be imposed on fraudulent practices and manipulations
committed in connection therewith.
ACCORDINGLY, the petition is hereby DISMISSED. The decision of the
Office of the President dated April 11, 1989 and its resolution dated
September 26, 1989 are AFFIRMED.
SO ORDERED
G.R. No. 113926 October 23, 1996
SECURITY BANK AND TRUST COMPANY, petitioner,
vs.
REGIONAL TRIAL COURT OF MAKATI, BRANCH 61,
MAGTANGGOL EUSEBIO and LEILA VENTURA, respondents.
HERMOSISIMA, JR. J.:p
Questions of law which are of first impression are sought to be resolved in this
case: Should the rate of interest on a loan or forbearance of money, goods or
credits, as stipulated in a contract, far in excess of the ceiling prescribed under
or pursuant to the Usury Law, prevail over Section 2 of Central Bank Circular
No. 905 which prescribes that the rate of interest thereof shall continue to be
12% per annum? Do the Courts have the discretion to arbitrarily override
stipulated interest rates of promissory notes and stipulated interest rates of
promissory notes and thereby impose a 12% interest on the loans, in the
absence of evidence justifying the imposition of a higher rate?
This is a petition for review on certiorari for the purpose of assailing the
decision of Honorable Judge Fernando V. Gorospe of the Regional Trial Court
of Makati, Branch 61, dated March 30, 1993, which found private respondent
Eusebio liable to petitioner for a sum of money. Interest was lowered by the
court a quo from 23% per annum as agreed upon the parties to 12% per
annum.
The undisputed facts are as follows:
On April 27, 1983, private respondent Magtanggol Eusebio executed
Promissory Note No. TL/74/178/83 in favor of petitioner Security Bank and
Trust Co. (SBTC) in the total amount of One Hundred Thousand Pesos
(P100,000.00) payable in six monthly installments with a stipulated interest of
23% per annum up to the fifth installment. 1
On July 28, 1983, respondent Eusebio again executed Promissory Note No.
TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to pay
the sum of One Hundred Thousand Pesos (P100,000.00) in six (6) monthly
installments plus 23% interest per annum. 2
Finally, another Promissory Note No. TL74/1491/83 was executed on August
31, 1983 in the amount of Sixty Five Thousand Pesos (P65,000.00).
Respondent agreed to pay this note in six (6) monthly installments plus
interest at the rate of 23% per annum. 3
On all the abovementioned promissory notes, private respondent Leila
Ventura had signed as co-maker. 4
Upon maturity which fell on the different dates below, the principal balance
remaining on the notes stood at:
1) PN No. TL/74/748/83 — P16,665.00 as of September 1983.
2) PN No. TL/74/1296/83 — P83,333.00 as of August 1983.
3) PN No. TL/74/1991/83 — P65,000.00 as of August 1983.
Upon the failure and refusal of respondent Eusebio to pay the aforestated
balance payable, a collection case was filed in court by petitioner SBTC. 5 On
March 30, 1993, the court a quo rendered a judgment in favor of petitioner
SBTC, the dispositive portion which reads:
WHEREFORE, premises above-considered, and plaintiff's claim having been
duly proven, judgment is hereby rendered in favor of plaintiff and as against
defendant Eusebio who is hereby ordered to:
1. Pay the sum of P16,655.00, plus interest of 12% per annum starting 27
September 1983, until fully paid;
2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28
August 1983, until fully paid;
3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31
August 1983, until fully paid;
4. Pay the sum equivalent to 20% of the total amount due and payable to
plaintiff as and by way of attorney's fees; and to
5. Pay the costs of this suit.
SO ORDERED. 6
On August 6, 1993, a motion for partial reconsideration was filed by petitioner
SBTC contending that:
(1) the interest rate agreed upon by the parties during the signing of the
promissory notes was 23% per annum;
(2) the interests awarded should be compounded quarterly from due date as
provided in the three (3) promissory notes;
(3) defendants Leila Ventura should likewise be held liable to pay the balance
on the promissory notes since she has signed as co-maker and as such, is

liable jointly and severally with defendant Eusebio without a need for demand
upon her. 7
Consequently, an Order was issued by the court a quo denying the motion to
grant the rates of interest beyond 12%per annum; and holding defendant Leila
Ventura jointly and severally liable with co-defendants Eusebio.
Hence, this petition.
The sole issue to be settled in this petition is whether or not the 23% rate of
interest per annum agreed upon by petitioner bank and respondents is
allowable and not against the Usury Law.
We find merit in this petition.
From the examination of the records, it appears that indeed the agreed rate of
interest as stipulated on the three (3) promissory notes is 23% per
annum. 8 The applicable provision of law is the Central Bank Circular No. 905
which took effect on December 22, 1982, particularly Sections 1 and 2 which
state: 9
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods or credits, regardless
of maturity and whether secured or unsecured, that may be charged or
collected by any person, whether natural or judicial, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended.
Sec. 2. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of express contract as
to such rate of interest, shall continue to be twelve per cent (12%) per annum.
CB Circular 905 was issued by the Central Bank's Monetary Board pursuant
to P.D. 1684 empowering them to prescribe the maximum rates of interest for
loans and certain forbearances, to wit:
Sec. 1. Section 1-a of Act No. 2655, as amended, is hereby amended to read as
follows:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum
rate of interest for the loan or renewal thereof or the forbearance of any
money, goods or credits, and to change such rate or rates whenever warranted
by prevailing economic and social conditions: Provided, That changes in such
rate or rates may be effected gradually on scheduled dates announced in
advance.
In the exercise of the authority herein granted, the Monetary Board may
prescribe higher maximum rates for loans of low priority, such as consumer
loans or renewals thereof as well as such loans made by pawnshops, finance
companies and other similar credit institutions although the rates prescribed
for these institutions need not necessarily be uniform. The Monetary Board is
also authorized to prescribed different maximum rate or rates for different
types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries. 10
The court has ruled in the case of Philippine National Bank v. Court of
Appeals 11 that:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting
parties to stipulate freely regarding any subsequent adjustment in the interest
rate that shall accrue on a loan or forbearance of money, goods or credits. In
fine, they can agree to adjust, upward or downward, the interest previously
stipulated.
All the promissory notes were signed in 1983 and, therefore, were already
covered by CB Circular No. 905. Contrary to the claim of respondent court,
this circular did not repeal nor in anyway amend the Usury Law but simply
suspended the latter's effectivity.
Basic is the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply the same
according to its clear language. As we have held in the case of Quijano
v. Development Bank of the Philippines: 12
. . . We cannot see any room for interpretation or construction in the clear and
unambiguous language of the above-quoted provision of law. This Court had
steadfastly adhered to the doctrine that its first and fundamental duty is the
application of the law according to its express terms, interpretation being
called for only when such literal application is impossible. No process of
interpretation or construction need be resorted to where a provision of law
peremptorily calls for application. Where a requirement or condition is made
in explicit and unambiguous terms, no discretion is left to the judiciary. It
must see to it that is mandate is obeyed.
The rate of interest was agreed upon by the parties freely. Significantly,
respondent did not question that rate. It is not for respondent court a quo to
change the stipulations in the contract where it is not illegal. Furthermore,
Article 1306 of the New Civil Code provides that contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy. We find no valid reason for the respondent
court a quo to impose a 12% rate of interest on the principal balance owing to
petitioner by respondent in the presence of a valid stipulation. In a loan or
20
forbearance of money, the interest due should be that stipulated in writing, and
in the absence thereof, the rate shall be 12% per annum. 13 Hence, only in the
absence of a stipulation can the court impose the 12% rate of interest.
The promissory notes were signed by both parties voluntarily. Therefore,
stipulations therein are binding between them. Respondent Eusebio, likewise,
did not question any of the stipulations therein. In fact, in the Comment filed
by respondent Eusebio to this court, he chose not to question the decision and
instead expressed his desire to negotiate with the petitioner bank for "terms
within which to settle his obligation." 14
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo,
is hereby AFFIRMED with the MODIFICATION that the rate of interest that
should be imposed be 23% per annum.
SO ORDERED.
SPOUSES JOVENAL TORING and CECILIA ESCALONA- G.R. No. 168782
TORING,
Petitioners, Present:
QUISUMBING, J., Cha
- versus - CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.
SPOUSES ROSALIE GANZON-OLAN and GILBERT OLAN,
and ROWENA OLAN, Promulgated:
Respondents.
October 10, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision [1] and
Resolution,[2] dated March 28, 2005 and June 30, 2005, respectively, of the
Court of Appeals in CA-G.R. CV No. 76831. The Court of Appeals affirmed
the Resolution[3] dated June 10, 2002 of the Regional Trial Court, Branch
276, Muntinlupa City, in Civil Case No. 00-137 which had ordered petitioners
to pay respondents the sum of P20,000,000 representing the total amount of
petitioners loan and interest due.
The facts are as follows:
On September 4, 1998, petitioner Jovenal Toring obtained from
respondents a loan amounting to P6,000,000 at 3% interest per month. The
loan was secured by a mortgage on a parcel of land covered by Transfer
Certificate of Title No. T-27418,[4] as evidenced by a Deed of Real Estate
Mortgage[5] dated September 8, 1998.
On September 23, 1998, the parties executed a Deed of Absolute
Sale[6] conveying the mortgaged property in favor of
respondents. Subsequently, respondents gave petitioners an exclusive option
to repurchase the land for P10,000,000. This was embodied in a document
denominated as an Option to Buy[7] dated September 28, 1998. On this same
document, respondents acknowledged receipt of a total sum of P10,000,000 as
consideration for the purchase of the land.[8] The Option to Buy provided that
if the option is exercised after December 5, 1998, the purchase price shall
increase at the rate of P300,000 or 3% of the purchase price every month until
September 5, 1999 and thereafter at the rate of P381,000 or 3.81% of the
purchase price every month, with the fifth of every month as the cut-off date
for said increases.[9]
On July 28, 2000, petitioners filed a Complaint[10] docketed as
Civil Case No. 00-137 for reformation of instruments, abuse of rights and
damages against respondents.Petitioners prayed that the Deed of
Absolute Sale dated September 23, 1998 and Option to Buy dated September
28, 1998, be treated as an equitable mortgage instead of a sale.
At the pre-trial, the parties made the following stipulations: (1) the
principal amount of P10,000,000 has long become overdue; (2) no payment
has been made; (3) the parties had agreed on an equitable mortgage and not a
sale.[11] The parties limited the issues on the amount of interest due and the
time of payment of the entire obligation.Thereafter, the court ordered the
parties to submit their respective position papers, but only respondents
complied. All other claims for damages were waived by the parties.[12]
On June 10, 2002, the trial court issued its Resolution, the pertinent
portion of which reads:
...the document of mortgage specified the interest at 3.81% per
month from the time it was obtained, and which was now estimated to
be P7,239,000.00. This sum should be added to the total loan of TEN
MILLION PESOS, . . .
xxxx

Therefore, judgment is rendered for defendants ROSALIE
GANZON OLAN and GILBERT OLAN [and] ROWENA GANZON since
the loan is not denied, directing spouses [p]laintiffs JOVENAL TORING
and CECILIA ESCALONA TORING, to pay the sum of TWENTY
MILLION PESOS within one month from receipt of this decision.
xxxx
It [i]s SO ORDERED.[13] (Emphasis supplied.)
Petitioners appealed, contending that the trial court erred in
awarding interest. Petitioners stress that Article 1602 [14] of the Civil Code
governing equitable mortgages provides that any money, fruits or other
benefit to be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws. Thus, there should have
been no award of interest.
On March 28, 2005, the Court of Appeals affirmed the trial courts
ruling, as follows:
WHEREFORE, the June 10, 2002 Resolution of the Regional Trial
Court, Branch 276, Muntinlupa City, is hereby AFFIRMED.
SO ORDERED.[15]
Their motion for reconsideration having been denied, petitioners
now come before us raising the sole issue:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED A REVERSIBLE ERROR IN DENYING PETITIONERS
APPEAL AND IN AFFIRMING THE DECISION OF [THE] TRIAL
COURT DATED JUNE 10, 2002.[16]
Simply put, the issue is: Did the Court of Appeals err in sustaining the trial
courts ruling upholding the 3% and 3.81% stipulated monthly interest?
Petitioners contend that they are not liable to pay interest as the stipulated
monthly rates of 3% and 3.81%[17] are unconscionable. Petitioners further
contend that the reformed instrument, i.e., the Option to Buy dated September
28, 1998, did not mention any rate of interest chargeable to the loan but rather,
an escalation[18] of the purchase price.
On the other hand, respondents maintain that petitioners are liable to pay
interest based on the Deed of Absolute Sale and Option to Buy executed by
the parties. Respondents assert that the P300,000 and P381,000 differences
per month as stated in the Option to Buy represents the 3% or 3.81% interest
to be charged on the loan. Respondents further assert that the 3% or 3.81%
interest is not usurious since Central Bank Circular No. 905-82[19] removed the
ceiling on interest rates on secured and unsecured loans.
In resolving the issue in this controversy, we have agreed to focus our
attention on the basic provisions of statutes as well as the prior decisions of
this Court bearing on rates of interest on monetary obligations.
In a loan or forbearance of money, according to the Civil Code, the
interest due should be that stipulated in writing,[20] and in the absence thereof,
the rate shall be 12% per annum.[21]
The first time that the parties in this case entered into a loan
transaction was on September 4, 1998 when petitioners obtained
the P6,000,000 loan from respondents. Based on the Deed of Real Estate
Mortgage dated September 8, 1998 embodying the promissory note
dated September 4, 1998, the parties agreed on an interest rate of 3% per
month.
The second and third times that the parties transacted were on
September 23 and 28, 1998 when they executed the Deed of Absolute Sale
and the Option to Buy, respectively. These two documents were the
instruments reformed in Civil Case No. 00-137, where both parties agreed that
the transactions embodied therein were really that of an equitable
mortgage. The stipulation in a contract sharply escalating the repurchase price
every month is for the purpose of securing the return of money invested with
substantial profit or interest.[22] Undoubtedly, the P300,000 and P381,000
successive increases stated in the Option to Buy represent the monthly interest
which respondents sought to recover from petitioners.
While the parties are free to stipulate on the interest to be imposed
on monetary obligations, the Court will temper interest rates if they are
unconscionable.[23] Even if the Usury Law has been suspended by Central
Bank Circular No. 905-82, and parties to a loan agreement have been given
wide latitude to agree on any interest rate, we have held that stipulated interest
rates are illegal if they are unconscionable.[24] Consequently, in our view, the
Court of Appeals erred in sustaining the trial courts decision upholding the
stipulated interest of 3% and 3.81%. Thus, we are unanimous now in our
ruling to reduce the above stipulated interest rates to 1% per month, in
conformity with our ruling in Ruiz v. Court of Appeals.[25] For as well stressed
in that case:
Nothing in the said circular [CB Circular No. 905, s. 1982] grants
lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets.
21
Undeniably, in the present case, petitioners failed to pay the
principal loan on its maturity and upon demand by respondents, as well as the
interest payments thereafter.Indeed, petitioners cannot turn their backs on
their obligation; they have to comply with what is incumbent upon them. All
other claims for damages having been waived by the parties, petitioners are
bound to pay respondents the principal loan of P10,000,000, plus what we
have repeatedly held as the appropriate rate of interest of 1% per month,
from December 6, 1998[26] until fully paid.
WHEREFORE, the assailed Decision and Resolution
dated March 28, 2005 and June 30, 2005, respectively, of the Court of
Appeals in CA-G.R. CV No. 76831 are MODIFIED to the effect that the
stipulated interest rate of 3% or 3.81% per month on the subject equitable
mortgage is hereby ordered REDUCED to 1% per month only. No
pronouncement as to cos
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30771 May 28, 1984
LIAM LAW, plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.
Felizardo S.M. de Guzman for plaintiff-appellee.
Mariano M. de Joya for defendants-appellants.
MELENCIO-HERRERA, J.:
This is an appeal by defendants from a Decision rendered by the then Court of
First Instance of Bulacan. The appeal was originally taken to the then Court of
Appeals, which endorsed it to this instance stating that the issue involved was
one of law.
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00,
without interest, to defendant partnership and defendant Elino Lee Chi, as the
managing partner. The loan became ultimately due on January 31, 1960, but
was not paid on that date, with the debtors asking for an extension of three
months, or up to April 30, 1960.
On March 17, 1960, the parties executed another loan document. Payment of
the P10,000.00 was extended to April 30, 1960, but the obligation was
increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency
shall form part of the principal obligation to answer for attorney's fees, legal
interest, and other cost incident thereto to be paid unto the creditor and his
successors in interest upon the termination of this agreement.
Defendants again failed to pay their obligation by April 30, 1960 and, on
September 23, 1960, plaintiff instituted this collection case. Defendants
admitted the P10,000.00 principal obligation, but claimed that the additional
P6,000.00 constituted usurious interest.
Upon application of plaintiff, the Trial Court issued, on the same date of
September 23, 1960, a writ of Attachment on real and personal properties of
defendants located at Karanglan, Nueva Ecija. After the Writ of Attachment
was implemented, proceedings before the Trial Court versed principally in
regards to the attachment.
On January 18, 1961, an Order was issued by the Trial Court stating that
"after considering the manifestation of both counsel in Chambers, the Court
hereby allows both parties to simultaneously submit a Motion for Summary
Judgment. 1 The plaintiff filed his Motion for Summary Judgment on January
31, 1961, while defendants filed theirs on February 2, 196l. 2
On June 26, 1961, the Trial Court rendered decision ordering defendants to
pay plaintiff "the amount of P10,000.00 plus the further sum of P6,000.00 by
way of liquidated damages . . . with legal rate of interest on both amounts
from April 30, 1960." It is from this judgment that defendants have appealed.
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to the agreement of the
parties relative to the P6,000.00 obligation, "it is presumed that it exists and is
lawful, unless the debtor proves the contrary". No evidentiary hearing having
been held, it has to be concluded that defendants had not proven that the
P6,000.00 obligation was illegal. Confirming the Trial Court's finding, we
view the P6,000.00 obligation as liquidated damages suffered by plaintiff, as
of March 17, 1960, representing loss of interest income, attorney's fees and
incidentals.
The main thrust of defendants' appeal is the allegation in their Answer that the
P6,000.00 constituted usurious interest. They insist the claim of usury should
have been deemed admitted by plaintiff as it was "not denied specifically and
under oath". 3
Section 9 of the Usury Law (Act 2655) provided:

SEC. 9. The person or corporation sued shall file its answer in writing under
oath to any complaint brought or filed against said person or corporation
before a competent court to recover the money or other personal or real
property, seeds or agricultural products, charged or received in violation of the
provisions of this Act. The lack of taking an oath to an answer to a complaint
will mean the admission of the facts contained in the latter.
The foregoing provision envisages a complaint filed against an entity which
has committed usury, for the recovery of the usurious interest paid. In that
case, if the entity sued shall not file its answer under oath denying the
allegation of usury, the defendant shall be deemed to have admitted the usury.
The provision does not apply to a case, as in the present, where it is the
defendant, not the plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been legally non-existent. Interest can
now be charged as lender and borrower may agree upon. 4 The Rules of Court
in regards to allegations of usury, procedural in nature, should be considered
repealed with retroactive effect.
Statutes regulating the procedure of the courts will be construed as applicable
to actions pending and undetermined at the time of their passage. Procedural
laws are retrospective in that sense and to that extent. 5
... Section 24(d), Republic Act No. 876, known as the Arbitration Law, which
took effect on 19 December 1953, and may be retroactively applied to the case
at bar because it is procedural in nature. ... 6
WHEREFORE, the appealed judgment is hereby affirmed, without
pronouncement as to costs.
SO ORDERED.
G.R. No. 113412 April 17, 1996
Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA, petitioner,
vs.
THE COURT OF APPEALS and PHILIPPINE NATIONAL
BANK, respondents.
KAPUNAN, J.:p
On various dates in 1981, the Philippine National Bank granted to herein
petitioners, the spouses Ponciano L. Almeda and Eufemia P. Almeda several
loan/credit accommodations totaling P18.0 Million pesos payable in a period
of six years at an interest rate of 21% per annum. To secure the loan, the
spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500
square meter parcel of land, together with the building erected thereon (the
Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila. A credit
agreement embodying the terms and conditions of the loan was executed
between the parties. Pertinent portions of the said agreement are quoted
below:
SPECIAL CONDITIONS
xxx xxx xxx
The loan shall be subject to interest at the rate of twenty one per cent
(21%) per annum, payable semi-annually in arrears, the first interest payment
to become due and payable six (6) months from date of initial release of the
loan. The loan shall likewise be subject to the appropriate service charge and a
penalty charge of three per cent (30%) per annum to be imposed on any
amount remaining unpaid or not rendered when due.
xxx xxx xxx
III. OTHER CONDITIONS
(c) Interest and Charges
(1) The Bank reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in the
future; provided, that the interest rate on this/these accommodations shall be
correspondingly decreased in the event that the applicable maximum interest
rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest rate.1
Between 1981 and 1984, petitioners made several partial payments on the loan
totaling. P7,735,004.66,2 a substantial portion of which was applied to accrued
interest.3 On March 31, 1984, respondent bank, over petitioners' protestations,
raised the interest rate to 28%, allegedly pursuant to Section III-c (1) of its
credit agreement. Said interest rate thereupon increased from an initial 21% to
a high of 68% between March of 1984 to September, 1986.4
Petitioner protested the increase in interest rates, to no avail. Before the loan
was to mature in March, 1988, the spouses filed on February 6, 1988 a
petition for declaratory relief with prayer for a writ of preliminary injunction
and temporary restraining order with the Regional Trial Court of Makati,
docketed as Civil Case No. 18872. In said petition, which was raffled to
Branch 134 presided by Judge Ignacio Capulong, the spouses sought
clarification as to whether or not the PNB could unilaterally raise interest rates
on the loan, pursuant to the credit agreement's escalation clause, and in
relation to Central Bank Circular No. 905. As a preliminary measure, the
22
lower court, on March 3, 1988, issued a writ of preliminary injunction
enjoining the Philippine National Bank from enforcing an interest rate above
the 21% stipulated in the credit agreement. By this time the spouses were
already in default of their loan obligations.
Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D.
385), the PNB countered by ordering the extrajudicial foreclosure of
petitioner's mortgaged properties and scheduled an auction sale for March 14,
1989. Upon motion by petitioners, however, the lower court, on April 5, 1989,
granted a supplemental writ of preliminary injunction, staying the public
auction of the mortgaged property.
On January 15, 1990, upon the posting of a counterbond by the PNB, the trial
court dissolved the supplemental writ of preliminary injunction. Petitioners
filed a motion for reconsideration. In the interim, respondent bank once more
set a new date for the foreclosure sale of Marvin Plaza which was March 12,
1990. Prior to the scheduled date, however, petitioners tendered to respondent
bank the amount of P40,142,518.00, consisting of the principal
(P18,000,000.00) and accrued interest calculated at the originally stipulated
rate of 21%. The PNB refused to accept the payment.5
As a result of PNB's refusal of the tender of payment, petitioners, on March 8,
1990, formally consigned the amount of P40,142,518.00 with the Regional
Trial Court in Civil Case No. 90-663. They prayed therein for a writ of
preliminary injunction with a temporary restraining order. The case was
raffled to Branch 147, presided by Judge Teofilo Guadiz. On March 15, 1990,
respondent bank sought the dismissal of the case.
On March 30, 1990 Judge Guadiz in Civil Case No. 90-663 issued an order
granting the writ of preliminary injunction enjoining the foreclosure sale of
"Marvin Plaza" scheduled on March 12, 1990. On April 17, 1990 respondent
bank filed a motion for reconsideration of the said order.
On August 16, 1991, Civil Case No. 90-663 we transferred to Branch 66
presided by Judge Eriberto Rosario who issued an order consolidating said
case with Civil Case 18871 presided by Judge Ignacio Capulong.
For Judge Ignacio's refusal to lift the writ of preliminary injunction issued
March 30, 1990, respondent bank filed a petition for Certiorari, Prohibition
and Mandamus with respondent Court of Appeals, assailing the following
orders of the Regional Trial Court:
1. Order dated March 30, 1990 of Judge Guadiz granting the writ of
preliminary injunction restraining the foreclosure sale of Mavin Plaza set on
March 12, 1990;
2. Order of Judge Ignacio Capulong dated January 10, 1992 denying
respondent bank's motion to lift the writ of injunction issued by Judge Guadiz
as well as its motion to dismiss Civil Case No. 90-663;
3. Order of Judge Capulong dated July 3, 1992 denying respondent bank's
subsequent motion to lift the writ of preliminary injunction; and
4. Order of Judge Capulong dated October 20, 1992 denying respondent
bank's motion for reconsideration.
On August 27, 1993, respondent court rendered its decision setting aside the
assailed orders and upholding respondent bank's right to foreclose the
mortgaged property pursuant to Act 3135, as amended and P.D. 385.
Petitioners' Motion for Reconsideration and Supplemental Motion for
Reconsideration, dated September 15, 1993 and October 28, 1993,
respectively, were denied by respondent court in its resolution dated January
10, 1994.
Hence the instant petition.
This appeal by certiorari from the respondent court's decision dated August
27, 1993 raises two principal issues namely: 1) Whether or not respondent
bank was authorized to raise its interest rates from 21% to as high as 68%
under the credit agreement; and 2) Whether or not respondent bank is granted
the authority to foreclose the Marvin Plaza under the mandatory foreclosure
provisions of P.D. 385.
In its comment dated April 19, 1994, respondent bank vigorously denied that
the increases in the interest rates were illegal, unilateral, excessive and
arbitrary, it argues that the escalated rates of interest it imposed was based on
the agreement of the parties. Respondent bank further contends that it had a
right to foreclose the mortgaged property pursuant to P.D. 385, after
petitioners were unable to pay their loan obligations to the bank based on the
increased rates upon maturity in 1984.
The instant petition is impressed with merit.
The binding effect of any agreement between parties to a contract is premised
on two settled principles: (1) that any obligation arising from contract has the
force of law between the parties; and (2) that there must be mutuality between
the parties based on their essential equality.6 Any contract which appears to be
heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or
compliance of the contract which is left solely to the will of one of the parties,
is likewise, invalid.

It is plainly obvious, therefore, from the undisputed facts of the case that
respondent bank unilaterally altered the terms of its contract with petitioners
by increasing the interest rates on the loan without the prior assent of the
latter. In fact, the manner of agreement is itself explicitly stipulated by the
Civil Code when it provides, in Article 1956 that "No interest shall be due
unless it has been expressly stipulated in writing." What has been "stipulated
in writing" from a perusal of interest rate provision of the credit agreement
signed between the parties is that petitioners were bound merely to pay 21%
interest, subject to a possible escalation or de-escalation, when 1) the
circumstances warrant such escalation or de-escalation; 2) within the limits
allowed by law; and 3) upon agreement.
Indeed, the interest rate which appears to have been agreed upon by the parties
to the contract in this case was the 21% rate stipulated in the interest
provision. Any doubt about this is in fact readily resolved by a careful reading
of the credit agreement because the same plainly uses the phrase "interest
rate agreed upon," in reference to the original 21% interest rate. The interest
provision states:
(c) interest and Charges
(1) The Bank reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in the
future; provided, that the interest rate on this/these accommodations shall be
correspondingly decreased in the event that the applicable maximum interest
rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest rate.
In Philippine National Bank v. Court of Appeals, 7 this Court disauthorized
respondent bank from unilaterally raising the interest rate in the borrower's
loan from 18% to 32%, 41% and 48% partly because the aforestated increases
violated the principle of mutuality of contracts expressed in Article 1308 of
the Civil Code. The Court held:
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law
ceiling on interest rates —
. . . increases in interest rates are not subject to any ceiling prescribed by the
Usury Law.
but it did not authorize the PNB, or any bank for that matter, to unilaterally
and successively increase the agreed interest rates from 18% to 48% within a
span of four (4) months, in violation of P.D. 116 which limits such changes to
once every twelve months.
Besides violating P.D. 116, the unilateral action of the PNB in increasing the
interest rate on the private respondent's loan, violated the mutuality of
contracts ordained in Article 1308 of the Civil Code:
Art. 308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on their
essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the P1.8 million loan agreement between the PNB
and the private respondent gave the PNB a license (although in fact there was
none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do not bargain
on equal footing, the weaker party's (the debtor) participation being reduced to
the alternative "to take it or lease it" (Qua vs. Law Union & Rock Insurance
Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse and imposition.
PNB's successive increases of the interest rate on the private respondent's
loan, over the latter's protest, were arbitrary as they violated an express
provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may
be amended only by an instrument in writing signed by the party to be bound
as burdened by such amendment." The increases imposed by PNB also
contravene Art. 1956 of the Civil Code which provides that "no interest shall
be due unless it has been expressly stipulated in writing."
The debtor herein never agreed in writing to pay the interest increases fixed
by the PNB beyond 24%per annum, hence, he is not bound to pay a higher
rate than that.
That an increase in the interest rate from 18% to 48% within a period of four
(4) months is excessive, as found by the Court of Appeals, is indisputable.
Clearly, the galloping increases in interest rate imposed by respondent bank
on petitioners' loan, over the latter's vehement protests, were arbitrary.
Moreover, respondent bank's reliance on C.B. Circular No. 905, Series of
1982 did not authorize the bank, or any lending institution for that matter, to
progressively increase interest rates on borrowings to an extent which would
23
have made it virtually impossible for debtors to comply with their own
obligations. True, escalation clauses in credit agreements are perfectly valid
and do not contravene public policy. Such clauses, however, (as are
stipulations in other contracts) are nonetheless still subject to laws and
provisions governing agreements between parties, which agreements — while
they may be the law between the contracting parties — implicitly incorporate
provisions of existing law. Consequently, while the Usury Law ceiling on
interest rates was lifted by C.B. Circular 905, nothing in the said circular
could possibly be read as granting respondent bank carte blanche authority to
raise interest rates to levels which would either enslave its borrowers or lead
to a hemorrhaging of their assets. Borrowing represents a transfusion of
capital from lending institutions to industries and businesses in order to
stimulate growth. This would not, obviously, be the effect of PNB's unilateral
and lopsided policy regarding the interest rates of petitioners' borrowings in
the instant case.
Apart from violating the principle of mutuality of contracts, there is authority
for disallowing the interest rates imposed by respondent bank, for the credit
agreement specifically requires that the increase be "within the limits allowed
by law". In the case of PNB v. Court of Appeals, cited above, this Court
clearly emphasized that C.B. Circular No. 905 could not be properly invoked
to justify the escalation clauses of such contracts, not being a grant of specific
authority.
Furthermore, the escalation clause of the credit agreement requires that the
same be made "within the limits allowed by law," obviously referring
specifically to legislative enactments not administrative circulars. Note that
the phrase "limits imposed by law," refers only to the escalation clause.
However, the same agreement allows reduction on the basis of law or the
Monetary Board. Had the parties intended the word "law" to refer to both
legislative enactments and administrative circulars and issuances, the
agreement would not have gone as far as making a distinction between "law or
the Monetary Board Circulars" in referring to mutually agreed upon
reductions in interest rates. This distinction was the subject of the Court's
disquisition in the case of Banco Filipino Savings and Mortgage Bank
v. Navarro8 where the Court held that:
What should be resolved is whether BANCO FILIPINO can increase the
interest rate on the LOAN from 12% to 17% per annum under the Escalation
Clause. It is our considered opinion that it may not.
The Escalation Clause reads as follows:
I/We hereby authorize Banco Filipino to correspondingly increase.
the interest rate stipulated in this contract without advance notice to me/us in
the event.
a law
increasing
the lawful rates of interest that may be charged
on this particular
kind of loan. (Paragraphing and emphasis supplied)
It is clear from the stipulation between the parties that the interest rate may be
increased "in the event a law should be enacted increasing the lawful rate of
interest that may be charged on this particular kind of loan." The Escalation
Clause was dependent on an increase of rate made by "law" alone.
CIRCULAR No. 494, although it has the effect of law, is not a law. "Although
a circular duly issued is not strictly a statute or a law, it has, however, the
force and effect of law." (Emphasis supplied). "An administrative regulation
adopted pursuant to law has the force and effect of law." "That administrative
rules and regulations have the force of law can no longer be questioned."
The distinction between a law and an administrative regulation is recognized
in the Monetary Board guidelines quoted in the latter to the BORROWER of
Ms. Paderes of September 24, 1976 (supra). According to the guidelines, for a
loan's interest to be subject to the increases provided in CIRCULAR No. 494,
there must be an Escalation Clause allowing the increase "in the event that any
law or Central Bank regulation is promulgated increasing the maximum rate
for loans." The guidelines thus presuppose that a Central Bank regulation is
not within the term "any law."
The distinction is again recognized by P.D. No. 1684, promulgated on March
17, 1980, adding section 7-a to the Usury Law, providing that parties to an
agreement pertaining to a loan could stipulate that the rate of interest agreed
upon may be increased in the event that the applicable maximum rate of
interest is increased "by law or by the Monetary Board." To quote:
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money,
goods or credits may stipulate that the rate of interest agreed upon may be
increased in the event that the applicable maximum rate of interest
is increased by law or by the Monetary Board:
Provided, That such stipulation shall be valid only if there is also a stipulation
in the agreement that the rate of interest agreed upon shall be reduced in the

event that the applicable maximum rate of interest is reduced by law or by the
Monetary Board;
Provided, further, That the adjustment in the rate of interest agreed upon shall
take effect on or after the effectivity of the increase or decrease in the
maximum rate of interest.' (Paragraphing and emphasis supplied).
It is now clear that from March 17, 1980, escalation clauses to be valid should
specifically provide: (1) that there can be an increase in interest if increased
by law or by the Monetary Board; and (2) in order for such stipulation to be
valid, it must include a provision for reduction of the stipulated interest "in the
event that the applicable maximum rate of interest is reduced by law or by the
Monetary Board."
Petitioners never agreed in writing to pay the increased interest rates
demanded by respondent bank in contravention to the tenor of their credit
agreement. That an increase in interest rates from 18% to as much as 68% is
excessive and unconscionable is indisputable. Between 1981 and 1984,
petitioners had paid an amount equivalent to virtually half of the entire
principal (P7,735,004.66) which was applied to interest alone. By the time the
spouses tendered the amount of P40,142,518.00 in settlement of their
obligations; respondent bank was demanding P58,377,487.00 over and above
those amounts already previously paid by the spouses.
Escalation clauses are not basically wrong or legally objectionable so long as
they are not solely potestative but based on reasonable and valid
grounds.9 Here, as clearly demonstrated above, not only the increases of the
interest rates on the basis of the escalation clause patently unreasonable and
unconscionable, but also there are no valid and reasonable standards upon
which the increases are anchored.
We go now to respondent bank's claim that the principal issue in the case at
bench involves its right to foreclose petitioners' properties under P.D. 385. We
find respondent's pretense untenable.
Presidential Decree No. 385 was issued principally to guarantee that
government financial institutions would not be denied substantial cash inflows
necessary to finance the government's development projects all over the
country by large borrowers who resort to litigation to prevent or delay the
government's collection of their debts or loans. 10 In facilitating collection of
debts through its automatic foreclosure provisions, the government is
however, not exempted from observing basic principles of law, and ordinary
fairness and decency under the due process clause of the Constitution. 11
In the first place, because of the dispute regarding the interest rate increases,
an issue which was never settled on merit in the courts below, the exact
amount of petitioner's obligations could not be determined. Thus, the
foreclosure provisions of P.D. 385 could be validly invoked by respondent
only after settlement of the question involving the interest rate on the loan,
and only after the spouses refused to meet their obligations following such
determination. In Filipinas Marble Corporation v. Intermediate Appellate
Court, 12 involving P.D. 385's provisions on mandatory foreclosure, we held
that:
We cannot, at this point, conclude that respondent DBP together with the
Bancom people actually misappropriated and misspent the $5 million loan in
whole or in part although the trial court found that there is "persuasive"
evidence that such acts were committed by the respondent. This matter should
rightfully be litigated below in the main action. Pending the outcome of such
litigation, P.D. 385 cannot automatically be applied for if it is really proven
that respondent DBP is responsible for the misappropriation of the loan, even
if only in part, then the foreclosure of the petitioner's properties under the
provisions of P.D. 385 to satisfy the whole amount of the loan would be a
gross mistake. It would unduly prejudice the petitioner, its employees and
their families.
Only after trial on the merits of the main case can the true amount of the loan
which was applied wisely or not, for the benefit of the petitioner be
determined. Consequently, the extent of the loan where there was no failure of
consideration and which may be properly satisfied by foreclosure proceedings
under P.D. 385 will have to await the presentation of evidence in a trial on the
merits.
In Republic Planters Bank v. Court of Appeals 13 the Court reiterating
the dictum in Filipinas Marble Corporation, held:
The enforcement of P.D. 385 will sweep under the rug' this iceberg of a
scandal in the sugar industry during the Marcos Martial Law years. This we
can not allow to happen. For the benefit of future generations, all the dirty
linen in the PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in
public so that the same may NEVER be repeated.
It is of paramount national interest, that we allow the trial court to proceed
with dispatch to allow the parties below to present their evidence.
Furthermore, petitioners made a valid consignation of what they, in good faith
and in compliance with the letter of the Credit Agreement, honestly believed
to be the real amount of their remaining obligations with the respondent bank.
24
The latter could not therefore claim that there was no honest-to-goodness
attempt on the part of the spouse to settle their obligations. Respondent's rush
to inequitably invoke the foreclosure provisions of P.D. 385 through its legal
machinations in the courts below, in spite of the unsettled differences in
interpretation of the credit agreement was obviously made in bad faith, to gain
the upper hand over petitioners.
In the face of the unequivocal interest rate provisions in the credit agreement
and in the law requiring the parties to agree to changes in the interest rate in
writing, we hold that the unilateral and progressive increases imposed by
respondent PNB were null and void. Their effect was to increase the total
obligation on an eighteen million peso loan to an amount way over three times
that which was originally granted to the borrowers. That these increases,
occasioned by crafty manipulations in the interest rates is unconscionable and
neutralizes the salutary policies of extending loans to spur business cannot be
disputed.
WHEREFORE, PREMISES CONSIDERED, the decision of the Court of
Appeals dated August 27, 1993, as well as the resolution dated February 10,
1994 is hereby REVERSED AND SET ASIDE. The case is remanded to the
Regional Trial Court of Makati for further proceedings.
SO ORDERED.
G.R. No. 131622 November 27, 1998
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO
FRANCO, petitioners,
vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and
DANILO G. GONZALES, JR. doing lending business under the trade
name and style "GONZALES CREDIT ENTERPRISES", respondents.
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45
of the Revised Rules of Court, seeking to set aside the decision of the Court of
Appeals,1 and its resolution denying reconsideration, 2 the dispositive
portion of which decision reads as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby-ordered to pay the plaintiff: the sum of
P500,000.00, plus 5.5% per month interest and 2% service charge per
annum effective July 23, 1986, plus 1% per month of the total amount
due and demandable as penalty charges effective August 23, 1986, until
the entire amount is fully paid.
The award to the plaintiff of P50,000.00 as attorney's fees is affirmed.
And so is the imposition of costs against the defendants.
SO ORDERED. 3
The Court required the respondents to comment on the petition, 4 which
was filed on April 3, 1998,5 and the petitioners to reply thereto, which was
filed on May 29, 1998.6 We now resolve to give due course to the petition
and decide the case.
The facts of the case, as found by the Court of Appeals in its decision,
which are considered binding and conclusive on the parties herein, as the
appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter
Servando and Leticia) obtained a loan from Veronica R. Gonzales
(hereafter Veronica), who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in the amount of
P50,000.00, payable in two months. Veronica gave only the amount of
P47,000.00, to the borrowers, as she retained P3,000.00, as advance
interest for one month at 6% per month. Servando and Leticia executed a
promissory note for P50,000.00, to evidence the loan, payable on January
7, 1986.
On November 19, 1985, Servando and Liticia obtained from Veronica
another loan in the amount of P90,000.00, payable in two months, at 6%
interest per month. They executed a promissory note to evidence the loan,
maturing on Janaury 19, 1986. They received only P84,000.00, out of the
proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the
indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another
loan in the amout of P300,000.00, maturing in one month, secured by a real
estate mortgage over a property belonging to Leticia Makalintal Yaptinchay,
who issued a special power of attorney in favor of Leticia Medel, authorizing
her to execute the mortgage. Servando and Leticia executed a promissory note
in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275.000.00, was given to them out of
the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on
maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael
Medel, consolidated all their previous unpaid loans totaling P440,000.00, and
sought from Veronica another loan in the amount of P60,000.00, bringing
their indebtedness to a total of P500,000.00, payable on August 23, 1986.
They executed a promissory note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style of
GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE
HUNDRED THOUSAND . . . (P500,000.00) Philippine Currency with
interest thereon at the rate of 5.5 PER CENT per month plus 2% service
charge per annum from date hereof until fully paid according to the
amortization schedule contained herein. (Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all the
other installments together with all interest accrued shall immediately be due
and payable and I/WE hereby agree to pay an additional amount equivalent to
one per cent (1%) per month of the amount due and demandable as penalty
charges in the form of liquidated damages until fully paid; and the further sum
of TWENTY FIVE PER CENT (25%) thereof in full, without deductions as
Attorney's Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial expenses.
(Emphasis supplied).
I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall have
the option to apply and collect the increased interest charges without notice
although the original interest have already been collected wholly or partially
unless the contrary is required by law.
It is also a special condition of this contract that the parties herein agree that
the amount of peso-obligation under this agreement is based on the present
value of the peso, and if there be any change in the value thereof, due to
extraordinary inflation or deflation, or any other cause or reason, then the
peso-obligation herein contracted shall be adjusted in accordance with the
value of the peso then prevailing at the time of the complete fulfillment of the
obligation.
Demand and notice of dishonor waived. Holder may accept partial payments
and grant renewals of this note or extension of payments, reserving rights
against each and all indorsers and all parties to this note.
IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the
debtors waive all his/their rights under the provisions of Section 12, Rule 39,
of the Revised Rules of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness of
P500,000.00, plus interests and penalties, evidenced by the above-quoted
promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo
G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at
Malolos, Bulacan, a complaint for collection of the full amount of the loan
including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990,
defendant Servando alleged that he did not obtain any loan from the plaintiffs;
that it was defendants Leticia and Dr. Rafael Medel who borrowed from the
plaintiffs the sum of P500,000.00, and actually received the amount and
benefited therefrom; that the loan was secured by a real estate mortgage
executed in favor of the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.
In their separate answer filed on April 10, 1990, defendants Leticia and Rafael
Medel alleged that the loan was the transaction of Leticia Yaptinchay, who
executed a mortgage in favor of the plaintiffs over a parcel of real estate
situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per
month with additional service charge of 2% per annum, and penalty charge of
1% per month; that the stipulation for attorney's fees of 25% of the amount
due is unconscionable, illegal and excessive, and that substantial payments
made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and
genuineness of the four promissory notes had been duly proved, and ruled that
although the Usury Law had been repealed, the interest charged by the
plaintiffs on the loans was unconscionable and "revolting to the conscience".
Hence, the trial court applied "the provision of the New [Civil] Code" that the
"legal rate of interest for loan or forbearance of money, goods or credit is 12%
per annum."7
25
Accordingly, on December 9, 1991, the trial court rendered judgment, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered, as
follows:
1. Ordering the defendants Servando Franco and Leticia Medel, jointly and
severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per
annum from November 7, 1985 and 1% per month as penalty, until the entire
amount is paid in full.
2. Ordering the defendants Servando Franco and Leticia Y. Medel to
plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest
per annum and 1% per cent per month as penalty from November 19, 1985
until the whole amount is fully paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally, the
amount of P285,000.00 plus 12% interest per annum and 1% per month as
penalty from July 11, 1986, until the whole amount is fully paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount
of P50,000.00 as attorney's fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants.8
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416 of the Central Bank
prescribing the rate of interest for loans or forbearance of money, goods or
credit at 12% per annum, applies only in the absence of a stipulation on
interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled
that "the Usury Law having become 'legally inexistent' with the promulgation
by the Central Bank in 1982 of Circular No. 905, the lender and borrower
could agree on any interest that may be charged on the loan".9 The Court of
Appeals further held that "the imposition of 'an additional amount equivalent
to 1% per month of the amount due and demandable as penalty charges in the
form of liquidated damages until fully paid' was allowed by
law". 10
Accordingly, on March 21, 1997, the Court of Appeals promulgated its
decision reversing that of the Regional Trial Court, disposing as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective July
23, 1986, plus 1% per month of the total amount due and demandable as
penalty charges effective August 24, 1986, until the entire amount is fully
paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And
so is the imposition of costs against the defendants.
SO ORDERED. 11
On April 15, 1997, defendants-appellants filed a motion for reconsideration of
the said decision. By resolution dated November 25, 1997, the Court of
Appeals denied the motion. 12
Hence, defendants interposed the present recourse via petition for review
on certiorari. 13
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon.
Thus, the question presented is whether or not the stipulated rate of interest at
5.5% per month on the loan in the sum of P500,000.00, that plaintiffs
extended to the defendants is usurious. In other words, is the Usury Law still
effective, or has it been repealed by Central Bank Circular No. 905, adopted
on December 22, 1982, pursuant to its powers under P.D. No. 116, as
amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month
on the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant. 13 However, we can not consider the rate "usurious" because this
Court has consistently held that Circular No. 905 of the Central Bank, adopted
on December 22, 1982, has expressly removed the interest ceilings prescribed
by the Usury Law 14 and that the Usury Law is now "legally inexistent". 15
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61 16 the Court held that CB Circular No. 905 "did not repeal nor in
anyway amend the Usury Law but simply suspended the latter's effectivity."
Indeed, we have held that "a Central Bank Circular can not repeal a law. Only
a law can repeal another law." 17 In the recent case of Florendo vs. Court of
Appeals 18, the Court reiterated the ruling that "by virtue of CB Circular 905,
the Usury Law has been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon." 19
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or

unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not
against the law. 20 The stipulation is void. 21 The courts shall reduce equitably
liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable. 22
Consequently, the Court of Appeals erred in upholding the stipulation of the
parties. Rather, we agree with the trial court that, under the circumstances,
interest at 12% per annum, and an additional 1% a month penalty charge as
liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision
of the Court of Appeals promulgated on March 21, 1997, and its resolution
dated November 25, 1997. Instead, we render judgment REVIVING and
AFFIRMING the decision dated December 9, 1991, of the Regional Trial
Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90,
involving the same parties.
No pronouncement as to costs in this instance.
SO ORDERED.
G.R. No. 149004 April 14, 2004
RESTITUTA M. IMPERIAL, petitioner,
vs.
ALEX A. JAUCIAN, respondent.
DECISION
PANGANIBAN, J.:
Iniquitous and unconscionable stipulations on interest rates, penalties and
attorney’s fees are contrary to morals. Consequently, courts are granted
authority to reduce them equitably. If reasonably exercised, such authority
shall not be disturbed by appellate courts.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
assailing the July 19, 2000 Decision2 and the June 14, 2001 Resolution3 of the
Court of Appeals (CA) in CA-GR CV No. 43635. The decretal portion of the
Decision is as follows:
"WHEREFORE, premises considered, the appealed Decision of the Regional
Trial Court, 5th Judicial Region, Branch 21, Naga City, dated August 31,
1993, in Civil Case No. 89-1911 for Sum of Money, is hereby AFFIRMED in
toto."4
The assailed Resolution denied petitioner’s Motion for Reconsideration.
The dispositive portion of the August 31, 1993 Decision, promulgated by the
Regional Trial Court (RTC) of Naga City (Branch 21) and affirmed by the
CA, reads as follows:
"Wherefore, Judgment is hereby rendered declaring Section I, Central Bank
Circular No. 905, series of 1982 to be of no force and legal effect, it having
been promulgated by the Monetary Board of the Central Bank of the
Philippines with grave abuse of discretion amounting to excess of jurisdiction;
declaring that the rate of interest, penalty, and charges for attorney’s fees
agreed upon between the parties are unconscionable, iniquitous, and in
violation of Act No. 2655, otherwise known as the Usury Law, as amended;
and ordering Defendant to pay Plaintiff the amount of FOUR HUNDRED
SEVENTY-EIGHT THOUSAND, ONE HUNDRED NINETY-FOUR and
54/100 (₱478,194.54) PESOS, Philippine currency, with regular and
compensatory interests thereon at the rate of twenty-eight (28%) per centum
per annum, computed from August 31, 1993 until full payment of the said
amount, and in addition, an amount equivalent to ten (10%) per centum of the
total amount due and payable, for attorney’s fees, without pronouncement as
to costs."5
The Facts
The CA summarized the facts of the case in this wise:
"The present controversy arose from a case for collection of money, filed by
Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The
complaint alleges, inter alia, that defendant obtained from plaintiff six (6)
separate loans for which the former executed in favor of the latter six (6)
separate promissory notes and issued several checks as guarantee for payment.
When the said loans became overdue and unpaid, especially when the
defendant’s checks were dishonored, plaintiff made repeated oral and written
demands for payment.
"Specifically, the six (6) separate loans obtained by defendant from plaintiff
on various dates are as follows:
(a) November 13, 1987 ₱ 50,000.00
(b) December 28, 1987 40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
26
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Total ₱320,000.00
"The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the
amount released to defendant because said face value already include[d] the
interest from date of note to date of maturity. Said promissory notes, which
indicate the interest of 16% per month, date of issue, due date, the
corresponding guarantee checks issued by defendant, penalties and attorney’s
fees, are the following:
1. Exhibit ‘D’ – for loan of ₱40,000.00 on December 28, 1987, with face
value of ₱65,000.00;
2. Exhibit ‘E’ – for loan of ₱50,000.00 on January 11, 1988, with face value
of ₱82,000.00;
3. Exhibit ‘F’ – for loan of ₱50,000.00 on January 12, 1988, with face value of
₱82,000.00;
4. Exhibit ‘G’ – for loan of ₱100,000.00 on January 13, 1988, with face value
of ₱164,000.00;
5. Exhibit ‘H’ – This particular promissory note covers the second renewal of
the original loan of ₱50,000.00 on November 13, 1987, which was renewed
for the first time on March 16, 1988 after certain payments, and which was
renewed finally for the second time on January 4, 1988 also after certain
payments, with a face value of ₱56,240.00;
6. Exhibit ‘I’ – This particular promissory note covers the second renewal of
the original loan of ₱30,000.00 on January 6, 1988, which was renewed for
the first time on June 4, 1988 after certain payments, and which was finally
renewed for the second time on August 6, 1988, also after certain payments,
with [a] face value of ₱12,760.00;
"The particulars about the postdated checks, i.e., number, amount, date, etc.,
are indicated in each of the promissory notes. Thus, for Exhibit ‘D’, four (4)
PB checks were issued; for Exhibit ‘E’ four (4) checks; for Exhibit ‘F’ four
(4) checks; for Exhibit ‘G’ four (4) checks; for Exhibit ‘H’ one (1) check; for
Exhibit ‘I’ one (1) check;
"The arrangement between plaintiff and defendant regarding these guarantee
checks was that each time a check matures the defendant would exchange it
with cash.
"Although, admittedly, defendant made several payments, the same were not
enough and she always defaulted whenever her loans mature[d]. As of August
16, 1991, the total unpaid amount, including accrued interest, penalties and
attorney’s fees, [was] ₱2,807,784.20.
"On the other hand, defendant claims that she was extended loans by the
plaintiff on several occasions, i.e., from November 13, 1987 to January 13,
1988, in the total sum of ₱320,000.00 at the rate of sixteen percent (16%) per
month. The notes mature[d] every four (4) months with unearned interest
compounding every four (4) months if the loan [was] not fully paid. The loan
releases [were] as follows:
(a) November 13, 1987 ₱ 50,000.00
(b) December 28, 1987 40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Total ₱320,000.00
"The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid
including the usurious interests of 16% per month, this is the reason why these
were not included in the complaint.
"Defendant alleges that all the above amounts were released respectively by
checks drawn by the plaintiff, and the latter must produce these checks as
these were returned to him being the drawer if only to serve the truth. The
above amount are the real amount released to the defendant but the plaintiff
by masterful machinations made it appear that the total amount released was
₱462,600.00. Because in his computation he made it appear that the true

amounts released was not the original amount, since it include[d] the
unconscionable interest for four months.
"Further, defendant claims that as of January 25, 1989, the total payments
made by defendants [were] as follows:
a. Paid releases on November 13, 1987 of ₱50,000.00 and January 6, 1988 per annum.
of ₱30,000.00 these two items were not included in the complaintPetitioner alleges that absent any written stipulation between the parties, the
affirming the fact that these were paid
b. Exhibit ‘26’ Receipt
c. Exhibit ‘8-25’ Receipt
d. Exhibit ‘27’ Receipt
Total
Less:
Excess Payment
"Defendant contends that from all perspectives the above excess payment of
₱121,780.00 is more than the interest that could be legally charged, and in fact
as of January 25, 1989, the total releases have been fully paid.
"On 31 August 1993, the trial court rendered the assailed decision." 6
Ruling of the Court of Appeals
On appeal, the CA held that without judicial inquiry, it was improper for the
RTC to rule on the constitutionality of Section 1, Central Bank Circular No.
905, Series of 1982. Nonetheless, the appellate court affirmed the judgment of
the trial court, holding that the latter’s clear and detailed computation of
petitioner’s outstanding obligation to respondent was convincing and
satisfactory.
Hence, this Petition.7
The Issues
Petitioner raises the following arguments for our consideration:
"1. That the petitioner has fully paid her obligations even before filing of this
case.
"2. That the charging of interest of twenty-eight (28%) per centum per annum
without any writing is illegal.
"3. That charging of excessive attorney’s fees is hemorrhagic.
"4. Charging of excessive penalties per month is in the guise of hidden
interest.
"5. The non-inclusion of the husband of the petitioner at the time the case was
filed should have dismissed this case."8
The Court’s Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the loan before the filing of the case,
petitioner alleges that the two lower courts misappreciated the facts when they
ruled that she still had an outstanding balance of ₱208,430.
This issue involves a question of fact. Such question exists when a doubt or
difference arises as to the truth or the falsehood of alleged facts; and when
there is need for a calibration of the evidence, considering mainly the
credibility of witnesses and the existence and the relevancy of specific
surrounding circumstances, their relation to each other and to the whole, and
9
the probabilities of the situation.
It is a well-entrenched rule that pure questions of fact may not be the subject
of an appeal by certiorari under Rule 45 of the Rules of Court, as this remedy
is generally confined to questions of law.10 The jurisdiction of this Court over
cases brought to it is limited to the review and rectification of errors of law
allegedly committed by the lower court. As a rule, the latter’s factual findings,
when adopted and affirmed by the CA, are final and conclusive and may not
be reviewed on appeal.11
Generally, this Court is not required to analyze and weigh all over again the
evidence already considered in the proceedings below. 12 In the present case,
we find no compelling reason to overturn the factual findings of the RTC --
that the total amount of the loans extended to petitioner was ₱320,000, and
that she paid a total of only ₱116,540 on twenty-nine dates. These findings are
supported by a preponderance of evidence. Moreover, the amount of the
outstanding obligation has been meticulously computed by the trial court and
affirmed by the CA. Petitioner has not given us sufficient reason why her
cause falls under any of the exceptions to this rule on the finality of factual
findings.
27
Second Issue:
Rate of Interest
The trial court, as affirmed by the CA, reduced the interest rate from 16
percent to 1.167 percent per month or 14 percent per annum; and the
stipulated penalty charge, from 5 percent to 1.167 percent per month or 14
percent
lower courts₱ 80,000.00
should have imposed the rate of 12 percent per annum only.
The records show that there was a written agreement between the parties for
231,000.00
the payment of interest on the subject loans at the rate of 16 percent per
month. As decreed by the lower courts, this rate must be equitably reduced for
65,300.00
being iniquitous, unconscionable and exorbitant. "While the Usury Law
ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the
65,000.00
said circular grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets."13
₱441,780.00
In Medel v. CA,14 the Court found the stipulated interest rate of 5.5 percent per
month, or 66 percent per annum, unconscionable. In the present case, the rate
320,000.00
is even more iniquitous and unconscionable, as it amounts to 192 percent per
annum. When the agreed rate is iniquitous or unconscionable, it is considered
"contrary to morals, if not against the law. [Such] stipulation is void."15
₱121,780.00
Since the stipulation on the interest rate is void, it is as if there were no
express contract thereon.16 Hence, courts may reduce the interest rate as
reason and equity demand. We find no justification to reverse or modify the
rate imposed by the two lower courts.
Third and Fourth Issue:
Penalties and Attorney’s Fees
Article 1229 of the Civil Code states thus:
"The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable."
In exercising this power to determine what is iniquitous and unconscionable,
courts must consider the circumstances of each case. 17 What may be
iniquitous and unconscionable in one may be totally just and equitable in
another. In the present case, iniquitous and unconscionable was the parties’
stipulated penalty charge of 5 percent per month or 60 percent per annum, in
addition to regular interests and attorney’s fees. Also, there was partial
performance by petitioner when she remitted ₱116,540 as partial payment of
her principal obligation of ₱320,000. Under the circumstances, the trial court
was justified in reducing the stipulated penalty charge to the more equitable
rate of 14 percent per annum.
The Promissory Note carried a stipulation for attorney’s fees of 25 percent of
the principal amount and accrued interests. Strictly speaking, this covenant on
attorney’s fees is different from that mentioned in and regulated by the Rules
of Court.18 "Rather, the attorney’s fees here are in the nature of liquidated
damages and the stipulation therefor is aptly called a penal clause." 19 So long
as the stipulation does not contravene the law, morals, public order or public
policy, it is binding upon the obligor. It is the litigant, not the counsel, who is
the judgment creditor entitled to enforce the judgment by execution.
Nevertheless, it appears that petitioner’s failure to comply fully with her
obligation was not motivated by ill will or malice. The twenty-nine partial
payments she made were a manifestation of her good faith. Again, Article
1229 of the Civil Code specifically empowers the judge to reduce the civil
penalty equitably, when the principal obligation has been partly or irregularly
complied with. Upon this premise, we hold that the RTC’s reduction of
attorney’s fees -- from 25 percent to 10 percent of the total amount due and
payable -- is reasonable.
Fifth Issue:
Non-Inclusion of Petitioner’s Husband
Petitioner contends that the case against her should have been dismissed,
because her husband was not included in the proceedings before the RTC.
We are not persuaded. The husband’s non-joinder does not warrant dismissal,
as it is merely a formal requirement that may be cured by amendment. 20 Since
petitioner alleges that her husband has already passed away, such an
amendment has thus become moot.
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED
[G.R. No. 109563. July 9, 1996]
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS,
MARIA AMOR BASCOS and MARCIANO BASCOS, respondents.
DECISION
MENDOZA, J.:
This is a petition seeking review of the decision dated August 10, 1992,[1] of
the Eight Division of the Court of Appeals and its resolution dated March 25,

1993,[2] both rendered in CA-G.R. CV No. 27653, which affirmed the decision
of the Regional Trial Court (RTC) of San Jose City (Branch 38).
The facts are as follows:
On June 4, 1979, private respondent spouses Maria Amor and Marciano
Bascos obtained a loan from the Philippine National Bank in the amount of
P15,000.00 evidenced by a promissory note and secured by a real estate
mortgage.
The promissory note contained the following stipulation:[3]
For value received, I/we, [private respondents] jointly and severally promise
to pay to the ORDER of the PHILIPPINE NATIONAL BANK, at its office in
San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY
(P15,000.00), Philippine Currency, together with interest thereon at the rate of
12 % per annum until paid, which interest rate the Bank may at any time
without notice, raise within the limits allowed by law, and I/we also agree to
pay jointly and severally ____% per annum penalty charge, by way of
liquidated damages should this note be unpaid or is not renewed on due dated.
Payment of this note shall be as follows:
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE
On the reverse side of the note the following condition was stamped:[4]
All short-term loans to be granted starting January 1, 1978 shall be made
subject to the condition that any and/or all extensions hereof that will leave
any portion of the amount still unpaid after 730 days shall automatically
convert the outstanding balance into a medium or long-term obligation as the
case may be and give the Bank the right to charge the interest rates prescribed
under its policies from the date the account was originally granted.
To secure payment of the loan the parties executed a real estate mortgage
contract which provided:[5]
(k) INCREASE OF INTEREST RATE:
The rate of interest charged on the obligation secured by this mortgage as well
as the interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provision hereof, shall be subject
during the life of this contract to such an increase within the rate allowed by
law, as the Board of Directors of the MORTGAGEE may prescribe for its
debtors.
On December 12, 1980, PNB extended the period of payment of the loan to
June 5, 1981, thus converting the loan from a short-term to a medium-term
loan, i.e., a loan which matured over two to five years.[6] PNB also increased
the rate of interest per annum, first to 14%, effective December 1,
1979;[7] then to 22% effective February 21, 1983;[8] to 22.5% effective June
20, 1983;[9] to 23% from November 2, 1983;[10] to 25% effective March 2,
1984;[11] and finally to 28% from April 10, 1984.[12]
Because private respondents defaulted in paying their obligation, the
Provincial Sheriff of Nueva Ecija scheduled the extrajudicial foreclosure of
the mortgage on June 15, 1984 to pay private respondents' indebtedness
which, according to PNB, had increased from P15,000.00 to P35,125.84, plus
28% annual interest.[13]
Private respondents brought suit against PNB, its Branch Manager Jetro
Godoy, and the Provincial Sheriff of Nueva Ecija Numeriano Y. Galang (1)
for a declaration of nullity of C.B. Monetary Board Resolution No. 2126 dated
November 29, 1979 (embodied in C.B. Circular No. 705 dated December 1,
1979), which increased the ceiling on the interest rate of secured and
unsecured loans to 16% per annum and 14% per annum, respectively, on the
ground that it was contrary to the Usury Law, good morals, public policy,
customs and traditions, social justice, due process and the equal protection
clause of the Constitution; and (2) for a declaration that the interest rate
increases on their loan were contrary to Art. 1959 of the Civil Code which
provides that interest due and unpaid shall not earn interest. Pending final
determination of the case, private respondents asked that the auction sale be
enjoined.
PNB filed an answer with compulsory counterclaim. It alleged that private
respondents had no cause of action because 1-a of the Usury Law, as amended
by P.D. No. 1684, did not limit the number of times the interest could be
increased and that private respondents were estopped from questioning the
increases because they failed to object to the same. PNB asked that the
complaint be dismissed and that private respondents be ordered to pay
P35,125.84, plus interest from April 10, 1984, until the obligation was fully
paid, attorney's fees and moral damages in such amount as may be determined
by the court.
On June 13, 1984 private respondents deposited with the clerk of court
P8,000.00[14] and on January 15, 1985 P2,000.00,[15] in partial payment of their
loan.
On June 15, 1990, the RTC rendered a decision, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered as follows:
28
1. There having [sic] no evidence against the defendants Jetro Godoy, and the
Provincial Sheriff of Nueva Ecija, Numeriano Galang, the case against them is
dismissed;
2. The increase in interest rates based on the escalation clauses in the
Promissory Note and the Real Estate Mortgage, par. K, being contrary to Sec.
3, P.D. No. 116 are declared null and void, that henceforth, the defendant
PNB is hereby directed to desist from enforcing the increased rate of interest
more than TWELVE (12%) per cent on plaintiffs' loan;
3. The compulsory counterclaim of the defendants is also dismissed;
4. On the other hand, the plaintiffs can settle their unpaid obligation with the
defendant PNB at the interest rate of TWELVE (12%) per cent per annum
computed from the inception of the loan until the same is fully paid; advances
made by the PNB for insurance premiums and penalties added; and the
10,000.00 paid to and defendant bank to be credited as payment by the
plaintiffs;
5. Plaintiffs' claim for damages is, likewise, dismissed; and
6. The parties shall each bear out [sic] the expenses incurred by them.
SO ORDERED.
The RTC invalidated the stipulations in the promissory note and the real estate
mortgage, which authorized PNB to increase the interest rate, on the ground
that there was no corresponding stipulation that the interest rate would be
reduced in the event the law reduced the applicable maximum rate as provided
under P.D. No. 1684; that P.D. No. 116, which sets a ceiling of 12% interest
on secured loans, is a "law," which should prevail over Circular No. 705, used
by PNB to increase the interest; that collection of the increased interest
sanctions unjust enrichment contrary to Art. 22 of the Civil Code; and that the
promissory note and real estate mortgage were contracts of adhesion which
should be interpreted in favor of private respondents.
PNB appealed. However, the Court of Appeals affirmed the trial court's
decision. The appellate court held that the escalation clause in the promissory
note could not be given effect because of the absence of a provision for a de-
escalation in the event a reduction of interest was ordered by law. In addition
it held that pursuant to the escalation clause any increase in interest must be
within "the limits allowed by law" but C.B. circulars, on the basis of which
PNB increased the interest, could not be considered "laws."
PNB moved for a reconsideration. As its motion was denied, it filed this
petition. PNB's argument is that the Court of Appeals erred in applying 2 of
P.D. No. 1684, which makes the validity of an escalation clause turn on the
presence of a de-escalation clause, to the promissory note and the real estate
mortgage in this case. PNB contends that the two had been executed on June
4, 1979, before the effectivity of P.D. No. 1684 on March 17, 1980.
To begin with, PNB's argument rests on a misapprehension of the import of
the appellate court's ruling. The Court of Appeals nullified the interest rate
increases not because the promissory note did not comply with P.D. No. 1684
by providing for a de-escalation, but because the absence of such provision
made the clause so one-sided as to make it unreasonable.
That ruling is correct. It is in line with our decision in Banco Filipino Savings
& Mortgage Bank v. Navarro[16] that although P.D. 1684 is not to be
retroactively applied to loans granted before its effectivity, there must
nevertheless be a de-escalation clause to mitigate the one-sideness of the
escalation clause. Indeed because of concern for the unequal status of
borrowers vis-a-vis the banks, our cases after Banco Filipino have fashioned
the rule that any increase in the rate of interest made pursuant to an escalation
clause must be the result of agreement between the parties.
Thus in Philippine national Bank v. Court of Appeals,[17] two promissory
notes authorized PNB to increase the stipulated interest per annum within the
limits allowed by law at any time depending on whatever policy [PNB] may
adopt in the future; Provided, that the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest
rate is reduced by law or by the Monetary Board." The real estate mortgage
likewise provided:
The rate of interest charged on the obligation secured by this mortgage as well
as the interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provisions hereof, shall be subject
during the life of this contract to such an increase within the rate allowed by
law, as the Board of Directors of the MORTGAGEE may prescribe for its
debtors.
Pursuant to these clauses, PNB successively increased the interest from 18%
to 32%, then to 41% and then to 48%. This Court declared the increases
unilaterally imposed by PNB to be in violation of the principle of mutuality as
embodied in Art. 1308 of the Civil Code, which provides that "[t]he contract
must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them." As the Court explained:[18]
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on their

essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA
555). Hence, even assuming that the P1.8 million loan agreement between the
PNB and the private respondent gave the PNB a license (although in fact there
was none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do not bargain
on equal footing, the weaker party's (the debtor) participation being reduced to
the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance
Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse and imposition.
A similar ruling was made in Philippine National Bank v. Court of
Appeals.[19] The credit agreement in that case provided:
The BANK reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in the
future: Provided, that the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest
is reduced by law or by the Monetary Board . . . .
As in the first case, PNB successively increased the stipulated interest so that
what was originally 12% per annum became, after only two years, 42%. In
declaring the increases invalid, we held:[20]
We cannot countenance petitioner bank's posturing that the escalation clause
at bench gives it unbridled right to unilaterally upwardly adjust the interest on
private respondents' loan. That would completelytake away from private
respondents the right to assent to an important modification in their
agreement, and would negate the element of mutuality in contracts.
Only recently we invalidated another round of interest increases decreed by
PNB pursuant to a similar agreement it had with other borrowers:[21]
[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular
905, nothing in the said circular could possibly be read as granting respondent
bank carte blanche authority to raise interest rates to levels which would
either enslave its borrowers or lead to a hemorrhaging of their assets.
In this case no attempt was made by PNB to secure the conformity of private
respondents to the successive increases in the interest rate. Private
respondents' assent to the increases can not be implied from their lack of
response to the letters sent by PNB, informing them of the increases. For as
stated in one case,[22] no one receiving a proposal to change a contract is
obliged to answer the proposal.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 171545 December 19, 2007
EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL
APAS, Petitioners,
vs.
NG SHEUNG NGOR** doing business under the name and style "KEN
MARKETING," KEN APPLIANCE DIVISION, INC. and BENJAMIN
E. GO, Respondents.
DECISION
CORONA, J.:
This petition for review on certiorari1 seeks to set aside the decision2 of the
Court of Appeals (CA) in CA-G.R. SP No. 83112 and its resolution3 denying
reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,4 Ken Appliance Division,
Inc. and Benjamin E. Go filed an action for annulment and/or reformation of
documents and contracts5 against petitioner Equitable PCI Bank (Equitable)
and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial
Court (RTC), Branch 16 of Cebu City.6 They claimed that Equitable induced
them to avail of its peso and dollar credit facilities by offering low interest
rates7 so they accepted Equitable's proposal and signed the bank's pre-printed
promissory notes on various dates beginning 1996. They, however, were
unaware that the documents contained identical escalation clauses granting
Equitable authority to increase interest rates without their consent.8
Equitable, in its answer, asserted that respondents knowingly accepted all the
terms and conditions contained in the promissory notes.9 In fact, they
continuously availed of and benefited from Equitable's credit facilities for five
years.10
After trial, the RTC upheld the validity of the promissory notes. It found that,
in 2001 alone, Equitable restructured respondents' loans amounting to
US$228,200 and ₱1,000,000.11 The trial court, however, invalidated the
escalation clause contained therein because it violated the principle of
mutuality of contracts.12 Nevertheless, it took judicial notice of the steep
depreciation of the peso during the intervening period 13 and declared the
existence of extraordinary deflation.14 Consequently, the RTC ordered the use
29
of the 1996 dollar exchange rate in computing respondents' dollar-
denominated loans.15 Lastly, because the business reputation of
respondents was (allegedly) severely damaged when Equitable froze their
accounts,16 the trial court awarded moral and exemplary damages to them.17
The dispositive portion of the February 5, 2004 RTC decision18 provided:
WHEREFORE, premises considered, judgment is hereby rendered:
A) Ordering [Equitable] to reinstate and return the amount of [respondents']
deposit placed on hold status;
B) Ordering [Equitable] to pay [respondents] the sum of ₱12 [m]illion [p]esos
as moral damages;
C) Ordering [Equitable] to pay [respondents] the sum of ₱10 [m]illion [p]esos
as exemplary damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay
[respondents], jointly and severally, the sum of [t]wo [m]illion [p]esos as
moral and exemplary damages;
E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and
severally, to pay [respondents'] attorney's fees in the sum of ₱300,000;
litigation expenses in the sum of ₱50,000 and the cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable]
the unpaid principal obligation for the peso loan as well as the unpaid
obligation for the dollar denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable]
interest as follows:
1) 12% per annum for the peso loans;
2) 8% per annum for the dollar loans. The basis for the payment of the dollar
obligation is the conversion rate of P26.50 per dollar availed of at the time of
incurring of the obligation in accordance with Article 1250 of the Civil Code
of the Philippines;
H) Dismissing [Equitable's] counterclaim except the payment of the
aforestated unpaid principal loan obligations and interest.
SO ORDERED.19
Equitable and respondents filed their respective notices of appeal. 20
In the March 1, 2004 order of the RTC, both notices were denied due course
because Equitable and respondents "failed to submit proof that they paid their
respective appeal fees."21
WHEREFORE, premises considered, the appeal interposed by defendants
from the Decision in the above-entitled case is DENIED due course. As of
February 27, 2004, the Decision dated February 5, 2004, is considered
final and executory in so far as [Equitable, Aimee Yu and Bejan Lionel
Apas] are concerned.22 (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the
RTC23 on the ground that it did in fact pay the appeal fees. Respondents, on
the other hand, prayed for the issuance of a writ of execution. 24
On March 24, 2004, the RTC issued an omnibus order denying Equitable's
motion for reconsideration for lack of merit25 and ordered the issuance of a
writ of execution in favor of respondents.26 According to the RTC, because
respondents did not move for the reconsideration of the previous order
(denying due course to the parties’ notices of appeal), 27 the February 5, 2004
decision became final and executory as to both parties and a writ of execution
against Equitable was in order.28
A writ of execution was thereafter issued29 and three real properties of
Equitable were levied upon.30
On March 26, 2004, Equitable filed a petition for relief in the RTC from the
March 1, 2004 order.31 It, however, withdrew that petition on March 30,
200432 and instead filed a petition for certiorari with an application for an
injunction in the CA to enjoin the implementation and execution of the March
24, 2004 omnibus order.33
On June 16, 2004, the CA granted Equitable's application for injunction. A
writ of preliminary injunction was correspondingly issued.34
Notwithstanding the writ of injunction, the properties of Equitable previously
levied upon were sold in a public auction on July 1, 2004. Respondents were
the highest bidders and certificates of sale were issued to them.35
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale
and to cite the sheriffs who conducted the sale in contempt for proceeding
with the auction despite the injunction order of the CA.36
On October 28, 2005, the CA dismissed the petition for certiorari.37 It found
Equitable guilty of forum shopping because the bank filed its petition for
certiorari in the CA several hours before withdrawing its petition for relief in
the RTC.38 Moreover, Equitable failed to disclose, both in the statement of
material dates and certificate of non-forum shopping (attached to its petition
for certiorari in the CA), that it had a pending petition for relief in the RTC.39
Equitable moved for reconsideration40 but it was denied.41 Thus, this petition.
Equitable asserts that it was not guilty of forum shopping because the petition
for relief was withdrawn on the same day the petition for certiorari was
filed.42 It likewise avers that its petition for certiorari was meritorious because

the RTC committed grave abuse of discretion in issuing the March 24, 2004
omnibus order which was based on an erroneous assumption. The March 1,
2004 order denying its notice of appeal for non payment of appeal fees was
erroneous because it had in fact paid the required fees. 43 Thus, the RTC, by
issuing its March 24, 2004 omnibus order, effectively prevented Equitable
from appealing the patently wrong February 5, 2004 decision.44
This petition is meritorious.
Equitable Was Not Guilty Of Forum shopping
Forum shopping exists when two or more actions involving the same
transactions, essential facts and circumstances are filed and those actions raise
identical issues, subject matter and causes of action.45 The test is whether, in
two or more pending cases, there is identity of parties, rights or causes of
actions and reliefs.46
Equitable's petition for relief in the RTC and its petition for certiorari in the
CA did not have identical causes of action. The petition for relief from the
denial of its notice of appeal was based on the RTC’s judgment or final order
preventing it from taking an appeal by "fraud, accident, mistake or excusable
negligence."47 On the other hand, its petition for certiorari in the CA, a special
civil action, sought to correct the grave abuse of discretion amounting to lack
of jurisdiction committed by the RTC.48
In a petition for relief, the judgment or final order is rendered by a court with
competent jurisdiction. In a petition for certiorari, the order is rendered by a
court without or in excess of its jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum
shopping when it moved to withdraw its petition for relief in the RTC on the
same day (in fact just four hours and forty minutes after) it filed the petition
for certiorari in the CA. Even if Equitable failed to disclose that it had a
pending petition for relief in the RTC, it rectified what was doubtlessly a
careless oversight by withdrawing the petition for relief just a few hours after
it filed its petition for certiorari in the CA ― a clear indication that it had no
intention of maintaining the two actions at the same time.
The Trial Court Committed Grave Abuse of Discretion In Issuing Its
March 1, 2004 and March 24, 2004 Orders
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board or officer
exercising judicial or quasi-judicial function has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, nor
any plain, speedy or adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer, and
granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment,
order or resolution subject thereof, copies of all pleadings and documents
relevant and pertinent thereto, and a sworn certificate of non-forum shopping
as provided in the third paragraph of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari. These are:
1. that the tribunal, board or officer exercising judicial or quasi-judicial
functions acted without or in excess of his or its jurisdiction or with grave
abuse of discretion amounting to lack or excess of jurisdiction; and
2. that there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper,
petitioner must show that the public respondent patently and grossly abused
his discretion and that abuse amounted to an evasion of positive duty or a
virtual refusal to perform a duty enjoined by law or to act at all in
contemplation of law, as where the power was exercised in an arbitrary and
despotic manner by reason of passion or hostility.49
The March 1, 2004 order denied due course to the notices of appeal of both
Equitable and respondents. However, it declared that the February 5, 2004
decision was final and executory only with respect to Equitable. 50 As
expected, the March 24, 2004 omnibus order denied Equitable's motion for
reconsideration and granted respondents' motion for the issuance of a writ of
execution.51
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously
intended to prevent Equitable, et al. from appealing the February 5, 2004
decision. Not only that. The execution of the decision was undertaken with
indecent haste, effectively obviating or defeating Equitable's right to avail of
possible legal remedies. No matter how we look at it, the RTC committed
grave abuse of discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in
the ordinary course of law, we hold that there was none. The RTC denied due
course to its notice of appeal in the March 1, 2004 order. It affirmed that
30
denial in the March 24, 2004 omnibus order. Hence, there was no way
Equitable could have possibly appealed the February 5, 2004 decision. 52
Although Equitable filed a petition for relief from the March 24, 2004 order,
that petition was not a plain, speedy and adequate remedy in the ordinary
course of law.53 A petition for relief under Rule 38 is an equitable remedy
allowed only in exceptional circumstances or where there is no other available
or adequate remedy.54
Thus, we grant Equitable's petition for certiorari and consequently give due
course to its appeal.
Equitable Raised Pure Questions of Law in Its Petition For Review
The jurisdiction of this Court in Rule 45 petitions is limited to questions of
law.55 There is a question of law "when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of facts; or when
the issue does not call for the probative value of the evidence presented, the
truth or falsehood of facts being admitted."56
Equitable does not assail the factual findings of the trial court. Its arguments
essentially focus on the nullity of the RTC’s February 5, 2004 decision.
Equitable points out that that decision was patently erroneous, specially the
exorbitant award of damages, as it was inconsistent with existing law and
jurisprudence.57
The Promissory Notes Were Valid
The RTC upheld the validity of the promissory notes despite respondents’
assertion that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party.58 The participation of the other party is limited to
affixing his signature or his "adhesion" to the contract.59 For this reason,
contracts of adhesion are strictly construed against the party who drafted it.60
It is erroneous, however, to conclude that contracts of adhesion are invalid per
se. They are, on the contrary, as binding as ordinary contracts. A party is in
reality free to accept or reject it. A contract of adhesion becomes void only
when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal
footing.61
That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would
have walked out and negotiated with another bank at the first available
instance. But they did not. Instead, they continuously availed of Equitable's
credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar-
and peso-denominated loans with Equitable, it, however, failed to ascertain
the total amount due (principal, interest and penalties, if any) as of July 9,
2001. The trial court did not explain how it arrived at the amounts of
US$228,200 and ₱1,000,000.62 In Metro Manila Transit Corporation v. D.M.
Consunji,63 we reiterated that this Court is not a trier of facts and it shall pass
upon them only for compelling reasons which unfortunately are not present in
this case.64 Hence, we ordered the partial remand of the case for the sole
purpose of determining the amount of actual damages.65
Escalation Clause Violated The Principle Of Mutuality Of Contracts
Escalation clauses are not void per se. However, one "which grants the
creditor an unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important
modification in the agreement" is void. Clauses of that nature violate the
principle of mutuality of contracts.66 Article 130867 of the Civil Code holds
that a contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.68
For this reason, we have consistently held that a valid escalation clause
provides:
1. that the rate of interest will only be increased if the applicable maximum
rate of interest is increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the Monetary Board (de-
escalation clause).69
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent extensions
shall be at such rate as shall be determined by the bank. 70
Equitable dictated the interest rates if the term (or period for repayment) of the
loan was extended. Respondents had no choice but to accept them. This was a
violation of Article 1308 of the Civil Code. Furthermore, the assailed
escalation clause did not contain the necessary provisions for validity, that is,
it neither provided that the rate of interest would be increased only if allowed
by law or the Monetary Board, nor allowed de-escalation. For these reasons,
the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v.
Philippine National Bank71 we held that, because the escalation clause was
annulled, the principal amount of the loan was subject to the original or
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stipulated rate of interest. Upon maturity, the amount due was subject to legal jurisdiction. All proceedings undertaken pursuant thereto are likewise
interest at the rate of 12% per annum.72 declared null and void.
Consequently, respondents should pay Equitable the interest rates of 12.66% The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City
p.a. for their dollar-denominated loans and 20% p.a. for their peso- in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of
denominated loans from January 10, 2001 to July 9, 2001. Thereafter, petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore
Equitable was entitled to legal interest of 12% p.a. on all amounts due. given due course.1avvphi1
There Was No Extraordinary Deflation The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu
Extraordinary inflation exists when there is an unusual decrease in the City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New
purchasing power of currency (that is, beyond the common fluctuation in the judgment is hereby entered:
value of currency) and such decrease could not be reasonably foreseen or was 1. ordering respondents Ng Sheung Ngor, doing business under the name and
manifestly beyond the contemplation of the parties at the time of the style of "Ken Marketing," Ken Appliance Division, Inc. and Benjamin E. Go
obligation. Extraordinary deflation, on the other hand, involves an inverse to pay petitioner Equitable PCI Bank the principal amount of their dollar- and
situation.73 peso-denominated loans;
Article 1250 of the Civil Code provides: 2. ordering respondents Ng Sheung Ngor, doing business under the name and
Article 1250. In case an extraordinary inflation or deflation of the currency style of "Ken Marketing," Ken Appliance Division, Inc. and Benjamin E. Go
stipulated should intervene, the value of the currency at the time of the to pay petitioner Equitable PCI Bank interest at:
establishment of the obligation shall be the basis of payment, unless there is a) 12.66% p.a. with respect to their dollar-denominated loans from January
an agreement to the contrary. 10, 2001 to July 9, 2001;
For extraordinary inflation (or deflation) to affect an obligation, the following b) 20% p.a. with respect to their peso-denominated loans from January 10,
requisites must be proven: 2001 to July 9, 2001;91
1. that there was an official declaration of extraordinary inflation or deflation c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,92 the
from the Bangko Sentral ng Pilipinas (BSP);74 total amount due on July 9, 2001 shall earn legal interest at 12% p.a. from the
2. that the obligation was contractual in nature;75 and time petitioner Equitable PCI Bank demanded payment, whether judicially or
3. that the parties expressly agreed to consider the effects of the extraordinary extra-judicially; and
inflation or deflation.76 d) after this Decision becomes final and executory, the applicable rate shall be
Despite the devaluation of the peso, the BSP never declared a situation of 12% p.a. until full satisfaction;
extraordinary inflation. Moreover, although the obligation in this instance 3. all other claims and counterclaims are dismissed.
arose out of a contract, the parties did not agree to recognize the effects of As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall
extraordinary inflation (or deflation).77 The RTC never mentioned that there compute the exact amounts due on the respective dollar-denominated and
was a such stipulation either in the promissory note or loan agreement. peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor,
Therefore, respondents should pay their dollar-denominated loans at the doing business under the name and style of "Ken Marketing," Ken Appliance
exchange rate fixed by the BSP on the date of maturity. 78 Division and Benjamin E. Go.
The Award Of Moral And Exemplary Damages Lacked Basis SO ORDERED.
Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered, not to impose a penalty to the
wrongdoer.79 To be entitled to moral damages, a claimant must prove:
1. That he or she suffered besmirched reputation, or physical, mental or
psychological suffering sustained by the claimant;
2. That the defendant committed a wrongful act or omission;
3. That the wrongful act or omission was the proximate cause of the damages
the claimant sustained;
4. The case is predicated on any of the instances expressed or envisioned by
Article 221980 and 222081 . 82
In culpa contractual or breach of contract, moral damages are recoverable
only if the defendant acted fraudulently or in bad faith or in wanton disregard
of his contractual obligations.83 The breach must be wanton, reckless,
malicious or in bad faith, and oppressive or abusive.84
The RTC found that respondents did not pay Equitable the interest due on
February 9, 2001 (or any month thereafter prior to the maturity of the
loan)85 or the amount due (principal plus interest) due on July 9,
2001.86Consequently, Equitable applied respondents' deposits to their loans
upon maturity.
The relationship between a bank and its depositor is that of creditor and
debtor.87 For this reason, a bank has the right to set-off the deposits in its
hands for the payment of a depositor's indebtedness.88
Respondents indeed defaulted on their obligation. For this reason, Equitable
had the option to exercise its legal right to set-off or compensation. However,
the RTC mistakenly (or, as it now appears, deliberately) concluded that
Equitable acted "fraudulently or in bad faith or in wanton disregard" of its
contractual obligations despite the absence of proof. The undeniable fact was
that, whatever damage respondents sustained was purely the consequence of
their failure to pay their loans. There was therefore absolutely no basis for
the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents
were not entitled to moral damages, neither should they be awarded
exemplary damages.89 And if respondents were not entitled to moral and
exemplary damages, neither could they be awarded attorney's fees and
litigation expenses.90
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court
of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET
ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16,
Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being
rendered with grave abuse of discretion amounting to lack or excess of