Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 173654-765 August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
TERESITA PUIG and ROMEO PORRAS, respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines,
represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9
June 2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112
cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioner’s Motion for
Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112
cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and
Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases
No. 05-3054 to 05-3165.

The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the amounts, date and
time of commission, to wit:

INFORMATION

That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and
within the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping
one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank and with
intent of gain, did then and there willfully, unlawfully and feloniously take, steal and carry away the sum of
FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and prejudice of the said bank
in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would have
necessitated the issuance of a warrant of arrest based on the following grounds:

(1) the element of ‘taking without the consent of the owners’ was missing on the ground that it is the
depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the money
allegedly taken by respondents and hence, are the real parties-in-interest; and

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the
respondents and the offended party that would have created a high degree of confidence between them
which the respondents could have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative of
the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal
prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation against him.
Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January
2006 and refused to issue a warrant of arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was issued by the RTC, finding as follows:

Accordingly, the prosecution’s Motion for Reconsideration should be, as it hereby, DENIED. The Order dated
January 30, 2006 STANDS in all respects.

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of:

WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE
ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING
CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June
2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto, Article 1953 of the
same Code provides that "a person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits that the
depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of the
money deposited by its clients, making the money taken by respondents as belonging to the bank.

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that a
perusal of the Informations will show that they specifically allege that the respondents were the Cashier and Bookkeeper
of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave abuse of
confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review
on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance of a warrant of
arrest presupposes evaluation of facts and circumstances, which is not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party to
file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ.

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore,
because of this defect, there is no basis for the existence of probable cause which will justify the issuance of the warrant
of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft sufficiently state facts which
constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent to gain
and without the consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the
Information inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of grave
abuse of confidence and the element of taking without the consent of the owner, since the owner of the money is not the
Bank, but the depositors therein. He also cites People v. Koc Song,4 in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or
vigilance, between the respondents and the offended party that has created a high degree of confidence between
them, which the respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the
insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense charged.
This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of discussion.

Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:
 ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next higher by two degrees than
those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse
of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken
from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of
fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance.
(Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another’s property without
violence or intimidation against persons or force upon things. The elements of the crime under this Article are:

1. Intent to gain;

2. Unlawful taking;

3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:

1. Taking of personal property;

2. That the said property belongs to another;

3. That the said taking be done with intent to gain;

4. That it be done without the owner’s consent;

5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;

6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information
must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the
qualifying and aggravating circumstances must be stated in ordinary and concise language and not necessarily in
the language used in the statute but in terms sufficient to enable a person of common understanding to know
what offense is being charged as well as its qualifying and aggravating circumstances and for the court to
pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions
complained of as constituting the offense. The test is whether it enables a person of common understanding to know the
charge against him, and the court to render judgment properly.5

The portion of the Information relevant to this discussion reads:

A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the
monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where
monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the
law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as
follows:
 Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of
the money deposits therein, and the duties being performed by its employees who have custody of the money or have
come into possession of it. The Court has consistently considered the allegations in the Information that such employees
acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as
owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we cite Roque
v. People,6where the accused teller was convicted for Qualified Theft based on this Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga,
Philippines and within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG
ROQUE, being then employed as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with
office address at Basa Air Base, Floridablanca, Pampanga, and as such was authorized and reposed with the
responsibility to receive and collect capital contributions from its member/contributors of said corporation, and
having collected and received in her capacity as teller of the BABSLA the sum of TEN THOUSAND PESOS
(P10,000.00), said accused, with intent of gain, with grave abuse of confidence and without the knowledge
and consent of said corporation, did then and there willfully, unlawfully and feloniously take, steal and carry
away the amount of P10,000.00, Philippine currency, by making it appear that a certain depositor by the name of
Antonio Salazar withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio Salazar did
not withdr[a]w the said amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount
of P10,000.00, Philippine currency.

In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the teller’s possession due to
the confidence reposed on the teller, the felony of qualified theft would be committed.7

Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified Theft based on the
Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates
inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously,
with intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the
following, to wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE

COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch
Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid amount
of P6,000,000.00, Philippine Currency.

That in the commission of the said offense, herein accused acted with grave abuse of confidence and
unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free access to
the place where the said amount of money was kept.

The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank (PCIB),
is Qualified Theft. Appellant could not have committed the crime had he not been holding the position of Luneta
Branch Operation Officer which gave him not only sole access to the bank vault xxx. The management of the
PCIB reposed its trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust
and confidence which he exploited to enrich himself to the damage and prejudice of PCIB x x x.9

From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession by the Bank.
The money in this case was in the possession of the defendant as receiving teller of the bank, and the possession of the
defendant was the possession of the Bank. The Court held therein that when the defendant, with grave abuse of
confidence, removed the money and appropriated it to his own use without the consent of the Bank, there was taking as
contemplated in the crime of Qualified Theft.11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that
the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of
the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a relation by
reason of dependence, guardianship or vigilance, between the respondents and the offended party that has
created a high degree of confidence between them, which respondents abused,"12 and without employing the word
"owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no
reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the
Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the
requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who are
entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy positions of
confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the crime of Qualified
Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia
Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant or the offended
party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if
there is an acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally
feasible, insofar as the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in
the case of an appeal, by the State only, through the OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by
certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and herein petitioner certainly raised a
question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of the
preliminary investigation conducted will show that, indeed, probable cause exists for the indictment of herein respondents.
Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only upon a finding of
probable cause after personally evaluating the resolution of the prosecutor and its supporting evidence. Soliven v.
Makasiar,15 as reiterated in Allado v. Driokno,16 explained that probable cause for the issuance of a warrant of arrest is
the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to believe that
an offense has been committed by the person sought to be arrested.17 The records reasonably indicate that the
respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve
the respondents from the pain of going through a trial once it is ascertained that no probable cause exists to form a
sufficient belief as to the guilt of the respondents, conversely, it is also equally imperative upon the judge to proceed with
the case upon a showing that there is a prima facie case against the respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30
January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET
ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO
PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No.
05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.

SO ORDERED.
 THIRD DIVISION

BPI FAMILY BANK, G.R. No. 123498

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

AMADO FRANCO and COURT OF APPEALS, Promulgated:

Respondents.
November 23, 2007

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate this
exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision[1] in CA-G.R.
CV No. 43424 which affirmed with modification the judgment[2] of the Regional Trial Court, Branch 55, Manila (Manila
RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by
respondent Amado Franco (Franco) in conspiracy with other individuals,[3] some of whom opened and maintained separate
accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with BPI-
FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also opened a time deposit account
with the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,[4] savings,[5] and time deposit,[6] with
BPI-FB. The current and savings accounts were respectively funded with an initial deposit of P500,000.00 each, while the
time deposit account had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of P2,000,000.00 used
to open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of Francos introduction of
Eladio Teves,[7] who was looking for a conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian, who
was then BPI-FB SFDMs Branch Manager. In turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00
debited by BPI-FB from FMICs time deposit account and credited to Tevestecos current account pursuant to an Authority
to Debit purportedly signed by FMICs officers.

It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged.[8] On September 4, 1989,
Antonio Ong,[9] upon being shown the Authority to Debit, personally declared his signature therein to be a forgery.
Unfortunately, Tevesteco had already effected several withdrawals from its current account (to which had been credited
the P80,000,000.00 covered by the forged Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00
paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMICs forgery claim, BPI-FB, thru
its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin[10] to debit Francos savings and current accounts
for the amounts remaining therein.[11] However, Francos time deposit account could not be debited due to the capacity
limitations of BPI-FBs computer.[12]

In the meantime, two checks[13] drawn by Franco against his BPI-FB current account were dishonored upon presentment for
payment, and stamped with a notation account under garnishment. Apparently, Francos current account was garnished by
virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996
(Makati Case), which had been filed by BPI-FB against Franco et al.,[14] to recover the P37,455,410.54 representing
Tevestecos total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Francos receipt
of notice that his accounts were under garnishment.[15] In fact, at the time the Notice of Garnishment dated September 27,
1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-4996,
that Franco was impleaded in the Makati case.[16] Immediately, upon receipt of such copy, Franco filed a Motion to
Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of Attachment was
served on BPI-FB on even date, with Franco demanding the release to him of the funds in his savings and current accounts.
Jesus Arangorin, BPI-FBs new manager, could not forthwith comply with the demand as the funds, as previously stated,
had already been debited because of FMICs forgery claim. As such, BPI-FBs computer at the SFDM Branch indicated that
the current account record was not on file.

With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian,
whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoits savings account, subject
to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his visa application
at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of Quiaoits savings account passbook to
ensure that no withdrawal would be effected therefrom, and to preserve Francos deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00 from the
remaining balance of the time deposit account representing advance interest paid to him.

These transactions spawned a number of cases, some of which we had already resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its account.[17] The
case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,[18] we
upheld the finding of the courts below that BPI-FB failed to exercise the degree of diligence required by the nature of its
obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the
debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29,
1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),[19] recipients of
a P500,000.00 check proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals[20] from their current account
with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise, when the case was elevated to this Court docketed
as BPI Family Bank v. Buenaventura,[21] we ruled that BPI-FB had no right to freeze Buenaventura, et al.s accounts and
adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-million
peso scam.[22] In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was still at
large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised Penal
Code.[23] However, the civil case[24] remains under litigation and the respective rights and liabilities of the parties have yet
to be adjudicated.

Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and release his deposits therein,
the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the following
reliefs: (1) the interest on the remaining balance[25] of his current account which was eventually released to him on October
31, 1991; (2) the balance[26] on his savings account, plus interest thereon; (3) the advance interest[27] paid to him which had
been deducted when he pre-terminated his time deposit account; and (4) the payment of actual, moral and exemplary
damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his
deposits, claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently
withdrawn from it by Tevesteco and ending up in Francos accounts. BPI-FB asseverated that the claimed consideration
of P2,000,000.00 for the introduction facilitated by Franco between George Daantos and Eladio Teves, on the one hand,
and Jaime Sebastian, on the other, spoke volumes of Francos participation in the fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-
FB], ordering the latter to pay to the former the following sums:

1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18, 1990 to October
31, 1991;

2. P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990, together with the
interest thereon in accordance with the banks guidelines on the payment therefor;

3. P30,000.00 by way of attorneys fees; and

4. P10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

 SO ORDERED.[28]

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to the
Manila RTCs denial of his claim for moral and exemplary damages, and the diminutive award of attorneys fees. In affirming
with modification the lower courts decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering
[BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from the time deposit of plaintiff-
appellant. P200,000.00 as moral damages and P100,000.00 as exemplary damages, deleting the award of
nominal damages (in view of the award of moral and exemplary damages) and increasing the award of attorneys
fees from P30,000.00 to P75,000.00.

Cost against [BPI-FB].

SO ORDERED.[29]

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the
subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his current
account; (3) Franco can recover the P400,000.00 deposit in Quiaoits savings account; (4) the dishonor of Francos checks
was not legally in order; (5) BPI-FB is liable for interest on Francos time deposit, and for moral and exemplary damages;
and (6) BPI-FBs counter-claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Francos accounts
and preclude him from withdrawing his deposits. However, contrary to the appellate courts ruling, we hold that Franco is
not entitled to unearned interest on the time deposit as well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that the legal consequence
of FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and considering that it was able
to recover possession of the same when the money was redeposited by Franco, it had the right to set up its ownership thereon
and freeze Francos accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it is stolen,
and to illustrate this point, BPI-FB gives the following example: where Xs television set is stolen by Y who thereafter sells
it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would have the right to keep possession
of the property and preclude Z from recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the
Civil Code, which provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless,
one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in
possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.
BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code pertains to
a specific or determinate thing.[30] A determinate or specific thing is one that is individualized and can be identified or
distinguished from others of the same kind.[31]

In this case, the deposit in Francos accounts consists of money which, albeit characterized as a movable, is generic
and fungible.[32] The quality of being fungible depends upon the possibility of the property, because of its nature or the will
of the parties, being substituted by others of the same kind, not having a distinct individuality.[33]

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to
recover the exact same thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount of
money, i.e., the value thereof, which it had mistakenly debited from FMICs account and credited to Tevestecos, and
subsequently traced to Francos account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It
staked its claim on the money itself which passed from one account to another, commencing with the forged Authority to
Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership,[34] and this characteristic is all the more
manifest in the instant case which involves money in a banking transaction gone awry. Its primary function is to pass from
hand to hand as a medium of exchange, without other evidence of its title.[35] Money, which had passed through various
transactions in the general course of banking business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FBs illustrative example,
ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence
of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently forgets that the deposit of money
in banks is governed by the Civil Code provisions on simple loan or mutuum.[36] As there is a debtor-creditor relationship
between a bank and its depositor, BPI-FB ultimately acquired ownership of Francos deposits, but such ownership is coupled
with a corresponding obligation to pay him an equal amount on demand.[37] Although BPI-FB owns the deposits in Francos
accounts, it cannot prevent him from demanding payment of BPI-FBs obligation by drawing checks against his current
account, or asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against his
current account, he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere
suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant
BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived
from shady transactions, would open the floodgates of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals[38] continues to resonate, thus:
 The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have become an ubiquitous presence
among the people, who have come to regard them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has not hesitated to entrust his lifes savings to the bank of
his choice, knowing that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever directs. A blunder on the part of the bank, such as the dishonor of
the check without good reason, can cause the depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind
the fiduciary nature of their relationship. x x x.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers.
Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco
transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued by Tevesteco, or prevent
withdrawals from their respective accounts without the appropriate court writ or a favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority
to Debit, effected the transfer of P80,000,000.00 from FMICs to Tevestecos account, when FMICs account was a time
deposit and it had already paid advance interest to FMIC. Considering that there is as yet no indubitable evidence
establishing Francos participation in the forgery, he remains an innocent party. As between him and BPI-FB, the latter,
which made possible the present predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Francos current account, BPI-FB argues that its non-compliance
with the Makati RTCs Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that ought to
be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The Manila
RTCs order to pay interests on Francos current account arose from BPI-FBs unjustified refusal to comply with its obligation
to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB refused Francos demand for the
release of the deposits in his current account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue
thereon.[39]

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FBs non-
compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC
from ruling on BPI-FBs liability to Franco for payment of interest based on its continued and unjustified refusal to perform
a contractual obligation upon demand. After all, this was the core issue raised by Franco in his complaint before the Manila
RTC.

Third. As to the award to Franco of the deposits in Quiaoits account, we find no reason to depart from the factual
findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by Franco
who simply accommodated Jaime Sebastians request to temporarily transfer P400,000.00 from Francos savings account to
Quiaoits account.[40] His testimony cannot be characterized as hearsay as the records reveal that he had personal knowledge
of the arrangement made between Franco, Sebastian and himself.[41]

BPI-FB makes capital of Francos belated allegation relative to this particular arrangement. It insists that the
transaction with Quiaoit was not specifically alleged in Francos complaint before the Manila RTC. However, it appears that
BPI-FB had impliedly consented to the trial of this issue given its extensive cross-examination of Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon motion
of any party at any time, even after judgment; but failure to amend does not affect the result of the
trial of these issues. If evidence is objected to at the trial on the ground that it is now within the issues
made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if
the presentation of the merits of the action and the ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the amendment to be made. (Emphasis supplied)

In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00 begs the issue. To
reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and pointed
to Franco as the actual owner thereof. Clearly, Francos action for the recovery of his deposits appropriately covers the
deposits in Quiaoits account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos checks respectively dated
September 11 and 18, 1989 was legally in order in view of the Makati RTCs supplemental writ of attachment issued
on September 14, 1989. It posits that as the party that applied for the writ of attachment before the Makati RTC, it need not
be served with the Notice of Garnishment before it could place Francos accounts under garnishment.

The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to circumvent Section
4,[42] Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers upon the parties
affected is designed to comply with the elementary requisites of due process. Franco was entitled, as a matter of right, to
notice, if the requirements of due process are to be observed. Yet, he received a copy of the Notice of Garnishment only
on September 27, 1989, several days after the two checks he issued were dishonored by BPI-FB on September 20 and 21,
1989. Verily, it was premature for BPI-FB to freeze Francos accounts without even awaiting service of the Makati RTCs
Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including in
the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically
provides that no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or
contemporaneously accompanied, by service of summons, together with a copy of the complaint, the application for
attachment, on the defendant within the Philippines.

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction over the
person of Franco when BPI-FB garnished his accounts.[43] Effectively, therefore, the Makati RTC had no authority yet to
bind the deposits of Franco through the writ of attachment, and consequently, there was no legal basis for BPI-FB to dishonor
the checks issued by Franco.

Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from
Francos time deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the ruling of the
trial court, and allow only the recovery of nominal damages in the amount of P10,000.00. However, we retain the CAs
award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account and for moral and exemplary damages, the CA attributed
bad faith to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly claimed that Francos
deposits were under garnishment; (3) misrepresented that Francos current account was not on file; and (4) refused to return
the P400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith
is liable shall be those that are the natural and probable consequences of the breach of the obligation, and
which the parties have foreseen or could have reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill
will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all damages
now being imputed to it for its breach of obligation. For the same reason, it is not liable for the unearned interest on the time
deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it partakes of the nature of fraud.[44] We have held that it is a breach of a known duty through
some motive of interest or ill will.[45] In the instant case, we cannot attribute to BPI-FB fraud or even a motive of self-
enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the existence of the accounts. The
computer-generated document which indicated that the current account was not on file resulted from the prior debit by BPI-
FB of the deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor any
transaction thereon was resorted to solely for the purpose of holding on to the funds as a security for its intended court
action,[46] and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith,[47] moral damages cannot be awarded; and that the
adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone
is not a ground for granting such damages.[48]
An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury clearly
sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant;
and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code.[49]

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,[50] upon which to base
his claim for moral damages.

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil Code
for breach of contract.[51]

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or compensatory
damages before the court may even consider the question of whether exemplary damages should be awarded to him.[52] As
there is no basis for the award of moral damages, neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate,[53] we, however, find that Franco is entitled to
reasonable attorneys fees for having been compelled to go to court in order to assert his right. Thus, we affirm the CAs grant
of P75,000.00 as attorneys fees.

Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,[54] or when
the court deems it just and equitable.[55] In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the
Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering assertion that the P400,000.00 was part of
Francos savings account. This refusal constrained Franco to incur expenses and litigate for almost two (2) decades in order
to protect his interests and recover his deposits. Therefore, this Court deems it just and equitable to grant Franco P75,000.00
as attorneys fees. The award is reasonable in view of the complexity of the issues and the time it has taken for this case to
be resolved.[56]

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the CA, that BPI-
FB is not entitled to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is,
as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29,
1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of moral and
exemplary damages is DELETED.

No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 155223 April 4, 2007

BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner,

vs.
FLORA SAN DIEGO-SISON, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-in-fact,
Marie Regine F. Fujita (petitioner) seeking to annul the Decision1 dated June 18, 2002 and the Resolution2 dated
September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.

Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro
Manila, which she acquired from Island Masters Realty and Development Corporation (IMRDC) by virtue of a Deed
of Sale dated Nov. 16, 1990.3 The property is covered by TCT No. 168173 of the Register of Deeds of Makati in the
name of IMRDC.4

On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the
SECOND PARTY, entered into a Memorandum of Agreement5 over the property with the following terms:

NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (₱3,000,000.00) receipt of
which is hereby acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed as
follows:

1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract
within which to notify the FIRST PARTY of her intention to purchase the aforementioned parcel of land
together within (sic) the improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND
PESOS (₱6,400,000.00). Upon notice to the FIRST PARTY of the SECOND PARTY’s intention to purchase
the same, the latter has a period of another six months within which to pay the remaining balance of ₱3.4
million.

2. That prior to the six months period given to the SECOND PARTY within which to decide whether or not to
purchase the above-mentioned property, the FIRST PARTY may still offer the said property to other persons
who may be interested to buy the same provided that the amount of ₱3,000,000.00 given to the FIRST
PARTY BY THE SECOND PARTY shall be paid to the latter including interest based on prevailing
compounded bank interest plus the amount of the sale in excess of ₱7,000,000.00 should the property be
sold at a price more than ₱7 million.

3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this
contract, no interest shall be charged by the SECOND PARTY on the P3 million however, in the event that
on the sixth month the SECOND PARTY would decide not to purchase the aforementioned property, the
FIRST PARTY has a period of another six months within which to pay the sum of ₱3 million pesos provided
that the said amount shall earn compounded bank interest for the last six months only. Under this
circumstance, the amount of P3 million given by the SECOND PARTY shall be treated as [a] loan and the
property shall be considered as the security for the mortgage which can be enforced in accordance with law.

x x x x.6
Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check dated
February 28, 1990, instead of 1991, which rendered said check stale.7 Petitioner then gave respondent TCT No.
168173 in the name of IMRDC and the Deed of Absolute Sale over the property between petitioner and IMRDC.

Respondent decided not to purchase the property and notified petitioner through a letter8 dated March 20, 1991,
which petitioner received only on June 11, 1991,9 reminding petitioner of their agreement that the amount of two
million pesos which petitioner received from respondent should be considered as a loan payable within six months.
Petitioner subsequently failed to pay respondent the amount of two million pesos.

On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint10 for sum of money
with preliminary attachment against petitioner. The case was docketed as Civil Case No. 93-65367 and raffled to
Branch 30. Respondent alleged the foregoing facts and in addition thereto averred that petitioner tried to deprive her
of the security for the loan by making a false report11 of the loss of her owner’s copy of TCT No. 168173 to the Tagig
Police Station on June 3, 1991, executing an affidavit of loss and by filing a petition12 for the issuance of a new
owner’s duplicate copy of said title with the RTC of Makati, Branch 142; that the petition was granted in an
Order13dated August 31, 1991; that said Order was subsequently set aside in an Order dated April 10, 199214 where
the RTC Makati granted respondent’s petition for relief from judgment due to the fact that respondent is in
possession of the owner’s duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to
conduct an investigation of petitioner for perjury and false testimony. Respondent prayed for the ex-parte issuance
of a writ of preliminary attachment and payment of two million pesos with interest at 36% per annum from December
7, 1991, ₱100,000.00 moral, corrective and exemplary damages and ₱200,000.00 for attorney’s fees.

In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary attachment
upon the filing of a bond in the amount of two million pesos.15

Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement was conceived and arranged by
her lawyer, Atty. Carmelita Lozada, who is also respondent’s lawyer; that she was asked to sign the agreement
without being given the chance to read the same; that the title to the property and the Deed of Sale between her and
the IMRDC were entrusted to Atty. Lozada for safekeeping and were never turned over to respondent as there was
no consummated sale yet; that out of the two million pesos cash paid, Atty. Lozada took the one million pesos which
has not been returned, thus petitioner had filed a civil case against her; that she was never informed of respondent’s
decision not to purchase the property within the six month period fixed in the agreement; that when she demanded
the return of TCT No. 168173 and the Deed of Sale between her and the IMRDC from Atty. Lozada, the latter gave
her these documents in a brown envelope on May 5, 1991 which her secretary placed in her attache case; that the
envelope together with her other personal things were lost when her car was forcibly opened the following day; that
she sought the help of Atty. Lozada who advised her to secure a police report, to execute an affidavit of loss and to
get the services of another lawyer to file a petition for the issuance of an owner’s duplicate copy; that the petition for
the issuance of a new owner’s duplicate copy was filed on her behalf without her knowledge and neither did she
sign the petition nor testify in court as falsely claimed for she was abroad; that she was a victim of the manipulations
of Atty. Lozada and respondent as shown by the filing of criminal charges for perjury and false testimony against
her; that no interest could be due as there was no valid mortgage over the property as the principal obligation is
vitiated with fraud and deception. She prayed for the dismissal of the complaint, counter-claim for damages and
attorney’s fees.

Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,17 the dispositive portion of which
reads:

WHEREFORE, judgment is hereby RENDERED:

1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two
(32%) per cent per annum beginning December 7, 1991 until fully paid.

2) Ordering defendant to pay plaintiff the sum of ₱70,000.00 representing premiums paid by plaintiff on the
attachment bond with legal interest thereon counted from the date of this decision until fully paid.

3) Ordering defendant to pay plaintiff the sum of ₱100,000.00 by way of moral, corrective and exemplary
damages.
 4) Ordering defendant to pay plaintiff attorney’s fees of ₱100,000.00 plus cost of litigation.18

The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos with
compounded interest pursuant to their Memorandum of Agreement; that the fraudulent scheme employed by
petitioner to deprive respondent of her only security to her loaned money when petitioner executed an affidavit of
loss and instituted a petition for the issuance of an owner’s duplicate title knowing the same was in respondent’s
possession, entitled respondent to moral damages; and that petitioner’s bare denial cannot be accorded credence
because her testimony and that of her witness did not appear to be credible.

The RTC further found that petitioner admitted that she received from respondent the two million pesos in cash but
the fact that petitioner gave the one million pesos to Atty. Lozada was without respondent’s knowledge thus it is not
binding on respondent; that respondent had also proven that in 1993, she initially paid the sum of ₱30,000.00 as
premium for the issuance of the attachment bond, ₱20,000.00 for its renewal in 1994, and ₱20,000.00 for the
renewal in 1995, thus plaintiff should be reimbursed considering that she was compelled to go to court and ask for a
writ of preliminary attachment to protect her rights under the agreement.

Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC decision with
modification, the dispositive portion of which reads:

WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of interest
is reduced from 32% to 25% per annum, effective June 7, 1991 until fully paid.19

The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly as a
loan; respondent did not replace the mistakenly dated check of one million pesos because she had decided not to
buy the property and petitioner knew of her decision as early as April 1991; the award of moral damages was
warranted since even granting petitioner had no hand in the filing of the petition for the issuance of an owner’s copy,
she executed an affidavit of loss of TCT No. 168173 when she knew all along that said title was in respondent’s
possession; petitioner’s claim that she thought the title was lost when the brown envelope given to her by Atty.
Lozada was stolen from her car was hollow; that such deceitful conduct caused respondent serious anxiety and
emotional distress.

The CA concluded that there was no basis for petitioner to say that the interest should be charged for six months
only and no more; that a loan always bears interest otherwise it is not a loan; that interest should commence on
June 7, 199120 with compounded bank interest prevailing at the time the two million was considered as a loan which
was in June 1991; that the bank interest rate for loans secured by a real estate mortgage in 1991 ranged from 25%
to 32% per annum as certified to by Prudential Bank,21 that in fairness to petitioner, the rate to be charged should be
25% only.

Petitioner’s motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.

Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:

(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6)
MONTHS AS CONTAINED IN THE MEMORANDUM OF AGREEMENT.

(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.

(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION.22

Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per annum as
modified by the CA which should run from June 7, 1991 until fully paid, is contrary to the parties’ Memorandum of
Agreement; that the agreement provides that if respondent would decide not to purchase the property, petitioner has
the period of another six months to pay the loan with compounded bank interest for the last six months only; that the
CA’s ruling that a loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code
which provides that no interest shall be due unless it has been expressly stipulated in writing.
We are not persuaded.

While the CA’s conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a simple loan
may be gratuitous or with a stipulation to pay interest,23 we find no error committed by the CA in awarding a 25%
interest per annum on the two-million peso loan even beyond the second six months stipulated period.

The Memorandum of Agreement executed between the petitioner and respondent on December 7, 1990 is the law
between the parties. In resolving an issue based upon a contract, we must first examine the contract itself,
especially the provisions thereof which are relevant to the controversy.24 The general rule is that if the terms of an
agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its
stipulations shall prevail.25 It is further required that the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken jointly.26

In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. We
agree with and adopt the CA’s interpretation of the phrase in this wise:

Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-
appellee (respondent) to make up her mind whether or not to purchase defendant-appellant’s (petitioner's) property.
The second six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiff-
appellee decided not to buy the subject property in which case interest will be charged "for the last six months only",
referring to the second six-month period. This means that no interest will be charged for the first six-month period
while appellee was making up her mind whether to buy the property, but only for the second period of six months
after appellee had decided not to buy the property. This is the meaning of the phrase "for the last six months only".
Certainly, there is nothing in their agreement that suggests that interest will be charged for six months only even if it
takes defendant-appellant an eternity to pay the loan.27

The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e.,
referring to the second six-month period, does not mean that interest will no longer be charged after the second six-
month period since such stipulation was made on the logical and reasonable expectation that such amount would be
paid within the date stipulated. Considering that petitioner failed to pay the amount given which under the
Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six months continued to
accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum
due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal
amount.28 It has been held that for a debtor to continue in possession of the principal of the loan and to continue to
use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment
on the part of the debtor at the expense of the creditor.29

Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the
certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The
CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer
assailed.1awphi1.nét

In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum interest on a ₱142,326.43 loan.
In Garcia v. Court of Appeals,31 we sustained the agreement of the parties to a 24% per annum interest on an
₱8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the CA to a ₱2 million loan is fair and
reasonable.

Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent
scheme to deprive respondent of her security for the loan; that such finding is baseless since petitioner was
acquitted in the case for perjury and false testimony filed by respondent against her.

We are not persuaded.

Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter.32

While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her, those
actions are entirely distinct from the collection of sum of money with damages filed by respondent against petitioner.

We agree with the findings of the trial court and the CA that petitioner’s act of trying to deprive respondent of the
security of her loan by executing an affidavit of loss of the title and instituting a petition for the issuance of a new
owner’s duplicate copy of TCT No. 168173 entitles respondent to moral damages. Moral damages may be
1a\^/phi1.net

awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in bad faith. Bad
faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of wrong. It partakes of the nature of fraud.33

The Memorandum of Agreement provides that in the event that respondent opts not to buy the property, the money
given by respondent to petitioner shall be treated as a loan and the property shall be considered as the security for
the mortgage. It was testified to by respondent that after they executed the agreement on December 7, 1990,
petitioner gave her the owner’s copy of the title to the property, the Deed of Sale between petitioner and IMRDC, the
certificate of occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed of Sale.34 However,
notwithstanding that all those documents were in respondent’s possession, petitioner executed an affidavit of loss
that the owner’s copy of the title and the Deed of Sale were lost.

Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was of the belief
that since she had demanded from Atty. Lozada the return of the title, she thought that the brown envelope with
markings which Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of Sale as those
documents were in the same brown envelope which she gave to Atty. Lozada prior to the transaction with
respondent.35 Such statement remained a bare statement. It was not proven at all since Atty. Lozada had not taken
the stand to corroborate her claim. In fact, even petitioner’s own witness, Benilda Ynfante (Ynfante), was not able to
establish petitioner's claim that the title was returned by Atty. Lozada in view of Ynfante's testimony that after the
brown envelope was given to petitioner, the latter passed it on to her and she placed it in petitioner’s attaché
case36and did not bother to look at the envelope.37

It is clear therefrom that petitioner’s execution of the affidavit of loss became the basis of the filing of the petition with
the RTC for the issuance of new owner’s duplicate copy of TCT No. 168173. Petitioner’s actuation would have
deprived respondent of the security for her loan were it not for respondent’s timely filing of a petition for relief
whereby the RTC set aside its previous order granting the issuance of new title. Thus, the award of moral damages
is in order.

The entitlement to moral damages having been established, the award of exemplary damages is proper.38Exemplary
damages may be imposed upon petitioner by way of example or correction for the public good.39 The RTC awarded
the amount of ₱100,000.00 as moral and exemplary damages. While the award of moral and exemplary damages in
an aggregate amount may not be the usual way of awarding said damages,40 no error has been committed by CA.
There is no question that respondent is entitled to moral and exemplary damages.

Petitioner argues that the CA erred in awarding attorney’s fees because the trial court’s decision did not explain the
findings of facts and law to justify the award of attorney’s fees as the same was mentioned only in the dispositive
portion of the RTC decision.

We agree.

Article 220841 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it
must be reasonable, just and equitable if the same were to be granted.42 Attorney's fees as part of damages are not
meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right to litigate.43 The award of
attorney's fees is the exception rather than the general rule. As such, it is necessary for the trial court to make
findings of facts and law that would bring the case within the exception and justify the grant of such award. The
matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision.44 They must be clearly
explained and justified by the trial court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorney’s fees when the trial court failed to discuss in its Decision the
reasons for awarding the same. Consequently, the award of attorney's fees should be deleted.

WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated September
11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of
attorney’s fees is DELETED.

No pronouncement as to costs.

SO ORDERED.
 THIRD DIVISION

SEBASTIAN SIGA-AN, G.R. No. 173227

Petitioner,
Present:

YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
-versus CHICO-NAZARIO,
NACHURA, and
LEONARDO-DE CASTRO,* JJ.

Promulgated:
ALICIA VILLANUEVA,
Respondent.
January 20, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the
Decision,[2] dated 16 December 2005, and Resolution,[3] dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No.
71814, which affirmed in toto the Decision,[4]dated 26 January 2001, of the Las Pinas City Regional Trial Court, Branch 255,
in Civil Case No. LP-98-0068.

The facts gathered from the records are as follows:

On 30 March 1998, respondent Alicia Villanueva filed a complaint[5] for sum of money against petitioner Sebastian
Siga-an before the Las Pinas City Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-
0068. Respondent alleged that she was a businesswoman engaged in supplying office materials and equipments to the
Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military officer and comptroller
of the PNO from 1991 to 1996.

Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to loan her the
amount of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted petitioners
proposal. The loan agreement was not reduced in writing.Also, there was no stipulation as to the payment of interest for the
loan.[6]
 On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. On
31 October 1993, she issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance
of the loan. Petitioner told her that since she paid a total amount of P700,000.00 for the P540,000.00 worth of loan, the
excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied with the amount applied as interest,
petitioner pestered her to pay additional interest. Petitioner threatened to block or disapprove her transactions with the PNO
if she would not comply with his demand. As all her transactions with the PNO were subject to the approval of petitioner
as comptroller of the PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in the
PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests for the loan. She asked petitioner for
receipt for the payments but petitioner told her that it was not necessary as there was mutual trust and confidence between
them. According to her computation, the total amount she paid to petitioner for the loan and interest accumulated
to P1,200,000.00.[7]

Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite absence of
agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on the loan because there was
no agreement between her and petitioner regarding payment of interest. Since she paid petitioner a total amount
of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer that she made overpayment to
petitioner, she sent a demand letter to petitioner asking for the return of the excess amount of P660,000.00. Petitioner,
despite receipt of the demand letter, ignored her claim for reimbursement.[8]

Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1) P660,000.00 plus legal
interest from the time of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an
amount equivalent to 25% of P660,000.00 as attorneys fees.[9]

In his answer[10] to the complaint, petitioner denied that he offered a loan to respondent. He averred that in 1992,
respondent approached and asked him if he could grant her a loan, as she needed money to finance her business venture
with the PNO. At first, he was reluctant to deal with respondent, because the latter had a spotty record as a supplier of the
PNO. However, since respondent was an acquaintance of his officemate, he agreed to grant her a loan. Respondent paid the
loan in full.[11]

Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the previous loan
in full, he agreed to grant her another loan. Later, respondent requested him to restructure the payment of the loan because
she could not give full payment on the due date. He acceded to her request. Thereafter, respondent pleaded for another
restructuring of the payment of the loan. This time he rejected her plea. Thus, respondent proposed to execute a promissory
note wherein she would acknowledge her obligation to him, inclusive of interest, and that she would issue several postdated
checks to guarantee the payment of her obligation. Upon his approval of respondents request for restructuring of the loan,
respondent executed a promissory note dated 12 September 1994 wherein she admitted having borrowed an amount
of P1,240,000.00, inclusive of interest, from petitioner and that she would pay said amount in March 1995. Respondent also
issued to him six postdated checks amounting to P1,240,000.00 as guarantee of compliance with her obligation.
Subsequently, he presented the six checks for encashment but only one check was honored. He demanded that respondent
settle her obligation, but the latter failed to do so. Hence, he filed criminal cases for Violation of the Bouncing Checks Law
(Batas Pambansa Blg. 22) against respondent. The cases were assigned to the Metropolitan Trial Court of Makati City,
Branch 65 (MeTC).[12]

Petitioner insisted that there was no overpayment because respondent admitted in the latters promissory note that
her monetary obligation as of 12 September 1994 amounted to P1,240,000.00 inclusive of interests. He argued that
respondent was already estopped from complaining that she should not have paid any interest, because she was given several
times to settle her obligation but failed to do so. He maintained that to rule in favor of respondent is tantamount to concluding
that the loan was given interest-free. Based on the foregoing averments, he asked the RTC to dismiss respondents complaint.

After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an overpayment of her
loan obligation to petitioner and that the latter should refund the excess amount to the former. It ratiocinated that respondents
obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests due should not be included in
the computation of respondents total monetary debt because there was no agreement between them regarding payment of
interest. It concluded that since respondent made an excess payment to petitioner in the amount of P660,000.00 through
mistake, petitioner should return the said amount to respondent pursuant to the principle of solutio indebiti.[13]

The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should pay exemplary damages by way of example or correction for the
public good, plus attorneys fees and costs of suit.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law and
jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff and against the defendant as
follows:

(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal interest of 12% per
annum computed from 3 March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages;

(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary damages;

(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as attorneys fees;
and

(5) Ordering defendant to pay the costs of suit.[14]

 Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its Decision
affirming in toto the RTC Decision, thus:

WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the assailed
decision [is] AFFIRMED in toto.[15]

Petitioner filed a motion for reconsideration of the appellate courts decision but this was denied.[16] Hence, petitioner
lodged the instant petition before us assigning the following errors:
I.

THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO
PETITIONER;

II.

THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO
INDEBITI.[17]

Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary
interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory
interest.[18] The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the
principal loan on which interest is demanded.[19]

Article 1956 of the Civil Code, which refers to monetary interest,[20] specifically mandates that no interest shall be
due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law.[21]

It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there
convincing proof of written agreement between the two regarding the payment of interest. Respondent testified that although
she accepted petitioners offer of loan amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for
her to pay interest on the loan.[22]

Petitioner presented a handwritten promissory note dated 12 September 1994[23] wherein respondent purportedly
admitted owing petitioner capital and interest. Respondent, however, explained that it was petitioner who made a promissory
note and she was told to copy it in her own handwriting; that all her transactions with the PNO were subject to the approval
of petitioner as comptroller of the PNO; that petitioner threatened to disapprove her transactions with the PNO if she would
not pay interest; that being unaware of the law on interest and fearing that petitioner would make good of his threats if she
would not obey his instruction to copy the promissory note, she copied the promissory note in her own handwriting; and
that such was the same promissory note presented by petitioner as alleged proof of their written agreement on
interest.[24] Petitioner did not rebut the foregoing testimony. It is evident that respondent did not really consent to the
payment of interest for the loan and that she was merely tricked and coerced by petitioner to pay interest. Hence, it cannot
be gainfully said that such promissory note pertains to an express stipulation of interest or written agreement of interest on
the loan between petitioner and respondent.

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and respondent agreed on
the payment of 7% rate of interest on the loan; that the agreed 7% rate of interest was duly admitted by respondent in her
testimony in the Batas Pambansa Blg. 22 cases he filed against respondent; that despite such judicial admission by
respondent, the RTC and the Court of Appeals, citing Article 1956 of the Civil Code, still held that no interest was due him
since the agreement on interest was not reduced in writing; that the application of Article 1956 of the Civil Code should not
be absolute, and an exception to the application of such provision should be made when the borrower admits that a specific
rate of interest was agreed upon as in the present case; and that it would be unfair to allow respondent to pay only the loan
when the latter very well knew and even admitted in the Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of
interest on the loan.[25]

We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that petitioner
and respondent agreed on the payment of interest at the rate of 7% for the loan. The RTC clearly stated that although
petitioner and respondent entered into a valid oral contract of loan amounting to P540,000.00, they, nonetheless, never
intended the payment of interest thereon.[26] While the Court of Appeals mentioned in its Decision that it concurred in the
RTCs ruling that petitioner and respondent agreed on a certain rate of interest as regards the loan, we consider this as merely
an inadvertence because, as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner is not entitled to
the payment of interest on the loan. The rule is that factual findings of the trial court deserve great weight and respect
especially when affirmed by the appellate court.[27] We found no compelling reason to disturb the ruling of both courts.

Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22 cases that they had agreed on
the payment of interest at the rate of 7% deserves scant consideration. In the said case, respondent merely testified that after
paying the total amount of loan, petitioner ordered her to pay interest.[28] Respondent did not categorically declare in the
same case that she and respondent made an express stipulation in writing as regards payment of interest at the rate of 7%. As
earlier discussed, monetary interest is due only if there was an express stipulation in writing for the payment of interest.

There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written,
regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum
of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due
shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point.
 All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the
two instances apply only to compensatory interest and not to monetary interest. [29] The case at bar involves petitioners claim
for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that
respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no written
agreement as regards payment of interest.

Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply to the
instant case. Thus, he cannot be compelled to return the alleged excess amount paid by respondent as interest.[30]

Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation
therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code
explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor
relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the
return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return
the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly
at the expense of another.[31] The principle of solutio indebiti applies where (1) a payment is made when there exists no
binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment
is made through mistake, and not through liberality or some other cause.[32] We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue interest.[33]

It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such
payment because there was no express stipulation in writing to that effect. There was no binding relation between petitioner
and respondent as regards the payment of interest. The payment was clearly a mistake. Since petitioner received something
when there was no right to demand it, he has an obligation to return it.

We shall now determine the propriety of the monetary award and damages imposed by the RTC and the Court of
Appeals.

Records show that respondent received a loan amounting to P540,000.00 from petitioner.[34] Respondent issued two
checks with a total worth of P700,000.00 in favor of petitioner as payment of the loan.[35] These checks were subsequently
encashed by petitioner.[36] Obviously, there was an excess of P160,000.00 in the payment for the loan. Petitioner claims that
the excess of P160,000.00 serves as interest on the loan to which he was entitled. Aside from issuing the said two checks,
respondent also paid cash in the total amount of P175,000.00 to petitioner as interest.[37] Although no receipts reflecting the
same were presented because petitioner refused to issue such to respondent, petitioner, nonetheless, admitted in his Reply-
Affidavit[38] in the Batas Pambansa Blg. 22 cases that respondent paid him a total amount of P175,000.00 cash in addition
to the two checks. Section 26 Rule 130 of the Rules of Evidence provides that the declaration of a party as to a relevant fact
may be given in evidence against him. Aside from the amounts of P160,000.00 and P175,000.00 paid as interest, no other
proof of additional payment as interest was presented by respondent. Since we have previously found that petitioner is not
entitled to payment of interest and that the principle of solutio indebiti applies to the instant case, petitioner should return
to respondent the excess amount of P160,000.00 and P175,000.00 or the total amount of P335,000.00. Accordingly, the
reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be reduced from P660,000.00
to P335,000.00.

As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against
respondent. In the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for issuing five
dishonored checks to petitioner. Nonetheless, respondents conviction therein does not affect our ruling in the instant
case. The two checks, subject matter of this case, totaling P700,000.00 which respondent claimed as payment of
the P540,000.00 worth of loan, were not among the five checks found to be dishonored or bounced in the five criminal
cases. Further, the MeTC found that respondent made an overpayment of the loan by reason of the interest which the latter
paid to petitioner.[39]

Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury. Respondent testified that she experienced sleepless nights and wounded feelings when petitioner refused
to return the amount paid as interest despite her repeated demands. Hence, the award of moral damages is
justified. However, its corresponding amount of P300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant
and should be equitably reduced. Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion
of the court according to the circumstances of each case. This discretion is limited by the principle that the amount awarded
should not be palpably excessive as to indicate that it was the result of prejudice or corruption on the part of the trial
court.[40] To our mind, the amount of P150,000.00 as moral damages is fair, reasonable, and proportionate to the injury
suffered by respondent.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages may be
imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he pestered respondent to pay
interest and threatened to block her transactions with the PNO if she would not pay interest. This forced respondent to pay
interest despite lack of agreement thereto. Thus, the award of exemplary damages is appropriate. The amount of P50,000.00
imposed as exemplary damages by the RTC and the Court is fitting so as to deter petitioner and other lenders from
committing similar and other serious wrongdoings.[41]

Jurisprudence instructs that in awarding attorneys fees, the trial court must state the factual, legal or equitable
justification for awarding the same.[42] In the case under consideration, the RTC stated in its Decision that the award of
attorneys fees equivalent to 25% of the amount paid as interest by respondent to petitioner is reasonable and moderate
considering the extent of work rendered by respondents lawyer in the instant case and the fact that it dragged on for several
years.[43] Further, respondent testified that she agreed to compensate her lawyer handling the instant case such
amount.[44] The award, therefore, of attorneys fees and its amount equivalent to 25% of the amount paid as interest by
respondent to petitioner is proper.

Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount refundable to
respondent computed from 3 March 1998 until its full payment. This is erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals,[45] that when an obligation, not constituting a loan or
forbearance of money is breached, an interest on the amount of damages awarded may be imposed at the rate of 6% per
annum. We further declared that when the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum from such finality until
its satisfaction, this interim period being deemed equivalent to a forbearance of credit.

In the present case, petitioners obligation arose from a quasi-contract of solutio indebiti and not from a loan or
forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded as well as on
the damages awarded and on the attorneys fees, to be computed from the time of the extra-judicial demand on 3 March
1998,[46] up to the finality of this Decision. In addition, the interest shall become 12% per annum from the finality of this
Decision up to its satisfaction.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December 2005, is
hereby AFFIRMED with the following MODIFICATIONS: (1) the amount of P660,000.00 as refundable amount of
interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the amount
of P300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00);
(3) an interest of 6% per annum is imposed on the P335,000.00, on the damages awarded and on the attorneys fees to be
computed from the time of the extra-judicial demand on 3 March 1998 up to the finality of this Decision; and (4) an interest
of 12% per annum is also imposed from the finality of this Decision up to its satisfaction. Costs against petitioner.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 138677. February 12, 2002]

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS
& SECURITY BANK & TRUST COMPANY, respondents.

DECISION
VITUG, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing
the decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank
and Trust Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the
amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a
promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of
15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal
and interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by
way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to
enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an
extension but only up until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May
1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to
petitioners informing them that they had five days within which to make full payment. Since petitioners
still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court
of Makati, Branch 143, a complaint for recovery of the due amount.
After petitioners had filed a joint answer to the complaint, the bank presented its evidence and,
on 27 March 1985, rested its case. Petitioners, instead of introducing their own evidence, had the
hearing of the case reset on two consecutive occasions. In view of the absence of petitioners and their
counsel on 28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to
consider the case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order
of the trial court declaring them as having waived their right to present evidence and prayed that they
be allowed to prove their case. The court a quo denied the motion in an order, dated 5 September
1988, and on 20 October 1989, it rendered its decision,[1] the dispositive portion of which read:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the
latter to pay, jointly and severally, to the plaintiff, as follows:

"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and
5% per month penalty charge, commencing on 20 May 1982 until fully paid;
"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorneys fees;
and
"3. To pay the costs of the suit.[2]
 Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial
court of their motion to present evidence and assailing the imposition of the 2% service charge, the 5%
per month penalty charge and 10% attorney's fees. In its decision[3] of 7 March 1996, the appellate court
affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted
pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court,
both parties filed their respective motions for reconsideration.[4] Petitioners prayed for the reduction of
the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the
payment of interest and penalty be commenced not from the date of filing of complaint but from the
time of default as so stipulated in the contract of the parties.
On 28 October 1998, the Court of Appeals resolved the two motions thusly:

We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest thereon must
commence not on the date of filing of the complaint as we have previously held in our decision but on the date
when the obligation became due.

Default generally begins from the moment the creditor demands the performance of the obligation. However,
demand is not necessary to render the obligor in default when the obligation or the law so provides.

In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation
on its maturity date 'without necessity of demand.' They also agreed to pay the interest in case of non-payment
from the date of default.

xxxxxxxxx

While we maintain that defendants-appellants must be bound by the contract which they acknowledged and
signed, we take cognizance of their plea for the application of the provisions of Article 1229 x x x.

Considering that defendants-appellants partially complied with their obligation under the promissory note by
the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will finally settle
their obligation, it is our view and we so hold that in the interest of justice and public policy, a penalty of 3%
per month or 36% per annum would suffice.

xxxxxxxxx

WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-

appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security
Bank and Trust Company the following:

1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month
penalty charge commencing May 20, 1982 until fully paid;
2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorneys fees.[5]
On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly
discovered evidence,[6] alleging that while the case was pending before the trial court,
petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate mortgage on 18
January 1984 to secure the existing indebtedness of petitioners Ligutan and dela Llana with the
bank. Petitioners contended that the execution of the real estate mortgage had the effect
of novating the contract between them and the bank. Petitioners further averred that the mortgage
was extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank
did not credit them with the proceeds of the sale. The appellate court denied the omnibus motion for
reconsideration and to admit newly discovered evidence, ratiocinating that such a second motion for
reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules of Civil
Procedure. Furthermore, the appellate court said, the newly-discovered evidence being invoked by
petitioners had actually been known to them when the case was brought on appeal and when the first
motion for reconsideration was filed.[7]
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case
to this Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court,
submitting thusly -
I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty
of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private
respondent bank on petitioners loan obligation are still manifestly exorbitant, iniquitous and
unconscionable.
II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent
award of attorneys fees which is highly and grossly excessive, unreasonable and unconscionable.
III. The respondent Court of Appeals gravely erred in not admitting petitioners newly discovered evidence
which could not have been timely produced during the trial of this case.
IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of
action of private respondents complaint in the instant case due to the subsequent execution of
the real estate mortgage during the pendency of this case and the subsequent foreclosure of the
mortgage.[8]
Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to
be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money
brought about by the radical devaluation and decrease in the purchasing power of the peso,
particularly vis-a-visthe U.S. dollar, taking into account the time frame of its occurrence. The Bank
would stress that only the amount of P5,584.00 had been remitted out of the entire loan of
P120,000.00.[9]
A penalty clause, expressly recognized by law,[10] is an accessory undertaking to assume greater
liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive
force of the obligation[11] and to provide, in effect, for what could be the liquidated damages resulting
from such a breach. The obligor would then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure of damages caused by the breach.[12] Although
a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as
they see fit that contravene neither law nor morals, good customs, public order or public policy, a
stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or
unconscionable or if the principal obligation has been partly or irregularly complied with.[13]
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily confined to, the type,
extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the
application of which, by and large, is addressed to the sound discretion of the
court. In Rizal Commercial Banking Corp. vs. Court of Appeals,[14] just an example, the Court has
tempered the penalty charges after taking into account the debtors pitiful situation and its offer to settle
the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a
partial or irregular performance is made by the debtor.[15] The stipulated penalty might even be deleted
such as when there has been substantial performance in good faith by the obligor,[16] when the penalty
clause itself suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it.[17]
The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty
interest from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not
to mention the repeated acts of breach by petitioners of their contractual obligation, the Court sees no
cogent ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its
reasonableness and prays that the Court reduce the amount.This contention is a fresh issue that has
not been raised and ventilated before the courts below. In any event, the interest stipulation, on its face,
does not appear as being that excessive. The essence or rationale for the payment of interest, quite
often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty
stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being
distinct concepts which may separately be demanded.[18] What may justify a court in not allowing the
creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid
agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest
prescribed in loan financing arrangements is a fundamental part of the banking business and the core
of a bank's existence.[19]
Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's
fees for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent
of services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate
of attorneys fees has been agreed to by the parties and intended to answer not only for litigation
expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of
10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or
to admit newly discovered evidence. As the appellate court so held in its resolution of 14 May 1999 -

Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a
judgment or final resolution by the same party shall be entertained.Considering that the instant motion is
already a second motion for reconsideration, the same must therefore be denied.

Furthermore, it would appear from the records available to this court that the newly-discovered evidence being
invoked by defendants-appellants have actually been existent when the case was brought on appeal to this court
as well as when the first motion for reconsideration was filed. Hence, it is quite surprising why defendants-
appellants raised the alleged newly-discovered evidence only at this stage when they could have done so in the
earlier pleadings filed before this court.

The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment
of 'new' grounds to assail the judgment, i.e., grounds other than those theretofore presented and
rejected. Otherwise, attainment of finality of a judgment might be stayed off indefinitely, depending on the
partys ingenuousness or cleverness in conceiving and formulating 'additional flaws' or 'newly discovered errors'
therein, or thinking up some injury or prejudice to the rights of the movant for reconsideration.[20]

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would
not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners
acknowledge that the real estate mortgage contract does not contain any express stipulation by the
parties intending it to supersede the existing loan agreement between the petitioners and the
bank.[21] Respondent bank has correctly postulated that the mortgage is but an accessory contract to
secure the loan in the promissory note.
Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the
parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the
new one.[22] In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on
every point incompatible with each other.[23] An obligation to pay a sum of money is
not extinctively novated by a new instrument which merely changes the terms of payment or adding
compatible covenants or where the old contract is merely supplemented by the new one.[24] When not
expressed, incompatibility is required so as to ensure that the parties have indeed intended
such novation despite their failure to express it in categorical terms. The incompatibility, to be sure,
should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie,
such as from a mere commodatum to lease of things, or from negotiorum gestio to agency, or from a
mortgage to antichresis,[25] or from a sale to one of loan;[26] (2) the object or principal conditions, such as
a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor[27] or
the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement
should be complete by itself; certain terms and conditions may be carried, expressly or by implication,
over to the new obligation.
WHEREFORE, the petition is DENIED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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 Decision3 in favor of petitioner and found that he was dismissed
from employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu
of reinstatement in the amount of ₱158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant
was dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant
was never afforded due process before he was terminated. As such, we are perforce constrained to grant
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

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day = ₱62,986.00

₱198.00 x 26 days x 6.4 mos. = ₱32,947.20

TOTAL = ₱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 Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting the appeal
in favor of the respondents and ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and
executory. Consequently, another pre-execution conference was held, but respondents failed to appear on time.
Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment
award in the sum of ₱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
Resolution23dated January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner no
longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce
the said judgment. Consequently, it can no longer be modified in any respect, except to correct clerical errors or
mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9, 2009.

Hence, the petition assigning the lone error:

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 dismissal and the awards of separation pay in lieu of reinstatement, backwages,
attorney's fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows
that it was time-bound as can be seen from the figures used in the computation. This part, being merely a
computation of what the first part of the decision established and declared, can, by its nature, be re-computed. This
is the part, too, that the petitioner now posits should no longer be re-computed because the computation is already
in the labor arbiter's decision that the CA had affirmed. The public and private respondents, on the other hand, posit
that a re-computation is necessary because the relief in an illegal dismissal decision goes all the way up to
reinstatement if reinstatement is to be made, or up to the finality of the decision, if separation pay is to be given in
lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure
which requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall
embody in any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we
noted above, this implication is apparent from the terms of the computation itself, and no question would have arisen
had the parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as
well as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn,
affirmed the labor arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional
grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule
65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th
month pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for
execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor
arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures
originally ordered to be paid to be the computation due had the case been terminated and implemented at the labor
arbiter's level. Thus, the labor arbiter re-computed the award to include the separation pay and the backwages due
up to the finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's
approved computation went beyond the finality of the CA decision (July 29, 2003) and included as well the payment
for awards the final CA decision had deleted - specifically, the proportionate 13th month pay and the indemnity
awards. Hence, the CA issued the decision now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the
labor arbiter's original decision in accordance with its basic component parts as we discussed above. To reiterate,
the first part contains the finding of illegality and its monetary consequences; the second part is the computation of
the awards or monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's original
decision.28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the
petitioner, no essential change is made by a recomputation as this step is a necessary consequence that flows from
the nature of the illegality of dismissal declared by the Labor Arbiter in that decision.29 A recomputation (or an
original computation, if no previous computation has been made) is a part of the law – specifically, Article 279 of the
Labor Code and the established jurisprudence on this provision – that is read into the decision. By the nature of an
illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the
Labor Code. The recomputation of the consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being implemented. The illegal dismissal ruling stands;
only the computation of monetary consequences of this dismissal is affected, and this is not a violation of the
principle of immutability of final judgments.30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the
risk that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In allowing separation pay, the final
decision effectively declares that the employment relationship ended so that separation pay and backwages are to
be computed up to that point.31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,32 the Court laid down the guidelines regarding the manner of computing legal interest, to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is made (at which time the
 quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May
16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued
Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the
rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping
Lines40and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1
of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799
- but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new
rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum
legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum
shall be the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It
even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. 1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42 are
accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages. 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.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of
goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs
broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time
the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of
interest, referred to above, is twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have
led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who
paid the consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of
Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey."
Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages,
while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered
losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
 As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of
action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking
check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in
good order from the vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer
its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that
plaintiff has no cause of action against it, not having negligent or at fault for the shipment was
already in damage and bad order condition when received by it, but nonetheless, it still exercised
extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same
condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of

defendants (in whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any
damages drum that was shipped (Exhs. B and C). But when on December 12, 1981
the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one
drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were

sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the latter notes, it is stated that
when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet
No. 86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one
drum was found opened without seal, cello bag partly torn but contents intact. Net
unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one
drum was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under
the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the
common carrier's duty to observe extraordinary diligence in the vigilance of goods
remains in full force and effect even if the goods are temporarily unloaded and stored
in transit in the warehouse of the carrier at the place of destination, until the
consignee has been advised and has had reasonable opportunity to remove or
 dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit,
the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from
October 1, 1982, the date of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value
of the loss, whichever is lesser, while the liability of defendant Metro Port Service,
Inc. shall be to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-

claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it
paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on
the part of the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT
SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE
OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF
THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel.
Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the
articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to
receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar
Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need not be an express
finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139
SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in Article 17341 of the Civil Code, are
exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the
goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between
the consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in
good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the
carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular
case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient
evidence that the shipment sustained damage while in the successive possession of appellants" (the herein
petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this
case, is inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage
of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the
total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was
neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties,
in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the
appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the
sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full
payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants,
this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal
rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial
court opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit
were for damages, "unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
 Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to
Person and Loss of Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the
value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus
P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as
the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they
are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from
the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the
trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate
court's decision became final, the case was remanded to the lower court for execution, and this was when
the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article
2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank
Circular
No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in
its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular
shall take effect immediately. (Emphasis found in the text) —

should have, instead, been applied. This Court6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance
of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with,
nor involving loans or forbearance of any money, goods or credits does not fall within the coverage
of the said law for it is not within the ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action
for Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New Civil Code which reads —

Art. 2209. — If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case
was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent
Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest
award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the
complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the
collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date
of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower
court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03
October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as
We do hereby impose, upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos
to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this
decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant
and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%)
per cent per annum imposed on the total amount of the monetary award was in contravention of law." The
Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit;
and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA
160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case,
there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums
referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of
such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum,
from the filing of the complaint until paid; in other words, as part of the judgment for damages.
Clearly, they are not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for
review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing
the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00,
respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial
court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12%
per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while
recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by
the trial court, later sustained by the IAC, to be inconceivably large. The Court12 thus set aside the decision of the
appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the
Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated
October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except
defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in
the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory
damages, with interest at the legal rate from the date of the filing of the complaint until fully
paid(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court,
and an entry of judgment was made. The writ of execution issued by the trial court directed that only
compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint.
Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said
order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal
rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does
not apply to actions based on a breach of employment contract like the case at bar. (Emphasis
supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the
complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas,14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a
hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents
certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until fully
paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without
stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity
for damages. The legal interest required to be paid on the amount of just compensation for the
properties expropriated is manifestly in the form of indemnity for damages for the delay in the
payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower
court sought to be enforced in this case is interest by way of damages, and not by way of earnings
from loans, etc. Art. 2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into
two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court.
The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines
v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company
v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International
v.Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under
the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent
holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance16of
money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and
that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too,
that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e.,
from the time the complaint is filed until the adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum,17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding
that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second
group" varied on the commencement of the running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a
quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express
International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed
from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case,
on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the
following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts18 is
breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing.21 Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded.22 In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 116923 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court24 at the rate of 6% per annum.25 No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established
with reasonable certainty.26 Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that
the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be
imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED.
 THIRD DIVISION

UNITED COCONUT PLANTERS BANK, G.R. No. 159912

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

SPOUSES SAMUEL and ODETTE BELUSO,

Respondents. Promulgated:

August 17, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to annul the
Court of Appeals Decision[1] dated 21 January 2003 and its Resolution[2] dated 9 September 2003 in CA-G.R. CV
No. 67318. The assailed Court of Appeals Decision and Resolution affirmed in turn the Decision[3] dated 23
March 2000 and Order[4] dated 8 May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil
Case No. 99-314, declaring void the interest rate provided in the promissory notes executed by the respondents
Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB).

The procedural and factual antecedents of this case are as follows:

On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement
whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a
term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real estate
mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828,
as additional security for the obligation. The Credit Agreement was subsequently amended to increase the
amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to 28
February 1998.

The spouses Beluso availed themselves of the credit line under the following Promissory Notes:
 PN # Date of PN Maturity Date Amount Secured
8314-96-00083-3 29 April 1996 27 August 1996 P 700,000
8314-96-00085-0 2 May 1996 30 August 1996 P 500,000
8314-96-000292-2 20 November 1996 20 March 1997 P 800,000

The three promissory notes were renewed several times. On 30 April 1997, the payment of the principal
and interest of the latter two promissory notes were debited from the spouses Belusos account with UCPB; yet,
a consolidated loan for P1.3 Million was again released to the spouses Beluso under one promissory note with
a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses
Beluso executed two more promissory notes for a total of P350,000.00:

PN # Date of PN Maturity Date Amount Secured

97-00363-1 11 December 1997 28 February 1998 P 200,000
98-00002-4 2 January 1998 28 February 1998 P 150,000

However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never
released or credited to their account and, thus, claimed that the principal indebtedness was only P2 Million.

In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to
34%. From 1996 to February 1998 the spouses Beluso were able to pay the total sum of P763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the
obligations of the spouses Beluso, as follows:

PN # Amount Secured Interest Penalty Total

97-00363-1 P 200,000 31% 36% P 225,313.24
97-00366-6 P 700,000 30.17% 32.786% P 795,294.72
(7 days) (102 days)
97-00368-2 P 1,300,000 28% 30.41% (102 P 1,462,124.54
(2 days) days)
98-00002-4 P 150,000 33% 36% P 170,034.71
(102 days)

The spouses Beluso, however, failed to make any payment of the foregoing amounts.

On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation
of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply therewith. On 28 December
1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by
that time, already ballooned to P3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against
UCPB with the RTC of Makati City.
 On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by [UCPB]
void and the foreclosure and Sheriffs Certificate of Sale void. [UCPB] is hereby ordered to return to [the
spouses Beluso] the properties subject of the foreclosure; to pay [the spouses Beluso] the amount
of P50,000.00 by way of attorneys fees; and to pay the costs of suit. [The spouses Beluso] are hereby
ordered to pay [UCPB] the sum of P1,560,308.00.[5]

On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration,[6] prompting UCPB to appeal the RTC
Decision with the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:

WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial Court,
Branch 65, Makati City in Civil Case No. 99-314 is hereby AFFIRMED subject to the modification that
defendant-appellant UCPB is not liable for attorneys fees or the costs of suit.[7]

On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration for lack of
merit. UCPB thus filed the present petition, submitting the following issues for our resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON
INTEREST RATE AGREED UPON BETWEEN PETITIONER AND RESPONDENTS

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND
ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY
THOUSAND THREE HUNDRED EIGHT PESOS (P1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY
PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED INCORRECT COMPUTATION OF
RESPONDENTS INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR
VIOLATION OF THE TRUTH IN LENDING ACT

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT FAILED TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF
FORUM SHOPPING[8]
Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the following provision found in the
promissory notes of the spouses Beluso is void, as the interest rates and the bases therefor were determined
solely by petitioner UCPB:

FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE BELUSO
(BORROWER), jointly and severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or
order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of ______________ PESOS,
(P_____), Philippine Currency, with interest thereon at the rate indicative of DBD retail rate or as
determined by the Branch Head.[9]

UCPB asserts that this is a reversible error, and claims that while the interest rate was not numerically
quantified in the face of the promissory notes, it was nonetheless categorically fixed, at the time of execution
thereof, at the rate indicative of the DBD retail rate. UCPB contends that said provision must be read with
another stipulation in the promissory notes subjecting to review the interest rate as fixed:
The interest rate shall be subject to review and may be increased or decreased by the LENDER
considering among others the prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to charge for similar accommodations;
and/or the resulting profitability to the LENDER after due consideration of all dealings with the
BORROWER.[10]

In this regard, UCPB avers that these are valid reference rates akin to a prevailing rate or prime rate
allowed by this Court in Polotan v. Court of Appeals.[11] Furthermore, UCPB argues that even if the proviso as
determined by the branch head is considered void, such a declaration would not ipso facto render the
connecting clause indicative of DBD retail rate void in view of the separability clause of the Credit Agreement,
which reads:

Section 9.08 Separability Clause. If any one or more of the provisions contained in this
AGREEMENT, or documents executed in connection herewith shall be declared invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired.[12]

According to UCPB, the imposition of the questioned interest rates did not infringe on the principle of
mutuality of contracts, because the spouses Beluso had the liberty to choose whether or not to renew their
credit line at the new interest rates pegged by petitioner.[13] UCPB also claims that assuming there was any
defect in the mutuality of the contract at the time of its inception, such defect was cured by the subsequent
conduct of the spouses Beluso in availing themselves of the credit line from April 1996 to February 1998 without
airing any protest with respect to the interest rates imposed by UCPB. According to UCPB, therefore, the spouses
Beluso are in estoppel.[14]

We agree with the Court of Appeals, and find no merit in the contentions of UCPB.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
 We applied this provision in Philippine National Bank v. Court of Appeals,[15] where we held:

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.

The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined
by the Branch Head is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner
UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate
as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable
in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank
can easily choose such an option, thus making the entire interest rate provision violative of the principle of
mutuality of contracts.

Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate
as determined by the Branch Head gives the latter unfettered discretion on what the rate may be. The Branch
Head may choose any rate he or she desires. As regards the rate indicative of the DBD retail rate, the same
cannot be considered as valid for being akin to a prevailing rate or prime rate allowed by this Court
in Polotan. The interest rate in Polotan reads:

The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and Trust
Company. x x x.[16]

In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can easily
determine the interest rate by applying simple arithmetic. On the other hand, the provision in the case at bar
does not specify any margin above or below the DBD retail rate. UCPB can peg the interest at any percentage
above or below the DBD retail rate, again giving it unfettered discretion in determining the interest rate.

The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by
UCPB of interest rates on the obligations of the spouses Beluso valid. According to said stipulation:

The interest rate shall be subject to review and may be increased or decreased by the LENDER
considering among others the prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to charge for similar accommodations;
and/or the resulting profitability to the LENDER after due consideration of all dealings with the
BORROWER.[17]

It should be pointed out that the authority to review the interest rate was given UCPB alone as the
lender. Moreover, UCPB may apply the considerations enumerated in this provision as it wishes. As worded in
the above provision, UCPB may give as much weight as it desires to each of the following considerations: (1) the
prevailing financial and monetary condition; (2) the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or (3) the resulting profitability to the
LENDER (UCPB) after due consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in
the case of the interest rate provision, there is no fixed margin above or below these considerations.

In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the
interest to be imposed, as both options violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in estoppel.

Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be
given to it by estoppel if it is prohibited by law or is against public policy.[18]

The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil
Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending
Act. Not disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form
of deception which we cannot countenance. It is against the policy of the State as stated in the Truth in Lending
Act:

Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens
from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost
with a view of preventing the uninformed use of credit to the detriment of the national economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are
found in the promissory notes themselves, not in the credit line. In fixing the interest rates in the promissory
notes to cover the renewed credit line, UCPB still reserved to itself the same two options (1) a rate indicative of
the DBD retail rate; or (2) a rate as determined by the Branch Head.

Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed by
UCPB, both failed to include in their computation of the outstanding obligation of the spouses Beluso the legal
rate of interest of 12% per annum. Furthermore, the penalty charges were also deleted in the decisions of the
RTC and the Court of Appeals. Section 2.04, Article II on Interest and other Bank Charges of the subject Credit
Agreement, provides:

Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this
ARTICLE, any principal obligation of the CLIENT hereunder which is not paid when due shall be subject to
a penalty charge of one percent (1%) of the amount of such obligation per month computed from due
date until the obligation is paid in full. If the bank accelerates teh (sic) payment of availments hereunder
pursuant to ARTICLE VIII hereof, the penalty charge shall be used on the total principal amount
outstanding and unpaid computed from the date of acceleration until the obligation is paid in full.[20]

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally,
agree to pay an additional sum equivalent to twenty-five percent (25%) of the total due on the Note as
 attorneys fee, aside from the expenses and costs of collection whether actually incurred or not, and a
penalty charge of one percent (1%) per month on the total amount due and unpaid from date of default
until fully paid.[21]

Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to Section 9.06 of the
Credit Agreement, thus:

If the BANK shall require the services of counsel for the enforcement of its rights under this
AGREEMENT, the Note(s), the collaterals and other related documents, the BANK shall be entitled to
recover attorneys fees equivalent to not less than twenty-five percent (25%) of the total amounts due and
outstanding exclusive of costs and other expenses.[22]

Another alleged computational error pointed out by UCPB is the negation of the Compounding Interest
agreed upon by the parties under Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and shall
be subject to the same interest rate as herein stipulated.[23]

and paragraph 3 of the subject promissory notes:

Interest not paid when due shall be added to, and become part of the principal and shall likewise bear
interest at the same rate.[24]

UCPB lastly avers that the application of the spouses Belusos payments in the disputed computation
does not reflect the parties agreement. The RTC deducted the payment made by the spouses Beluso amounting
to P763,693.00 from the principal of P2,350,000.00. This was allegedly inconsistent with the Credit Agreement,
as well as with the agreement of the parties as to the facts of the case. In paragraph 7 of the spouses Belusos
Manifestation and Motion on Proposed Stipulation of Facts and Issues vis--vis UCPBs Manifestation, the parties
agreed that the amount of P763,693.00 was applied to the interest and not to the principal, in accord with
Section 3.03, Article II of the Credit Agreement on Order of the Application of Payments, which provides:

Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in accordance
with the following order of preference:

1. Accounts receivable and other out-of-pocket expenses

2. Front-end Fee, Origination Fee, Attorneys Fee and other expenses of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.[25]

Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had been erroneously
excluded by the RTC and the Court of Appeals from the computation of the total amount due and demandable
from spouses Beluso.
 The spouses Belusos defense as to all these issues is that the demand made by UCPB is for a considerably
bigger amount and, therefore, the demand should be considered void. There being no valid demand, according
to the spouses Beluso, there would be no default, and therefore the interests and penalties would not
commence to run. As it was likewise improper to foreclose the mortgaged properties or file a case against the
spouses Beluso, attorneys fees were not warranted.

We agree with UCPB on this score. Default commences upon judicial or extrajudicial demand.[26] The
excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper
amount. A contrary ruling would put commercial transactions in disarray, as validity of demands would be
dependent on the exactness of the computations thereof, which are too often contested.

There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in
default with respect to the proper amount and, therefore, the interests and the penalties began to run at that
point.

As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said
legal interest should be imposed, thus: There being no valid stipulation as to interest, the legal rate of interest
shall be charged.[27] It seems that the RTC inadvertently overlooked its non-inclusion in its computation.

The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in both the
body and the prayer of its petition with the RTC:

12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank
is null and void, only the legal rate of interest which is 12% per annum can be legally charged and imposed
by the bank, which would amount to only about P599,000.00 since 1996 up to August 31, 1998.

xxxx

WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:

xxxx

2. By way of example for the public good against the Banks taking unfair advantage of the weaker
party to their contract, declaring the legal rate of 12% per annum, as the imposable rate of interest up
to February 28, 1999 on the loan of 2.350 million.[28]

All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a 12% legal
interest on their loans. When the RTC failed to include the 12% legal interest in its computation, however, the
spouses Beluso merely defended in the appellate courts this non-inclusion, as the same was beneficial to
them. We see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in the case at bar,
as what we have voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn
interest.

We must likewise uphold the contract stipulation providing the compounding of interest. The provisions
in the Credit Agreement and in the promissory notes providing for the compounding of interest were neither
nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The
compounding of interests has furthermore been declared by this Court to be legal. We have held in Tan v. Court
of Appeals,[29] that:
 Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn
interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid,
which as added principal, shall earn new interest.

As regards the imposition of penalties, however, although we are likewise upholding the imposition
thereof in the contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the penalty
stipulated in the contract may also be reduced by the courts if it is iniquitous or unconscionable.[30]

We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the
fact that this penalty is already over and above the compounded interest likewise imposed in the contract. If a
36% interest in itself has been declared unconscionable by this Court,[31] what more a 30.41% to 36% penalty,
over and above the payment of compounded interest? UCPB itself must have realized this, as it gave us a sample
computation of the spouses Belusos obligation if both the interest and the penalty charge are reduced to 12%.

As regards the attorneys fees, the spouses Beluso can actually be liable therefor even if there had been
no demand. Filing a case in court is thejudicial demand referred to in Article 1169[32] of the Civil Code, which
would put the obligor in delay.

The RTC, however, also held UCPB liable for attorneys fees in this case, as the spouses Beluso were
forced to litigate the issue on the illegality of the interest rate provision of the promissory notes. The award of
attorneys fees, it must be recalled, falls under the sound discretion of the court.[33] Since both parties were
forced to litigate to protect their respective rights, and both are entitled to the award of attorneys fees from
the other, practical reasons dictate that we set off or compensate both parties liabilities for attorneys
fees. Therefore, instead of awarding attorneys fees in favor of petitioner, we shall merely affirm the deletion of
the award of attorneys fees to the spouses Beluso.

In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of 12%
per annum and a penalty charge of 12% per annum. We also hold that, instead of awarding attorneys fees in
favor of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso.

Annulment of the Foreclosure Sale

Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated on 19
February 2001 and 20 March 2001 in the name of UCPB, as the spouses Beluso failed to exercise their right of
redemption which expired on 25 March 2000. The RTC, however, annulled the foreclosure of mortgage based
on an alleged incorrect computation of the spouses Belusos indebtedness.

UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at
bar. Furthermore, the annulment of the foreclosure proceedings and the certificates of sale were mooted by the
subsequent issuance of new certificates of title in the name of said bank.UCPB claims that the spouses Belusos
action for annulment of foreclosure constitutes a collateral attack on its certificates of title, an act proscribed by
Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, which
provides:

Section 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to
collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance
with law.
 The spouses Beluso retort that since they had the right to refuse payment of an excessive demand on
their account, they cannot be said to be in default for refusing to pay the same. Consequently, according to the
spouses Beluso, the enforcement of such illegal and overcharged demand through foreclosure of mortgage
should be voided.

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that
a valid demand was made by UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso are
considered in default with respect to the proper amount of their obligation to UCPB and, thus, the property they
mortgaged to secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should
be applied to the extent of the amounts to which UCPB is rightfully entitled.

As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this
case. The grounds for the proper annulment of the foreclosure sale are the following: (1) that there was fraud,
collusion, accident, mutual mistake, breach of trust or misconduct by the purchaser; (2) that the sale had not
been fairly and regularly conducted; or (3) that the price was inadequate and the inadequacy was so great as to
shock the conscience of the court.[34]

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPBs alleged violation of
Republic Act No. 3765, otherwise known as the Truth in Lending Act.

UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act which
mandates the filing of an action to recover such penalty must be made under the following circumstances:

Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor
in connection with such transaction, whichever is greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person
within one year from the date of the occurrence of the violation, in any court of competent
jurisdiction. x x x(Emphasis ours.)

According to UCPB, the Court of Appeals even stated that [a]dmittedly the original complaint did not
explicitly allege a violation of the Truth in Lending Act and no action to formally admit the amended petition
[which expressly alleges violation of the Truth in Lending Act] was made either by [respondents] spouses Beluso
and the lower court. x x x.[35]

UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act
had been barred by the one-year prescriptive period provided for in the Act. UCPB asserts that per the records
of the case, the latest of the subject promissory notes had been executed on 2 January 1998, but the original
petition of the spouses Beluso was filed before the RTC on 9 February 1999, which was after the expiration of
the period to file the same on 2 January 1999.
 On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act and no
action to formally admit the amended petition was made either by [respondents] spouses Beluso and the
lower court. In such transactions, the debtor and the lending institutions do not deal on an equal footing
and this law was intended to protect the public from hidden or undisclosed charges on their loan
obligations, requiring a full disclosure thereof by the lender. We find that its infringement may be inferred
or implied from allegations that when [respondents] spouses Beluso executed the promissory notes, the
interest rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to discharge its duty to
disclose in full to [respondents] Spouses Beluso the charges applicable on their loans.[36]

We agree with the Court of Appeals. The allegations in the complaint, much more than the title thereof,
are controlling. Other than that stated by the Court of Appeals, we find that the allegation of violation of the
Truth in Lending Act can also be inferred from the same allegation in the complaint we discussed earlier:

b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the
provision of their promissory note granting respondent bank the power to unilaterally fix the interest
rates, which rate was not determined in the promissory note but was left solely to the will of the Branch
Head of the respondent Bank, x x x.[37]

The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates
certainly also means that the promissory notes do not contain a clear statement in writing of (6) the finance
charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the
amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.[38]Furthermore, the spouses Belusos prayer for such other reliefs just and equitable in the premises
should be deemed to include the civil penalty provided for in Section 6(a) of the Truth in Lending Act.

UCPBs contention that this action to recover the penalty for the violation of the Truth in Lending Act has
already prescribed is likewise without merit. The penalty for the violation of the act is P100 or an amount equal
to twice the finance charge required by such creditor in connection with such transaction, whichever is greater,
except that such liability shall not exceed P2,000.00 on any credit transaction.[39] As this penalty depends on
the finance charge required of the borrower, the borrowers cause of action would only accrue when such finance
charge is required. In the case at bar, the date of the demand for payment of the finance charge is 2 September
1998, while the foreclosure was made on 28 December 1998. The filing of the case on 9 February 1999 is
therefore within the one-year prescriptive period.

UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be inferred
nor implied from the allegations made in the complaint.[40] Pertinent provisions of the Act read:

Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor
in connection with such transaction, whichever is the greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person
within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. In
any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable
for reasonable attorneys fees and court costs as determined by the court.
 xxxx

(c) Any person who willfully violates any provision of this Act or any regulation issued
thereunder shall be fined by not less than P1,000 or more than P5,000 or imprisonment for not less than
6 months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said Act gives rise to
both criminal and civil liabilities.Section 6(c) considers a criminal offense the willful violation of the Act, imposing
the penalty therefor of fine, imprisonment or both. Section 6(a), on the other hand, clearly provides for a civil
cause of action for failure to disclose any information of the required information to any person in violation of
the Act. The penalty therefor is an amount of P100 or in an amount equal to twice the finance charge required
by the creditor in connection with such transaction, whichever is greater, except that the liability shall not
exceed P2,000.00 on any credit transaction. The action to recover such penalty may be instituted by the
aggrieved private person separately and independently from the criminal case for the same offense.

In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of the Truth in
Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void,
and (2) the action to declare the foreclosure void. This joinder is allowed under Rule 2, Section 5 of the Rules of
Court, which provides:

SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the alternative or
otherwise, as many causes of action as he may have against an opposing party, subject to the following
conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of parties;
(b) The joinder shall not include special civil actions or actions governed by special rules;
(c) Where the causes of action are between the same parties but pertain to different venues or
jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action
falls within the jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are principally for recovery of money, the aggregate
amount claimed shall be the test of jurisdiction.

In attacking the RTCs disposition on the violation of the Truth in Lending Act since the same was not
alleged in the complaint, UCPB is actually asserting a violation of due process. Indeed, due process mandates
that a defendant should be sufficiently apprised of the matters he or she would be defending himself or herself
against. However, in the 1 July 1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil
sanctions for violation of the Truth in Lending Act was expressly alleged, thus:

Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing the
borrower in writing before the execution of the Promissory Notes of the interest rate expressed as a
percentage of the total loan, the respondent bank instead is liable to pay petitioners double the amount
the bank is charging petitioners by way of sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:
 b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act
provision to express the interest rate as a simple annual percentage of the loan?[42]

These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the
assertion of this issue in this case as to prevent it from putting up a defense thereto is plainly hogwash.

Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and adjudicate
the alleged violation of the Truth in Lending Act, considering that the present action allegedly involved a single
credit transaction as there was only one Promissory Note Line.

We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of the
Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory
notes void, and (2) the action to declare the foreclosure void. There had been no question that the above actions
belong to the jurisdiction of the RTC. Subsection (c) of the above-quoted Section 5 of the Rules of Court on
Joinder of Causes of Action provides:
(c) Where the causes of action are between the same parties but pertain to different venues or
jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action
falls within the jurisdiction of said court and the venue lies therein.

Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the
former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is
merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the
limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the
credit line was availed of. In the case at bar, the violation of the Truth in Lending Act allegedly occurred not
when the parties executed the Credit Agreement, where no interest rate was mentioned, but when the parties
executed the promissory notes, where the allegedly offending interest rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory
notes after their execution, then they were duly notified of the terms thereof, in substantial compliance with
the Truth in Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure
statement must be furnished prior to the consummation of the transaction:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and
in accordance with rules and regulations prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2)

(4) the charges, individually itemized, which are paid or to be paid by such person in connection
with the transaction but which are not incident to the extension of credit;

(5) the total amount to be financed;

 (6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost
thereof, proceeding from the experience that banks are able to conceal such true cost by hidden charges,
uncertainty of interest rates, deduction of interests from the loaned amount, and the like. The law thereby seeks
to protect debtors by permitting them to fully appreciate the true cost of their loan, to enable them to give full
consent to the contract, and to properly evaluate their options in arriving at business decisions. Upholding
UCPBs claim of substantial compliance would defeat these purposes of the Truth in Lending Act. The belated
discovery of the true cost of credit will too often not be able to reverse the ill effects of an already consummated
business decision.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after
execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein
does not sufficiently indicate with particularity the interest rate to be applied to the loan covered by said
promissory notes.

Forum Shopping

UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) on the
ground that the spouses Beluso instituted another case (Civil Case No. V-7227) before the RTC of Roxas City,
involving the same parties and issues. UCPB claims that while Civil Case No. V-7227 initially appears to be a
different action, as it prayed for the issuance of a temporary restraining order and/or injunction to stop
foreclosure of spouses Belusos properties, it poses issues which are similar to those of the present case.[43] To
prove its point, UCPB cited the spouses Belusos Amended Petition in Civil Case No. V-7227, which contains
similar allegations as those in the present case. The RTC of Makati denied UCPBs Motion to Dismiss Case No.
99-314 for lack of merit. Petitioner UCPB raised the same issue with the Court of Appeals, and is raising the same
issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a Petition
for Injunction Against Foreclosure, is the propriety of the foreclosure before the true account of spouses Beluso
is determined. On the other hand, the issue in Case No. 99-314 before the RTC of Makati City is the validity of
the interest rate provision. The spouses Beluso claim that Civil Case No. V-7227 has become moot because,
before the RTC of Roxas City could act on the restraining order, UCPB proceeded with the foreclosure and
auction sale. As the act sought to be restrained by Civil Case No. V-7227 has already been accomplished, the
spouses Beluso had to file a different action, that of Annulment of the Foreclosure Sale, Case No. 99-314 with
the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one cause of action is involved in the
two civil actions, namely, the violation of the right of the spouses Beluso not to have their property foreclosed
for an amount they do not owe, the Rules of Court nevertheless allows the filing of the second action. Civil Case
No. V-7227 was dismissed by the RTC of Roxas City before the filing of Case No. 99-314 with the RTC of Makati
City, since the venue of litigation as provided for in the Credit Agreement is in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances:
 SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a motion to dismiss
based on paragraphs (f), (h) and (i) of section 1 hereof shall bar the refiling of the same action or claim.
(n)

Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1, not in
paragraphs (f), (h) and (i):

SECTION 1. Grounds.Within the time for but before filing the answer to the complaint or pleading
asserting a claim, a motion to dismiss may be made on any of the following grounds:

(a) That the court has no jurisdiction over the person of the defending party;

(b) That the court has no jurisdiction over the subject matter of the claim;

(c) That venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the same parties for the same cause;

(f) That the cause of action is barred by a prior judgment or by the statute of limitations;

(g) That the pleading asserting the claim states no cause of action;

(h) That the claim or demand set forth in the plaintiffs pleading has been paid, waived,
abandoned, or otherwise extinguished;

(i) That the claim on which the action is founded is unenforceable under the provisions of the
statute of frauds; and

(j) That a condition precedent for filing the claim has not been complied with.[44] (Emphases
supplied.)

When an action is dismissed on the motion of the other party, it is only when the ground for the dismissal
of an action is found in paragraphs (f), (h) and (i) that the action cannot be refiled. As regards all the other
grounds, the complainant is allowed to file same action, but should take care that, this time, it is filed with the
proper court or after the accomplishment of the erstwhile absent condition precedent, as the case may be.

UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the spouses
Beluso on 15 January 1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when the
spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence, there were allegedly two pending
actions between the same parties on the same issue at the time of the filing of Civil Case No. 99-314 on 9
February 1999 with the RTC of Makati. This will still not change our findings. It is indeed the general rule that in
cases where there are two pending actions between the same parties on the same issue, it should be the later
case that should be dismissed. However, this rule is not absolute. According to this Court in Allied Banking
Corporation v. Court of Appeals[45]:
 In these cases, it is evident that the first action was filed in anticipation of the filing of the later
action and the purpose is to preempt the later suit or provide a basis for seeking the dismissal of the
second action.

Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed
if the later action is the more appropriate vehicle for the ventilation of the issues between the
parties. Thus, in Ramos v. Peralta, it was held:

[T]he rule on litis pendentia does not require that the later case should yield to
the earlier case. What is required merely is that there be another pending action, not a
prior pending action. Considering the broader scope of inquiry involved in Civil Case No.
4102 and the location of the property involved, no error was committed by the lower
court in deferring to the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are the relevant considerations in
determining which action should be dismissed: (1) the date of filing, with preference generally given to
the first action filed to be retained; (2) whether the action sought to be dismissed was filed merely to
preempt the later action or to anticipate its filing and lay the basis for its dismissal; and (3) whether the
action is the appropriate vehicle for litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction against
a foreclosure sale that has already been held, while Civil Case No. 99-314 before the RTC of Makati City includes
an action for the annulment of said foreclosure, an action certainly more proper in view of the execution of the
foreclosure sale. The former case was improperly filed in Roxas City, while the latter was filed in MakatiCity, the
proper venue of the action as mandated by the Credit Agreement. It is evident, therefore, that Civil Case No.
99-314 is the more appropriate vehicle for litigating the issues between the parties, as compared to Civil Case
No. V-7227. Thus, we rule that the RTC of Makati City was not in error in not dismissing Civil Case No. 99-314.

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the
following MODIFICATIONS:

1. In addition to the sum of P2,350,000.00 as determined by the courts a quo, respondent spouses
Samuel and Odette Beluso are also liable for the following amounts:
a. Penalty of 12% per annum on the amount due[46] from the date of demand; and
b. Compounded legal interest of 12% per annum on the amount due[47] from date of demand;
2. The following amounts shall be deducted from the liability of the spouses Samuel and Odette
Beluso:
a. Payments made by the spouses in the amount of P763,692.00. These payments shall be
applied to the date of actual payment of the following in the order that they are listed, to
wit:
i. penalty charges due and demandable as of the time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of payment;
iv. outstanding balance.
b. Penalty under Republic Act No. 3765 in the amount of P26,000.00. This amount shall be
deducted from the liability of the spouses Samuel and Odette Beluso on 9 February 1999 to
the following in the order that they are listed, to wit:
i. penalty charges due and demandable as of time of payment;
ii. interest due and demandable as of the time of payment;
 iii. principal amortization/payment in arrears as of the time of payment;
iv. outstanding balance.
3. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts which the
Regional Trial Court and the Court of Appeals ordered respondents to pay, as modified in this
Decision, shall be deducted from the proceeds of the foreclosure sale.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

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 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%. In the auctions held
1âwphi1

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, shall be adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.55 (Citations omitted)

The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals, 56 as follows:

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money,
goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the
6% per annum under Art. 2209 of the Civil Code applies "when the transaction involves the payment of indemnities
in the concept of damage arising from the breach or a delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid." In
either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to
the condition "that the courts are vested with discretion, depending on the equities of each case, on the award of
interest."57 (Citations omitted)

WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.

SO ORDERED.
 SECOND DIVISION
SPOUSES DAVID B. CARPO G.R. Nos. 150773 &
and RECHILDA S. CARPO, 153599
Petitioners,
Present:

- versus - PUNO, J.,

Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
ELEANOR CHUA and TINGA, and
ELMA DY NG, CHICO-NAZARIO, JJ.
Respondents.
Promulgated:
September 30, 2005

x-------------------------------------------------------------------x

DECISION

TINGA, J.:

Before this Court are two consolidated petitions for review. The first, docketed as G.R.
No. 150773, assails the Decision[1] of the Regional Trial Court (RTC), Branch 26 of Naga City
dated 26 October 2001 in Civil Case No. 99-4376. RTC Judge Filemon B. Montenegro
dismissed the complaint[2] for annulment of real estate mortgage and consequent foreclosure
proceedings filed by the spouses David B. Carpo and Rechilda S. Carpo (petitioners).

The second, docketed as G.R. No. 153599, seeks to annul the Court of
Appeals Decision[3] dated 30 April 2002 in CA-G.R. SP No. 57297. The Court of Appeals Third
Division annulled and set aside the orders of Judge Corazon A. Tordilla to suspend the
sheriffs enforcement of the writ of possession.

The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they borrowed
from Eleanor Chua and Elma Dy Ng (respondents) the amount of One Hundred Seventy-Five
Thousand Pesos (P175,000.00), payable within six (6) months with an interest rate of six
percent (6%) per month. To secure the payment of the loan, petitioners mortgaged their
residential house and lot situated at San Francisco, Magarao, Camarines Sur, which lot is
covered by Transfer Certificate of Title (TCT) No. 23180. Petitioners failed to pay the loan
upon demand. Consequently, the real estate mortgage was extrajudicially foreclosed and the
mortgaged property sold at a public auction on 8 July 1996. The house and lot was awarded
to respondents, who were the only bidders, for the amount of Three Hundred Sixty-Seven
Thousand Four Hundred Fifty-Seven Pesos and Eighty Centavos (P367,457.80).
 Upon failure of petitioners to exercise their right of redemption, a certificate of sale was
issued on 5 September 1997 by Sheriff Rolando A. Borja. TCT No. 23180 was cancelled and
in its stead, TCT No. 29338 was issued in the name of respondents.

Despite the issuance of the TCT, petitioners continued to occupy the said house and
lot, prompting respondents to file a petition for writ of possession with the RTC docketed as
Special Proceedings (SP) No. 98-1665. On 23 March 1999, RTC Judge Ernesto A. Miguel
issued an Order[4] for the issuance of a writ of possession.

On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage
and the consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC.
Petitioners consigned the amount of Two Hundred Fifty-Seven Thousand One Hundred
Ninety-Seven Pesos and Twenty-Six Centavos (P257,197.26) with the RTC.

Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon motion
on 3 August 1999, enjoining the enforcement of the writ of possession. In an Order[5] dated 6
January 2000, the RTC suspended the enforcement of the writ of possession pending the
final disposition of Civil Case No. 99-4376. Against this Order, respondents filed a petition
for certiorari and mandamus before the Court of Appeals, docketed as CA-G.R. SP No. 57297.

During the pendency of the case before the Court of Appeals, RTC Judge Filemon B.
Montenegro dismissed the complaint in Civil Case No. 99-4376 on the ground that it was
filed out of time and barred by laches. The RTC proceeded from the premise that the
complaint was one for annulment of a voidable contract and thus barred by the four-year
prescriptive period. Hence, the first petition for review now under consideration was filed with
this Court, assailing the dismissal of the complaint.

The second petition for review was filed with the Court after the Court of Appeals on
30 April 2002 annulled and set aside the RTC orders in SP No. 98-1665 on the ground that
it was the ministerial duty of the lower court to issue the writ of possession when title over
the mortgaged property had been consolidated in the mortgagee.

This Court ordered the consolidation of the two cases, on motion of petitioners.

In G.R. No. 150773, petitioners claim that following the Courts ruling in Medel v. Court of
Appeals[6] the rate of interest stipulated in the principal loan agreement is clearly null and
void. Consequently, they also argue that the nullity of the agreed interest rate affects the
validity of the real estate mortgage. Notably, while petitioners were silent in their petition on
the issues of prescription and laches on which the RTC grounded the dismissal of the
complaint, they belatedly raised the matters in their Memorandum. Nonetheless, these points
warrant brief comment.

On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not commit any
grave abuse of discretion when it issued the orders dated 3 August 1999 and 6 January
2000, and that these orders could not have been the proper subjects of a petition for certiorari
and mandamus. More accurately, the justiciable issues before us are whether the Court of
Appeals could properly entertain the petition for certiorari from the timeliness aspect, and
whether the appellate court correctly concluded that the writ of possession could no longer
be stayed.

We first resolve the petition in G.R. No. 150773.

Petitioners contend that the agreed rate of interest of 6% per month or 72% per annum
is so excessive, iniquitous, unconscionable and exorbitant that it should have been declared
null and void. Instead of dismissing their complaint, they aver that the lower court should
have declared them liable to respondents for the original amount of the loan plus 12% interest
per annum and 1% monthly penalty charge as liquidated damages,[7] in view of the ruling
in Medel v. Court of Appeals.[8]

In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per
annum was so iniquitous or unconscionable as to render the stipulation void.

Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals (contra bonos mores), if not
against the law. The stipulation is void. The Court shall reduce equitably
liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.[9]

In a long line of cases, this Court has invalidated similar stipulations on interest rates
for being excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,[10] we
annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan.
In Imperial v. Jaucian,[11] we reduced the interest rate from 16% to 1.167% per month or 14%
per annum. In Ruiz v. Court of Appeals,[12] we equitably reduced the agreed 3% per month or
36% per annum interest to 1% per month or 12% per annum interest. The 10% and 8%
interest rates per month on a P1,000,000.00 loan were reduced to 12% per annum in Cuaton
v. Salud.[13] Recently, this Court, in Arrofo v. Quino,[14]reduced the 7% interest per month on
a P15,000.00 loan amounting to 84% interest per annum to 18% per annum.
There is no need to unsettle the principle affirmed in Medel and like cases. From that
perspective, it is apparent that the stipulated interest in the subject loan is excessive,
iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle
embodied in Article 1306 of the Civil Code, contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy. In the ordinary
course, the codal provision may be invoked to annul the excessive stipulated interest.

In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By
the standards set in the above-cited cases, this stipulation is similarly invalid. However, the
RTC refused to apply the principle cited and employed in Medel on the ground that Medel did
not pertain to the annulment of a real estate mortgage,[15] as it was a case for annulment of
the loan contract itself. The question thus sensibly arises whether the invalidity of the
stipulation on interest carries with it the invalidity of the principal obligation.

The question is crucial to the present petition even if the subject thereof is not the
annulment of the loan contract but that of the mortgage contract. The consideration of the
mortgage contract is the same as that of the principal contract from which it receives life,
and without which it cannot exist as an independent contract. Being a mere accessory
contract, the validity of the mortgage contract would depend on the validity of the loan
secured by it.[16]

Notably in Medel, the Court did not invalidate the entire loan obligation despite the
inequitability of the stipulated interest, but instead reduced the rate of interest to the more
reasonable rate of 12% per annum. The same remedial approach to the wrongful interest
rates involved was employed or affirmed by the Court in Solangon, Imperial, Ruiz, Cuaton,
and Arrofo.

The Courts ultimate affirmation in the cases cited of the validity of the principal loan
obligation side by side with the invalidation of the interest rates thereupon is congruent with
the rule that a usurious loan transaction is not a complete nullity but defective only with
respect to the agreed interest.

We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious loan
is wholly null and void both as to the loan and as to the usurious interest.[17] However, this
Court adopted the contrary rule,

as comprehensively discussed in Briones v. Cammayo:[18]

 In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared
that, in any event, the debtor in a usurious contract of loan should pay the creditor
the amount which he justly owes him, citing in support of this ruling its previous
decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado
vs. Duque Valgona, 44 Phil. 739.

....

Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held
that the standing jurisprudence of this Court on the question under consideration
was clearly to the effect that the Usury Law, by its letter and spirit, did not deprive
the lender of his right to recover from the borrower the money actually loaned to
and enjoyed by the latter. This Court went further to say that the Usury Law did
not provide for the forfeiture of the capital in favor of the debtor in usurious
contracts, and that while the forfeiture might appear to be convenient as a drastic
measure to eradicate the evil of usury, the legal question involved should not be
resolved on the basis of convenience.

Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919
and Pascua vs. Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the
latter We expressly held that when a contract is found to be tainted with usury "the
only right of the respondent (creditor) . . . was merely to collect the amount of the
loan, plus interest due thereon."

The view has been expressed, however, that the ruling thus consistently
adhered to should now be abandoned because Article 1957 of the new Civil Code a
subsequent law provides that contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury, shall be void, and that in
such cases "the borrower may recover in accordance with the laws on usury." From
this the conclusion is drawn that the whole contract is void and that, therefore, the
creditor has no right to recover not even his capital.

The meaning and scope of our ruling in the cases mentioned heretofore is
clearly stated, and the view referred to in the preceding paragraph is adequately
answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24,
1968). On the question of whether a creditor in a usurious contract may or may not
recover the principal of the loan, and, in the affirmative, whether or not he may also
recover interest thereon at the legal rate, We said the following:

....

Appealing directly to Us, defendants raise two questions of law:

(1) In a loan with usurious interest, may the creditor recover the
principal of the loan? (2) Should attorney's fees be awarded in plaintiff's
favor?"

Great reliance is made by appellants on Art. 1411 of the New Civil

Code . . . .
Since, according to the appellants, a usurious loan is void due to
illegality of cause or object, the rule of pari delicto expressed in Article
1411, supra, applies, so that neither party can bring action against each
other. Said rule, however, appellants add, is modified as to the
borrower, by express provision of the law (Art. 1413, New Civil Code),
allowing the borrower to recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no exception is made to the
rule; hence, he cannot recover on the contract. So they continue the
New Civil Code provisions must be upheld as against the Usury Law,
under which a loan with usurious interest is not totally void, because
of Article 1961 of the New Civil Code, that: "Usurious contracts shall be
governed by the Usury Law and other special laws, so far as they are
not inconsistent with this Code."

We do not agree with such reasoning. Article 1411 of the New Civil
Code is not new; it is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not totally void only as to the
interest.

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

usurious interest consists of principal and accessory stipulations;
the principal one is to pay the debt; the accessory stipulation is to
pay interest thereon.

And said two stipulations are divisible in the sense that the
former can still stand without the latter. Article 1273, Civil Code,
attests to this: "The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force."

The question therefore to resolve is whether the illegal terms

as to payment of interest likewise renders a nullity the legal terms
as to payments of the principal debt. Article 1420 of the New Civil
Code provides in this regard: "In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may
be enforced."

In simple loan with stipulation of usurious interest, the

prestation of the debtor to pay the principal debt, which is the
cause of the contract (Article 1350, Civil Code), is not illegal. The
illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed
void, since it is the only one that is illegal.

....

The principal debt remaining without stipulation for payment of

interest can thus be recovered by judicial action. And in case of such
 demand, and the debtor incurs in delay, the debt earns interest from
the date of the demand (in this case from the filing of the complaint).
Such interest is not due to stipulation, for there was none, the same
being void. Rather, it is due to the general provision of law that in
obligations to pay money, where the debtor incurs in delay, he has to
pay interest by way of damages (Art. 2209, Civil Code). The court a quo
therefore, did not err in ordering defendants to pay the principal debt
with interest thereon at the legal rate, from the date of filing of the
complaint."[19]

The Courts wholehearted affirmation of the rule that the principal obligation subsists despite
the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all
of which the main obligation was upheld and the offending interest rate merely corrected.
Hence, it is clear and settled that the principal loan obligation still stands and remains valid.
By the same token, since the mortgage contract derives its vitality from the validity of the
principal obligation, the invalid stipulation on interest rate is similarly insufficient to render
void the ancillary mortgage contract.

It should be noted that had the Court declared the loan and mortgage agreements void for
being contrary to public policy, no prescriptive period could have run.[20] Such benefit is
obviously not available to petitioners.

Yet the RTC pronounced that the complaint was barred by the four-year prescriptive
period provided in Article 1391 of the Civil Code, which governs voidable contracts. This
conclusion was derived from the allegation in the complaint that the consent of petitioners
was vitiated through undue influence. While the RTC correctly acknowledged the rule of
prescription for voidable contracts, it erred in applying the rule in this case. We are hard put
to conclude in this case that there was any undue influence in the first place.

There is ultimately no showing that petitioners consent to the loan and mortgage
agreements was vitiated by undue influence. The financial condition of petitioners may have
motivated them to contract with respondents, but undue influence cannot be attributed to
respondents simply because they had lent money. Article 1391, in relation to Article 1390 of
the Civil Code, grants the aggrieved party the right to obtain the annulment of contract on
account of factors which vitiate consent. Article 1337 defines the concept of undue influence,
as follows:

There is undue influence when a person takes improper advantage of his

power over the will of another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties or the fact that the person
alleged to have been unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress.
While petitioners were allegedly financially distressed, it must be proven that there is
deprivation of their free agency. In other words, for undue influence to be present, the
influence exerted must have so overpowered or subjugated the mind of a contracting party
as to destroy his free agency, making him express the will of another rather than his
own.[21] The alleged lingering financial woes of petitioners per se cannot be equated with the
presence of undue influence.

The RTC had likewise concluded that petitioners were barred by laches from assailing
the validity of the real estate mortgage. We wholeheartedly agree. If indeed petitioners
unwillingly gave their consent to the agreement, they should have raised this issue as early
as in the foreclosure proceedings. It was only when the writ of possession was issued did
petitioners challenge the stipulations in the loan contract in their action for annulment of
mortgage. Evidently, petitioners slept on their rights. The Court of Appeals succinctly made
the following observations:

In all these proceedings starting from the foreclosure, followed by the

issuance of a provisional certificate of sale; then the definite certificate of sale;
then the issuance of TCT No. 29338 in favor of the defendants and finally the
petition for the issuance of the writ of possession in favor of the defendants, there
is no showing that plaintiffs questioned the validity of these proceedings. It was
only after the issuance of the writ of possession in favor of the defendants, that
plaintiffs allegedly tendered to the defendants the amount of P260,000.00 which
the defendants refused. In all these proceedings, why did plaintiffs sleep on their
rights?[22]
Clearly then, with the absence of undue influence, petitioners have no cause of action. Even
assuming undue influence vitiated their consent to the loan contract, their action would
already be barred by prescription when they filed it. Moreover, petitioners had clearly slept
on their rights as they failed to timely assail the validity of the mortgage agreement. The
denial of the petition in G.R. No. 150773 is warranted.

We now resolve the petition in G.R. No. 153599.

Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January 2000
could no longer be questioned in a special civil action for certiorari and mandamus as the
reglementary period for such action had already elapsed.

It must be noted that the Order dated 3 August 1999 suspending the enforcement of the writ
of possession had a period of effectivity of only twenty (20) days from 3 August 1999, or until
23 August 1999. Thus, upon the expiration of the twenty (20)-day period, the
said Order became functus officio. Thus, there is really no sense in assailing the validity of
this Order, mooted as it was. For the same reason, the validity of the order need not have
been assailed by respondents in their special civil action before the Court of Appeals.

On the other hand, the Order dated 6 January 2000 is in the nature of a writ of injunction
whose period of efficacy is indefinite. It may be properly assailed by way of the special civil
action for certiorari, as it is interlocutory in nature.
As a rule, the special civil action for certiorari under Rule 65 must be filed not later than
sixty (60) days from notice of the judgment or order.[23] Petitioners argue that the 3 August
1999 Order could no longer be assailed by respondents in a special civil action for certiorari
before the Court of Appeals, as the petition was filed beyond sixty (60) days following
respondents receipt of the Order. Considering that the 3 August 1999 Order had
become functus officio in the first place, this argument deserves scant consideration.

Petitioners further claim that the 6 January 2000 Order could not have likewise been the
subject of a special civil action for certiorari, as it is according to them a final order, as
opposed to an interlocutory order. That the 6 January 2000 Orderis interlocutory in nature
should be beyond doubt. An order is interlocutory if its effects would only be provisional in
character and would still leave substantial proceedings to be further had by the issuing court
in order to put the controversy to rest.[24] The injunctive relief granted by the order is
definitely final, but merely provisional, its effectivity hinging on the ultimate outcome of the
then pending action for annulment of real estate mortgage. Indeed, an interlocutory order
hardly puts to a close, or disposes of, a case or a disputed issue leaving nothing else to be
done by the court in respect thereto, as is characteristic of a final order.

Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we
cannot agree with petitioners who insist that it may be assailed only through an appeal
perfected within fifteen (15) days from receipt thereof by respondents. It is axiomatic that an
interlocutory order cannot be challenged by an appeal,

but is susceptible to review only through the special civil action of certiorari.[25] The sixty
(60)-day reglementary period for special civil actions under Rule 65 applies, and respondents
petition was filed with the Court of Appeals well within the period.
Accordingly, no error can be attributed to the Court of Appeals in granting the petition for
certiorari and mandamus. As pointed out by respondents, the remedy of mandamus lies to
compel the performance of a ministerial duty. The issuance of a writ of possession to a
purchaser in an extrajudicial foreclosure is merely a ministerial function.[26]
 Thus, we also affirm the Court of Appeals ruling to set aside the RTC orders enjoining
the enforcement of the writ of possession.[27] The purchaser in a foreclosure sale is entitled
as a matter of right to a writ of possession, regardless of whether or not there is a pending
suit for annulment of the mortgage or the foreclosure proceedings. An injunction to prohibit
the issuance or enforcement of the writ is entirely out of place.[28]

One final note. The issue on the validity of the stipulated interest rates, regrettably for
petitioners, was not raised at the earliest possible opportunity. It should be pointed out
though that since an excessive stipulated interest rate may be void for being contrary to
public policy, an action to annul said interest rate does not prescribe. Such indeed is the
remedy; it is not the action for annulment of the ancillary real estate mortgage. Despite the
nullity of the stipulated interest rate, the principal loan obligation subsists, and along with
it the mortgage that serves as collateral security for it.

WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against
petitioners.

SO ORDERED.