Commodatum

G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V. BAGTAS, defendant, FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant. PADILLA, J.: The Court of Appeals certified this case to this Court because only questions of law are raised. On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No. 12818). On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint. After hearing, on 30 July 1956 the trial court render judgment . . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion. It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had been returned to and received by the appellee. The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract ofcommodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum . . . is liable for loss of the things, even if it should be through a fortuitous event: (2) If he keeps it longer than the period stipulated . . . (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event; The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore,

when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability. The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. . . . and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and residence of the executory administrator, guardian, or other legal representative of the deceased . . . . The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the defendant was the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule. As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution. Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution

but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court. ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

Simple Loan or Mutuum

G.R. No. 118375 October 3, 2003

CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAO, respondents. TINGA, J.: Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 19941, which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay City.2 The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the present petition.1vvphi1.nt The operative facts follow: Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute the loan granted by Naguiat to Queao.3 To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged properties.4 On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per annum, payable on 11 September 1980.5Queao also issued a Security Bank and Trust Company check, postdated 11 September 1980, for the

amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat. Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. On the following day, 12 September 1980, Queao requested Security Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds.6 On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiats agent.7 Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, Queao filed the case before the Pasay City RTC,8 seeking the annulment of the mortgage deed. The trial court eventually stopped the auction sale.9 On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged lots.10 Naguiat appealed the decision before the Court of Appeals, making no less than eleven assignments of error. The Court of Appeals promulgated the decision now assailed before us that affirmed in toto the RTC decision. Hence, the present petition. Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether Queao had actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third persons.11 The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of law may be raised12 as the Supreme Court is not a trier of facts.13 The resolution of factual issues is the function of lower courts, whose findings on these matters are received with respect and are in fact generally binding on the Supreme Court.14 A question of law which the Court may pass upon must not involve an examination of the probative value of the evidence presented by the litigants.15 There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.16 Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower courts.17 But Naguiats case does not fall under any of the exceptions. In any event, both the decisions of the appellate and trial courts are supported by the evidence on record and the applicable laws. Against the common finding of the courts below, Naguiat vigorously insists that Queao received the loan proceeds. Capitalizing on the status of the mortgage deed as a public

document, she cites the rule that a public document enjoys the presumption of validity and truthfulness of its contents. The Court of Appeals, however, is correct in ruling that the presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing evidence in this case that pointed to the absence of consideration.18 This Court has held that the presumption of truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the contrary, as in this case.19 On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed.20 It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides: "An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract." A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract.21 In this case, the objects of the contract are the loan proceeds which Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaos account.1awphi1.nt Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that they could not bind her following the res inter alia acta alteri nocere non debet rule. The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a recognized exception to the rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent. Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao the checks she issued or indorsed to Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in connection with that transaction that Queao came to know Naguiat.23 It was also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a check for the sum ofP220,000.00 payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.24 The Court of Appeals recognized the existence of an "agency by estoppel25 citing Article 1873 of the Civil Code.26Apparently, it considered that at the very least, as a consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos impression. In that situation, the rule is clear. One who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as his

agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest belief that he is what he appears to be.27 The Court of Appeals is correct in invoking the said rule on agency by estoppel.1awphi1.nt More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed or deposited to her account of Naguiat. All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit and the borrower did not receive the proceeds of the loan. That being the case, it follows that the mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life, and without which it cannot exist as an independent contract.28 A mortgage contract being a mere accessory contract, its validity would depend on the validity of the loan secured by it.29 WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner. SO ORDERED.

G.R. No. 158495

October 21, 2004

ELIZABETH EUSEBIO-CALDERON, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. YNARES-SANTIAGO, J.: This is a petition for review under Rule 45 of the Rules of Court, assailing the Decision1 dated April 30, 2001 of the Court of Appeals in CA-G.R. CR No. 23466, which reversed and set aside the Decision2 dated June 17, 1999 of the Regional Trial Court of Malolos, Bulacan, Branch 79, acquitting the accused of the crime of Estafa in the consolidated Criminal Cases No. 1190-M95, 1191-M-95, and 1192-M-95 but ordering her to pay civil liability to the following: Amelia Casanova in the total amount of P130,900.00; Teresita Eusebio in the total amount of P172,250.00; and Manolito Eusebio in the total amount of P60,000.00. Petitioner Elizabeth Eusebio-Calderon was charged with Estafa in three separate Informations, to wit: In Criminal Case No. 1190-M-95: That in or about the months of May to November, 1994, in the municipality of Pulilan, province of Bulacan, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, by means of deceit, false pretenses and fraudulent manifestations, and pretending to have sufficient funds with the Allied Bank, Planters Bank and PCIBank, Plaridel Branch, did then

and there willfully, unlawfully and feloniously, prepared, issue and make out the following checks to wit: BANK Allied Bank CHECK NO. 16041982 DATE AMOUNT

11-30-94 P100,000.00 12-2-94 12-4-94 12-4-94 12-7-94 12-7-94 12-9-94 4,500.00 9,500.00 2,500.00 5,000.00 5,000.00 4,400.00 P130,900.00

Planters Bank 115954 -do-do-doPCIB 115961 15109854 15109930 214723

Planters Bank 115968

(Total Amount Supplied)

drawn against the said banks, and deliver the said checks to one Amelia Casanova as exchange for cash received from the said Amelia Casanova, knowing fully well that at the time the checks were issued, her representations were false for she had no sufficient funds in the said bank, so much so, that upon presentation of the said checks with the said banks for deposit or encashment, the same were dishonored and refused payment for having been drawn against a "Closed Account" and inspite of repeated demands to deposit with the said banks the total amount of P130,900.00, the said accused failed and refused to do so, to the damage and prejudice of the said Amelia Casanova in the said total amount of P130,900.00.3 In Criminal Case No. 1191-M-95: That in or about the months of May to November 1994, in the municipality of Pulilan, province of Bulacan, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, by means of deceit, false pretenses and fraudulent manifestations, and pretending to have sufficient funds with the Allied Bank, PCIBank and Planters Bank, Plaridel Branch, did then and there willfully, unlawfully and feloniously, prepared, issue and make out the following checks to wit: BANK Allied Bank -doPCIB PCIB CHECK NO. 16076401 16076402 214730 214796 DATE AMOUNT

11-15-94 P52,500.00 11-30-94 105,000.00 11-30-94 2,500.00 11-30-94 1,750.00 12-03-94 5,000.00 12-03-94 2,500.00

Planters Bank 15109960 Allied Bank 16083156

Planters Bank 15094519

11-30-94 3,000.00 P172,250.00

(Total Amount Supplied)

drawn against the said banks, and deliver the said checks to one Teresita Eusebio as exchange for cash received from the said Teresita Eusebio, knowing fully well that at the time the checks were issued, her representations were false for she had no sufficient funds in the said bank, so much so, that upon presentation of the said checks with the said banks for deposit or encashment, the same were dishonored and refused payment for having been drawn against a "Closed Account" and inspite of repeated demands to deposit with the said banks the total amount of P172,250.00, the said accused failed and refused to do so, to the damage and prejudice of the said Teresita Eusebio in the said total amount of P172,250.00.4 In Criminal Case No. 1192-M-95: That in or about the months of June to November, 1994, in the municipality of Pulilan, province of Bulacan, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, by means of deceit, false pretenses and fraudulent manifestations, and pretending to have sufficient funds with the Allied Bank and Planters Bank, Plaridel Branch, did then and there willfully, unlawfully and feloniously, prepared, issue and make out the following checks to wit: BANK Allied Bank -do-do-doCHECK NO. 16083115 16063578 16063577 16076436 DATE 12-3-94 12-6-94 12-6-94 AMOUNT P 2,500.00 50,000.00 2,500.00

12-13-94 2,500.00 12-13-94 2,500.00 P60,000.00

Planters Bank 116202

(Total Amount Supplied)

drawn against the said banks, and deliver the said checks to one Manolito G. Eusebio as exchange for cash received from the said Manolito G. Eusebio, knowing fully well that at the time the checks were issued, her representations were false for she had no sufficient funds in the said bank, so much so, that upon presentation of the said checks with the said banks for deposit or encashment, the same were dishonored and refused payment for having been drawn against a "Closed Account" and inspite of repeated demands to deposit with the said banks the total amount of P60,000.00, the said accused failed and refused to do so, to the damage and prejudice of the said Manolito G. Eusebio in the said total amount of P60,000.00.5 The private complainants, Teresita Eusebio, Amelia Casanova and Manolito Eusebio, are petitioners aunt and cousins, respectively. On May 15, 1994, petitioner visited her Aunt Teresita in Bulacan to borrow P50,000.00, in exchange for which she issued an Allied Bank Check No. 16076401, postdated November 15,

1994, in the amount of P52,500.00. On May 30, 1994, petitioner again borrowed from Teresita the amount of P100,000.00, in exchange for which she issued Allied Bank Check No. 16076402, postdated November 14, 1994, in the amount of P105,000.00. Also on May 30, 1994, Amelia Casanova went to the drugstore of petitioner and lent her the amount of P100,000.00, allegedly to be used for the expansion of her business. In exchange, petitioner issued Allied Bank Check No. 16041982, postdated November 30, 1994, for P100,000.00 and six other checks in various amounts purportedly to cover the interests. Manolito Eusebio alleges that in November 1994, petitioner borrowed money from him because she needed it for her pharmaceutical business. Manolito loaned her P50,000.00, for which she issued Allied Bank Check No. 16063578 covering the principal amount of the loan, dated December 6, 1994, and four other postdated checks for the interests thereon. According to private complainants, petitioner assured them that the checks will be honored upon maturity. They gave her the money because she showed them her pieces of jewelry which convinced them that she has the ability to pay the loans. In her defense, petitioner admits that she issued the checks but alleges that it was not done to defraud her creditors. She claims that her dealings with private complainants started in 1987 with her uncle Alberto, the husband of complainant Teresita and the father of Amelia and Manolito. Although her uncle died in 1989, she continued to make good the value of the postdated checks she issued until 1990. Finally, she asserts that she is an educated woman and she never had any intention to deceive the private complainants. After trial, the lower court rendered a joint decision finding petitioner guilty beyond reasonable doubt of three counts of Estafa but ruled that her liability for the "interest checks" was only civil. The dispositive portion of the decision reads: In Criminal Case No. 1190-M-95: PREMISES CONSIDERED the complainant in Criminal Case No. 1190-M-95 wherein the complainant is one Amelia Casanova was able to prove beyond reasonable doubt the culpability of herein accused because she would not have parted with her P100,000.00 if not for the assurance that the check issued was properly funded. WHEREFORE, the Court hereby renders judgment finding accused ELIZABETH E. CALDERON of Poblacion, Pulilan, Bulacan guilty beyond reasonable doubt of the crime of Estafa defined and penalized under Par. 2 (d) of Art. 315, Revised Penal Code as amended by P.D. 818 and sentencing the said accused as follows: 1. To suffer an indeterminate sentence of imprisonment of nine (9) years and one (1) day of PRISION MAYOR as minimum to SEVENTEEN (17) YEARS FOUR (4) months and one (1) day of RECLUSION TEMPORAL as maximum; 2. To suffer the accessory penalties provided by law; 3. To pay the cost; and

4. To indemnify the complainant Amelia Casanova the sum of P100,000.00. (Exh. "A") Necessarily, the other checks exhibits "B", "C", "D", "E", "F" and "G" in the amount of P5,000.00, P5,000.00, P4,400.00, P4,500.00, P9,500.00 and P 2,500.00 respectively in the total amount of P30,900.00 is hereby DISMISSED the same being civil in nature and are interest of transaction other than the principal amount of P100,000.00.6 In Criminal Case No. 1191-M-95: PREMISES CONSIDERED, the court finds accused Elizabeth Calderon guilty beyond reasonable doubt of the crime of ESTAFA defined and penalized under Par. 2 (d) of Art. 315, Revised Penal Code as amended by P.D. 818 sentencing the said accused as follows: 1. To suffer an indeterminate sentence of imprisonment of Ten (10) years and One (1) day of PRISION MAYOR as minimum to seventeen (17) years FOUR (4) months and one (1) day of RECLUSION TEMPORAL as maximum; 2. To suffer the accessory penalties provided by law; 3. To pay the cost; and 4. To indemnify the complainant Teresita Eusebio the sum of P157,500.00 representing the two checks, exhibits "A" and "B".7 In Criminal Case No. 1192-M-95: WHEREFORE, the court hereby renders judgment finding accused Elizabeth Calderon guilty beyond reasonable doubt of the Crime of ESTAFA defined and penalized under Par. 2 (d) of Art. 315 of the Revised Penal Code as amended by P.D. 818 and sentencing the said accused as follows: 1. To suffer an indeterminate sentence of imprisonment of FOUR (4) years 2 months and one (1) day of PRISION CORRECCIONAL as minimum to eight (8) years and one (1) day of PRISION MAYOR; 2. To suffer the accessory penalties provided by law; 3. To pay the costs; and 4. To indemnify the complainant Manolito Eusebio the sum of P50,000.00. The other checks exhibit "B" to "E" are hereby DISMISSED.8 The trial court denied petitioners Motion for Reconsideration for lack of merit.9 Hence, petitioner appealed the judgment of the trial court to the Court of Appeals. In its Decision dated April 30, 2001, the Court of Appeals disposed of the appeal as follows:

WHEREFORE, the Decision appealed from in so far as it bears on the criminal liability of the accused is REVERSED and SET ASIDE and a new judgment is issued ACQUITTING the accused of the crimes charged on the ground that her guilt has not been proven beyond reasonable doubt. However, she is held civilly liable as follows: In Criminal Case No. 1190-M-95: To indemnify Amelia Casanova the total amount of P130,900.00; In Criminal Case No. 1191-M-95: To indemnify Teresita Eusebio the total amount of P172,250.00; In Criminal Case No. 1192-M-95: To indemnify Manolito Eusebio the total amount of P60,000.00; all with interest thereon at the rate of 12% per annum effective December 20, 1994, the date of complainants demand thru their counsel, until fully paid, and to pay costs. SO ORDERED.10 In the instant petition for review, petitioner raises the following errors: 1. The Honorable Court of Appeals failed to consider that on the face of the Decision rendered by the Presiding Judge of RTC Branch 17, Malolos City, that interest checks were dismissed but found the appellant guilty with respect to the principal loan checks in the three cases above mentioned. 2. The Honorable Court of Appeals failed to consider that the whole transactions that transpired between appellant and private appellees covered a period lasting in years whereby private appellees charged appellant highly usurious interests which under current jurisprudence maintains that usurious interests are void. 3. With utmost due respect, the Honorable Court of Appeals failed to consider that under the sorry state of affairs which petitioner experienced when the instant three criminal cases were pending before RTC Branch 79, Malolos City, that private respondents should have filed a separate civil complaint for their alleged claim of Sum of Money.11 The issues for resolution are as follows: (1) Did the Court of Appeals err in finding the appellant civilly liable to complainants with respect to the interest in the principal loan despite the dismissal of the interest checks by the Regional Trial Court? (2) Is the interest agreed upon by the parties usurious? (3) Should the private respondents file a separate civil complaint for the claim of Sum of Money? We find the petition meritorious. Since the 1st and 3rd issues are interrelated they shall be discussed jointly. In a criminal case, an appeal throws the whole case wide open for review. Issues whether raised or not by the parties may be resolved by the appellate court.12 When petitioner appealed her conviction, the dismissal of the interest checks by the lower court did not preclude the Court of Appeals from reviewing such decision and modifying her civil liability. The appeal conferred

upon the appellate court full jurisdiction and rendered it competent to examine the records, revise the judgment appealed from, increase the penalty and cite the proper provision of the penal law.13 Under Article 29 of the Civil Code, when the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proven beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. The judgment of acquittal extinguishes the liability of the accused for damages only when it includes a declaration that the fact from which the civil liability might arise did not exist.14 Thus, Section 1, paragraph (a) of Rule 111 of the Rules of Court provides: SECTION 1. Institution of criminal and civil actions. (a) When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action. In the case of Manantan v. Court of Appeals,15 we elucidated on the two kinds of acquittal recognized by our law as well as its different effects on the civil liability of the accused. Thus: x x x. First is an acquittal on the ground that the accused is not the author of the act or omission complained of. This instance closes the door to civil liability, for a person who has been found to be not the perpetrator of any act or omission cannot and can never be held liable for such act or omission. There being no delict, civil liability ex delicto is out of the question, and the civil action, if any, which may be instituted must be based on grounds other than the delict complained of. This is the situation contemplated in Rule 111 of the Rules of Court. The second instance is an acquittal based on reasonable doubt on the guilt of the accused. In this case, even if the guilt of the accused has not been satisfactorily established, he is not exempt from civil liability which may be proved by preponderance of evidence only. This is the situation contemplated in Article 29 of the Civil Code, x x x. An accused who is acquitted of Estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant.16 Petitioner Elizabeth Calderon is clearly liable to the private respondents for the amount borrowed. The Court of Appeals found that the former did not employ trickery or deceit in obtaining money from the private complainants, instead, it concluded that the money obtained was undoubtedly loans for which petitioner paid interest. The checks issued by petitioner as payment for the principal loan constitute evidence of her civil liability which was deemed instituted with the criminal action. The civil liability of petitioner includes only the principal amount of the loan. With respect to the interest checks she issued, the same are void. There was no written proof of the payable interest except for the verbal agreement that the loan shall earn 5% interest per month. Under Article 1956 of the Civil Code, an agreement as to payment of interest must be in writing, otherwise it cannot be valid.17 Consequently, no interest is due and the interest checks she issued should be eliminated from the computation of her civil liability. However, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code.18 It is elementary that in the absence of a stipulation as to interest, the loan due will now earn interest at the legal rate of 12% per annum.19 In the case of Eastern

Shipping Lines, Inc. v. Court of Appeals,20 we established the guidelines particularly for the award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof 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 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. (Emphasis supplied) Hence, petitioner is liable for the payment of legal interest per annum to be computed from December 20, 1994, the date when she received the demand letter. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall earn interest at 12% per year, the interim period being deemed equivalent to a forbearance of credit.21 In view of our ruling that there can be no stipulated interest in this case, there is no need to pass upon the second issue of whether or not the interests were usurious. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA-G.R. CR No. 23466 isAFFIRMED with the MODIFICATION that petitioner is ordered to pay Amelia Casanova the sum of P100,00.00; Teresita Eusebio the sum of P157,500.00; and Manolito Eusebio the sum of P50,000.00 as civil liability with legal interest of twelve percent (12%) per annum from December 20, 1994 until its satisfaction. Costs de oficio. SO ORDERED.

G.R. No. 152202

July 28, 2006

CRISOSTOMO ALCARAZ, petitioner vs. COURT OF APPEALS and EQUITABLE CREDIT CARD NETWORK, INC., respondent. PUNO, J.: Assailed before this Court in a Petition for Review on Certiorari is the decision of the Court of Appeals in CA-G.R. CV No. 65911, entitled Equitable Credit Card Network, Inc. v. Crisostomo Alcaraz, affirming the decision of Branch 147 of the Regional TrialCourt of Makati City. The case stemmed from an action for the collection of sum of money. The facts of this case are undisputed.

Private respondent, Equitable Credit Card Network, Inc. (Equitable), is a company engaged in the business of extending credit accommodations/facilities through the use of the credit cards issued to its clientele. Through these credit cards, cash advances may be availed from automated teller machines or ATMs, and goods or services may be purchased on credit from accredited merchant shops.[1] In May 1995, private respondent Equitable issued a credit card, Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 49210100-0743-2005 with peso and dollar accounts/facilities, to petitioner Crisostomo Alcaraz. The petitioner through the use of the said credit card secured cash advances and purchased goods and services on credit with private respondent Equitables affiliated merchant establishments.[2] Thus, the petitioner accumulated unpaid credit with private respondent and despite the receipt of several demand letters, failed to pay his outstanding obligations.[3] In its complaint before the lower court, private respondent Equitable sought the payment of the accumulated outstanding balance including interest of 2.5% per month as well as a monthly late penalty/surcharge of 1.5% for the peso account, and 1.5% monthly interest and 1% late penalty/surcharge per month for the dollar account until full payment thereof as provided in the Terms and Conditions Governing the Issuance and Use of Equitable Visa Card (hereinafter referred to as the Terms and Conditions). The private respondent also prayed for liquidated damages of 25% of the total amount of both accounts and attorneys fees at the same rate allegedly also in accordance with the Terms and Conditions.[4] Private respondent Equitable claims petitioner Alcaraz has an accumulated outstanding balance of US$8,970.54 in his dollar account as of February 18, 1999, and P192,500.00 on his peso account as of February 28, 1999inclusive of interest and surcharges.[5] The petitioner admitted he had made use of the credit card issued in his name by private respondent Equitable, but contested the amount of his liability. Petitioner alleged that he was issued the credit card as an honorary member. As such, he was not required to submit any application or sign any document prior to the issuance of the card and he was entitled to pay on an installment basis without any interest. He denied signing the document Terms and Conditions Governing the Issuance and Use of Equitable Visa Card. PetitionerAlcaraz further alleged that prior to the filing of the complaint, he formally requested for a reconciliation of his accounts with the private respondent but the same has remained unanswered until the present day. Thus, the case filed against him was premature.

After several postponements of the pretrial conference, the trial court declared petitioner Alcaraz as in default upon motion of private respondent Equitable and allowed the latter to present its evidence ex parte.[6] After the private respondents presentation of evidence which included the testimony of its sole witness, one of its collection officers, and the submission of documents, the court ruled in favor of private respondent Equitable. It, however, rejected private respondent Equitables claim for liquidated and exemplary damages.[7] Petitioner Alcaraz filed a Motion for New Trial which was denied.[8] The petitioner elevated the case to the appellate court. The Court of Appeals partially affirmed the decision of the trial court. It modified the trial courts judgment by ordering petitioner Alcaraz to pay private respondent Equitable the principal amount of P81,000.00, on his peso account, and the amount of US$4,397.34 or its peso equivalent, on his dollar account with 12% annual interest from June 25, 1996 until full payment thereof. The appellate court likewise reduced the amount of attorneys fees to P20,000.00.[9] Undaunted, petitioner comes to this Court via a petition for review on certiorari raising the following issues: (1) whether the trial court violated the petitioners right to due process when the private respondent was allowed to present its evidence ex parte; and (2) whether the monetary award ordered by the Court of Appeals is in accord with the evidence, and applicable law and jurisprudence. The petition is without merit. Petitioner Alcaraz laments that the trial court did not postpone and reschedule the pretrial conference on February 23, 1999 despite the manifestation of petitioners wife that petitioner Alcaraz suffered a stroke which rendered him paralyzed while Atty. Ben Ibuyan, the petitioners counsel, suffered from a lingering gall bladder ailment. Instead, upon motion of private respondent Equitable, the trial court declared the petitioner as in default and allowed the private respondent to present its evidence ex-parte.[10] Petitioner Alcaraz also charge the trial court with arbitrariness and of depriving him of the right to have the case against him heard before an impartial judge or tribunal. In support of his allegations, he maintains that, aside from brushing aside the clearly meritorious reasons for his and his counsels absence on the February 23, 1999 pretrial conference, the trial court judge and its personnel have shown their bias against him in several occasions such as the alleged difficulty his counsel encountered in filing a Motion for New Trial.[11] With regard to the first issue, it is well-settled that this Court is not a trier of facts. This Court accords due respect to the findings of the trial court and the appellate court save in clearly exceptional cases.[12] This case, however, does not fall within those exceptions. The trial court clearly has the discretion on whether to grant or deny a motion to postpone and/or reschedule the pretrial conference in accordance with the circumstances then obtaining in the case. [13] This must be so as it is the trial court which was able to witness firsthand the events as they unfolded in the trial of a case. Postponements, while permissible, must not be countenanced except for

clearly meritorious grounds and in light of the attendant circumstances. [14] The trial courts discretion on this matter, however, is not unbridled. The trial courts are well advised to reasonably and wisely exercise such discretion. This Court will not hesitate to strike down clearly arbitrary acts or orders of the lower court. This, however, is not the situation in this case. While it is true that private respondent Equitable and inclement weather have on occasion caused the postponement of the pretrial conference, the repeated resetting of the pretrial conference was primarily due to the petitioner. As to the reasons proffered by the petitioners wife at the February 23, 1999 pretrial conference, we agree with the findings of the trial court and the Court of Appeals. Under the Rules of Court, both the parties and their counsels are mandated to appear in the pretrial conference.[15] If the parties opt not to be present, their counsel must be armed with a special power of attorney specifically for the purpose. This must be so as the pretrial conference is primarily for the purpose of exploring the possibility of a compromise, or on the failure thereof, for the parties to make certain admissions and stipulations in order to facilitate a more efficient proceeding at the trial proper.[16] In the case at bar, both petitioner Alcaraz and his counsel did not appear at the scheduled pretrial. Instead, it was the petitioners wife alone who made the verbal manifestation on behalf of her husband and his counsel while presenting an unverified medical certificate on the latters behalf. As correctly observed by the Court of Appeals, the records are bereft of any medical certificate, verified or unverified, in the name of petitioner Alcaraz to establish the cause of his absence at the pretrial conference.[17] Even assumingarguendo that petitioner Alcaraz and Atty. Ibuyans absence on the February 23, 1999 pretrial conference is due to justifiable causes, the petitioner is represented by a law firm and not by Atty. Ibuyan alone. As such, any of the latters partners or associates could have appeared before the court and participate in the pretrial or at least make the proper motion for postponement if necessary. A charge of arbitrariness and bias against the trial court, in this case against the judge as well as all the court personnel, is a serious charge that must be substantiated. Bare allegations of partiality will not suffice. It must be shown that the trial court committed acts or engaged in conduct clearly indicative of bias or pre-judgment against a party. The petitioner failed to do so in this case. The disallowance of a motion for postponement is not sufficient to show arbitrariness and partiality of the trial court. As this Court ruled in the case of Gochan v. Gochan,[18] to wit: . . . . A motion for continuance or postponement is not a matter of right, but a request addressed to the sound discretion of the court. Parties asking for postponement have absolutely no right to assume that their motions would be granted. Thus, they must be prepared on the day of the hearing. Given this rule, the question of the correctness of the denial of respondents requests for postponements was addressed to the sound discretion of Judge Dicdican. His action thereon cannot be disturbed by appellate courts in the absence of any clear and manifest abuse of discretion resulting in a denial of substantial justice. Since there was no

such finding with regard to the disallowance of the requests for postponement, the CA [Court of Appeals] cannot overturn the decision of the judge. Much less can it assume his bias and partiality based merely on the denial of the requests for postponement.[19]

With regard to the second issue, the petitioner never disputed his use of the credit card issued to him by the private respondent. While he maintains that there is a great disparity between the amount of credit he availed of and what was actually being collected from him by the private respondent, nowhere in the records of this case, however, did petitioner Alcaraz contest any specific purchase or cash advance charged to the credit card, whether the peso or the dollar account. While the petitioner did request the private respondent in writing for a computation of his outstanding balance, the petitioner likewise in the very same letter offered to pay his outstanding obligations in twelve (12) equal monthly installments.[20] Private respondent Equitable responded by proposing that the amount due as stated in the statement of accounts sent to the petitioner instead be paid in six (6) equal monthly installments.[21] Petitioner Alcaraz likewise made partial payments before and after he made the proposed payment scheme to the private respondent. Clearly, what the petitioner contests is the application of the interests, penalties and other charges as provided for in the Terms and Conditions when he never signed nor conformed to the said document. Petitioner Alcaraz likewise claims that the contested provisions are not applicable to him because he was considered an honorary member who is entitled to pay for his credit purchases and cash advances on an installment basis free of any interest. The petitioner asserts that the honorary status given to him was evidenced by the fact that private respondent Equitable issued the credit card in his name without the necessity of any application or document submitted and signed by him prior to such issuance.[22] Private respondent Equitable, on the other hand, avers that while petitioner Alcaraz did not file or sign an application for the credit card, this did not exempt him from the provisions of the Terms and Conditions. Petitioners claim of honorary membership which allegedly entitles him to pay his obligations on an interest-free installment basis is fallacious and groundless.[23] Private respondent Equitable contends that the waiver of the filing of an application simply means that petitioner Alcaraz has been pre-screened. Such a status is conferred on a person by virtue of his good credit standing or upon recommendation of a reputable client or officer of private respondent Equitable. It is private respondent Equitables assertion that by signing the credit card and subsequently using the same, the petitioner has agreed to the Terms and Conditions and any amendment thereto as stated in the back of the credit card itself.[24] Except from his bare assertions that the non-filing of application entitles him to pay for his credit card obligations free of interest on an installment basis, the petitioner was not able to show that it was in fact the agreement between him and the private respondent or that the same is the policy and/or practice of the latter. The evidence sustains the claim of private respondent Equitable that petitioner Alcaraz is what is known as a pre-screened client. When a client is classified as pre-screened, the usual screening procedures of prospective cardholders, such as the filing of an application form and

submission of other relevant documents prior to the issuance of a credit card, are dispensed with and the credit card is issued outright. Upon receipt of the card, the pre-screened client has the option of accepting or rejecting the credit card. In the case at bar, petitioner Alcaraz signified his acceptance of the credit card by signing and subsequently using the same. This, however, without more, does not confer honorary membership status to the petitioner. We come now to the application of the provisions of the Terms and Conditions, particularly the interest rates, penalties and surcharges, to petitioner Alcaraz. It is the petitioners contention that since he never signed an application form or any other document containing the Terms and Conditions, the same should not be applied to him as it violates one of the most essential and basic tenets of contract law which is consent. It is petitioner Alcarazs position that he is not bound by the Terms and Conditions as he never signed it. Private respondent Equitable, on the other hand, claims that at the back of the credit card itself the following is stated: By signing or using this card, the holder agrees to be bound by Equitable Banks Credit Card Agreement, all future amendments thereto. . . .[25] The private respondent maintains that the above stipulation is a standard clause printed at the back of each credit card that it issued and that the Agreement mentioned therein refers to the Terms and Conditions which governs the use of the credit card as contained in private respondent Equitables standard application form.[26] Thus, by signing the back of the credit card, petitioner Alcaraz has explicitly consented to the Terms and Conditions including the applicable interests, service fees, attorneys fees and liquidated damages in the event of nonpayment within the period stated in the statements of account regularly sent every month to the petitioner. It is a basic rule of evidence that a party has the burden of proving his own affirmative allegations.[27] In the instant case, private respondent Equitable has the burden of proving the material allegations of its complaint with the requisite quantum of evidence. One such material allegation is the applicability of the provisions of the Terms and Conditions to petitioner Alcaraz. In support thereof private respondent Equitable presented a copy of the Terms and Conditions as contained in its standard application form[28] and a copy of its Visa Card issued to another client in order to show the alleged standard stipulation printed at the back of the card.[29] The standard application form presented to the court does not bear the signature of the petitioner. In fact, as admitted by private respondent Equitable, petitioner Alcaraz, as a prescreened client, did not submit or sign any application form or document prior to the issuance of the credit card. Neither is there any evidence on record that the petitioner was shown a copy of the Terms and Conditions before or after the issuance of the credit card in his name, much less that he has given his consent thereto. As correctly pointed out by the Court of Appeals, the petitioner should not be condemned to pay the interests and charges provided in the Terms and Conditions on the mere claim of the private respondent without any proof of the formers conformity and acceptance of the stipulations contained therein.[30] Even if we are to accept the

private respondents averment that the stipulation quoted earlier is printed at the back of each and every credit card issued by private respondent Equitable, such stipulation is not sufficient to bind the petitioner to the Terms and Conditions without a clear showing that the petitioner was aware of and consented to the provisions of this document. This, the private respondent failed to do. It is, however, undeniable that petitioner Alcaraz accumulated unpaid obligations both in his peso and dollar accounts through the use of the credit card issued to him by private respondent Equitable. As such, petitioner Alcaraz is liable for the payment thereof. Since the provisions of the Terms and Conditions are inapplicable to petitioner Alcaraz, the legal interest on obligations consisting of loan or forbearance of money shall apply. As this Court ruled in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,[31] to wit: 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.[32] .... 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] In the present case, the records reveal that the principal amount of the obligation on the peso account of the subject credit card as of March 17, 1996 is P81,000.00,[34] while the dollar account of the same credit card has an unpaid balance of $4,397.34 exclusive of any interests, penalties and other charges as of March 3, 1996.[35] The extrajudicial demand for payment for the dollar account was made on June 25, 1996 by virtue of a letter sent to and duly received by the petitioner. The June 25, 1996 demand letter was, however, silent on the unpaid balance on the peso account. The records likewise reveal that it was only on October 5, 1996 that private respondent Equitable may be deemed to have extrajudicially demanded payment of the outstanding obligation of petitioner Alcaraz on his peso account. Hence, it is only from the aforesaid dates that the legal rate of interest shall apply on the dollar and peso accounts, respectively, until full payment thereof. IN VIEW WHEREOF, the petition is DISMISSED and the February 11, 2002 decision of the Court of Appeals is AFFIRMED with MODIFICATIONS and the petitioner is ordered to pay the following:

1. on the peso account of Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 4921-0100-0743-2005, the principal amount of P81,000.00 with interests thereon at the rate of 12% per annum from October 5, 1996 until full payment thereof; 2. on the dollar account of Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 4921-0100-0743-2005, the principal amount of $4,397.34 with interests thereon at the rate of 12% per annum from June 25, 1996 until the said amount is paid in full; and 3. the amount of P20,000.00 as and by way of attorneys fees.

No costs. SO ORDERED.

G.R. No. 113412 April 17, 1996 Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA, petitioner, vs. THE COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents. KAPUNAN, J.:p On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses Ponciano L. Almeda and Eufemia P. Almeda several loan/credit accommodations totaling P18.0 Million pesos payable in a period of six years at an interest rate of 21% per annum. To secure the loan, the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500 square meter parcel of land, together with the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila. A credit agreement embodying the terms and conditions of the loan was executed between the parties. Pertinent portions of the said agreement are quoted below: SPECIAL CONDITIONS xxx xxx xxx The loan shall be subject to interest at the rate of twenty one per cent (21%) per annum, payable semi-annually in arrears, the first interest payment to become due and payable six (6) months from date of initial release of the loan. The loan shall likewise be subject to the appropriate service charge and a penalty charge of three per cent (30%) per annum to be imposed on any amount remaining unpaid or not rendered when due. xxx xxx xxx III. OTHER CONDITIONS

(c) Interest and Charges (1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate. 1 Between 1981 and 1984, petitioners made several partial payments on the loan totaling. P7,735,004.66, 2 a substantial portion of which was applied to accrued interest. 3 On March 31, 1984, respondent bank, over petitioners' protestations, raised the interest rate to 28%, allegedly pursuant to Section III-c (1) of its credit agreement. Said interest rate thereupon increased from an initial 21% to a high of 68% between March of 1984 to September, 1986. 4 Petitioner protested the increase in interest rates, to no avail. Before the loan was to mature in March, 1988, the spouses filed on February 6, 1988 a petition for declaratory relief with prayer for a writ of preliminary injunction and temporary restraining order with the Regional Trial Court of Makati, docketed as Civil Case No. 18872. In said petition, which was raffled to Branch 134 presided by Judge Ignacio Capulong, the spouses sought clarification as to whether or not the PNB could unilaterally raise interest rates on the loan, pursuant to the credit agreement's escalation clause, and in relation to Central Bank Circular No. 905. As a preliminary measure, the lower court, on March 3, 1988, issued a writ of preliminary injunction enjoining the Philippine National Bank from enforcing an interest rate above the 21% stipulated in the credit agreement. By this time the spouses were already in default of their loan obligations. Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB countered by ordering the extrajudicial foreclosure of petitioner's mortgaged properties and scheduled an auction sale for March 14, 1989. Upon motion by petitioners, however, the lower court, on April 5, 1989, granted a supplemental writ of preliminary injunction, staying the public auction of the mortgaged property. On January 15, 1990, upon the posting of a counterbond by the PNB, the trial court dissolved the supplemental writ of preliminary injunction. Petitioners filed a motion for reconsideration. In the interim, respondent bank once more set a new date for the foreclosure sale of Marvin Plaza which was March 12, 1990. Prior to the scheduled date, however, petitioners tendered to respondent bank the amount of P40,142,518.00, consisting of the principal (P18,000,000.00) and accrued interest calculated at the originally stipulated rate of 21%. The PNB refused to accept the payment. 5 As a result of PNB's refusal of the tender of payment, petitioners, on March 8, 1990, formally consigned the amount of P40,142,518.00 with the Regional Trial Court in Civil Case No. 90-663. They prayed therein for a writ of preliminary injunction with a temporary restraining order. The case was raffled to Branch 147, presided by Judge Teofilo Guadiz. On March 15, 1990, respondent bank sought the dismissal of the case.

On March 30, 1990 Judge Guadiz in Civil Case No. 90-663 issued an order granting the writ of preliminary injunction enjoining the foreclosure sale of "Marvin Plaza" scheduled on March 12, 1990. On April 17, 1990 respondent bank filed a motion for reconsideration of the said order. On August 16, 1991, Civil Case No. 90-663 we transferred to Branch 66 presided by Judge Eriberto Rosario who issued an order consolidating said case with Civil Case 18871 presided by Judge Ignacio Capulong. For Judge Ignacio's refusal to lift the writ of preliminary injunction issued March 30, 1990, respondent bank filed a petition for Certiorari, Prohibition and Mandamus with respondent Court of Appeals, assailing the following orders of the Regional Trial Court: 1. Order dated March 30, 1990 of Judge Guadiz granting the writ of preliminary injunction restraining the foreclosure sale of Mavin Plaza set on March 12, 1990; 2. Order of Judge Ignacio Capulong dated January 10, 1992 denying respondent bank's motion to lift the writ of injunction issued by Judge Guadiz as well as its motion to dismiss Civil Case No. 90-663; 3. Order of Judge Capulong dated July 3, 1992 denying respondent bank's subsequent motion to lift the writ of preliminary injunction; and 4. Order of Judge Capulong dated October 20, 1992 denying respondent bank's motion for reconsideration. On August 27, 1993, respondent court rendered its decision setting aside the assailed orders and upholding respondent bank's right to foreclose the mortgaged property pursuant to Act 3135, as amended and P.D. 385. Petitioners' Motion for Reconsideration and Supplemental Motion for Reconsideration, dated September 15, 1993 and October 28, 1993, respectively, were denied by respondent court in its resolution dated January 10, 1994. Hence the instant petition. This appeal by certiorari from the respondent court's decision dated August 27, 1993 raises two principal issues namely: 1) Whether or not respondent bank was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement; and 2) Whether or not respondent bank is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions of P.D. 385. In its comment dated April 19, 1994, respondent bank vigorously denied that the increases in the interest rates were illegal, unilateral, excessive and arbitrary, it argues that the escalated rates of interest it imposed was based on the agreement of the parties. Respondent bank further contends that it had a right to foreclose the mortgaged property pursuant to P.D. 385, after petitioners were unable to pay their loan obligations to the bank based on the increased rates upon maturity in 1984. The instant petition is impressed with merit.

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. 6 Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid. It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without the prior assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest, subject to a possible escalation or deescalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by law; and 3) upon agreement. Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in this case was the 21% rate stipulated in the interest provision. Any doubt about this is in fact readily resolved by a careful reading of the credit agreement because the same plainly uses the phrase "interest rate agreed upon," in reference to the original 21% interest rate. The interest provision states: (c) interest and Charges (1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate. In Philippine National Bank v. Court of Appeals, 7 this Court disauthorized respondent bank from unilaterally raising the interest rate in the borrower's loan from 18% to 32%, 41% and 48% partly because the aforestated increases violated the principle of mutuality of contracts expressed in Article 1308 of the Civil Code. The Court held: CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates . . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law. but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such changes to once every twelve months.

Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code: Art. 308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or lease it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. PNB's successive increases of the interest rate on the private respondent's loan, over the latter's protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment." The increases imposed by PNB also contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has been expressly stipulated in writing." The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24%per annum, hence, he is not bound to pay a higher rate than that. That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive, as found by the Court of Appeals, is indisputable. Clearly, the galloping increases in interest rate imposed by respondent bank on petitioners' loan, over the latter's vehement protests, were arbitrary. Moreover, respondent bank's reliance on C.B. Circular No. 905, Series of 1982 did not authorize the bank, or any lending institution for that matter, to progressively increase interest rates on borrowings to an extent which would have made it virtually impossible for debtors to comply with their own obligations. True, escalation clauses in credit agreements are perfectly valid and do not contravene public policy. Such clauses, however, (as are stipulations in other contracts) are nonetheless still subject to laws and provisions governing agreements between parties, which agreements while they may be the law between the contracting parties implicitly incorporate provisions of existing law. Consequently, while the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as

granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets. Borrowing represents a transfusion of capital from lending institutions to industries and businesses in order to stimulate growth. This would not, obviously, be the effect of PNB's unilateral and lopsided policy regarding the interest rates of petitioners' borrowings in the instant case. Apart from violating the principle of mutuality of contracts, there is authority for disallowing the interest rates imposed by respondent bank, for the credit agreement specifically requires that the increase be "within the limits allowed by law". In the case of PNB v. Court of Appeals, cited above, this Court clearly emphasized that C.B. Circular No. 905 could not be properly invoked to justify the escalation clauses of such contracts, not being a grant of specific authority. Furthermore, the escalation clause of the credit agreement requires that the same be made "within the limits allowed by law," obviously referring specifically to legislative enactments not administrative circulars. Note that the phrase "limits imposed by law," refers only to the escalation clause. However, the same agreement allows reduction on the basis of law or the Monetary Board. Had the parties intended the word "law" to refer to both legislative enactments and administrative circulars and issuances, the agreement would not have gone as far as making a distinction between "law or the Monetary Board Circulars" in referring to mutually agreed upon reductions in interest rates. This distinction was the subject of the Court's disquisition in the case of Banco Filipino Savings and Mortgage Bank v. Navarro 8 where the Court held that: What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN from 12% to 17% per annum under the Escalation Clause. It is our considered opinion that it may not. The Escalation Clause reads as follows: I/We hereby authorize Banco Filipino to correspondingly increase. the interest rate stipulated in this contract without advance notice to me/us in the event. a law increasing the lawful rates of interest that may be charged on this particular kind of loan. (Paragraphing and emphasis supplied) It is clear from the stipulation between the parties that the interest rate may be increased "in the event a law should be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan." The Escalation Clause was dependent on an increase of rate made by "law" alone.

CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is not strictly a statute or a law, it has, however, the force and effect of law." (Emphasis supplied). "An administrative regulation adopted pursuant to law has the force and effect of law." "That administrative rules and regulations have the force of law can no longer be questioned." The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the latter to the BORROWER of Ms. Paderes of September 24, 1976 (supra). According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the maximum rate for loans." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law." The distinction is again recognized by P.D. No. 1684, promulgated on March 17, 1980, adding section 7-a to the Usury Law, providing that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased "by law or by the Monetary Board." To quote: Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board: Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; Provided, further, That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.' (Paragraphing and emphasis supplied). It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board." Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the tenor of their credit agreement. That an increase in interest rates from 18% to as much as 68% is excessive and unconscionable is indisputable. Between 1981 and 1984, petitioners had paid an amount equivalent to virtually half of the entire principal (P7,735,004.66) which was applied to interest alone. By the time the spouses tendered the

amount of P40,142,518.00 in settlement of their obligations; respondent bank was demanding P58,377,487.00 over and above those amounts already previously paid by the spouses. Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds. 9 Here, as clearly demonstrated above, not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable, but also there are no valid and reasonable standards upon which the increases are anchored. We go now to respondent bank's claim that the principal issue in the case at bench involves its right to foreclose petitioners' properties under P.D. 385. We find respondent's pretense untenable. Presidential Decree No. 385 was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the government's development projects all over the country by large borrowers who resort to litigation to prevent or delay the government's collection of their debts or loans.10 In facilitating collection of debts through its automatic foreclosure provisions, the government is however, not exempted from observing basic principles of law, and ordinary fairness and decency under the due process clause of the Constitution. 11 In the first place, because of the dispute regarding the interest rate increases, an issue which was never settled on merit in the courts below, the exact amount of petitioner's obligations could not be determined. Thus, the foreclosure provisions of P.D. 385 could be validly invoked by respondent only after settlement of the question involving the interest rate on the loan, and only after the spouses refused to meet their obligations following such determination. In Filipinas Marble Corporation v. Intermediate Appellate Court, 12 involving P.D. 385's provisions on mandatory foreclosure, we held that: We cannot, at this point, conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is "persuasive" evidence that such acts were committed by the respondent. This matter should rightfully be litigated below in the main action. Pending the outcome of such litigation, P.D. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan, even if only in part, then the foreclosure of the petitioner's properties under the provisions of P.D. 385 to satisfy the whole amount of the loan would be a gross mistake. It would unduly prejudice the petitioner, its employees and their families. Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not, for the benefit of the petitioner be determined. Consequently, the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P.D. 385 will have to await the presentation of evidence in a trial on the merits. In Republic Planters Bank v. Court of Appeals 13 the Court reiterating the dictum in Filipinas Marble Corporation, held:

The enforcement of P.D. 385 will sweep under the rug' this iceberg of a scandal in the sugar industry during the Marcos Martial Law years. This we can not allow to happen. For the benefit of future generations, all the dirty linen in the PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in public so that the same may NEVER be repeated. It is of paramount national interest, that we allow the trial court to proceed with dispatch to allow the parties below to present their evidence. Furthermore, petitioners made a valid consignation of what they, in good faith and in compliance with the letter of the Credit Agreement, honestly believed to be the real amount of their remaining obligations with the respondent bank. The latter could not therefore claim that there was no honest-to-goodness attempt on the part of the spouse to settle their obligations. Respondent's rush to inequitably invoke the foreclosure provisions of P.D. 385 through its legal machinations in the courts below, in spite of the unsettled differences in interpretation of the credit agreement was obviously made in bad faith, to gain the upper hand over petitioners. In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring the parties to agree to changes in the interest rate in writing, we hold that the unilateral and progressive increases imposed by respondent PNB were null and void. Their effect was to increase the total obligation on an eighteen million peso loan to an amount way over three times that which was originally granted to the borrowers. That these increases, occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur business cannot be disputed. WHEREFORE, PREMISES CONSIDERED, the decision of the Court of Appeals dated August 27, 1993, as well as the resolution dated February 10, 1994 is hereby REVERSED AND SET ASIDE. The case is remanded to the Regional Trial Court of Makati for further proceedings. SO ORDERED.

G.R. No. 154878

March 16, 2007

CAROLYN M. GARCIA, Petitioner, vs. RICA MARIE S. THIO, Respondent. CORONA, J.: Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58. Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5 Thereafter, petitioner received from respondent every

month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995. In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11 According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.12 Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.161awphi1.nt Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17 She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioners request that respondent use her own checks instead of Santiagos.18 In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%:20 WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of: 1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid; 2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid. 3. P100,000.00 as and for attorneys fees; and 4. P50,000.00 as and for actual damages. For lack of merit, [respondents] counterclaim is perforce dismissed.

With costs against [respondent]. IT IS SO ORDERED.21 On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties: A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself. It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only onceto one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner]. With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied)22 Hence this petition.23 As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there werecontracts of loan) are contradictory.24 The petition is impressed with merit. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26 It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner respondent or Santiago? Petitioner insists that it was upon respondents instruction that both checks were made payable to Santiago.27 She maintains that it was also upon respondents instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.28 Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.29 We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.30 Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago. Several factors support this conclusion. First, respondent admitted that petitioner did not personally know Santiago.31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that time.32 Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should not be believed. Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated petitioners request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that: In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our

knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37 Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (Santiagos) creditors.38 Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The presumption is that "evidence willfully suppressed would be adverse if produced."40 Respondent was not able to overturn this presumption. We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans. We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 andP500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing." Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that: 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.41 Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioners demand letter.42 From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.43 The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since the RTC decision did not explain the factual bases for these damages. WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of actual damages and attorneys fees is deleted. SO ORDERED.

G.R. No. 160533

January 12, 2005

FIRST FIL-SIN LENDING CORPORATION, petitioner, vs. GLORIA D. PADILLO, respondent. YNARES-SANTIAGO, J.: Before us is a petition for review under Rule 45 of the Rules of Court, seeking a reversal of the Court of Appeals decision in CA-G.R. CV No. 751831 dated October 16, 2003, which reversed and set aside the decision of the Regional Trial Court of Manila, Branch 21 in Civil Case No. 0096235. On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending Corp. On September 7, 1997, respondent obtained another P500,000.00 loan from petitioner. In both instances, respondent executed a promissory note and disclosure statement.2 For the first loan, respondent made 13 monthly interest payments of P22,500.00 each before she settled the P500,000.00 outstanding principal obligation on February 2, 1999. As regards the second loan, respondent made 11 monthly interest payments of P25,000.00 each before paying the principal loan of P500,000.00 on February 2, 1999.3 In sum, respondent paid a total of P792,500.00 for the first loan and P775,000.00 for the second loan. On January 27, 2000, respondent filed an action for sum of money against herein petitioner before the Regional Trial Court of Manila. Alleging that she only agreed to pay interest at the rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per month, respondent sought to recover the amounts she allegedly paid in excess of her actual obligations. On October 12, 2001,4 the trial court dismissed respondents complaint, and on the counterclaim, ordered her to pay petitioner P311,125.00 with legal interest from February 3, 1999 until fully paid plus 10% of the amount due as attorneys fees and costs of the suit.5 The trial court ruled that by issuing checks representing interest payments at 4.5% and 5% monthly interest rates, respondent is now estopped from questioning the provisions of the promissory notes. On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court a quo, the dispositive portion of which reads: IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET ASIDE and a new one entered: (1) ordering First Fil-Sin Lending Corporation to return the amount of P114,000.00 to Gloria D. Padillo, and (2) deleting the award of attorneys fees in favor of appellee. Other claims and counterclaims are dismissed for lack of sufficient causes. No pronouncement as to cost. SO ORDERED.6 The appellate court ruled that, based on the disclosure statements executed by respondent, the interest rates should be imposed on a monthly basis but only for the 3-month term of the

loan.l^vvphi1.net Thereafter, the legal interest rate will apply. The CA also found the penalty charges pegged at 1% per day of delay highly unconscionable as it would translate to 365% per annum. Thus, it was reduced to 1% per month or 12% per annum. Hence, the instant petition on the following assignment of errors: I THE COURT OF APPEALS ERRED IN FINDING THAT THE APPLICABLE INTEREST SHOULD BE THE LEGAL INTEREST OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE. II THE COURT OF APPEALS ERRED IN IMPOSING A PENALTY COMPUTED AT THE RATE OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE. III THE COURT OF APPEALS ERRED IN DELETING THE ATTORNEYS FEES AWARDED BY THE REGIONAL TRIAL COURT.7 Petitioner maintains that the trial court and the CA are correct in ruling that the interest rates are to be imposed on a monthly and not on a per annum basis. However, it insists that the 4.5% and 5% monthly interest shall be imposed until the outstanding obligations have been fully paid. As to the penalty charges, petitioner argues that the 12% per annum penalty imposed by the CA in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate terms and conditions as they may deem proper. Petitioner finally contends that the CA erred in deleting the trial courts award of attorneys fees arguing that the same is anchored on sound and legal ground. Respondent, on the other hand, avers that the interest on the loans is per annum as expressly stated in the promissory notes and disclosure statements. The provision as to annual interest rate is clear and requires no room for interpretation. Respondent asserts that any ambiguity in the promissory notes and disclosure statements should not favor petitioner since the loan documents were prepared by the latter.1awphi1.nt We agree with respondent. Perusal of the promissory notes and the disclosure statements pertinent to the July 22, 1997 and September 7, 1997 loan obligations of respondent clearly and unambiguously provide for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that the interest rates shall be applied on a monthly basis. Thus, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as

they appear on the face of the contract.8 It is only in instances when the language of a contract is ambiguous or obscure that courts ought to apply certain established rules of construction in order to ascertain the supposed intent of the parties.l^vvphi1.net However, these rules will not be used to make a new contract for the parties or to rewrite the old one, even if the contract is inequitable or harsh. They are applied by the court merely to resolve doubts and ambiguities within the framework of the agreement.9 The lower court and the CA mistook the Loan Transactions Summary for the Disclosure Statement. The former was prepared exclusively by petitioner and merely summarizes the payments made by respondent and the income earned by petitioner. There was no mention of any interest rates and having been prepared exclusively by petitioner, the same is self serving. On the contrary, the Disclosure Statements were signed by both parties and categorically stated that interest rates were to be imposed annually, not monthly. As such, since the terms and conditions contained in the promissory notes and disclosure statements are clear and unambiguous, the same must be given full force and effect. The expressed intention of the parties as laid down on the loan documents controls.1a\^/phi1.net Also, reformation cannot be resorted to as the documents have not been assailed on the ground of mutual mistake. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord. His omission cannot be arbitrarily supplied by the courts by what their own notions of justice or equity may dictate.10 Notably, petitioner even admitted that it was solely responsible for the preparation of the loan documents, and that it failed to correct the pro forma note "p.a." to "per month".11 Since the mistake is exclusively attributed to petitioner, the same should be charged against it. This unilateral mistake cannot be taken against respondent who merely affixed her signature on the pro forma loan agreements. As between two parties to a written agreement, the party who gave rise to the mistake or error in the provisions of the same is estopped from asserting a contrary intention to that contained therein. The checks issued by respondent do not clearly and convincingly prove that the real intent of the parties is to apply the interest rates on a monthly basis. Absent any proof of vice of consent, the promissory notes and disclosure statements remain the best evidence to ascertain the real intent of the parties.1a\^/phi1.net The same promissory note provides that "x x x any and all remaining amount due on the principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid." The CA thus properly imposed the legal interest of 12% per annum from the time the loans matured until the same has been fully paid on February 2, 1999. As decreed in Eastern Shipping Lines, Inc. v. Court of Appeals,12 "in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default." As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of delay is highly unconscionable. Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, or if it is iniquitous or unconscionable. With regard to the attorneys fees, the CA correctly deleted the award in favor of petitioner since the trial courts decision does not reveal any explicit basis for such an award. Attorneys fees are not automatically awarded to every winning litigant.l^vvphi1.net It must be shown that any of the

instances enumerated under Art. 220813 of the Civil Code exists to justify the award thereof.14 Not one of such instances exists here. Besides, by filing the complaint, respondent was merely asserting her rights which, after due deliberations, proved to be lawful, proper and valid. WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of Appeals in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on the July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from petitioner First Fil-Sin Lending Corporation be imposed and computed on a per annum basis, and upon their respective maturities, the interest rate of 12% per annum shall be imposed until full payment. In addition, the penalty at the rate of 12% per annum shall be imposed on the outstanding obligations from date of default until full payment. SO ORDERED.

[G.R. No. 130994. September 18, 2002] SPOUSES FELIMON and MARIA BARRERA, petitioners, vs. SPOUSES EMILIANO and MARIA CONCEPCION LORENZO, respondents.

SANDOVAL-GUTIERREZ, J.: On December 4, 1990, spouses Felimon and Maria Barrera, petitioners, borrowed P230,000.00 from spouses Miguel and Mary Lazaro. The loan was secured by a real estate mortgage[1] over petitioners residential lot consisting of 432 square meters located at Bunlo, Bocaue, Bulacan and registered in their names under Transfer Certificate of Title (TCT) T42.373 (M)[2] of the Registry of Deeds of Bulacan. A month and a half later, the Lazaro spouses needed money and informed petitioners that they would transfer the loan to spouses Emiliano and Maria Concepcion Lorenzo, respondents. Consequently, on May 14, 1991, petitioners executed another real estate mortgage[3] over their lot, this time in favor of the respondents to secure the loan of P325,000.00, which the latter claimed as the amount they paid spouses Lazaro. The mortgage contract provides, among others, that the new loan shall be payable within three (3) months, or until August 14, 1991; that it shall earn interest at 5% per month; and that should petitioners fail to pay their loan within the said period, the mortgage shall be foreclosed. When petitioners failed to pay their loan in full on August 14, 1991, respondents allowed them to complete their payment until December 23, 1993. On this date, they made a total payment of P687,000.00. On January 17, 1994, respondents wrote petitioners demanding payment of P325,000.00, plus interest, otherwise they would foreclose the mortgage.[4] In turn, petitioners responded, claiming that they have overpaid their obligation and demanding the return of their land title and refund of their excess payment.[5] This prompted respondents to file a petition[6] for extrajudicial foreclosure of mortgage with the Office of the Ex-Officio Sheriff, Malolos, Bulacan, docketed therein as EJF 19-94.

For their part, petitioners filed with the Regional Trial Court (RTC), Branch 17, Malolos, Bulacan, a complaint for the return of their TCT No. T-42.373 (M), sum of money and damages, with application for a temporary restraining order and preliminary injunction, docketed as Civil Case No. 156-M-94.[7] In their opposition[8] to the application for a preliminary injunction, respondents alleged that petitioners loan has been restructured three times and that their unpaid balance as of March 14, 1994 was P543,622.00. After hearing petitioners application for a preliminary injunction, the RTC issued an order,[9] enjoining the sheriff from proceeding with the foreclosure of mortgage, upon their posting of a bond in the amount of P543,622.00. Thereafter, trial on the merits ensued. On July 31, 1995, the RTC rendered judgment,[10] the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs (now petitioners) and against the defendants (now respondents), ordering the latter: 1. to return to the plaintiffs the amount of P215,750.00 representing the overpaid amount; 2. to return to the plaintiffs the owners copy of TCT No. T-42.373 (M) offered as security; 3. to pay P20,000.000 as attorneys fees; 4. to pay the costs of the suit. The writ of preliminary injunction issued on March 21, 1994 is hereby made permanent. SO ORDERED."[11] The trial court held that the stipulated 5% monthly interest to be paid by petitioners corresponds only to the period from May 14, 1991 up to August 14, 1991, the term of the loan. Thereafter, the monthly interest should be 12% per annum. The trial court concluded that petitioners made an overpayment of P214,750.00. Upon appeal, docketed as CA GR-CV No. 51095, the Court of Appeals, in a Decision[12] dated June 18, 1997, held: We reverse. The law and jurisprudence clearly provide that if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (Article 1253, New Civil Code; Gobonseng, Jr. vs. Court of Appeals, 246 SCRA 472). Once it is admitted that an obligation bears interest, partial payments are to be applied first on account of the interest and then to reduce the principal. (San Jose vs. Ortega, 11 Phil. 442; Sunico vs. Ramirez, 14 Phil. 500). We thus find no support, whether in law or in jurisprudence, for the Decision of the court a quo to apply the bigger amounts of P40,000.00, P37,000.00, P50,000.00 among others, given several times by the Barrera spouses x x x for the payment of the principal loan when the interests due on the loan that have accumulated through the years have not been fully satisfied.

We also do not agree that the stipulated monthly interest of 5% was to apply only to the 3month effectivity period of the loan. This is a flawed and a grossly unfair interpretation of the terms and conditions of the agreement of the parties. To rule in this wise is to sanction the irregular performance of ones obligation. The Barrera spouses will be emboldened not to pay their loan within the agreed period of 3-months since on the fourth month and thereafter, they do not have to pay anymore the 5% monthly interest, but only the 12% legal interest per annum, or a measly 1% interest per month. Such an interpretation is totally unfair and unjust to the creditors who could have used their money in some other ways. Until such time that the Barreras have fully paid their total indebtedness, the 5% monthly interest subsists, there being no stipulation to the contrary. While we commiserate with the plight of the Barrera spouses, we cannot change the terms of the loan agreement between them and the Lorenzos as the courts have no right to make contracts for (the) parties. (Tolentino and Manio vs. Gonzales Sy Chian, 5 Phil. 577). A contract is the law between the parties which not even this Court can interfere with. The only requirement is that the same be not contrary to law, morals and good customs x x x (Article 1306, New Civil Code). We find the agreement to pay a 5% monthly interest until the loan is fully paid to be reasonable and sanctioned by regular usage and practice. The Barreras should, therefore, be required to pay the balance of their indebtedness, including the interests thereof. Failure to pay the same should warrant the foreclosure of their mortgaged property to satisfy their obligation to the Lorenzo spouses.[13] Petitioners filed a motion for reconsideration but was denied.[14] Hence this petition. The sole issue for our resolution is whether the 5% monthly interest on the loan was only for three (3) months, or from May 14, 1991 up to August 14, 1991, as maintained by petitioners, or until the loan was fully paid, as claimed by respondents. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.[15] In such cases, courts have no authority to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain.[16] It is only when the contract is vague and ambiguous that courts are permitted to resort to construction of its terms and determine the intention of the parties therein. The salient provisions of the mortgage contract read: a) Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan, o hanggang sa Agosto 14, 1991. b) Ang tubo na aming napagkasunduan ay 5%, o cinco por ciento isang buwan. c) Na sakaling mabayaran ko ang aming pagkakautang sa mag-asawa na P325,000.00 ang kasulatang ito ay wala ng lakas at kabuluhan, subalit kung hindi ko mabayaran ang aming pinagkakautangan sa takdang panahong 3 buwan sila ay binibigyan ko nang laya at kapangyarihan na masubasta nila ang lupang aming ipinanagot sa labas ng hukuman sa bisa ng Batas Blg. 3135 at susog nito at akong may utang ang

siyang sagot sa lahat ng gastos at pati bayad sa abogado sa nasabing subasta sa labas ng hukuman.[17] (emphasis supplied) It is clear from the above stipulations that the loan shall be payable within three (3) months, or from May 14, 1991 up to August 14, 1991. During such period, the loan shall earn an interest of 5% per month. Furthermore, the contract shall have no force and effect once the loan shall have been fully paid within the three-month period, otherwise, the mortgage shall be foreclosed extrajudicially under Act No. 3135. Records show that upon maturity of the loan on August 14, 1991, petitioners failed to pay their entire obligation. Instead of exercising their right to have the mortgage foreclosed, respondents allowed petitioners to pay the loan on a monthly installment basis until December, 1993. It bears emphasis that there is no written agreement between the parties that the loan will continue to bear 5% monthly interest beyond the agreed three-month period. Respondent Ma. Concepcion Lorenzo testified as follows: Atty. Marcos: Q Now, based on this document which was marked as Exh. 1, there is no dispute that the monthly interest for the three month period that is from May 14, 1991 to August 14, 1991 is 5% monthly interest, there is no dispute about that. Now, Miss Witness, my question is, could you go over the entire document that Exh. 1 and please tell this Hon. Court whether there is a provision in clear and unequivocal terms providing for that monthly interest after August 14, 1991? No, sir, there is none. Are you sure of that? Yes, sir. You mean to say there is no stipulation in that document providing for the 5% monthly interest to the loan after August 14, 1991? Yes, sir, they are supposed to return my money.

A Q A Q A

Court: Q After they failed to comply with that provision, was there any subsequent agreement between you and the plaintiffs? x Q A Q A Q A Q A Was there an agreement? There was, your Honor. What was that agreement about? Verbal agreement, your Honor? Why was that agreement not reduced into writing? It was not reduced into writing, your Honor. Why? I am in good faith, your Honor.[18] x x

Article 1956 of the Civil Code mandates that (n)o interest shall be due unless it has been expressly stipulated in writing. Applying this provision, the trial court correctly held that the monthly interest of 5% corresponds only to the three-month period of the loan, or from May 14, 1991 to August 14, 1991, as agreed upon by the parties in writing. Thereafter, the interest rate for the loan is 12% per annum. In Eastern Shipping Lines, Inc. vs. Court of Appeals,[19] this Court laid down the following doctrine: 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. (emphasis supplied) The above ruling was reiterated in Sulit vs. Court of Appeals,[20] Crismina Garments vs. Court of Appeals,[21] Eastern Assurance and Surety Corporation vs. Court of Appeals,[22] Catungal vs. Hao,[23] and Yong et al. vs. Tiu et al..[24] Thus, the Court of Appeals erred in reversing the RTC Decision and holding that the 5% monthly interest should be paid by petitioners even beyond August 14, 1991. WHEREFORE, the assailed Decision of the Court of Appeals dated June 18, 1997 and its Resolution dated October 17, 1997 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court, Branch 17, Malolos, Bulacan dated July 31, 1995 is REINSTATED. SO ORDERED.

G.R. No. 130886

January 29, 2004

COMMONWEALTH INSURANCE CORPORATION, Petitioner, vs. COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION, Respondents. AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari assailing the Decision1 of the Court of Appeals (CA), promulgated on May 16, 1997 in CA-G.R. CV No. 444732, which modified the decision dated March 5, 1993 of the Regional Trial Court of Makati (Branch 64); and the Resolution3 dated September 25, 1997, denying petitioners motion for reconsideration. The facts of the case as summarized by the Court of Appeals are as follows: In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines, one, forP2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective credit lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05 from the case-to-case basis and trust receipts. These loans were evidenced by promissory notes (Exhibits A to L, inclusive JIGS; Exhibits V to BB, inclusive ELBA) and secured by surety bonds (Exhibits M to Q inclusive JIGS;

Exhibits CC to FF, inclusive ELBA) executed by defendant-appellee Commonwealth Insurance Company (CIC). Specifically, the surety bonds issued by appellee CIC in favor of appellant RCBC to secure the obligations of JIGS totaled P2,894,128.00 while that securing ELBAs obligation was P1,570,000.00. Hence, the total face value of the surety bonds issued by appellee CIC was P4,464,128.00. JIGS and ELBA defaulted in the payment of their respective loans. On October 30, 1984, appellant RCBC made a written demand (Exhibit N) on appellee CIC to pay JIGs account to the full extend (sic) of the suretyship. A similar demand (Exhibit O) was made on December 17, 1984 for appellee CIC to pay ELBAs account to the full extend (sic) of the suretyship. In response to those demands, appellee CIC made several payments from February 25, 1985 to February 10, 1988 in the total amount of P2,000,000.00. There having been a substantial balance unpaid, appellant RCBC made a final demand for payment (Exhibit P) on July 7, 1988 upon appellee CIC but the latter ignored it. Thus, appellant RCBC filed the Complaint for a Sum of Money on September 19, 1988 against appellee CIC.4 The trial court rendered a decision dated March 5, 1993, the dispositive portion of which reads as follows: "WHEREFORE, premises considered, in the light of the above facts, arguments, discussion, and more important, the law and jurisprudence, the Court finds the defendants Commonwealth Insurance Co. and defaulted third party defendants Jigs Manufacturing Corporation, Elba Industries and Iluminada de Guzman solidarily liable to pay herein plaintiff Rizal Commercial Banking Corporation the sum of Two Million Four Hundred Sixty-Four Thousand One Hundred Twenty-Eight Pesos (P2,464,128.00), to pay the plaintiff attorneys fees of P10,000.00 and to pay the costs of suit. "IT IS SO ORDERED."5 Not satisfied with the trial courts decision, RCBC filed a motion for reconsideration praying that in addition to the principal sum of P2,464,128.00, defendant CIC be held liable to pay interests thereon from date of demand at the rate of 12% per annum until the same is fully paid. However, the trial court denied the motion. RCBC then appealed to the Court of Appeals. On May 16, 1997, the CA rendered the herein assailed decision, ruling thus: ... Being solidarily bound, a suretys obligation is primary so that according to Art. 1216 of the Civil Code, he can be sued alone for the entire obligation. However, one very important characteristic of this contract is the fact that a suretys liability shall be limited to the amount of the bond (Sec. 176, Insurance Code). This does not mean however that even if he defaults in the performance of his obligation, the extend (sic) of his liability remains to be the amount of the bond. If he pays his obligation at maturity upon demand, then, he cannot be made to pay more than the amount of the bond. But if he fails or refuses without justifiable cause to pay his obligation upon a valid demand so that he is in mora solvendi (Art. 1169, CC), then he must pay damages

or interest in consequence thereof according to Art. 1170. Even if this interest is in excess of the amount of the bond, the defaulting surety is liable according to settled jurisprudence. ... Appellant RCBC contends that when appellee CIC failed to pay the obligation upon extrajudicial demand, it incurred in delay in consequence of which it became liable to pay legal interest. The obligation to pay such interest does not arise from the contract of suretyship but from law as a result of delay or mora. Such an interest is not, therefore, covered by the limitation of appellees liability expressed in the contract.Appellee CIC refutes this argument stating that since the surety bonds expressly state that its liability shall in no case exceed the amount stated therein, then that stipulation controls. Therefore, it cannot be made to assume an obligation more than what it secured to pay. The contention of appellant RCBC is correct because it is supported by Arts. 1169 and 1170 of the Civil Code and the case of Asia Surety & Insurance Co., Inc. and Manila Surety & Fidelity Co. supra. On the other hand, the position of appellee CIC which upholds the appealed decision is untenable. The best way to show the untenability of this argument is to give this hypothetical case situation: Surety issued a bond for P1 million to secure a Debtors obligation of P1 million to Creditor. Debtor defaults and Creditor demands payment from Surety. If the theory of appellee and the lower court is correct, then the Surety may just as well not pay and use the P1 million in the meantime. It can choose to pay only after several years after all, his liability can never exceed P1 million. That would be absurd and the law could not have intended it.6 (Emphasis supplied) and disposed of the case as follows: WHEREFORE, the appealed Decision is MODIFIED in the manner following: The appellee Commonwealth Insurance Company shall pay the appellant Rizal Commercial Banking Corporation: 1. On the account of JIGS, P2,894,128.00 ONLY with 12% legal interest per annum from October 30, 1984 minus payments made by the latter to the former after that date; and on the account of ELBA,P1,570,000.00 ONLY with 12% legal interest per annum from December 17, 1984 minus payments made by the latter to the former after that day; respecting in both accounts the applications of payment made by appellant RCBC on appellee CICs payments; 2. Defendant-appellee Commonwealth Insurance Company shall pay plaintiff-appellant RIZAL COMMERCIAL BANKING CORP. and (sic) attorneys fee of P10,000.00 and cost of this suit; 3. The third-party defendants JIGS MANUFACTURING CORPORATION, ELBA INDUSTRIES and ILUMINADA N. DE GUZMAN shall respectively indemnify COMMONWEALTH INSURANCE CORPORATION for whatever it had paid and shall pay to RIZAL COMMERCIAL BANKING CORPORATION of their respective individual obligations pursuant to this decision.

SO ORDERED.7 CIC filed a motion for reconsideration but the CA denied the same. Hence, herein petition by CIC raising a single assignment of error, to wit: Respondent Court of Appeals grievously erred in ordering petitioner to pay respondent RCBC the amount of the surety bonds plus legal interest of 12% per annum minus payments made by the petitioner.8 The sole issue is whether or not petitioner should be held liable to pay legal interest over and above its principal obligation under the surety bonds issued by it. Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds. We are not persuaded. Petitioners argument is misplaced. Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co.9 and reiterated inPlaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc.10, and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc.11, we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract but because of the default and the necessity of judicial collection.12 Petitioners liability under the suretyship contract is different from its liability under the law. There is no question that as a surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds.13However, it is clear from the above-cited jurisprudence that petitioners liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement. Petitioner admits having incurred in delay. Nonetheless, it insists that mere delay does not warrant the payment of interest. Citing Section 244 of the Insurance Code,14 petitioner submits that under the said provision of law, interest shall accrue only when the delay or refusal to pay is unreasonable; that the delay in the payment of its obligation is not unreasonable because such delay was brought about by negotiations being made with RCBC for the amicable settlement of the case. We are not convinced. It is not disputed that out of the principal sum of P4,464,128.00 petitioner was only able to pay P2,000,000.00. Letters demanding the payment of the respective obligations of JIGS and ELBA were initially sent by RCBC to petitioner on October 30, 198415 and December 17, 1984.16 Petitioner made payments on an installment basis spanning a period of almost three years, i.e., from February 25, 1985 until February 10, 1988. On July 7, 1988, or after a period of almost five months from its last payment, RCBC, thru its legal counsel, sent a final letter of demand asking petitioner to pay the remaining balance of its obligation including

interest.17 Petitioner failed to pay. As of the date of the filing of the complaint on September 19, 1988, petitioner was even unable to pay the remaining balance of P2,464,128.00 out of the principal amount it owes RCBC. Petitioners contention that what prevented it from paying its obligation to RCBC is the fact that the latter insisted on imposing interest and penalties over and above the principal sum it seeks to recover is not plausible. Considering that petitioner admits its obligation to pay the principal amount, then it should have paid the remaining balance of P2,464,128.00, notwithstanding any disagreements with RCBC regarding the payment of interest. The fact that the negotiations for the settlement of petitioners obligation did not push through does not excuse it from paying the principal sum due to RCBC. The issue of petitioners payment of interest is a matter that is totally different from its obligation to pay the principal amount covered by the surety bonds it issued. Petitioner offered no valid excuse for not paying the balance of its principal obligation when demanded by RCBC. Its failure to pay is, therefore, unreasonable.1wphi1 Thus, we find no error in the appellate courts ruling that petitioner is liable to pay interest. As to the rate of interest, we do not agree with petitioners contention that the rate should be 6% per annum. The appellate court is correct in imposing 12% interest. It is in accordance with our ruling in Eastern Shipping Lines, Inc. vs. Court of Appeals,18 wherein we have established certain guidelines in awarding interest in the concept of actual and compensatory damages, to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from 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 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.19 (Emphasis supplied) In the present case, there is no dispute that petitioners obligation consists of a loan or forbearance of money. No interest has been agreed upon in writing between petitioner and respondent. Applying the above-quoted rule to the present case, the Court of Appeals correctly imposed the rate of interest at 12% per annum to be computed from the time the extra-judicial demand was made. This is in accordance with the provisions of Article 116920 of the Civil Code and of the settled rule that where there has been an extra-judicial demand before action for performance was filed, interest on the amount due begins to run not from the date of the filing of the complaint but from the date of such extra-judicial demand.21 RCBCs extra-judicial demand for the payment of JIGS obligation was made on October 30, 1984; while the extra-judicial demand for the payment of ELBAs obligation was made on December 17, 1984. On the other hand, the complaint for a sum of money was filed by RCBC with the trial court only on September 19, 1988. WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals are AFFIRMED in toto. SO ORDERED.

G.R. No. 131622 November 27, 1998 LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR. doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES", respondents. PARDO, J.: The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court, seeking to set aside the decision of the Court of Appeals, 1 and its resolution denying reconsideration, 2 the dispositive portion of which decision reads as follows: WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby-ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 23, 1986, until the entire amount is fully paid.

The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants. SO ORDERED. 3 The Court required the respondents to comment on the petition, 4 which was filed on April 3, 1998, 5 and the petitioners to reply thereto, which was filed on May 29, 1998. 6 We now resolve to give due course to the petition and decide the case. The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and conclusive on the parties herein, as the appeal is limited to questions of law, are as follows: On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month. Servando and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986. On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on Janaury 19, 1986. They received only P84,000.00, out of the proceeds of the loan. On maturity of the two promissory notes, the borrowers failed to pay the indebtedness. On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout of P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275.000.00, was given to them out of the proceeds of the loan. Like the previous loans, Servando and Medel failed to pay the third loan on maturity. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They executed a promissory note, reading as follows: Baliwag, Bulacan July 23, 1986 Maturity Date Augsut 23, 1986 P500,000.00

FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . . (P500,000.00) Philippine Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge per annum from date hereof until fully paid according to the amortization schedule contained herein. (Emphasis supplied) Payment will be made in full at the maturity date. Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereof in full, without deductions as Attorney's Fee whether actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial or extra judicial expenses. (Emphasis supplied). I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines, the holder shall have the option to apply and collect the increased interest charges without notice although the original interest have already been collected wholly or partially unless the contrary is required by law. It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this agreement is based on the present value of the peso, and if there be any change in the value thereof, due to extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of the obligation. Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or extension of payments, reserving rights against each and all indorsers and all parties to this note. IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court. On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges. In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr.

Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness. In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% of the amount due is unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties and other charges. After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum." 7 Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as follows: WHEREFORE, premises considered, judgment is hereby rendered, as follows: 1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full. 2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19, 1985 until the whole amount is fully paid; 3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid; 4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees; 5. All counterclaims are hereby dismissed. With costs against the defendants. 8 In due time, both plaintiffs and defendants appealed to the Court of Appeals. In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the defendants, is the law that governs the parties. They further argued that

Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not when the parties agreed thereon. The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest that may be charged on the loan". 9 The Court of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid' was allowed by law". 10 Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing that of the Regional Trial Court, disposing as follows: WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 24, 1986, until the entire amount is fully paid. The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants. SO ORDERED. 11 On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated November 25, 1997, the Court of Appeals denied the motion. 12 Hence, defendants interposed the present recourse via petition for review on certiorari. 13 We find the petition meritorious. Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684? We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. 13 However, we can not consider the rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law 14 and that the Usury Law is now "legally inexistent". 15 In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law." 17 In the recent case of Florendo vs. Court of

Appeals 18, the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon." 19 Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. 20 The stipulation is void. 21 The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. 22 Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable. WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties. No pronouncement as to costs in this instance. SO ORDERED.

[G.R. No. 144712. July 4, 2002] SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V. RAMOS, respondent. DAVIDE, JR., C.J.: Before us is a petition for review on certiorari assailing the 5 November 1999 Decision[1] and the 18 August 2000 Resolution[2] of the Court of Appeals in CA G.R. CV No. 52848. The former affirmed the 5 June 1995 and 7 September 1995 Orders of the Regional Trial Court, Malolos, Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latter denied petitioners motion for reconsideration. The case at bar stemmed from the petition[3] for consolidation of title or ownership filed on 5 July 1993 with the trial court by herein respondent Rodrigo V. Ramos (hereafter RAMOS) against herein petitioners, Spouses Silvestre and Celia Pascual (hereafter the PASCUALs). In his petition, RAMOS alleged that on 3 June 1987, for and in consideration of P150,000, the PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan, covered by Transfer Certificate of Title (TCT) No. 305626 of the Registry of Deeds of Bulacan. This document was annotated at the back of the title. The PASCUALs did not exercise their right to repurchase the property within the stipulated one-year period; hence, RAMOS prayed that the title or ownership over the subject parcels of land and improvements thereon be consolidated in his favor.

In their Answer,[4] the PASCUALs admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150,000 but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no agreement limiting the period within which to exercise the right to repurchase and that they had even overpaid RAMOS. Furthermore, they interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition; (b) RAMOS had no legal capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action; (e) the claim or demand set forth in RAMOSs pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) RAMOS has not complied with the required confrontation and conciliation before the barangay. By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a Deed of Cancellation, Release or Discharge of the Deed of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mortgage; deliver to them the owners duplicate of TCT No. T-305626; return the amount they had overpaid; and pay each of them moral damages and exemplary damages in the amounts of P200,000 and P50,000, respectively, plus attorneys fees of P100,000; appearance fee of P1,500 per hearing; litigation expenses; and costs of suit. After the pre-trial, the trial court issued an order[5] wherein it identified the following issues: (1) whether the Deed of Absolute Sale with Right to Repurchase is an absolute sale or a mere mortgage; (2) whether the PASCUALs have paid or overpaid the principal obligation; (3) whether the ownership over the parcel of land may be consolidated in favor of RAMOS; and (4) whether damages may be awarded. Among the documents offered in evidence by RAMOS during the trial on the merits was a document denominated as Sinumpaang Salaysay[6]signed by RAMOS and Silvestre Pascual, but not notarized. The contents of the document read: Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at kasalukuyang naninirahan sa Bambang, Bulacan, Bulacan, ay nagsasabing buong katotohanan at sumusumpa sa aking mga salaysay sa kasulatang ito: 1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan ng puhunan ay lumapit ako at nakiusap kay Rodrigo Ramos ng Taal, Pulilan, Bulacan na pautangin ako ng halagang P150,000.00. 2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo ng seven percent (7%) o P10,500.00 isang buwan (7% per month). 3. Na bilang sangla (collateral security) sa aking utang, kami ay nagkasundo na mag-execute ng Deed of Sale with Right to Repurchase para sa aking bahay at lupa (TCT No. 305626) sa Bo. Taliptip, Bambang, Bulacan, Bulacan ngayong June 3, 1987 at binigyan ako ni Mr. Ramos ng isang taon hanggang June 3, 1988 upang mabiling muli ang aking isinanla sa kaniya sa kasunduang babayaran kong lahat ang capital na P150,000.00 pati na ang P10,500.00 na tubo buwan buwan. 4. Na bilang karagdagang condition, si RODRIGO RAMOS ay pumayag sa aking kahilingan na kung sakali na hindi ko mabayaran ng buo ang aking pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon, ang nakasanglang bahay at lupa ay hindi muna niya iilitin (foreclose) o ipalilipat

sa pangalan niya at hindi muna kami paaalisin sa tinitirhan naming bahay hanggat ang tubo (interest) na P10,500.00 ay nababayaran ko buwan buwan. 5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos na pagkatapos ng isang taon mula ngayon hanggang June 3, 1988 at puro interest lamang ang aking naibabayad buwan-buwan, kung sakaling hindi ako makabayad ng tubo for six (6) consecutive months (1/2 year after June 3, 1988 (6 na buwang hindi bayad ang interest ang utang ko) si Rodrigo Ramos ay binibigyan ko ng karapatan at kapangyarihan na mag-mayari ng aming bahay at lupa at kami ng aking pamilya ay kusang loob na aalis sa nasabing bahay at lupa na lumalabas na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga pinagkasunduang usapan. 6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi maghahabol ng ano mang sukli sa pagkakailit ng aming bahay at lupa kung sakali mang dumating sa ganuong pagkakataon o sitwasyon o di kayay magsasampa ng reklamo kanino man. Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng aming mga pangalan ngayong ika-3 ng Hunyo, 1987. (Sgd.)Rodrigo Ramos Nagpautang Sgd.) Silvestre Pascual Umutang

For their part, the PASCUALs presented documentary evidence consisting of acknowledgment receipts[7] to prove the payments they had made. The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the PASCUALs had made payments in the total sum of P344,000, and that with interest at 7% per annum, the PASCUALs had overpaid the loan by P141,500. Accordingly, in its Decision[8] of 15 March 1995 the trial court decreed as follows: WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff in the following manner: 1. Dismissing the plaintiffs petition; 2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with Right to Repurchase on the dorsal side of TCT No. 305626; 3. Awarding the defendants the sum of P141,500.00 as overpayment on the loan and interests; 4. Granting the defendants attorneys fee in the sum of P15,000.00 and P3,000.00 for litigation expenses. With costs against the plaintiff.

RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in using an interest rate of 7% per annum in the computation of the total amount of obligation because what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. The total interest due from 3 June 1987 to 3 April 1995 was P987,000. Deducting therefrom the interest payments made in the sum of P344,000, the amount of P643,000 was still due as interest. Adding the latter to the principal sum of P150,000, the total amount due from the PASCUALs as of 3 April 1995 was P793,000. Finding merit in the motion for reconsideration, which was not opposed by the PASCUALs, the trial court issued on 5 June 1995 an Order[9]modifying its decision by deleting the award of P141,500 to the PASCUALs as overpayment of the loan and interest and ordering them to pay RAMOS P511,000 representing the principal loan plus interest. The trial court acknowledged that it had inadvertently declared the interest rate to be 7% per annum when, in fact, the Sinumpaang Salaysay stipulated 7% per month. It noted that during trial, the PASCUALs never disputed the stipulated interest rate. However, the court declared that the 7% per month interest is too burdensome and onerous. Invoking the protective mantle of Article 24 of the Civil Code, which mandates the courts to be vigilant for the protection of a party at a disadvantage due to his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the trial court unilaterally reduced the interest rate from 7% per month to 5% per month. Thus, the interest due from 3 June 1987 to 3 April 1995 was P705,000. Deducting therefrom the payments made by the PASCUALs in the amount of P344,000, the net interest due was P361,000. Adding thereto the loan principal of P150,000, the total amount due from the PASCUALs was P511,000. Aggrieved by the modification of the decision, the PASCUALs filed a motion to reconsider the Order of 5 June 1995. They alleged that the motion for reconsideration filed by RAMOS was a mere scrap of paper because they received a copy of said motion only a day before the hearing, in violation of the 3-day-notice rule. Moreover, they had already paid the interests and had in fact overpaid the principal sum of P150,000. Besides, RAMOS, being an individual, could not charge more than 1% interest per month or 12% per annum; and, the interest of either 5% or 7% a month is exorbitant, unconscionable, unreasonable, usurious and inequitable. RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance with the 3-day-notice rule was cured when the trial court gave them an opportunity to file their opposition, but despite the lapse of the period given them, no opposition was filed. It is not correct to say that he was not allowed to collect more than 1% per month interest considering that with the moratorium on the Usury Law, the allowable interest is that agreed upon by the parties. In the absence of any evidence that there was fraud, force or undue influence exerted upon the PASCUALs when they entered into the transaction in question, their agreement embodied in the Sinumpaang Salaysay should be respected. Furthermore, the trial court had already reduced the interest rate to 5% per month, a rate which is not exorbitant, unconscionable, unreasonable and inequitable. Their motion for reconsideration having been denied in the Order[10] of 7 September 1995, the PASCUALs seasonably appealed to the Court of Appeals. They pointed out that since the only prayer of RAMOS in his petition was to have the title or ownership over the subject land and the improvements thereon consolidated in his favor and he did not have any prayer for general relief, the trial court had no basis in ordering them to pay him the sum of P511,000. In its Decision[11] of 5 November 1999, the Court of Appeals affirmed in toto the trial courts Orders of 5 June 1995 and 7 September 1995. It ruled that while RAMOSs petition for consolidation of title or ownership did not include a prayer for the payment of the balance of the petitioners obligation and a prayer for general relief, the issue of whether there was still a

balance from the amount loaned was deemed to have been raised in the pleadings by virtue of Section 5, Rule 10 of the Rules of Court, which provides that [w]hen 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. In the course of the trial, receipts were presented by the PASCUALs evidencing the payments they had made. Taken in conjunction with the Sinumpaang Salaysay which specified the interest rate at 7% per month, a mathematical computation readily leads to the conclusion that there is still a balance due from the PASCUALs, even at a reduced interest rate of 5% interest per month. With the denial of their motion for reconsideration of the decision by the Court of Appeals, the PASCUALs filed before us the instant petition raising the sole issue of whether they are liable for 5% interest per month from 3 June 1987 to 3 April 1995. Invoking this Courts ruling in Medel v. Court of Appeals,[12] they argue that the 5% per month interest is excessive, iniquitous, unconscionable and exorbitant. Moreover, respondent should not be allowed to collect interest of more than 1% per month because he tried to hide the real transaction between the parties by imposing upon them to sign a Deed of Absolute Sale with Right to Repurchase. For his part, RAMOS contends that the issue raised by petitioners cannot be entertained anymore because it was neither raised in the complaint nor ventilated during the trial. In any case, there was nothing illegal on the rate of interest agreed upon by the parties, since the ceilings on interest rates prescribed under the Usury Law had expressly been removed, and hence parties are left freely at their discretion to agree on any rate of interest. Moreover, there was no scheme to hide a usurious transaction. RAMOS then prays that the challenged decision and resolution be affirmed and that petitioners be further ordered to pay legal interest on the interest due from the time it was demanded. We see at once the proclivity of the PASCUALs to change theory almost every step of the case. By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually raising as issue the validity of the stipulated interest rate. It must be stressed that they never raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the overpayment was alleged. In their pre-trial brief, the PASCUALs made a long list of issues, but not one of them touched on the validity of the stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in fact paid interest at, the rate of 7% per month. Exhibits 1 to 8 specifically mentioned that the payments made were for the interest due on the P150,000 loan of the PASCUALs. In the course of the trial, the PASCUALs never put in issue the validity of the stipulated interest rate. After the trial court sustained petitioners claim that their agreement with RAMOS was actually a loan with real estate mortgage, the PASCUALs should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per month. The PASCUALs should accept not only the favorable aspect of the courts declaration that the document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same document should be paid. Besides, when RAMOS moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should be 7% per month, the PASCUALs never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995, the PASCUALs argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in their Appellants Brief, the only argument raised by the PASCUALs

was that RAMOSs petition did not contain a prayer for general relief and, hence, the trial court had no basis for ordering them to pay RAMOS P511,000 representing the principal and unpaid interest. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the PASCUALs made an issue of the interest rate and prayed for its reduction to 12% per annum. In Manila Bay Club Corp. v. Court of Appeals,[13] this Court ruled that if an issue is raised only in the motion for reconsideration of the decision of the Court of Appeals, the effect is that it is as if it was never duly raised in that court at all. Our ruling in Medel v. Court of Appeals[14] is not applicable to the present case. In that case, the excessiveness of the stipulated interest at the rate of 5.5 % per month was put in issue by the defendants in the Answer. Moreover, in addition to the interest, the debtors were also required, as per stipulation in the promissory note, to pay service charge of 2% per annum and a penalty charge of 1% per month plus attorneys fee of equivalent to 25% of the amount due. In the case at bar, there is no other stipulation for the payment of an extra amount except interest on the principal loan. Thus, taken in conjunction with the stipulated service charge and penalty, the interest rate of 5.5% in the Medel case was found to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby making such stipulation null and void. Considering the variance in the factual circumstances of the Medel case and the instant case, we are not prepared to apply the former lest it be construed that we can strike down anytime interest rates agreed upon by parties in a loan transaction. It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy.[15] The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with RAMOS. Neither is there a showing that in their contractual relations with RAMOS, the PASCUALs were at a disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil Code. Apropos in our ruling in Vales vs. Villa: All men are presumed to be sane and normal and subject to be moved by substantially the same motives. When of age and sane, they must take care of themselves. In their relations with others in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash and contest, sometimes with gain and advantage to all, sometimes to a few only, with loss and injury to others. In these contests men must depend upon themselves upon their own abilities, talents, training, sense, acumen, judgment. The fact that one may be worsted by another, of itself, furnishes no cause of complaint. One man cannot complain because another is more able, or better trained, or has better sense or judgment than he has; and when the two meet on a fair field the inferior cannot murmur if the battle goes against him. The law furnishes no protection to the inferior simply because he is inferior, any more than it protects the strong because he is strong. The law furnishes protection to both alike to one no more or less than to the other. It makes no distinction between the wise and the foolish, the great and the small, the strong and the weak. The foolish may lose all they have to the wise; but that does not mean that the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-

sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by then indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it.[16] With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon. As declared in the decision of Cuizon v. Court of Appeals,[17] It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain. Thus, we cannot supplant the interest rate, which was reduced to 5% per month without opposition on the part of RAMOS. We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by imposing upon them the execution of a Deed of Absolute Sale with Right to Repurchase, he should not be allowed to collect more than 1% per month interest. It is undisputed that simultaneous with the execution of the said deed was the execution of the Sinumpaang Salaysay, which set forth the true agreement of the parties. The PASCUALs cannot then claim that they did not know the real transaction. RAMOSs claim that the interest due should earn legal interest cannot be acted upon favorably because he did not appeal from the Order of the trial court of 5 June 1995, which simply ordered the payment by the PASCUALs of the amount of P511,000 without interest thereon. No relief can be granted a party who does not appeal.[18] Therefore, the order of the trial court should stand. Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v. Valle was reproduced by his counsel without the proper citation. Such act constitutes plagiarism. Atty. Felimon B. Mangahas is hereby warned that a repetition of such act shall be dealt with accordingly. WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 52848 isAFFIRMED in toto. Costs against petitioners. SO ORDERED.

G.R. No. 149004

April 14, 2004

RESTITUTA M. IMPERIAL, petitioner, vs. ALEX A. JAUCIAN, respondent. PANGANIBAN, J.: Iniquitous and unconscionable stipulations on interest rates, penalties and attorneys fees are contrary to morals. Consequently, courts are granted authority to reduce them equitably. If reasonably exercised, such authority shall not be disturbed by appellate courts. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the July 19, 2000 Decision2 and the June 14, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 43635. The decretal portion of the Decision is as follows: "WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court, 5th Judicial Region, Branch 21, Naga City, dated August 31, 1993, in Civil Case No. 89-1911 for Sum of Money, is hereby AFFIRMED in toto."4 The assailed Resolution denied petitioners Motion for Reconsideration. The dispositive portion of the August 31, 1993 Decision, promulgated by the Regional Trial Court (RTC) of Naga City (Branch 21) and affirmed by the CA, reads as follows: "Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular No. 905, series of 1982 to be of no force and legal effect, it having been promulgated by the Monetary Board of the Central Bank of the Philippines with grave abuse of discretion amounting to excess of jurisdiction; declaring that the rate of interest, penalty, and charges for attorneys fees agreed upon between the parties are unconscionable, iniquitous, and in violation of Act No. 2655, otherwise known as the Usury Law, as amended; and ordering Defendant to pay Plaintiff the amount of FOUR HUNDRED SEVENTY-EIGHT THOUSAND, ONE HUNDRED NINETY-FOUR and 54/100 (P478,194.54) PESOS, Philippine currency, with regular and compensatory interests thereon at the rate of twenty-eight (28%) per centum per annum, computed from August 31, 1993 until full payment of the said amount, and in addition, an amount equivalent to ten (10%) per centum of the total amount due and payable, for attorneys fees, without pronouncement as to costs."5 The Facts The CA summarized the facts of the case in this wise: "The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate promissory notes and issued several checks as guarantee for payment. When the said loans became overdue and unpaid, especially when the defendants checks were dishonored, plaintiff made repeated oral and written demands for payment.

"Specifically, the six (6) separate loans obtained by defendant from plaintiff on various dates are as follows: (a) November 13, 1987 P 50,000.00 (b) December 28, 1987 40,000.00 (c) January 6, 1988 (d) January 11, 1988 (e) January 12, 1988 (f) January 13, 1988 Total 30,000.00 50,000.00 50,000.00 100,000.00 P320,000.00

"The loans were covered by six (6) separate promissory notes executed by defendant. The face value of each promissory notes is bigger [than] the amount released to defendant because said face value already include[d] the interest from date of note to date of maturity. Said promissory notes, which indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant, penalties and attorneys fees, are the following: 1. Exhibit D for loan of P40,000.00 on December 28, 1987, with face value of P65,000.00; 2. Exhibit E for loan of P50,000.00 on January 11, 1988, with face value of P82,000.00; 3. Exhibit F for loan of P50,000.00 on January 12, 1988, with face value of P82,000.00; 4. Exhibit G for loan of P100,000.00 on January 13, 1988, with face value of P164,000.00; 5. Exhibit H This particular promissory note covers the second renewal of the original loan ofP50,000.00 on November 13, 1987, which was renewed for the first time on March 16, 1988 after certain payments, and which was renewed finally for the second time on January 4, 1988 also after certain payments, with a face value of P56,240.00; 6. Exhibit I This particular promissory note covers the second renewal of the original loan ofP30,000.00 on January 6, 1988, which was renewed for the first time on June 4, 1988 after certain payments, and which was finally renewed for the second time on August 6, 1988, also after certain payments, with [a] face value of P12,760.00; "The particulars about the postdated checks, i.e., number, amount, date, etc., are indicated in each of the promissory notes. Thus, for Exhibit D, four (4) PB checks were

issued; for Exhibit E four (4) checks; for Exhibit F four (4) checks; for Exhibit G four (4) checks; for Exhibit H one (1) check; for Exhibit I one (1) check; "The arrangement between plaintiff and defendant regarding these guarantee checks was that each time a check matures the defendant would exchange it with cash. "Although, admittedly, defendant made several payments, the same were not enough and she always defaulted whenever her loans mature[d]. As of August 16, 1991, the total unpaid amount, including accrued interest, penalties and attorneys fees, [was] P2,807,784.20. "On the other hand, defendant claims that she was extended loans by the plaintiff on several occasions, i.e., from November 13, 1987 to January 13, 1988, in the total sum of P320,000.00 at the rate of sixteen percent (16%) per month. The notes mature[d] every four (4) months with unearned interest compounding every four (4) months if the loan [was] not fully paid. The loan releases [were] as follows: (a) November 13, 1987 P 50,000.00 (b) December 28, 1987 40,000.00 (c) January 6, 1988 (d) January 11, 1988 (e) January 12, 1988 (f) January 13, 1988 Total 30,000.00 50,000.00 50,000.00 100,000.00 P320,000.00

"The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid including the usurious interests of 16% per month, this is the reason why these were not included in the complaint. "Defendant alleges that all the above amounts were released respectively by checks drawn by the plaintiff, and the latter must produce these checks as these were returned to him being the drawer if only to serve the truth. The above amount are the real amount released to the defendant but the plaintiff by masterful machinations made it appear that the total amount released was P462,600.00. Because in his computation he made it appear that the true amounts released was not the original amount, since it include[d] the unconscionable interest for four months. "Further, defendant claims that as of January 25, 1989, the total payments made by defendants [were] as follows: a. Paid releases on November 13, 1987 ofP50,000.00 and January 6, 1988 ofP30,000.00 these two items were not

P 80,000.00

included in the complaint affirming the fact that these were paid b. Exhibit 26 Receipt c. Exhibit 8-25 Receipt d. Exhibit 27 Receipt Total Less: Excess Payment 231,000.00 65,300.00 65,000.00 P441,780.00 320,000.00 P121,780.00

"Defendant contends that from all perspectives the above excess payment of P121,780.00 is more than the interest that could be legally charged, and in fact as of January 25, 1989, the total releases have been fully paid. "On 31 August 1993, the trial court rendered the assailed decision."6 Ruling of the Court of Appeals On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. Nonetheless, the appellate court affirmed the judgment of the trial court, holding that the latters clear and detailed computation of petitioners outstanding obligation to respondent was convincing and satisfactory. Hence, this Petition.7 The Issues Petitioner raises the following arguments for our consideration: "1. That the petitioner has fully paid her obligations even before filing of this case. "2. That the charging of interest of twenty-eight (28%) per centum per annum without any writing is illegal. "3. That charging of excessive attorneys fees is hemorrhagic. "4. Charging of excessive penalties per month is in the guise of hidden interest. "5. The non-inclusion of the husband of the petitioner at the time the case was filed should have dismissed this case."8 The Courts Ruling

The Petition has no merit. First Issue: Computation of Outstanding Obligation Arguing that she had already fully paid the loan before the filing of the case, petitioner alleges that the two lower courts misappreciated the facts when they ruled that she still had an outstanding balance of P208,430. This issue involves a question of fact. Such question exists when a doubt or difference arises as to the truth or the falsehood of alleged facts; and when there is need for a calibration of the evidence, considering mainly the credibility of witnesses and the existence and the relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the probabilities of the situation.9 It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by certiorari under Rule 45 of the Rules of Court, as this remedy is generally confined to questions of law.10 The jurisdiction of this Court over cases brought to it is limited to the review and rectification of errors of law allegedly committed by the lower court. As a rule, the latters factual findings, when adopted and affirmed by the CA, are final and conclusive and may not be reviewed on appeal.11 Generally, this Court is not required to analyze and weigh all over again the evidence already considered in the proceedings below.12 In the present case, we find no compelling reason to overturn the factual findings of the RTC -- that the total amount of the loans extended to petitioner was P320,000, and that she paid a total of onlyP116,540 on twenty-nine dates. These findings are supported by a preponderance of evidence. Moreover, the amount of the outstanding obligation has been meticulously computed by the trial court and affirmed by the CA. Petitioner has not given us sufficient reason why her cause falls under any of the exceptions to this rule on the finality of factual findings. Second Issue: Rate of Interest The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167 percent per month or 14 percent per annum; and the stipulated penalty charge, from 5 percent to 1.167 percent per month or 14 percent per annum. Petitioner alleges that absent any written stipulation between the parties, the lower courts should have imposed the rate of 12 percent per annum only. The records show that there was a written agreement between the parties for the payment of interest on the subject loans at the rate of 16 percent per month. As decreed by the lower courts, this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant. "While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets."13

In Medel v. CA,14 the Court found the stipulated interest rate of 5.5 percent per month, or 66 percent per annum, unconscionable. In the present case, the rate is even more iniquitous and unconscionable, as it amounts to 192 percent per annum. When the agreed rate is iniquitous or unconscionable, it is considered "contrary to morals, if not against the law. [Such] stipulation is void."15 Since the stipulation on the interest rate is void, it is as if there were no express contract thereon.16 Hence, courts may reduce the interest rate as reason and equity demand. We find no justification to reverse or modify the rate imposed by the two lower courts. Third and Fourth Issue: Penalties and Attorneys Fees Article 1229 of the Civil Code states thus: "The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable." In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case.17 What may be iniquitous and unconscionable in one may be totally just and equitable in another. In the present case, iniquitous and unconscionable was the parties stipulated penalty charge of 5 percent per month or 60 percent per annum, in addition to regular interests and attorneys fees. Also, there was partial performance by petitioner when she remitted P116,540 as partial payment of her principal obligation ofP320,000. Under the circumstances, the trial court was justified in reducing the stipulated penalty charge to the more equitable rate of 14 percent per annum. The Promissory Note carried a stipulation for attorneys fees of 25 percent of the principal amount and accrued interests. Strictly speaking, this covenant on attorneys fees is different from that mentioned in and regulated by the Rules of Court.18 "Rather, the attorneys fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause."19 So long as the stipulation does not contravene the law, morals, public order or public policy, it is binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution. Nevertheless, it appears that petitioners failure to comply fully with her obligation was not motivated by ill will or malice. The twenty-nine partial payments she made were a manifestation of her good faith. Again, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise, we hold that the RTCs reduction of attorneys fees -- from 25 percent to 10 percent of the total amount due and payable -- is reasonable. Fifth Issue: Non-Inclusion of Petitioners Husband Petitioner contends that the case against her should have been dismissed, because her husband was not included in the proceedings before the RTC.

We are not persuaded. The husbands non-joinder does not warrant dismissal, as it is merely a formal requirement that may be cured by amendment.20 Since petitioner alleges that her husband has already passed away, such an amendment has thus become moot. WHEREFORE, the Petition is DENIED. Costs against petitioner. SO ORDERED.

G.R. No. 148491

February 8, 2007

SPOUSES ZACARIAS BACOLOR and CATHERINE BACOLOR, Petitioners, vs. BANCO FILIPINO SAVINGS AND MORTGAGE BANK, DAGUPAN CITY BRANCH and MARCELINO C. BONUAN,Respondents. SANDOVAL-GUTIERREZ, J.: Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision 1 of the Court of Appeals in CA-G.R. CV No. 47732 promulgated on February 23, 2001 and its Resolution dated May 30, 2001. On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners, obtained a loan ofP244,000.00 from Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, respondent. They executed a promissory note providing that the amount shall be payable within a period of ten (10) years with a monthly amortization of P5,380.00 beginning March 11, 1982 and every 11th day of the month thereafter; that the interest rate shall be twenty-four percent (24%) per annum, with a penalty of three percent (3%) on any unpaid monthly amortization; that there shall be a service charge of three percent (3%) per annum on the loan; and that in case respondent bank seeks the assistance of counsel to enforce the collection of the loan, petitioners shall be liable for ten percent (10%) of the amount due as attorneys fees and fifteen percent (15%) of the amount due as liquidated damages. As security for the loan, petitioners mortgaged with respondent bank their parcel of land located in Dagupan City, Pangasinan, registered under Transfer Certificate of Title No. 40827. From March 11, 1982 to July 10, 1991, petitioners paid respondent bank P412, 199.36. Thereafter, they failed to pay the remaining balance of the loan. On August 7, 1992, petitioners received from respondent bank a statement of account stating that their indebtedness as of July 31, 1992 amounts to P840,845.61. In its letter dated January 13, 1993, respondent bank informed petitioners that should they fail to pay their loan within fifteen (15) days from notice, appropriate action shall be taken against them. Due to petitioners failure to settle their obligation, respondent instituted, on March 5, 1993, an action for extra-judicial foreclosure of mortgage.

Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC, a complaint for violation of the Usury Law against respondent, docketed as Civil Case No. D10480. They alleged that the provisions of the promissory note constitute a usurious transaction considering the (1) rate of interest, (2) the rate of penalties, service charge, attorneys fees and liquidated damages, and (3) deductions for surcharges and insurance premium. In their amended complaint, petitioners further alleged that, during the closure of respondent bank, it ceased to be a banking institution and, therefore, could not charge interests and institute foreclosure proceeding. On August 25, 1994, the RTC rendered its decision dismissing petitioners complaint, holding that: (1) The terms and conditions of the Deed of Mortgage and the Promissory Note are legal and not usurious. The plaintiff freely signed the Deed of Mortgage and the Promissory Note with full knowledge of its terms and conditions. The interest rate of 24% per annum is not usurious and does not violate the Usury Law (Act 2655) as amended by P.D. No. 166. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money etc., regardless of maturity x x x, shall not be subject to any ceiling under or pursuant to the Usury Law, as amended (CB Circular no. 905). Hence, the 24% interest per annum is allowed under P.D. No. 166. For sometime now, usury has been legally non-existent. Interest can now be as lender and borrower may agree upon (Verdejo v. CA, Jan. 29, 1988. 157 SCRA 743). The imposition of penalties in case the obligation is not fulfilled is not prohibited by the Usury Law. Parties to a contract of loan may validly agree upon the imposition of penalty charges in case of delay or non-payment of the loan. The purpose is to compel the debtor to pay his debt on time (Go Chioco v. Martinez, 45 Phil. 256, 265). (2) The closure of Banco Filipino did not suspend or stop its usual and normal banking operations like the collection of loan receivables and foreclosures of mortgages. In view of the foregoing, plaintiffs failed to substantiate their cause of action against the defendant. 2 On appeal, the Court of Appeals rendered its Decision affirming the Decision of the trial court. Petitioners subsequent motion for reconsideration was denied. Hence, this present petition for review on certiorari raising this lone issue: whether the interest rate is "excessive and unconscionable." It is the petitioners contention that while the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, there is nothing in the said circular which grants respondent

bank carte blanche authority to raise interest rates to levels which "either enslave the borrower or lead to a hemorrhaging of their assets." 3 In its comment 4 , respondent bank maintained that petitioner, by signing the Deed of Mortgage and Promissory Note, knowingly and freely consented to its terms and conditions. A contract between the parties must not be impaired. The interest rate of 24% per annum is not usurious and does not violate the Usury Law. 5 The petition lacks merit. Article 1956 of the Civil Code provides that no interest shall be due unless it has been expressly stipulated in writing. Here, the parties agreed in writing on February 11, 1982 that the rate of interest on the petitioners loan shall be 24% per annum. At the time the parties entered into the loan transaction, the applicable law was the Usury Law (Act 2655), as amended by P.D. No. 166, which provides that the rate of interest for the forbearance of money when secured by a mortgage upon real estate, should not be more than 6% per annum or the maximum rate prescribed by the Monetary Board of the Central Bank of the Philippines in force at the time the loan was granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed the ceiling on interest rates on a certain class of loans, thus: SECTION 2. The interest rate on a loan forbearance of any money, goods, or credits with a maturity of more than seven hundred thirty (730) days shall not be subject to any ceiling. 6 In the present case, the term of the subject loan is for a period of 10 years. Considering that its maturity is more than 730 days, the interest rate is not subject to any ceiling following the above provision. Therefore, the 24% interest rate agreed upon by parties does not violate the Usury Law, as amended by P.D. 116. This Court has consistently held that for sometime now, usury has been legally non-inexistent and that interest can now be charged as lender and borrower may agree upon. 7 As a matter of fact, Section 1 of Central Bank Circular No. 905 states that: SECTION 1. The rate of interest, including commissions, premiums, fees and other charges , on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended. 8 Moreover, in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation, 9 this Court has ruled that: With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on monetary obligations. Absent any evidence of fraud, undue influence, or any vice of consent exercised by one party against the other, the interest rate agreed upon is binding upon them.

There is no indication in the records that any of the incidents which vitiate consent on the part of petitioners is present. Indeed, the interest rate agreed upon is binding on them. With respect to the penalty and service charges, the same are unconscionable or excessive. Petitioners invoke this Courts rulings in Almeda vs. Court of Appeals 10 and Medel vs. Court of Appeals 11 to show that the interest rate in the subject promissory note is unconscionable. Their reliance on these cases is misplaced. In Almeda, what this Court struck down as being unconscionable and excessive was the unilateral increase in the interest rates from 18% to 68%. This Court ruled thus: It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its contract by increasing the interest rates of the loan without the prior assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956, that "No interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of the interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest x x x. Petitioners also cannot find refuge in Medel. In this case, what this Court declared as unconscionable was the imposition of a 66% interest rate per annum. In the instant case, the interest rate is only 24% per annum, agreed upon by both parties. By no means can it be considered unconscionable or excessive.1awphi1.net Verily, petitioners cannot now renege on their obligation to comply with what is incumbent upon them under the loan agreement. A contract is the law between the parties and they are bound by its stipulations. 12 Petitioners further contend that during the closure of respondent bank (from January 1, 1985 to July 1, 1994), it lost its function as a banking institution and, therefore, could no longer charge interests and institute foreclosure proceedings. In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines, 13this Court ruled that the banks closure did not diminish the authority and powers of the designated liquidator to effectuate and carry on the administration of the bank, thus: x x x. We did not prohibit however acts such as receiving collectibles and receivables or paying off creditors claims and other transactions pertaining to the normal operations of a bank. There is no doubt that that the prosecution of suits for collection and the foreclosure of mortgages against debtors of the bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of a bank. x x x. Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybaez, 14 where one of the issues was whether respondent bank can collect interest on its loans during its period of liquidation and closure, this Court held: In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the closure and receivership of Banco Filipino was put in issue. But the pendency of the case did not diminish the authority of the designated liquidator to administer and continue the banks transactions. The Court allowed the bank liquidator to continue receiving collectibles and receivables or paying off creditors claims and other transactions pertaining to normal operations of a bank.

Among these transactions were the prosecution of suits against debtors for collection and for foreclosure of mortgages. The bank was allowed to collect interests on its loans while under liquidation, provided that the interests were legal. In fine, we hold that the interest rate on the loan agreed upon between the parties is not excessive or unconscionable; and that during the closure of respondent bank, it could still function as a bonding institution, hence, could continue collecting interests from petitioners. WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 47732. Costs against petitioners. SO ORDERED.

G.R. No. 145871

January 31, 2006

LEONIDES C. DIO, petitioner, vs. LINA JARDINES, Respondent. AUSTRIA-MARTINEZ, J.: This resolves the petition for review on certiorari seeking to set aside the Decision1 of the Court of Appeals (CA) dated June 9, 2000 dismissing the appeal in CA-G.R. CV No. 56118 and the Resolution dated October 25, 2000 denying the motion for reconsideration. The antecedent facts are as follows. On December 14, 1992, Leonides C. Dio (petitioner) filed a Petition for Consolidation of Ownership with the Regional Trial Court of Baguio City, Branch 7 (RTC). She alleged that: on January 31, 1987, Lina Jardines (respondent) executed in her favor a Deed of Sale with Pacto de Retro over a parcel of land with improvements thereon covered by Tax Declaration No. 44250, the consideration for which amounted to P165,000.00; it was stipulated in the deed that the period for redemption would expire in six months or on July 29, 1987; such period expired but neither respondent nor any of her legal representatives were able to redeem or repurchase the subject property; as a consequence, absolute ownership over the property has been consolidated in favor of petitioner.2 Respondent countered in her Answer that: the Deed of Sale with Pacto de Retro did not embody the real intention of the parties; the transaction actually entered into by the parties was one of simple loan and the Deed of Sale withPacto de Retro was executed just as a security for the loan; the amount borrowed by respondent during the first week of January 1987 was only P50,000.00 with monthly interest of 9% to be paid within a period of six months, but since said amount was insufficient to buy construction materials for the house she was then building, she again borrowed an additional amount of P30,000.00; it was never the intention of respondent to sell her property to petitioner; the value of respondents residential house alone is over a million pesos and if the value of the lot is added, it would be around one and a half million pesos; it is unthinkable that respondent would sell her property worth one and a half million

pesos for only P165,000.00; respondent has even paid a total of P55,000.00 out of the amount borrowed and she is willing to settle the unpaid amount, but petitioner insisted on appropriating the property of respondent which she put up as collateral for the loan; respondent has been the one paying for the realty taxes on the subject property; and due to the malicious suit filed by petitioner, respondent suffered moral damages. On September 14, 1993, petitioner filed an Amended Complaint adding allegations that she suffered actual and moral damages. Thus, she prayed that she be declared the absolute owner of the property and/or that respondent be ordered to pay her P165,000.00 plus the agreed monthly interest of 10%; moral and exemplary damages, attorneys fees and expenses of litigation. Respondent then filed her Answer to the Amended Complaint reiterating the allegations in her Answer but increasing the alleged valuation of the subject property to more than two million pesos. After trial, the RTC rendered its Decision dated November 20, 1996, the dispositive portion of which reads as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows: a) Declaring the contract (Exh. A) entered into by the contending parties as one of deed of sale with right to repurchase or pacto de retro sale; b) Declaring the plaintiff Dio to have acquired whatever rights Jardines has over the parcel of land involved it being that Jardines has no torrens title yet over said land; c) Declaring the plaintiff Dio the owner of the residential house and other improvements standing on the parcel of land in question; d) Ordering the consolidation of ownership of Dio over the residential house and other improvements, and over the rights, she (Dio) acquired over the parcel of land in question; and ordering the corresponding government official (The City Assessor) of Baguio City to undertake the consolidation by putting in the name of plaintiff Dio the ownership and/or rights which she acquired from the defendant Jardines in the corresponding document (Tax Declarations) on file in his/her office; after the plaintiff has complied with all the requirements and has paid the fees necessary or incident to the issuance of a new tax declaration as required by law; e) Ordering the cancellation of Tax Declaration 44250; f) Ordering defendant Jardines to pay actual and/or compensatory damages to the plaintiff as follows: 1) P3,000.00 representing expenses in going to and from Jardines place to collect the redemption money;

2) P1,000.00 times the number of times Dio came to Baguio to attend the hearing of the case as evidenced by the signatures of Dio appearing on the minutes of the proceedings found in the Rollo of the case; 3) P10,000.00 attorneys fee. Costs against defendant Jardines. SO ORDERED.3 Respondent then appealed to the CA which reversed the RTC judgment. The CA held that the true nature of the contract between herein parties is one of equitable mortgage, as shown by the fact that (a) respondent is still in actual physical possession of the property; (b) respondent is the one paying the real property taxes on the property; and (c) the amount of the supposed sale price, P165,000.00, earns monthly interest. The dispositive portion of the CA Decision promulgated on June 9, 2000 reads: WHEREFORE, foregoing premises considered, we find that the Regional Trial Court, First Judicial Region, Branch 07, Baguio City, committed reversible errors in rendering its decision dated 20 November 1996 in Civil Case No. 2669-R, entitled Leonides G. Dio, etc. vs. Lina Jardines". The appeal at bar is herby GRANTED and the assailed decision is hereby REVERSED and SET ASIDE. Let a new judgment be entered as follows: 1. Declaring that the true nature of the contract entered into by the contending parties as one of equitable mortgage and not a pacto de retro sale; 2. Ordering the defendant-appellant to pay plaintiff-appellee legal interest on the amount of P165,000.00 from July 29, 1987, the time the said interest fell due, until fully paid; 3. No pronouncement as to cost. SO ORDERED.4 Petitioner moved for reconsideration of said decision, but the same was denied per Resolution dated October 25, 2000. Hence, herein petition for review on certiorari alleging that: 1. THE LOWER COURT COMMITTED AN ERROR IN DECLARING THAT THE TRUE NATURE OF THE CONTRACT ENTERED INTO BY THE PARTIES AS ONE EQUITABLE MORTGAGE AND NOT A PACTO DE RETRO SALE; 2. THE LOWER COURT COMMITTED AN ERROR IN ORDERING THE RESPONDENT TO PAY PETITIONER LEGAL INTEREST DESPITE THE CONFLICTING ADMISSIONS OF THE PARTIES THAT THE AGREED INTERESTS WAS EITHER 9% OR 10%; 3. THE FINDINGS OF FACTS OF THE LOWER COURT ARE CONTRARY TO EVIDENCE AND THE ADMISSIONS OF THE PARTIES;

4. THE LOWER COURT COMMITTED AN ERROR IN GOING BEYOND THE ISSUES OF THE CASE BY DELETING THE AWARD FOR DAMAGES DESPITE THE FACT THAT THE SAME WAS NOT RAISED AS AN ISSUE IN THE APPEAL; 5 The petition lacks merit. The Court finds the allegations of petitioner that the findings of fact of the CA are contrary to evidence and admissions of the parties and that it erred in declaring the contract between the parties as an equitable mortgage to be absolutely unfounded. A close examination of the records of this case reveals that the findings of fact of the CA are all based on documentary evidence and on admissions and stipulation of facts made by the parties. The CAs finding that there was no gross inadequacy of the price of respondents residential house as stated in the contract, was based on respondents own evidence, Tax Declaration No. 44250, which stated that the actual market value of subject residential house in 1986 was only P93,080.00. The fact that respondent has remained in actual physical possession of the property in question, and that respondent has been the one paying the real property taxes on the subject property was established by the admission made by petitioner during the pre-trial conference and embodied in the Pre-Trial Order6 dated May 25, 1994. The finding that the purchase price in the amount ofP165,000.00 earns monthly interest was based on petitioners own testimony and admission in her appellees brief that the amount of P165,000.00, if not paid on July 29, 1987, shall bear an interest of 10% per month. The Court sees no reversible error with the foregoing findings of fact made by the CA. The CA correctly ruled that the true nature of the contract entered into by herein parties was one of equitable mortgage. Article 1602 of the Civil Code enumerates the instances when a purported pacto de retro sale may be considered an equitable mortgage, to wit: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. (Emphasis supplied) In Legaspi vs. Ong,7 the Court further explained that: The presence of even one of the above-mentioned circumstances as enumerated in Article 1602 is sufficient basis to declare a contract of sale with right to repurchase as one of equitable mortgage. As stated by the Code Commission which drafted the new Civil Code, in practically all of the so-called contracts of sale with right of repurchase, the real intention of the parties is that the pretended purchase price is money loaned and in order to secure the payment of the loan, a contract purporting to be a sale with pacto de retro is drawn up.8 In the same case, the Court cited Article 1603 of the Civil Code, which provides that in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.9 In the instant case, the presence of the circumstances provided for under paragraphs (2) and (5) of Article 1602 of the Civil Code, and the fact that petitioner herself demands payment of interests on the purported purchase price of the subject property, clearly show that the intention of the parties was merely for the property to stand as security for a loan. The transaction between herein parties was then correctly construed by the CA as an equitable mortgage. The allegation that the appellate court should not have deleted the award for actual and/or compensatory damages is likewise unmeritorious. Section 8, Rule 51 of the Rules of Court provides as follows: Sec. 8. Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors. Clearly, the appellate court may pass upon plain errors even if they are not stated in the assignment of errors. InVillegas vs. Court of Appeals,10 the Court held: [T]he Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of the case.11 In the present case, the RTCs award for actual damages is a plain error because a reading of said trial courts Decision readily discloses that there is no sufficient evidence on record to prove that petitioner is entitled to the same. Petitioners only evidence to prove her claim for actual damages is her testimony that she has spentP3,000.00 in going to and from respondents place to try to collect payment and that she spent P1,000.00 every time she travels from Bulacan, where she resides, to Baguio in order to attend the hearings. In People vs. Sara,12 the Court held that a witness testimony cannot be "considered as competent proof and cannot replace the probative value of official receipts to justify the award of

actual damages, for jurisprudence instructs that the same must be duly substantiated by receipts."13 Hence, there being no official receipts whatsoever to support petitioners claim for actual or compensatory damages, said claim must be denied. The appellate court was also correct in ordering respondent to pay "legal interest" on the amount of P165,000.00. Both parties admit that they came to an agreement whereby respondent shall pay petitioner interest, at 9% (according to respondent) or 10% (according to petitioner) per month, if she is unable to pay the principal amount of P165,000.00 on July 29, 1987. In the Pre-Trial Order14 dated May 25, 1994, one of the issues for resolution of the trial court was "whether or not the interest to be paid under the agreement is 10% or 9% or whether or not this amount of interest shall be reduced equitably pursuant to law."15 The factual milieu of Carpo vs. Chua16 is closely analogous to the present case. In the Carpo case, petitioners therein contracted a loan in the amount of P175,000.00 from respondents therein, payable within six months with an interest rate of 6% per month. The loan was not paid upon demand. Therein petitioners claimed that following the Courts ruling in Medel vs. Court of Appeals,17 the rate of interest of 6% per month or 72% per annum as stipulated in the principal loan agreement is null and void for being excessive, iniquitous, unconscionable and exorbitant. The Court then held thus: 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, we annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In Imperial v. Jaucian, we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of Appeals, 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. Recently, this Court, in Arrofo v. Quino, 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. x x x.18 Applying the afore-cited rulings to the instant case, the inescapable conclusion is that the agreed interest rate of 9% per month or 108% per annum, as claimed by respondent; or 10% per month or 120% per annum, as claimed by petitioner, is clearly excessive, iniquitous, unconscionable and exorbitant. Although respondent admitted that she agreed to the interest rate of 9%, which she believed was exorbitant, she explained that she was constrained to do so as she was badly in need of money at that time. As declared in the Medel case19 and Imperial

vs. Jaucian,20 "[i]niquitous and unconscionable stipulations on interest rates, penalties and attorneys fees are contrary to morals." Thus, in the present case, the rate of interest being charged on the principal loan ofP165,000.00, be it 9% or 10% per month, is void. The CA correctly reduced the exhorbitant rate to "legal interest." In Trade & Investment Development Corporation of the Philippines vs. Roblett Industrial Construction Corporation,21 the Court held that: In Eastern Shipping Lines, Inc. v. Court of Appeals, this Court laid down the following rules with respect to the manner of computing legal interest: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on 'Damages' of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing.Furthermore, the interest due shall itself earn legal interest from 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. 22 (Underscoring supplied) Applied to the present case, since the agreed interest rate is void, the parties are considered to have no stipulation regarding the interest rate. Thus, the rate of interest should be 12% per annum to be computed from judicial or extrajudicial demand, subject to the provisions of Article 1169 of the Civil Code, to wit: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of the obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. xxxx The records do not show any of the circumstances enumerated above. Consequently, the 12% interest should be reckoned from the date of extrajudicial demand.

Petitioner testified that she went to respondents place several times to try to collect payment, but she (petitioner) failed to specify the dates on which she made such oral demand. The only evidence which clearly shows the date when petitioner made a demand on respondent is the demand letter dated March 19, 1989 (Exh. "C"), which was received by respondent or her agent on March 29, 1989 per the Registry Return Receipt (Exh. "C-1"). Hence, the interest of 12% per annum should only begin to run from March 29, 1989, the date respondent received the demand letter from petitioner. WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals dated June 9, 2000 isAFFIRMED with the MODIFICATION that the legal interest rate to be paid by respondent on the principal amount of P165,000.00 is twelve (12%) percent per annum from March 29, 1989 until fully paid. SO ORDERED.

G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. 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 "TurnOver 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 1734 1 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 viceversa, 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 decided 3 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 Court 6 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 Court 8modified 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 Court 10 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 Court 11 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 Court 12 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. Ruiz 13 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 Court 15 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 forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when 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-delicts 18 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 1169 23 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 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. SO ORDERED.

G.R. No. 148196

September 30, 2005

BPI FAMILY BANK, petitioner vs. EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, respondents. EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, petitioners vs. BPI FAMILY BANK, respondent. AUSTRIA-MARTINEZ, J.: Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court assailing the Decision[1] of the Court of Appeals (CA) dated November 27, 2000 in CA-G.R. CV No. 53962, which affirmed with modification the Decision dated August 11, 1995 of the Regional Trial Court, Branch 25, Manila (Manila RTC); and the CA Resolution dated May 3, 2001, which denied the parties separate motions for reconsideration. The factual background of the case is as follows:

On May 23, 1990, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.), all officers of the International Baptist Church and International Baptist Academy in Malabon, Metro Manila, filed a complaint for Reinstatement of Current Account/Release of Money plus Damages against BPI Family Bank (BPI-FB) before the Manila RTC, docketed as Civil Case No. 90-53154.[2] They alleged that: on August 30, 1989, they accepted from Amado Franco BPI-FB Check No. 129004 dated August 29, 1989 in the amount of P500,000.00, jointly issued by Eladio Teves and Joseph Teves;[3] they opened Current Account No. 807-065314-0 with the BPI-FB Branch at Bonifacio Market, Edsa, Caloocan City and deposited the check as initial deposit; the check was subsequently cleared and the amount was credited to their Current Account; on September 3, 1989, they drew a check in the amount of P10,171.50 and pursuant to normal banking procedure the check was honored and debited from their Current Account, leaving a balance of P490,328.50; on September 4, 1989, they drew another check in the amount of P46,189.60; instead of debiting the said amount against their Current Account, it was debited, without their knowledge and consent, against their Savings Account No. 08-95332-5 with the same branch; on September 9, 1989, they drew a check for P91,270.00 which, upon presentment for payment, was dishonored for the reason account closed, in spite of the balance in the Current Account of P490,328.50; they thereafter learned from BPI-FB that their Current Account had been frozen upon instruction of Severino P. Coronacion, Vice-President of BPI-FB on the ground that the source of fund was illegal or unauthorized; they demanded the reinstatement of the account, but BPI-FB refused. On June 20, 1990, BPI-FB filed a motion to dismiss on the ground of litis pendentia, alleging that there is a pending case for recovery of sum of money arising from the BPI-FB Check No. 129004 dated August 29, 1989 before the Regional Trial Court (RTC), Branch 146, Makati[4] and Buenaventura is one of the defendants therein.[5] Buenaventura, et al. opposed the motion to dismiss on the ground that there is no identity of parties, rights asserted and reliefs prayed between the two cases.[6] On October 10, 1990, the Manila RTC denied the motion to dismiss, ruling that there can be no res judicata between the two cases since the parties are different and the causes of action are not the same.[7] On December 10, 1990, BPI-FB filed its answer alleging that: the check received by Buenaventura, et al. from Amado Franco was drawn by Eladio Teves and Joseph Teves against the Current Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco); the funds in the said Tevesteco account allegedly consisted mainly of funds in the amount of P80,000,000.00 transferred to it from another account belonging to the First Metro Investment Corporation (FMIC); such transfer of funds was effected on the basis of an Authority to Debit bearing the signatures of certain officers of FMIC; upon its investigation, BPI-FB found that the signatures in the Authority to Debit were forged; before this, however, Tevesteco had already issued several checks against its Current Account, one of which is the BPI-FB Check No. 129004 received by Buenaventura, et al. from Amado Franco, after a series of indorsements; it has the right to consider the Current Account of Buenaventura, et al., which is funded from

BPI-FB Check No. 129004, as closed and to refuse any further withdrawal from the same; assuming that the forgery claim of FMIC is untrue and incorrect, it is the right of the BPI-FB, as a matter of protecting its interests, to freeze their account or to hold it in suspense and not to allow any withdrawals therefrom in the meantime that the issue of forgery remains unsettled; FMIC has instituted another civil action, presently pending appeal, against BPI-FB and several other defendants for the recovery of the P80,000,000.00 transferred from the formers account to Tevestecos account.[8] Following trial on the merits, on August 11, 1995, the Manila RTC rendered its decision, finding that: BPI-FB had no right to unilaterally freeze the deposits of Buenaventura, et al. since the latter had no participation in any fraud that may have attended the prior fund transfers from FMIC to Tevesteco; as holders in good faith and for value of the BPI-FB Check No. 129004, their rights to the sum embodied in the said check should have been respected; BPI-FBs unilateral action of freezing the Current Account amounted to an unlawful confiscation of their property without due process. The dispositive portion of the RTC decision reads as follows: WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and against the defendant bank and the latter is ordered as follows: 1. To pay the plaintiff the sum of P490,328.50 representing the balance of the plaintiffs deposit under Account No. 807-065-313-0 which was unlawfully frozen by the bank and finally debited against said account with legal rate of interest from date of closure; 2. To pay the sum of P200,000.00 as moral damages; 3. To pay the amount of P200,000.00 as exemplary damages to serve as an example and lesson to serve as a deterrent for similar action which the bank may take against its depositors in the future; 4. To pay the sum of P50,000.00 as attorneys fees. SO ORDERED.[9]

Dissatisfied, BPI-FB appealed to the CA. It alleged that: the case should have been dismissed for lack of cause of action because it is the International Baptist Academy which is the owner of the funds deposited with BPI-FB and therefore the real party-in-interest, although the account is in the name of Buenaventura, et al.; the RTC should not have ordered the payment of the balance of the Current Account of Buenaventura, et al. because the latter were interested only in the reinstatement of their Current Account; the provisions of the Negotiable Instruments Law should not have been applied by the RTC to support its position that Buenaventura, et al. are the owners of the funds in their Current Account; BPI-FB is entitled to freeze the account of Buenaventura, et al. and to disallow any withdrawals therefrom as a measure to protect its interest; BPI-FB, not Buenaventura, et al., is entitled to damages. On November 27, 2000, the CA affirmed the decision of the Manila RTC, holding that BPI-FB did not act in accordance with law.[10] It ruled that the relationship between the bank and

the depositor is that of debtor and creditor and, as such, BPI-FB could not lawfully refuse to make payments on the checks drawn and issued by Buenaventura, et al., provided only that there are funds available in the latters deposit. It further declared that BPI-FB is not justified in freezing the amounts deposited by Buenaventura, et al. for suspicion of being illegal or unauthorized as a result of the claimed fraud perpetuated against FMIC because: (a) it has not been sufficiently shown that the funds in the account of Buenaventura, et al. were derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted exclusively of the said P80,000,000.00 debited from FMICs account; and (b) there is no clear proof of any involvement of Buenaventura, et al., the International Baptist Church or International Baptist Academy in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. The CA also found unmeritorious BPI-FBs claim that Buenaventura, et al. have no cause of action since the International Baptist Academy is the real party-in-interest. It held that since it is undisputed that it is the Current Account of Buenaventura, et al. which was frozen and closed by BPI-FB, then the former are the parties-in-interest in the reopening of the said account. It found no error in the Manila RTCs order that BPI-FB pay the amount of P490,328.50 plus interest directly to Buenaventura, et al. since the reinstatement of the Current Account would mean the same thing as the payment of the balance; Buenaventura, et al. would necessarily have the right to withdraw their deposit if and when they see it fit. Furthermore, the CA held that the RTCs disposition falls under the general prayer of Buenaventura, et al. for such other reliefs as may be just and equitable under the attendant circumstances. With regard to award of damages, the CA sustained the award of moral damages and attorneys fees, holding that BPI-FBs actuations were established to have caused Buenaventura, et al. to incur the distrust of their Baptist brethren, besides suffering mental anguish, serious anxiety, wounded feelings, and moral shock but found no basis for the award of exemplary damages of P200,000.00 for lack of showing that BPI-FB was not animated by any wanton, fraudulent, reckless, oppressive or malevolent intent. Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration of the deletion of the award of exemplary damages. [11] On the other hand, BPIFB reiterated its argument that the International Baptist Academy is the real party-in-interest. It also assailed the findings and conclusions of the CA.[12] On May 3, 2001, the CA denied both motions for reconsideration.[13] Hence, the present two consolidated petitions for review on certiorari. In G.R No. 148196, BPI-FB ascribes six errors upon the CA, to wit: I. The Honorable Court of Appeals committed a reversible error in holding that the respondents are the real parties-in-interest in this case contrary to the admissions of respondents themselves that it is the International Baptist

Academy who is the owner of the funds in question and hence it is and out to be the real party in interest in this case. II. The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing respondents complaint for lack of cause of action. III. The Honorable Court of Appeals committed a reversible error in NOT holding, based on a misapprehension of facts that BPI-FB is entitled to freeze respondents account and to disallow any withdrawal therefrom as a measure to protect its interest. IV. The Honorable Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that it has not been sufficiently shown that the funds in deposit with BPI-FB under the name of the respondents were derived exclusively from the alleged 80 million pesos unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted exclusively of the said 80 million pesos debited from FMICs account. V. The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding the position of BPI-FB on the freezing of respondents current account when it held that there was no clear proof of any involvement by the respondents with the alleged irregularities attending the fund transfer from FMIC to Tevesteco. VI. The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in effect, that there is nothing wrong with the Lower Courts order directing BPI-FB to pay to respondents directly the balance of their account plus interest although their prayer in their complaint was only to reinstate their current account.[14]

Anent the first and second grounds, BPI-FB maintains that the complaint should have been dismissed for lack of cause of action because Buenaventura et al. admit that the International Baptist Academy is the owner of the funds in question and therefore the real partyin-interest to prosecute the action. On the third ground, BPI-FB asserts that it has the right to consider the account of Buenaventura, et al. as frozen and to refuse any withdrawals from the same because of the forgery claim of FMIC. Assuming the forgery claim of FMIC is true and correct, the amount transferred from FMICs account to Tevestecos account is the money of BPI-FB under the principle that a bank is deemed to have disbursed its own funds. It submits that as an original owner who is restored in possession of stolen property, it has a better right over such property than a mere transferee no matter how innocent the latter may be. Concerning the fourth ground, BPI-FB submits that ample proof was presented by it that the deposit under the name of Tevesteco consisted exclusively of the P80,000,000.00 debited from FMICs account and the funds in deposit with BPI-FB under the name of Buenaventura, et al. were derived exclusively from the P80,000,000.00 unlawfully transferred from the funds of FMIC.

With regard to the fifth ground, BPI-FB concedes that there is no clear proof of any involvement by Buenaventura, et al. in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. It insists, however, that the freezing of the account was triggered by the forgery claim of FMIC and the unauthorized fund transfer to Tevesteco based on the principle that a bank is deemed to have disbursed its own funds, and not its depositors, where the authority for such disbursement is a forgery and null and void. It had the right to set up its ownership of the money as against that of Buenaventura, et al. and to refuse to return the same to them. As to the sixth ground, BPI-FB points out that Buenaventura, et al. originally prayed in the alternative for the reinstatement of their Current Account or for payment of the balance remaining in said account but they subsequently chose to delete that portion praying for the payment of the balance of their account. It submits that Buenaventura, et al. deliberately did this to sidestep the other pending case filed against the suspected perpetrators of the fraud, including Amado Franco and Buenaventura, before RTC, Branch 146, Makati. In G.R. No. 148259, Buenaventura, et al. anchor their petition on a sole ground, to wit: The Honorable Court of Appeals has decided the case in a way not in accord with law and applicable jurisprudence in the deletion of the award of exemplary damages granted by the court a quo.[15]

They submit that BPI-FB acted in a wanton, reckless, oppressive and malevolent manner in freezing, and subsequently closing, their account without prior notification. They insist that BPI-FB failed in its obligation, as an entity engaged in business affected with public interest, to treat the accounts of its depositors with meticulous care, having in mind the fiduciary nature of their relationship. Moreover, as if to compound its reckless conduct, BPI-FB declared itself the owner of the money which the depositors have placed in its care, freezing and later closing the depositors account, all before due notice and without first giving the latter the opportunity to properly present their side or at least sufficient time to direct their course of action, like refraining from issuing any check, to eventually save themselves from any embarrassment and/or possible criminal prosecution for estafa or violation of Batas Pambansa Blg. 22. We rule in favor of Buenaventura, et al. It is elementary that it is only in the name of a real party-in-interest that a civil suit may be prosecuted. Under Section 2, Rule 3 of the Rules of Civil Procedure, a real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. "Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest.[16] One having no right or interest to protect cannot invoke the jurisdiction of the court as a party plaintiff in an action.[17] To qualify a person

to be a real party-in-interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to be enforced.[18] Since a contract may be violated only by the parties thereto as against each other, in an action upon that contract, the real parties-in-interest, either as plaintiff or as defendant, must be parties to the said contract.[19] In the present case, Buenaventura, et al. are the real parties-in-interest. They are the parties who contracted with BPI-FB with regard to the Current Account. While the funds were used for purposes of the International Baptist Church and the International Baptist Academy, it must be noted that the Current Account is in the name of Buenaventura, et al. They are the signatories of the check which was dishonored by BPI-FB upon presentment and the ones who will be held accountable for the nonpayment or dishonor of any check they issued. Thus, they are the real parties-in-interest to enforce the terms of the contract of deposit with BPI-FB. Furthermore, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on the suspicion that the funds in the latters account are illegal or unauthorized having been sourced from the unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest. Needless to stress, the contract between a bank and its depositor is governed by the provisions of the Civil Code on simple loan.[20] Thus, there is a debtor-creditor relationship between a bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings or current deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. Every bank that issues checks for the use of its customers should know whether or not the drawer's signature thereon is genuine, whether there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should possess appropriate detecting devices for uncovering forgeries and/or alterations on these instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss.[21] There is nothing inequitable in such a rule for if in the regular course of business the check comes to the drawee bank which, having the opportunity to ascertain its character, pronounces it to be valid and pays it, as in this case, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places upon it, and the result of its negligence must rest upon it.[22] Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the loss and cant shift the blame to Buenaventura, et al. having failed to show any

participation on their part in the forgery. BPI-FB fails to point any circumstance which should have put Buenaventura, et al. on inquiry as to the why and wherefore of the possession of the check by Amado Franco. Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco or Franco. They thus had no obligation to ascertain from Franco what the nature of the latters title to the checks was, if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Francos acquisition or possession of the check, which was payable to bearer.[23] Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were allegedly derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the said P80,000,000.00 debited from FMICs account is immaterial. These circumstances cannot be used against a party not privy to the forgery. There is no merit to the claim that the CA erred in affirming the RTCs order directing BPI-FB to pay the balance of their account plus interest although the prayer was only to reinstate their Current Account. The complaint does contain a general prayer for such other relief as may be just and equitable in the premises. And this general prayer is broad enough to justify extension of a remedy different from or together with the specific remedy sought.[24] Indeed, a court may grant relief to a party, even if the party awarded did not pray for it in his pleadings.[25] As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that the CA erred in deleting the award of exemplary damages. The law allows the grant of exemplary damages to set an example for the public good.[26] The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and meticulousness in giving irreproachable service.[27] For this reason, the bank should guard against injury attributable to negligence or bad faith on its part.[28] The award of exemplary damages is proper as a warning to BPI-FB and all concerned not to recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors. However, the award should be in a reduced amount of P50,000.00 since exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.[29] In summation, the Court reminds BPI-FB that the banking sector must at all times maintain a high level of meticulousness, always having in mind the fiduciary nature of its relationship with its depositors.[30] This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. Failure to comply with this standard shall render a bank liable to its depositors for damages. WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R. No. 148259 is GRANTED. The assailed Decision dated November 27, 2000 and Resolution dated May 3, 2001 of the Court of Appeals in CA-G.R. CV No. 53962, which affirmed with modification

the Decision rendered by the Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil Case No. 90-53154, are hereby AFFIRMED with the MODIFICATION that BPI Family Bank is directed to pay Buenaventura, et al. the amount of P50,000.00 as exemplary damages. Costs against BPI Family Bank. SO ORDERED.

G.R. No. 156132

February 6, 2007

CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE CORPORATION, doing business under the name and style of FNCB Finance, Petitioners, vs. MODESTA R. SABENIANO, Respondent. CHICO-NAZARIO, J.: On 16 October 2006, this Court promulgated its Decision1 in the above-entitled case, the dispositive portion of which reads IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its Resolution, dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows 1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is ORDEREDto return to respondent the principal amounts of the said PNs, amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977; 2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine Cents (US$149,632.99) from respondents Citibank-Geneva accounts to petitioner Citibank in Manila, and the application of the same against respondents outstanding loans with the latter, is DECLARED illegal, null and void. Petitioner Citibank is ORDERED to refund to respondent the said amount, or its equivalent in Philippine currency using the exchange rate at the time of payment, plus the stipulated interest for each of the fiduciary placements and current accounts involved, beginning 26 October 1979; 3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos (P250,000.00); and attorneys fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and 4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from the respective dates of their maturity to 5 September 1979, was computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-

Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall continue to earn interest, at the rates stipulated in the corresponding PNs, from 5 September 1979 until payment thereof. Subsequent thereto, respondent Modesta R. Sabeniano filed an Urgent Motion to Clarify and/or Confirm Decision with Notice of Judgment on 20 October 2006; while, petitioners Citibank, N.A. and FNCB Finance2 filed their Motion for Partial Reconsideration of the foregoing Decision on 6 November 2006. The facts of the case, as determined by this Court in its Decision, may be summarized as follows. Respondent was a client of petitioners. She had several deposits and market placements with petitioners, among which were her savings account with the local branch of petitioner Citibank (Citibank-Manila3 ); money market placements with petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva). At the same time, respondent had outstanding loans with petitioner Citibank, incurred at Citibank-Manila, the principal amounts aggregating to P1,920,000.00, all of which had become due and demandable by May 1979. Despite repeated demands by petitioner Citibank, respondent failed to pay her outstanding loans. Thus, petitioner Citibank used respondents deposits and money market placements to off-set and liquidate her outstanding obligations, as follows Respondents outstanding obligation (principal and interest as of 26 October 1979)

P 2,156,940.58

Less: Proceeds from respondents money market placements with petitioner FNCB Finance (principal and interest as of 5 September 1979) (1,022,916.66) Deposits in respondents bank accounts with petitioner Citibank Proceeds of respondents money market placements and dollar accounts with Citibank-Geneva (peso equivalent as of 26 October 1979) Balance of respondents obligation (31,079.14)

(1,102,944.78) P 0.00

Respondent, however, denied having any outstanding loans with petitioner Citibank. She likewise denied that she was duly informed of the off-setting or compensation thereof made by petitioner Citibank using her deposits and money market placements with petitioners. Hence, respondent sought to recover her deposits and money market placements. Respondent instituted a complaint for "Accounting, Sum of Money and Damages" against petitioners, docketed as Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati City. After trial proper, which lasted for a decade, the RTC rendered a Decision4 on 24 August 1995, the dispositive portion of which reads WHEREFORE, in view of all the foregoing, decision is hereby rendered as follows:

(1) Declaring as illegal, null and void the setoff effected by the defendant Bank [petitioner Citibank] of plaintiffs [respondent Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment; (2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in the amount of P1,069,847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said amount, however, there shall be no interest and penalty charges from the time the illegal setoff was effected on 31 October 1979; (3) Dismissing all other claims and counterclaims interposed by the parties against each other. Costs against the defendant Bank. All the parties appealed the afore-mentioned RTC Decision to the Court of Appeals, docketed as CA-G.R. CV No. 51930. On 26 March 2002, the appellate court promulgated its Decision,5 ruling entirely in favor of respondent, to wit Wherefore, premises considered, the assailed 24 August 1995 Decision of the court a quo is hereby AFFIRMED with MODIFICATION, as follows: 1. Declaring as illegal, null and void the set-off effected by the defendant-appellant Bank of the plaintiff-appellants dollar deposit with Citibank, Switzerland, in the amount of US$149,632.99, and ordering defendant-appellant Citibank to refund the said amount to the plaintiff-appellant with legal interest at the rate of twelve percent (12%) per annum, compounded yearly, from 31 October 1979 until fully paid, or its peso equivalent at the time of payment; 2. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-appellant, the set-off of P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal and factual basis; 3. As defendants-appellants failed to account the following plaintiff-appellants money market placements, savings account and current accounts, the former is hereby ordered to return the same, in accordance with the terms and conditions agreed upon by the contending parties as evidenced by the certificates of investments, to wit: (i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes NNPN No. 22526) issued on 17 March 1977, P318,897.34 with 14.50% interest p.a.; (ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes NNPN No. 22528) issued on 17 March 1977, P203,150.00 with 14.50 interest p.a.; (iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes NNPN No. 04952), issued on 02 June 1977, P500,000.00 with 17% interest p.a.;

(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes NNPN No. 04962), issued on 02 June 1977, P500,000.00 with 17% interest per annum; (v) The Two Million (P2,000,000.00) money market placements of Ms. Sabeniano with the Ayala Investment & Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%) per annum compounded yearly, from 30 September 1976 until fully paid; 4. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND PESOS (P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS (P100,000.00) as attorneys fees. Acting on petitioners Motion for Partial Reconsideration, the Court of Appeals issued a Resolution,6 dated 20 November 2002, modifying its earlier Decision, thus WHEREFORE, premises considered, the instant Motion for Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decisions dispositive portion is hereby ordered DELETED. The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION. Since the Court of Appeals Decision, dated 26 March 2002, as modified by the Resolution of the same court, dated 20 November 2002, was still principally in favor of respondent, petitioners filed the instant Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court. After giving due course to the instant Petition, this Court promulgated on 16 October 2006 its Decision, now subject of petitioners Motion for Partial Reconsideration.1awphi1.net Among the numerous grounds raised by petitioners in their Motion for Partial Reconsideration, this Court shall address and discuss herein only particular points that had not been considered or discussed in its Decision. Even in consideration of these points though, this Court remains unconvinced that it should modify or reverse in any way its disposition of the case in its earlier Decision. As to the off-setting or compensation of respondents outstanding loan balance with her dollar deposits in Citibank-Geneva Petitioners take exception to the following findings made by this Court in its Decision, dated 16 October 2006, disallowing the off-setting or compensation of the balance of respondents outstanding loans using her dollar deposits in Citibank-Geneva Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondents dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions were evidently not the principal creditor of each other.

Petitioners maintain that respondents Declaration of Pledge, by virtue of which she supposedly assigned her dollar accounts with Citibank-Geneva as security for her loans with petitioner Citibank, is authentic and, thus, valid and binding upon respondent. Alternatively, petitioners aver that even without said Declaration of Pledge, the off-setting or compensation made by petitioner Citibank using respondents dollar accounts with Citibank-Geneva to liquidate the balance of her outstanding loans with Citibank-Manila was expressly authorized by respondent herself in the promissory notes (PNs) she signed for her loans, as well as sanctioned by Articles 1278 to 1290 of the Civil Code. This alternative argument is anchored on the premise that all branches of petitioner Citibank in the Philippines and abroad are part of a single worldwide corporate entity and share the same juridical personality. In connection therewith, petitioners deny that they ever admitted that Citibank-Manila and Citibank-Geneva are distinct and separate entities. Petitioners call the attention of this Court to the following provision found in all of the PNs7 executed by respondent for her loans At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the said bank to the full or partial payment of this note. It is the petitioners contention that the term "Citibank, N.A." used therein should be deemed to refer to all branches of petitioner Citibank in the Philippines and abroad; thus, giving petitioner Citibank the authority to apply as payment for the PNs even respondents dollar accounts with Citibank-Geneva. Still proceeding from the premise that all branches of petitioner Citibank should be considered as a single entity, then it should not matter that the respondent obtained the loans from Citibank-Manila and her deposits were with Citibank-Geneva. Respondent should be considered the debtor (for the loans) and creditor (for her deposits) of the same entity, petitioner Citibank. Since petitioner Citibank and respondent were principal creditors of each other, in compliance with the requirements under Article 1279 of the Civil Code,8 then the former could have very well used off-setting or compensation to extinguish the parties obligations to one another. And even without the PNs, off-setting or compensation was still authorized because according to Article 1286 of the Civil Code, "Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment." Pertinent provisions of Republic Act No. 8791, otherwise known as the General Banking Law of 2000, governing bank branches are reproduced below SEC. 20. Bank Branches. Universal or commercial banks may open branches or other offices within or outside the Philippines upon prior approval of the Bangko Sentral. Branching by all other banks shall be governed by pertinent laws. A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the presentation and/or sale of the financial products of its allied undertaking or its investment house units.

A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank and its branches and offices shall be treated as one unit. xxxx SEC. 72. Transacting Business in the Philippines. The entry of foreign banks in the Philippines through the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act. The conduct of offshore banking business in the Philippines shall be governed by the provisions of Presidential Decree No. 1034, otherwise known as the "Offshore Banking System Decree." xxxx SEC. 74. Local Branches of Foreign Banks. In case of a foreign bank which has more than one (1) branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of foreign banks shall be held to refer to such units. SEC. 75. Head Office Guarantee. In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with existing laws. Republic Act No. 7721, otherwise known as the Foreign Banks Liberalization Law, lays down the policies and regulations specifically concerning the establishment and operation of local branches of foreign banks. Relevant provisions of the said statute read Sec. 2. Modes of Entry. - The Monetary Board may authorize foreign banks to operate in the Philippine banking system through any of the following modes of entry: (i) by acquiring, purchasing or owning up to sixty percent (60%) of the voting stock of an existing bank; (ii) by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or (iii) by establishing branches with full banking authority: Provided, That a foreign bank may avail itself of only one (1) mode of entry: Provided, further, That a foreign bank or a Philippine corporation may own up to a sixty percent (60%) of the voting stock of only one (1) domestic bank or new banking subsidiary. Sec. 5. Head Office Guarantee. - The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches. It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states that the bank and its branches shall be treated as one unit. It should be pointed out, however, that the said provision applies to a universal9 or commercial bank,10 duly established and organized as a Philippine corporation in accordance with Section 8 of the same statute,11 and authorized to establish branches within or outside the Philippines.

The General Banking Law of 2000, however, does not make the same categorical statement as regards to foreign banks and their branches in the Philippines. What Section 74 of the said law provides is that in case of a foreign bank with several branches in the country, all such branches shall be treated as one unit. As to the relations between the local branches of a foreign bank and its head office, Section 75 of the General Banking Law of 2000 and Section 5 of the Foreign Banks Liberalization Law provide for a "Home Office Guarantee," in which the head office of the foreign bank shall guarantee prompt payment of all liabilities of its Philippine branches. While the Home Office Guarantee is in accord with the principle that these local branches, together with its head office, constitute but one legal entity, it does not necessarily support the view that said principle is true and applicable in all circumstances. The Home Office Guarantee is included in Philippine statutes clearly for the protection of the interests of the depositors and other creditors of the local branches of a foreign bank. 12 Since the head office of the bank is located in another country or state, such a guarantee is necessary so as to bring the head office within Philippine jurisdiction, and to hold the same answerable for the liabilities of its Philippine branches. Hence, the principle of the singular identity of that the local branches and the head office of a foreign bank are more often invoked by the clients in order to establish the accountability of the head office for the liabilities of its local branches. It is under such attendant circumstances in which the American authorities and jurisprudence presented by petitioners in their Motion for Partial Reconsideration were rendered. Now the question that remains to be answered is whether the foreign bank can use the principle for a reverse purpose, in order to extend the liability of a client to the foreign banks Philippine branch to its head office, as well as to its branches in other countries. Thus, if a client obtains a loan from the foreign banks Philippine branch, does it absolutely and automatically make the client a debtor, not just of the Philippine branch, but also of the head office and all other branches of the foreign bank around the world? This Court rules in the negative. There being a dearth of Philippine authorities and jurisprudence on the matter, this Court, just as what petitioners have done, turns to American authorities and jurisprudence. American authorities and jurisprudence are significant herein considering that the head office of petitioner Citibank is located in New York, United States of America (U.S.A.). Unlike Philippine statutes, the American legislation explicitly defines the relations among foreign branches of an American bank. Section 25 of the United States Federal Reserve Act13 states that Every national banking association operating foreign branches shall conduct the accounts of each foreign branch independently of the accounts of other foreign branches established by it and of its home office, and shall at the end of each fiscal period transfer to its general ledger the profit or loss accrued at each branch as a separate item. Contrary to petitioners assertion that the accounts of Citibank-Manila and Citibank-Geneva should be deemed as a single account under its head office, the foregoing provision mandates that the accounts of foreign branches of an American bank shall be conducted independently of each other. Since the head office of petitioner Citibank is in the U.S.A., then it is bound to treat its foreign branches in accordance with the said provision. It is only at the end of its fiscal period that the bank is required to transfer to its general ledger the profit or loss accrued at each branch, but still reporting it as a separate item. It is by virtue of this provision that the Circuit Court of Appeals of New York declared in Pan-American Bank and Trust Co. v. National City

Bank of New York14 that a branch is not merely a tellers window; it is a separate business entity. The circumstances in the case of McGrath v. Agency of Chartered Bank of India, Australia & China15 are closest to the one at bar. In said case, the Chartered Bank had branches in several countries, including one in Hamburg, Germany and another in New York, U.S.A., and yet another in London, United Kingdom. The New York branch entered in its books credit in favor of four German firms. Said credit represents collections made from bills of exchange delivered by the four German firms. The same four German firms subsequently became indebted to the Hamburg branch. The London branch then requested for the transfer of the credit in the name of the German firms from the New York branch so as to be applied or setoff against the indebtedness of the same firms to the Hamburg branch. One of the question brought before the U.S. District Court of New York was "whether or not the debts and the alleged setoffs thereto are mutual," which could be answered by determining first whether the New York and Hamburg branches of Chartered Bank are individual business entities or are one and the same entity. In denying the right of the Hamburg branch to setoff, the U.S. District Court ratiocinated that The structure of international banking houses such as Chartered bank defies one rigorous description. Suffice it to say for present analysis, branches or agencies of an international bank have been held to be independent entities for a variety of purposes (a) deposits payable only at branch where made; Mutaugh v. Yokohama Specie Bank, Ltd., 1933, 149 Misc. 693, 269 N.Y.S. 65; Bluebird Undergarment Corp. v. Gomez, 1931, 139 Misc. 742, 249 N.Y.S. 319; (b) checks need be honored only when drawn on branch where deposited; Chrzanowska v. Corn Exchange Bank, 1916, 173 App. Div. 285, 159 N.Y.S. 385, affirmed 1919, 225 N.Y. 728, 122 N.E. 877; subpoena duces tecum on foreign banks record barred; In re Harris, D.C.S.D.N.Y. 1939, 27 F. Supp. 480; (d) a foreign branch separate for collection of forwarded paper; Pan-American Bank and Trust Company v. National City Bank of New York, 2 Cir., 1925, 6 F. 2d 762, certiorari denied 1925, 269 U.S. 554, 46 S. Ct. 18, 70 L. Ed. 408. Thus in law there is nothing innately unitary about the organization of international banking institutions. Defendant, upon its oral argument and in its brief, relies heavily on Sokoloff v. National City Bank of New York,1928, 250 N.Y. 69, 164 N.E. 745, as authority for the proposition that Chartered Bank, not the Hamburg or New York Agency, is ultimately responsible for the amounts owing its German customers and, conversely, it is to Chartered Bank that the German firms owe their obligations. The Sokoloff case, aside from its violently different fact situation, is centered on the legal problem of default of payment and consequent breach of contract by a branch bank. It does not stand for the principle that in every instance an international bank with branches is but one legal entity for all purposes. The defendant concedes in its brief (p. 15) that there are purposes for which the various agencies and branches of Chartered Bank may be treated in law as separate entities. I fail to see the applicability of Sokoloff either as a guide to or authority for the resolution of this problem. The facts before me and the cases catalogued supra lend weight to the view that we are dealing here with Agencies independent of one another. xxxx I hold that for instant purposes the Hamburg Agency and defendant were independent business entities, and the attempted setoff may not be utilized by defendant against its debt to the German firms obligated to the Hamburg Agency.

Going back to the instant Petition, although this Court concedes that all the Philippine branches of petitioner Citibank should be treated as one unit with its head office, it cannot be persuaded to declare that these Philippine branches are likewise a single unit with the Geneva branch. It would be stretching the principle way beyond its intended purpose. Therefore, this Court maintains its original position in the Decision that the off-setting or compensation of respondents loans with Citibank-Manila using her dollar accounts with Citibank-Geneva cannot be effected. The parties cannot be considered principal creditor of the other. As for the dollar accounts, respondent was the creditor and Citibank-Geneva was the debtor; and as for the outstanding loans, petitioner Citibank, particularly Citibank-Manila, was the creditor and respondent was the debtor. Since legal compensation was not possible, petitioner Citibank could only use respondents dollar accounts with Citibank-Geneva to liquidate her loans if she had expressly authorized it to do so by contract. Respondent cannot be deemed to have authorized the use of her dollar deposits with CitibankGeneva to liquidate her loans with petitioner Citibank when she signed the PNs16 for her loans which all contained the provision that At or after the maturity of this note, or when same becomes due under any of the provisions hereof, any money, stocks, bonds, or other property of any kind whatsoever, on deposit or otherwise, to the credit of the undersigned on the books of CITIBANK, N.A. in transit or in their possession, may without notice be applied at the discretion of the said bank to the full or partial payment of this note. As has been established in the preceding discussion, "Citibank, N.A." can only refer to the local branches of petitioner Citibank together with its head office. Unless there is any showing that respondent understood and expressly agreed to a more far-reaching interpretation, the reference to Citibank, N.A. cannot be extended to all other branches of petitioner Citibank all over the world. Although theoretically, books of the branches form part of the books of the head office, operationally and practically, each branch maintains its own books which shall only be later integrated and balanced with the books of the head office. Thus, it is very possible to identify and segregate the books of the Philippine branches of petitioner Citibank from those of Citibank-Geneva, and to limit the authority granted for application as payment of the PNs to respondents deposits in the books of the former. Moreover, the PNs can be considered a contract of adhesion, the PNs being in standard printed form prepared by petitioner Citibank. Generally, stipulations in a contract come about after deliberate drafting by the parties thereto, there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the affixing of his signature or his "adhesion" thereto. This being the case, the terms of such contract are to be construed strictly against the party which prepared it.17 As for the supposed Declaration of Pledge of respondents dollar accounts with CitibankGeneva as security for the loans, this Court stands firm on its ruling that the non-production thereof is fatal to petitioners cause in light of respondents claim that her signature on such document was a forgery. It bears to note that the original of the Declaration of Pledge is with Citibank-Geneva, a branch of petitioner Citibank. As between respondent and petitioner Citibank, the latter has better access to the document. The constant excuse forwarded by petitioner Citibank that Citibank-Geneva refused to return possession of the original Declaration

of Pledge to Citibank-Manila only supports this Courts finding in the preceding paragraphs that the two branches are actually operating separately and independently of each other. Further, petitioners keep playing up the fact that respondent, at the beginning of the trial, refused to give her specimen signatures to help establish whether her signature on the Declaration of Pledge was indeed forged. Petitioners seem to forget that subsequently, respondent, on advice of her new counsel, already offered to cooperate in whatever manner so as to bring the original Declaration of Pledge before the RTC for inspection. The exchange of the counsels for the opposing sides during the hearing on 24 July 1991 before the RTC reveals the apparent willingness of respondents counsel to undertake whatever course of action necessary for the production of the contested document, and the evasive, non-committal, and uncooperative attitude of petitioners counsel.18 Lastly, this Courts ruling striking down the Declaration of Pledge is not entirely based on respondents allegation of forgery. In its Decision, this Court already extensively discussed why it found the said Declaration of Pledge highly suspicious and irregular, to wit First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court would think that petitioner Citibank would take greater cautionary measures with the preparation and execution of the Declaration of Pledge because it involved respondents "all present and future fiduciary placements" with a Citibank branch in another country, specifically, in Geneva, Switzerland. While there is no express legal requirement that the Declaration of Pledge had to be notarized to be effective, even so, it could not enjoy the same prima facie presumption of due execution that is extended to notarized documents, and petitioner Citibank must discharge the burden of proving due execution and authenticity of the Declaration of Pledge. Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank before the RTC was undated. It presented only a photocopy of the pledge because it already forwarded the original copy thereof to Citibank-Geneva when it requested for the remittance of respondents dollar accounts pursuant thereto. Respondent, on the other hand, was able to secure a copy of the Declaration of Pledge, certified by an officer of CitibankGeneva, which bore the date 24 September 1979. Respondent, however, presented her passport and plane tickets to prove that she was out of the country on the said date and could not have signed the pledge. Petitioner Citibank insisted that the pledge was signed before 24 September 1979, but could not provide an explanation as to how and why the said date was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was signed by respondent personally before him, he could not give the exact date when the said signing took place. It is important to note that the copy of the Declaration of Pledge submitted by the respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of the original copy of the pledge. It is dated 24 September 1979, and this Court shall abide by the presumption that the written document is truly dated. Since it is undeniable that respondent was out of the country on 24 September 1979, then she could not have executed the pledge on the said date. Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form. It was constituted in favor of Citibank, N.A., otherwise referred to therein as the Bank. It should be noted, however, that in the space which should have named the pledgor, the name of petitioner Citibank was typewritten, to wit

The pledge right herewith constituted shall secure all claims which the Bank now has or in the future acquires against Citibank, N.A., Manila (full name and address of the Debtor), regardless of the legal cause or the transaction (for example current account, securities transactions, collections, credits, payments, documentary credits and collections) which gives rise thereto, and including principal, all contractual and penalty interest, commissions, charges, and costs. The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a mistake made by whoever filled-out the form? Yes, it could be a possibility. Nonetheless, considering the value of such a document, the mistake as to a significant detail in the pledge could only be committed with gross carelessness on the part of petitioner Citibank, and raised serious doubts as to the authenticity and due execution of the same. The Declaration of Pledge had passed through the hands of several bank officers in the country and abroad, yet, surprisingly and implausibly, no one noticed such a glaring mistake. Lastly, respondent denied that it was her signature on the Declaration of Pledge. She claimed that the signature was a forgery. When a document is assailed on the basis of forgery, the best evidence rule applies Basic is the rule of evidence that when the subject of inquiry is the contents of a document, no evidence is admissible other than the original document itself except in the instances mentioned in Section 3, Rule 130 of the Revised Rules of Court. Mere photocopies of documents are inadmissible pursuant to the best evidence rule. This is especially true when the issue is that of forgery. As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden of proof lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the instrument itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison between the alleged forged signature and the authentic and genuine signature of the person whose signature is theorized upon to have been forged. Without the original document containing the alleged forged signature, one cannot make a definitive comparison which would establish forgery. A comparison based on a mere xerox copy or reproduction of the document under controversy cannot produce reliable results. Respondent made several attempts to have the original copy of the pledge produced before the RTC so as to have it examined by experts. Yet, despite several Orders by the RTC, petitioner Citibank failed to comply with the production of the original Declaration of Pledge. It is admitted that Citibank-Geneva had possession of the original copy of the pledge. While petitioner Citibank in Manila and its branch in Geneva may be separate and distinct entities, they are still incontestably related, and between petitioner Citibank and respondent, the former had more influence and resources to convince Citibank-Geneva to return, albeit temporarily, the original Declaration of Pledge. Petitioner Citibank did not present any evidence to convince this Court that it had exerted diligent efforts to secure the original copy of the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back, when such document would have been very vital to the case of petitioner Citibank. There is thus no justification to allow the presentation of a mere photocopy of the Declaration of Pledge in lieu of the original, and the photocopy of the pledge presented by petitioner Citibank has nil probative value. In addition, even if this Court cannot make a categorical finding that respondents signature on the original copy of the pledge was forged, it is persuaded that petitioner Citibank willfully suppressed the

presentation of the original document, and takes into consideration the presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced. As far as the Declaration of Pledge is concerned, petitioners failed to submit any new evidence or argument that was not already considered by this Court when it rendered its Decision. As to the value of the dollar deposits in Citibank-Geneva ordered refunded to respondent In case petitioners are still ordered to refund to respondent the amount of her dollar accounts with Citibank-Geneva, petitioners beseech this Court to adjust the nominal values of respondents dollar accounts and/or her overdue peso loans by using the values of the currencies stipulated at the time the obligations were established in 1979, to address the alleged inequitable consequences resulting from the extreme and extraordinary devaluation of the Philippine currency that occurred in the course of the Asian crisis of 1997. Petitioners base their request on Article 1250 of the Civil Code which reads, "In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary." It is well-settled that Article 1250 of the Civil Code becomes applicable only when there is extraordinary inflation or deflation of the currency. Inflation has been defined as the sharp increase of money or credit or both without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level.19 In Singson v. Caltex (Philippines), Inc.,20 this Court already provided a discourse as to what constitutes as extraordinary inflation or deflation of currency, thus We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation vs. NAWASA,supra, is that which happened to the deutschmark in 1920. Thus: "More recently, in the 1920s, Germany experienced a case of hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]). As reported, "prices were going up every week, then every day, then every hour. Women were paid several times a day so that they could rush out and exchange their money for something of value before what little purchasing power was left dissolved in their hands. Some workers tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives, who would rush to unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd ed.)

The supervening of extraordinary inflation is never assumed. The party alleging it must lay down the factual basis for the application of Article 1250. Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records and statistics submitted by plaintiff-appellant proved that there has been a decline in the purchasing power of the Philippine peso, but this downward fall cannot be considered "extraordinary" but was simply a universal trend that has not spared our country. Similarly, in Huibonhoa vs. Court of Appeals, the Court dismissed plaintiff-appellant's unsubstantiated allegation that the Aquino assassination in 1983 caused building and construction costs to double during the period July 1983 to February 1984. In Serra vs. Court of Appeals, the Court again did not consider the decline in the peso's purchasing power from 1983 to 1985 to be so great as to result in an extraordinary inflation. Like the Serra and Huibonhoa cases, the instant case also raises as basis for the application of Article 1250 the Philippine economic crisis in the early 1980s --- when, based on petitioner's evidence, the inflation rate rose to 50.34% in 1984. We hold that there is no legal or factual basis to support petitioner's allegation of the existence of extraordinary inflation during this period, or, for that matter, the entire time frame of 1968 to 1983, to merit the adjustment of the rentals in the lease contract dated July 16, 1968. Although by petitioner's evidence there was a decided decline in the purchasing power of the Philippine peso throughout this period, we are hard put to treat this as an "extraordinary inflation" within the meaning and intent of Article 1250. Rather, we adopt with approval the following observations of the Court of Appeals on petitioner's evidence, especially the NEDA certification of inflation rates based on consumer price index: xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single year; (b) the highest official inflation rate recorded was in 1984 which reached only 50.34%; (c) over a twenty one (21) year period, the Philippines experienced a single-digit inflation in ten (10) years (i.e., 1966, 1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979, 1980, 1981, 1982, 1984 and 1989) when the Philippines experienced double-digit inflation rates, the average of those rates was only 20.88%; (e) while there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine peso which is a characteristic of most currencies. "Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past three to four decades. Unfortunate as this trend may be, it is certainly distinct from the phenomenon contemplated by Article 1250. Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without an official declaration thereof by competent authorities. The burden of proving that there had been extraordinary inflation or deflation of the currency is upon the party that alleges it. Such circumstance must be proven by competent evidence, and it cannot be merely assumed. In this case, petitioners presented no proof as to how much, for instance, the price index of goods and services had risen during the intervening period.21 All the information petitioners provided was the drop of the U.S. dollar-Philippine peso exchange rate by 17 points from June 1997 to January 1998. While the said figure was based on the statistics of the Bangko Sentral ng Pilipinas (BSP), it is also significant to note that the BSP did not

categorically declare that the same constitute as an extraordinary inflation. The existence of extraordinary inflation must be officially proclaimed by competent authorities, and the only competent authority so far recognized by this Court to make such an official proclamation is the BSP.22 Neither can this Court, by merely taking judicial notice of the Asian currency crisis in 1997, already declare that there had been extraordinary inflation. It should be recalled that the Philippines likewise experienced economic crisis in the 1980s, yet this Court did not find that extraordinary inflation took place during the said period so as to warrant the application of Article 1250 of the Civil Code. Furthermore, it is incontrovertible that Article 1250 of the Civil Code is based on equitable considerations. Among the maxims of equity are (1) he who seeks equity must do equity, and (2) he who comes into equity must come with clean hands. The latter is a frequently stated maxim which is also expressed in the principle that he who has done inequity shall not have equity.23 Petitioner Citibank, hence, cannot invoke Article 1250 of the Civil Code because it does not come to court with clean hands. The delay in the recovery24 by respondent of her dollar accounts with Citibank-Geneva was due to the unlawful act of petitioner Citibank in using the same to liquidate respondents loans. Petitioner Citibank even attempted to justify the off-setting or compensation of respondents loans using her dollar accounts with Citibank-Geneva by the presentation of a highly suspicious and irregular, and even possibly forged, Declaration of Pledge. The damage caused to respondent of the deprivation of her dollar accounts for more than two decades is unquestionably relatively more extensive and devastating, as compared to whatever damage petitioner Citibank, an international banking corporation with undoubtedly substantial capital, may have suffered for respondents non-payment of her loans. It must also be remembered that petitioner Citibank had already considered respondents loans paid or liquidated by 26 October 1979 after it had fully effected compensation thereof using respondents deposits and money market placements. All this time, respondents dollar accounts are unlawfully in the possession of and are being used by petitioner Citibank for its business transactions. In the meantime, respondents businesses failed and her properties were foreclosed because she was denied access to her funds when she needed them most. Taking these into consideration, respondents dollar accounts with Citibank-Geneva must be deemed to be subsisting and continuously deposited with petitioner Citibank all this while, and will only be presently withdrawn by respondent. Therefore, petitioner Citibank should refund to respondent the U.S. $149,632.99 taken from her Citibank-Geneva accounts, or its equivalent in Philippine currency using the exchange rate at the time of payment, plus the stipulated interest for each of the fiduciary placements and current accounts involved, beginning 26 October 1979. As to respondents Motion to Clarify and/or Confirm Decision with Notice of Judgment Respondent, in her Motion, is of the mistaken notion that the Court of Appeals Decision, dated 26 March 2002, as modified by the Resolution of the same court, dated 20 November 2002, would be implemented or executed together with this Courts Decision. This Court clarifies that its affirmation of the Decision of the Court of Appeals, as modified, is only to the extent that it recognizes that petitioners had liabilities to the respondent. However, this Courts Decision modified that of the appellate courts by making its own determination of

the specific liabilities of the petitioners to respondent and the amounts thereof; as well as by recognizing that respondent also had liabilities to petitioner Citibank and the amount thereof. Thus, for purposes of execution, the parties need only refer to the dispositive portion of this Courts Decision, dated 16 October 2006, should it already become final and executory, without any further modifications. As the last point, there is no merit in respondents Motion for this Court to already declare its Decision, dated 16 October 2006, final and executory. A judgment becomes final and executory by operation of law and, accordingly, the finality of the judgment becomes a fact upon the lapse of the reglementary period without an appeal or a motion for new trial or reconsideration being filed.25 This Court cannot arbitrarily disregard the reglementary period and declare a judgment final and executory upon the mere motion of one party, for to do so will be a culpable violation of the right of the other parties to due process. IN VIEW OF THE FOREGOING, petitioners Motion for Partial Reconsideration of this Courts Decision, dated 16 October 2006, and respondents Motion for this Court to declare the same Decision already final and executory, are both DENIED for lack of merit. SO ORDERED.

G.R. No. 141811

November 15, 2001

FIRST METRO INVESTMENT CORPORATION, petitioner, vs. ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO * M. LADORES, VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents. DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated November 8, 1999 in CA-G.R. CV No. 53328 reversing the Decision3 of the Regional Trial Court of Pasig City, Branch 159 dated June 2, 1994 in Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the fees provided for in the Underwriting and Consultancy Agreements executed by and between petitioner First Metro Investment Corp. (FMIC) and respondent Este del Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan Agreement dated January 31, 1978 were mere subterfuges to camouflage the usurious interest charged by petitioner FMIC. The facts of the case are as follows: It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal.4

Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization.5 In case of default, an acceleration clause was, among others, provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus attorney's fees equivalent to twenty-five (25%) percent of the sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired.6 In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several documents7 as security for payment, among them, (a) a Real Estate Mortgage dated January 31, 1978 over two (2) parcels of land being utilized as the site of its development project with an area of approximately One Million Twenty-Eight Thousand and Twenty-Nine (1,028,029) square meters and particularly described in TCT Nos. N-24332 and N-24356 of the Register of Deeds of Rizal, inclusive of all improvements, as well as all the machineries, equipment, furnishings and furnitures existing thereon; and (b) individual Continuing Suretyship agreements by corespondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated February 2, 1978, to guarantee the payment of all the obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) each.8 Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement on January 31, 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One Hundred Twenty Thousand (120,000) common shares of respondent Este del Sol's capital stock for a one-time underwriting fee of Two Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the Underwriting Agreement provided that for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum for a period of four (4) consecutive years. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also executed on January 31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general consultancy services.9 In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the underwriting fee of petitioner FMIC in connection with the public offering of the common shares of stock of respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred Thousand Pesos (P200,000.00) as supervision fee for the year beginning February, 1978, in accordance to the Underwriting Agreement.10 The said amounts of fees were deemed paid by respondent Este del Sol to petitioner FMIC which deducted the same from the first release of the loan.

Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization, it appeared to have incurred a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the petitioner's Statement of Account dated June 23, 1980,11 to wit: STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE, INC. AS OF JUNE 23, 1980 PARTICULARS Total amount due as of 11-22-78 per revised amortization schedule dated 1-3-78 Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to 2-22-79 (92 days) Balance One time penalty of 20% of the entire unpaid obligations under Section 6.02 (ii) of Loan Agreement Past due interest under Section 6.02 (iii) of loan Agreement: @ 19% p.a. from 2-22-79 to 11-30-79 (281 days) @ 21% p.a. from 11-30-79 to 6-23-80 (206 days) Other charges publication of extra judicial foreclosure of REM made on 5-23-80 & 6-6-80 Total Amount Due and Collectible as of June 23, 1980 AMOUNT P7,999,631.42 327,096.04 8,326,727.46 1,665,345.49

1,481,879.93 1,200,714.10 4,964.00 P12,679,630.98

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980.12At the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for Nine Million Pesos (P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is, for the publication fee for the publication of the Sheriff's Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for Sheriff's fees for conducting the foreclosure proceedings, Fifteen Thousand Pesos (P15,000.00); and for Attorney's fees, Three Million One Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The remaining balance of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and TwentyFive Centavos (P5,811,369.25) was applied to interests and penalty charges and partly against the principal, due as of June 23, 1980, thereby leaving a balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) on the principal amount of the loan as of June 23, 1980.13 Failing to secure from the individual respondents, as sureties of the loan of respondent Este del Sol by virtue of their continuing surety agreements, the payment of the alleged deficiency balance, despite individual demands sent to each of them,14 petitioner instituted on November 11, 1980 the instant collection suit15 against the respondents to collect the alleged deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at twenty-one (21%)

percent per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent thereof as and for attorney's fees and costs. In their Answer, the respondents sought the dismissal of the case and set up several special and affirmative defenses, foremost of which is that the Underwriting and Consultancy Agreements executed simultaneously with and as integral parts of the Loan Agreement and which provided for the payment of Underwriting, Consultancy and Supervision fees were in reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage the usurious interest being charged by petitioner FMIC.16 The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former Senior Vice-President, Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an Account Manager of its Account Management Group, as well as documentary evidence. On the other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and Perfecto Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for the respondents. After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until the entire amount is fully paid, plus the amount equivalent to 25% of the total amount due, as attorney's fees, plus costs of suit. Defendants' counterclaims are dismissed, for lack of merit. Finding the decision of the trial court unacceptable, respondents interposed an appeal to the Court of Appeals. On November 8, 1999, the appellate court reversed the challenged decision of the trial court. The appellate court found and declared that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este del Sol; and that the stipulated penalties, liquidated damages and attorney's fees were "excessive, iniquitous, unconscionable and revolting to the conscience," and declared that in lieu thereof, the stipulated one time twenty (20%) percent penalty on the amount due and ten (10%) percent of the amount due as attorney's fees would be reasonable and suffice to compensate petitioner FMIC for those items. Thus, the appellate court dismissed the complaint as against the individual respondents sureties and ordered petitioner FMIC to pay or reimburse respondent Este del Sol the amount of Nine Hundred Seventy-One Thousand Pesos (P971,000.00) representing the difference between what is due to the petitioner and what is due to respondent Este del Sol, based on the following computation:17 A: DUE TO THE [PETITIONER] Principal of Loan Add: 20% one-time Penalty Attorney's fees Less: Proceeds of foreclosure Sale P7,382,500.00 1,476,500.00 900,000.00 P9,759,000.00

9,000,000.00 Deficiency B. DUE TO [RESPONDENT ESTE DEL SOL] Return of usurious interest in the form of: Underwriting fee Supervision fee Consultancy fee Total amount due Este P 200,000.00 200,000.00 1,330,000.00 P1,730,000.00 P759,000.00

The appellee is, therefore, obliged to return to the appellant Este del Sol the difference of P971,000.00 or (P1,730,000.00 less P759,000.00). Petitioner moved for reconsideration of the appellate court's adverse decision. However, this was denied in a Resolution18 dated February 9, 2000 of the appellate court. Hence, the instant petition anchored on the following assigned errors:19 THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT: a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE CONSIDERED AS A SINGLE CONTRACT. b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE "MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED" BY THE PETITIONER. c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S WITNESSES ON THE SERVICES PERFORMED BY PETITIONER. d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF THE UNDERWRITING AND CONSULTANCY AGREEMENTS. e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS DUE TO EACH PARTY AFTER THE FORECLOSURE SALE", AS SHOWN IN PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND ATTORNEY'S FEES AS SUPPOSEDLY "EXCESSIVE, INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii] THE UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO

CAMOUFLAGE THE USURIOUS INTEREST CHARGED" UPON THE RESPONDENT ESTE BY PETITIONER. f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE PETITIONER. Petitioner essentially assails the factual findings and conclusion of the appellate court that the Underwriting and Consultancy Agreements were executed to conceal a usurious loan. Inquiry upon the veracity of the appellate court's factual findings and conclusion is not the function of this Court for the Supreme Court is not a trier of facts. Only when the factual findings of the trial court and the appellate court are opposed to each other does this Court exercise its discretion to re-examine the factual findings of both courts and weigh which, after considering the record of the case, is more in accord with law and justice. After a careful and thorough review of the record including the evidence adduced, we find no reason to depart from the findings of the appellate court. First, there is no merit to petitioner FMIC's contention that Central Bank Circular No. 905 which took effect on January 1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity, should be applied retroactively to a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury Law was in full force and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was made and entered into, govern it.20 More significantly, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter's effectivity.21 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.22 Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.23 Second, when a contract between two (2) parties is evidenced by a written instrument, such document is ordinarily the best evidence of the terms of the contract. Courts only need to rely on the face of written contracts to determine the intention of the parties. However, this rule is not without exception.24 The form of the contract is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury.25 In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest, and these are: a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the Loan Agreement.26 Furthermore, under the Underwriting Agreement payment of the supervision and consultancy fees was set for a period of four (4) years27 to coincide ultimately with the term of the Loan Agreement.28 This fact means that all the said agreements which were executed simultaneously were set to mature or shall remain effective during the same period of time.

b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an underwriting agreement29 and specifically mentioned that such underwriting agreement is a condition precedent30 for petitioner FMIC to extend the loan to respondent Este del Sol, indicating and as admitted by petitioner FMIC's employees,31that such Underwriting Agreement is "part and parcel of the Loan Agreement."32 c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00)33 as consultancy fee despite the clear provision in the Consultancy Agreement that the said agreement is for Three Hundred ThirtyTwo Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years and that only the first year consultancy fee shall be due upon signing of the said consultancy agreement.34 d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred Thousand Pesos (P200,000.00), and one Million Three Hundred Thirty Thousand Pesos (P1,330,000.00), respectively, were billed by petitioner to respondent Este del Sol on February 22, 1978,35 that is, on the same occasion of the first partial release of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos (P2,382,500.00).36 It is from this first partial release of the loan that the said corresponding bills for Underwriting, Supervision and Constantly fees were conducted and apparently paid, thus, reverting back to petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand Pesos (P1,730,000.00) as part of the amount loaned to respondent Este del Sol.37 e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of respondent Este del Sol and much less to supervise such a syndicate, thus failing to comply with its obligation under the Underwriting Agreement.38 Besides, there was really no need for an Underwriting Agreement since respondent Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold through its marketing arm.39 f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement,40 aside from the fact that there was no need for a Consultancy Agreement, since respondent Este del Sol's officers appeared to be more competent to be consultants in the development of the projected sports/resort complex.41 All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC that the Loan, Underwriting and Consultancy Agreements are separate and independent transactions. The Underwriting and Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lender's services which are of little value or which are not in fact to be rendered, such as in the instant case.42 In this connection, Article 1957 of the New Civil Code clearly provides that: Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury. In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to

the usurious interest is void, consequently, the debt is to be considered without stipulation as to the interest.43 The reason for this rule was adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises44 where this Court held: 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. Thus, the nullity of the stipulation on the usurious interest does not affect the lender's right to receive back the principal amount of the loan. With respect to the debtor, the amount paid as interest under a usurious agreement is recoverable by him, since the payment is deemed to have been made under restraint, rather than voluntarily.45 This Court agrees with the factual findings and conclusion of the appellate court, to wit: We find the stipulated penalties, liquidated damages and attorney's fees, excessive, iniquitous and unconscionable and revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. And true enough, ESTE folded up when the appellee extrajudicially foreclosed on its (ESTE's) development project and literally closed its offices as both the appellee and ESTE were at the time holding office in the same building. Accordingly, we hold that 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorney's fees would suffice to compensate the appellee, especially so because there is no clear showing that the appellee hired the services of counsel to effect the foreclosure, it engaged counsel only when it was seeking the recovery of the alleged deficiency. Attorney's fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation does not contravene any law, morals, or public order, it is binding upon the parties. Nonetheless, courts are empowered to reduce the amount of attorney's fees if the same is "iniquitous or unconscionable."46 Articles 1229 and 2227 of the New Civil Code provide that: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (93,188,630.75) for the stipulated attorney's fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorney's fees to ten (10%) percent is appropriate and reasonable under the facts and circumstances of this case. Lastly, there is no merit to petitioner FMIC's contention that the appellate court erred in awarding an amount allegedly not asked nor prayed for by respondents. Whether the exact amount of the relief was not expressly prayed for is of no moment for the reason that the relief

was plainly warranted by the allegations of the respondents as well as by the facts as found by the appellate court. A party is entitled to as much relief as the facts may warrant 47 In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its challenged Decision. WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.