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Canlas Law Offices for plaintiff-appellant. HERRERA, plaintiff-appellant,
CRUZ, J.: This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of First Instance of 1 Rizal on a pure question of law. The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on the factual antecedents. The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion of his property for a period of twenty (20) years from said date, subject inter alia to the following conditions: 3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400 sqm. and are to be expropriated later on (sic) or P560 per month and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance within the 1st twenty days of each year; provided, a financial aid in the sum of P15,000 to clear the leased premises of existing improvements thereon is paid in this manner; P10,000 upon execution of this lease and P5,000 upon delivery of leased premises free and clear of improvements thereon within 30 days from the date of execution of this agreement. The portion on the side of the leased premises with an area of 365 sqrm. more or less, will be occupied by LESSEE without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month discounted at 12% interest per annum or a total net amount of P130,288.47 before registration of lease. Leased premises shall 2 be delivered within 30 days after 1st partial payment of financial aid. On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the plaintfffappellant advance rentals for the first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting the interest or discount for the first eight years, in the total sum P180,288.47. On August 20, 1970, the defendant-appellee, explaining that there had been a mistake in computation, paid to the appellant the additional sum of P2,182.70, thereby reducing the deducted 3 amount to only P98,828.03. On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with 4 interest, claiming this had been illegally deducted from him in violation of the Usury Law. He also prayed for moral damages and attorney's fees. In its answer, the defendant-appellee admitted the factual allegations of the complaint but argued that the amount deducted was not usurious interest but a given to 5 it for paying the rentals in advance for eight years. Judgment on the pleadings was rendered for the 6 defendant. Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the interest collected out of the rentals paid for the first eight years; that such interest was
excessive and violative of the Usury Law; and that he had neither agreed to nor accepted the defendant7 appellant's computation of the total amount to be deducted for the eight years advance rentals. The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, which read: 6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable by law, because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interest should be computed excluding the first year rental because at the time the amount of P281, 199.20 was paid it was already due under the lease contract hence no interest should be collected from the rental for the first year, the amount of P29,536.42 only as the total interest should have been deducted by defendant from the sum of P281,299.20. The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and above that allowed by law. As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or discount. The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may establish such stipulations, clauses, terms and condition as they may want to include; and as long as such agreements are not contrary to law, morals, good customs, public policy or public order, they shall 8 have the force of law between them. There is no usury in this case because no money was given by the defendant-appellee to the plaintiff9 appellant, nor did it allow him to use its money already in his possession. There was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law. The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on 10 usury. To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be repayable absolutely and in all events; and something must be exacted 11 for the use of the money in excess of and in addition to interest allowed by law." It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless these four things concur in 12 every transaction, it is safe to affirm that no case of usury can be declared. Concerning the computation of the deductible discount, the trial court declared:
As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant) shag pay the lessor (plaintiff) eight (8) years in advance rentals based on P2,930.20 per month discounted at 12% interest per annum. Thus, the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first eight (8) years should be only P33,755.90 (P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendant claimed it to be. The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading. He just computed the annual discount to be at P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into consideration the naked fact that the rentals due on the eight year were paid in advance by seven (7) years, the rentals due on the seventh year were paid in advance by six (6) years, those due on the sixth year by five (5) years, those due on the fifth year by four (4) years, those due on the fourth year by three (3) years, those due on the third year by two (2) years, and those due on the second year by one (1) year, so much so that the total number of years by which the annual rental of P4,129.4880 was paid in advance is twenty-eight (28), resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as the discount. However, defendant was most fair to plaintiff. It did not simply multiply the annual rental discount by 28 years. It computed the total discount with the principal diminishing month to month as shown by Annex 'A' of its memorandum. This is why the total discount amount to only P 8,828.03. The allegation of plaintiff that defendant made the computation in a compounded manner is erroneous. Also after making its own computations and after examining closely defendant's Annex 'A' of its memorandum, the court finds that defendant did not charge 12% discount on the rentals due for the first year so much so that the computation conforms with the provision of the Lease Agreement to the effect that the rentals shall be 'payable yearly in advance within the 1st 20 days of each year. ' We do not agree. The above computation appears to be too much technical mumbo-jumbo and could not have been the intention of the parties to the transaction. Had it been so, then it should have been clearly stipulated in the contract. Contracts should be interpreted according to their literal meaning and should 13 not be interpreted beyond their obvious intendment. The plaintfff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and this amount would be the same for each of the eight years. There is no showing that the intricate computation applied by the trial court was explained to him by the defendant-appellee or that he knowingly accepted it. The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a 12% reduction for advance rentals for all of twenty eight years. That is absurd. It is not normal for a person to agree to a reduction corresponding to twenty eight years advance rentals when all he is receiving in advance rentals is for only eight years. The deduction shall be for only eight years because that was plainly what the parties intended at the time they signed the lease agreement. "Simplistic" it may be, as the Solicitor General describes it, but that is how the lessor understood the arrangement. In fact, the Court will reject his subsequent modification that the interest should be limited to only seven years because the first year rental was not being paid in advance. The agreement was for auniform deduction for the advance rentals for each of the eight years, and neither of the parties can deviate from it now. On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was P281,347.20 from which was deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.
The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single stipulation invoked by the respondent for the flat reduction of P130,288.47. WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil Corporation is ordered to pay plaintiff-appellant the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against the defendant-appellee. SO ORDERED.
G.R. No. L-1927
May 31, 1949 ROÑO, petitioner,
CRISTOBAL vs. JOSE L. GOMEZ, ET AL., respondents. Alfonso Farcon Capistrano & Azores for respondents. BENGZON, J.: for
This petition to review a decision of the Court of Appeals was admitted mainly because it involves one phase of the vital contemporary question: the repayment of loans given in Japanese fiat currency during the last war of the Pacific. On October 5, 1944, Cristobal Roño received as a loan four thousand pesos in Japanese fiat money from Jose L. Gomez. He informed the later that he would use the money to purchase a jitney; and he agreed to pay that debt one year after date in the currency then prevailing. He signed a promissory note of the following tenor: For value received, I promise to pay one year after date the sum of four thousand pesos (4,000) to Jose L. Gomez. It is agreed that this will not earn any interest and the payment It is agreed that this will not earn any interest and the payment prevailing by the end of the stipulated period of one year. In consideration of this generous loan, I renounce any right that may come to me by reason of any postwar arrangement, of privilege that may come to me by legislation wherein this sum may be devalued. I renounce flatly and absolutely any condition, term right or privilege which in any way will prejudice the right engendered by this agreement wherein Atty. Jose L. Gomez will receive by right his money in the amount of P4,000. I affirm the legal tender, currency or any medium of exchange, or money in this sum of P4,000 will be paid by me to Jose L. Gomez one year after this date, October 5, 1944. On October 15, 1945, i.e., after the liberation, Roño was sued for payment in the Laguna Court of First Instance. His main defense was his liability should not exceed the equivalent of 4,000 pesos "mickey mouse" money — and could not be 4,000 pesos Philippine currency, because the contract would be void as contrary to law, public order and good morals. After the corresponding hearing, the Honorable Felix Bautista Angelo, Judge, ordered the defendant Roño to pay four thousand pesos in Philippine currency with legal interest from the presentation of the complaint plus costs.
" (Article 1255. the value of Japanese money being then on the downgrade. The Civil Code recognizes their validity (see art. The odds were about even when Roño and Gomez played their bargaining game. the Court of Appeals found that he voluntary agreed to sign and signed the document without having been misled as to its contents and "in so far as knowledge of war events was concerned" both parties were on "equal footing". According to his line of reasoning it would be immoral for the homeowner to recover ten thousand pesos (P10. The eventual gain of Gomez in this transaction is not interest within the meaning of Usury Laws. and he is required to pay four thousand pesos exactly. In the third place there was the possibility that upon-re-occupation the Philippine Government would not invalidate the Japanese currency. the whole business is immoral or against public order.On appeal the Court of Appeals in a decision written by Mr. nor unfair advantage. If within one year another kind of currency became legal tender. 1944 it was possible to surmise the impending American invasion.) Another principle is that "obligations arising from contracts shall have the force of law between the contracting parties and must be performed in accordance with their stipulations" (Article 1091). Gomez would probably get more for his money. Our legislation has a word for these contracts: aleatory. One basic principle of the law on contracts of the Civil Code is that "the contracting parties may establish any pacts. the deal was immoral because taking advantage of his superior knowledge of war developments Gomez imposed on him this onerous obligation. which after all had been forced upon the people in exchange for valuable goods and property. Precisely the contract says that the money received "will not earn any interest. It pronounced the contract valid and enforceable according to its terms and conditions." There may be room for . provided they are not contrary to law. The increased intrinsic value and purchasing power of the current money is consequence of an event (change of currency) which at the time of the contract neither party knew would certainly happen within the period of one year. Moreover. Again Roño alleges it is immoral and against public order for a man to obtain four thousand pesos in return for an investment of forty pesos (his estimate of the value of the Japanese money he borrowed). There was no overreaching." Furthermore. They both elected to subject their rights and obligations to that contingency. Interest is some additional money to be paid in any event. the date of victory or liberation was anybody's guess. But he is not paying interest. And when the holder of a sweepstakes ticket who paid only four pesos luckily obtains the first prize of one hundred thousand pesos or over. affirmed the judgment with costs. clauses and conditions they may deem advisable.000. Roño argues. he would get less. In the first place. Justice Jugo. because Gomez might have gotten less if the Japanese occupation had extended to the end of 1945 or if the liberation forces had chosen to permit the circulation of the Japanese notes. 1790 and Manresa's comment thereon) on a par with insurance policies and life annuities. If the same Japanese currency continued. he received four thousand pesos. and that the contents of the same had not been misrepresented to him. In the second place although on October 5. Roño asserts this contract is contrary to the Usury law. which is not the case herein. morals or public order. It declared being a mechanic who knew English was not deceived into signing the promissory note. because on the basis of calculations by Government experts he only received the equivalent of one hundred Philippine pesos and now he is required to disgorge four thousand pesos or interest greatly in excess of the lawful rates. when his house is burned. Invoking the above proviso. because he invested only about one hundred pesos for the insurance policy. In this connection we should explain that this decision does not cover situations where borrowers of Japanese fiat currency promised to repay "the same amount" or promised to return the same number of pesos "in Philippines currency" or "in the currency prevailing after the war.
. NEMESIO FLORES. REYNALDO REQUIJO. the dispositive part of which reads as follows: WHEREFORE. vs. All we say here and now is that the contract in question is legal and obligatory. 1963. In Civil Case No. de Lara and Associates for respondents. J. POTENCIANO REQUIJO. JJ. the resolve plaintiffs. respondents. concur. Gesmundo and Gesmundo and Renato B. INC. No. L-35697-99 April 15. SP-239. the wife of Jose L. So ordered. DOMINADOR REQUIJO and MARIO REQUIJO. Wherefore. C.: Before Us is a petition for review on certiorari of the decision De Lima vs. On December 27. Laguna Tayabas Co. judgment is hereby rendered against the defendants LTB Co. This present action arose from a collision between a passenger bus of the Laguna Tayabas Bus Co.. of the 1 Court of Appeals affirming the decision of the court a quo with modification to include an award of legal interest on the amounts adjudged in favor of the petitioners from the date of the decision of the Court of Appeals to the time of actual payment. Vasquez for petitioners. LAGUNA TAYABAS CO. of the Philippines which took place on June 3. For loss of money and P960. Leon O. (SEVEN-UP BOTTLING CO. all passengers of the LTB bus.. the court a quo rendered its decision. Ty.. Three civil suits were filed against herein respondents which were consolidated for trial before the Court of First Instance of Laguna (San Pablo City).J. SANTIAGO SYJUCO. Gomez. 1988 ELADlA DE LIMA. A minor point concerns the personality of the plaintiff. Moran. 1958 resulting in the death of Petra de la Cruz and serious physical injuries of Eladia de Lima and Nemesio Flores.00 . Inc. Domingo E. petitioners. and Claro Samonte. OF THE PHILIPPINES) and PORVENIR ABAJAR BARRETO. who are hereby ordered to pay jointly and severally. (LTB) and a delivery truck of the Seven-up Bottling Co.R. in view of all the foregoing considerations.argument when those litigations come up for adjudication. the appealed judgment will be affirmed with costs.. Plaintiff Eladia de Lima: 1 . Tuason. We opine with the Court of Appeals that the matter involve a defect in procedure which does not amount to prejudicial error.. Montemayor and Reyes. Ozaeta. CLARO SAMONTE. GANCAYCO.
883. SP-240. et al.00 4 For the .000.82 2 For the money lost during the trip Moral damages for mental anguish (of Mercado vs. For expenses of litigation and attorney's fees TOTAL . Plaintiffs Requijos: 1 For the death of Petra de la Cruz including funeral expenses P 3.00 3 3.1. 924. 1958 3.884.00 In Civil Case No.000.00 P 2. For loss of earnings from June 3.) 800.00 . 2. . Lira. 1958 to November 3.medical expenses.
000. For expenses of litigation and attorney's fees.680.00 2.00 Plaintiffs in Civil Cases Nos.000.680. For loss of earning capacity for 5 year from June 3.00 P18. SP-239 and SP-240 filed a motion for reconsideration of the decision seeking an award of legal interest on the amounts adjudged in their favor from the date of the said decision but their motion was not acted upon by the court a quo.00 a month P 3.00 P14. and its driver Claro Samonte will be persuaded to make immediate .loss of earning capacity for 5 years 5 For expenses of litigation and attorney's fees TOTAL 2.500.00 In Civil Case No.82 8. SP-268: To Plaintiff Nemesio Flores: 1 . 1958 at the rate of P228. TOTAL 1. All of the plaintiffs voluntarily desisted from appealing the decision by reason of financial necessity and in the hope that the defendants LTB Co.183.
Hence this petition.000.00 to P 12. It is true that the rule is well-settled that a party cannot impugn the correctness of a judgment not appealed from by him. Respondents counter that petitioners having failed to appeal from the lower court's decision they. 2) Whether or not the Court of Appeals erred in not increasing the indemnity for the death of Petra de La Cruz (in Civil Case No. However. Petitioner potenciano Requijo as heir of the deceased Petra de la Cruz further sought an increase in the civil indemnity of P3. 1972. 2210 of the Civil Code.payment to them as adjudged by the court a quo. respondents failed to note that the legal interest was awarded by the Appellate Court in its discretion based on equitable grounds which is duly sanctioned by Art. . erred in granting legal interest on damages to start only from the date of its decision instead of from the date of the trial court's decision. Only the said defendants appealed the decision to the Court of Appeals. 2210 of the Civil Code which provides — Interest may. if any. 1972. for in such case he must 7 appeal. Court will start to run from the date of the decision of the trial court on December 27. are now precluded from questioning the ruling of the Court of Appeals.000. they sought for an immediate decision of the case with a prayer for the granting of legal interest from the date of the decision of the court a quoand for the increase to P12. SP-240) from P3. he can do so only to sustain 6 the judgment on other grounds but not to seek modification or reversal thereof. In the motion of petitioners dated December 29.00. The Appellate Court denied the motion for reconsideration holding that since the plaintiffs did not appeal from the failure of the court a quo to award interest on the damages and that the court on its own discretion awarded such interest in view of Art. petitioners contend that the ruling of she Appellate Court departs from the consistent rulings of this court that the award of the legal rate of interest should be computed from the promulgation of the decision of the tonal court. The assignment of errors raised the following issues.000.00. 1971 filed with the Court of Appeals. be allowed upon damages awarded for breach of contract. A party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he has obtained from the lower court.00 of the civil indemnity of P3. the now disputed decision of the Court of Appeals was promulgated. the date of the decision of the Court of Appeals.000. and while he may make counter assignment of errors. 1963 instead of January 31. in the discretion of the court.000. Under the first issue. 4 3 2 Petitioners moved for a reconsideration of this decision seeking its modification so that the legal interest awarded by the Appellate. to wit: 1) Whether or not the Court of Appeal. whose decision is brought up 8 on appeal. the effectivity of the interest should 5 not be rolled back to the time the decision of the court a quo was rendered. On January 31.000 to P12.00 awarded for the death of Petra de la Cruz. We find merit in the petition.
the plaintiff in Civil Case No. a jeepney passenger injured in a vehicular accident. therefore. Also noteworthy is the case of Fores v." There is no doubt that the damages awarded in these civil cases arise from the breach of a contractual obligation on the part of the defendantsappellants. be allowed upon damages awarded for breach of contract. We believe that on equitable grounds legal interest. not only of the provision of the Civil Code above referred to. Although said plaintiffs failed to appeal on this issue. Pleadings as well as remedial laws should be construed liberally in order that the litigants may have ample opportunity to pursue their respective claims and that a possible denial of substantial justice due to 11 legal technicalities may be avoided. unfair and inequitous. which step was obviously dilatory and oppressive of the rights of the said claimants: that the case had been pending in court for about 30 years from the date of the accident in 1958 so that as an exception to the general rule aforestated. Civil Code of the Philippines). as much as possible be decided on their merits and 10 not on technicality. did not appeal from the decision of the trial court. In view of the consistent rulings of this Court. but also the facts and circumstances obtaining in these cases. the Appellate Court pointed out — A further examination of the record will also show that the plaintiffs in Civil Cases Nos. and did not file their brief to reiterate their claim for interest thereon. By reason of their indigence. We take note of the fact that petitioners are litigating as paupers. the said heirs who did not appeal the judgment. In the light. 2208. considering the provision of Article 2210. they failed to appeal but petitioners De Lima and Requijo had filed their manifestation making reference to the law and jurisprudence upon which they base their prayer for relief while petitioner Flores filed his brief. stating that "Interest may. SP-268. Moreover. New Civil Code. At any rate. We take exception to the ruling of the Appellate Court as to the date when the legal interest should commence to ran. should be afforded equitable relief by the 12 courts as it must be vigilant for their protection. to Our mind. this Court is inclined to adopt a liberal stance in this case as We have done in previous decisions where We have held that litigations should. The claim for legal interest and increase in the indemnity should be entertained in spite of the failure of the claimants to appeal the judgment. under the circumstances of this case where the heirs of the victim in the traffic accident chose not to appeal in the hope that the transportation company will pay the damages awarded by the lower court but unfortunately said company still appealed to the Court of Appeals. filed his brief and prayed for the imposition of interest from the date of the decision. The Appellate Court found the award to be justified because the respondent asked for damages in his answer and the said court considered the attorney's fees as included in the concept of damages which can be awarded whenever the court deems it just and equitable (Art. but said motion was not acted upon by the court a quo. in the petition of the court. Although they may not have appealed. Nemesio Flores. Miranda where this Court upheld the granting by the Court of Appeals of attorney's fees even if the respondent. SP-239 and SP-240 moved for the reconsideration of the decision appealed from to include the award of legal interest on the amounts adjudicated from the date of the decision. We are not left without discretion to resolve this issue.Thus. But to grant the imposition of interest on the amounts awarded to and as prayed for by one of the plaintiffs and deny the same to the others considering that the cases arose from one single incident would be. they had filed their motion for reconsideration with the court a quo which unfortunately did not act on it. We hold that the legal interest of six 13 percent (6) on the amounts adjudged in favor of petitioners should start from the time of the rendition of 9 . should be allowed on the amounts adjudged in favor of the plaintiffs from the date of this decision up to the time of actual payment thereof.
Branch V.00. INC.000. respondents. JUAN J. ET AL.. As to the second issue.R.. No.R. In accordance with prevailing jurisprudence the indemnity of P3..000.000. 1972. respondents. and the PHILIPPINE BAR ASSOCIATION.000.00 for the death of a passenger caused by the breach of contract by a common carrier. 1986 JUAN F. 1971. UNITED CONSTRUCTION COMPANY. 1963 instead of January 31. 1986 PHILIPPINE BAR ASSOCIATION. the subject decision is modified in that the legal interest on the damages awarded to petitioners commences from the date of the decision of the court a quo until actual payment while the civil indemnity for the death of Petra de la Cruz is increased to P 30. 1971 as modified by the Order of the lower court dated December 8. No. INC. petitioners. COURT OF APPEALS. petitioners.: These are petitions for review on certiorari of the November 28. No. No. G. L-47851 October 3. 1986 THE UNITED CONSTRUCTION vs. ET AL. CARLOS. L-47863 October 3. petitioner.00 and not P12. If the transportation company had only accepted the judgment of the trial court and paid its just awards instead of appealing the same to the Court of Appeals. J. vs. PARAS. in Civil Case No. G. NAKPIL & SONS.R. ET AL..R.00 should be increased to P30.000. respondents. COURT OF APPEALS. the promulgation of the 14 decision of the Court of Appeals. CO. WHEREFORE. This judgment is immediately executory and no motion for extension of time to file motion for reconsideration shall be entertained. G. L-47896 October 3. civil indemnity for the death of Petra de la Cruz was properly awarded by virtue of Art. We hope this relief is not too late. the petition is hereby GRANTED.the trial court's decision on December 27. 1977 decision of the Court of Appeals in CA-G. The Court of Appeals in modifying the decision of the lower court included an award of an additional amount of P200. 1764 in relation to Art. vs. SO ORDERED. no further delay would have been occasioned on the simple issue of interest and indemnity.00 as prayed for by petitioner. THE COURT OF APPEALS. 74958 dated September 21.. To mitigate the impact of such a great delay in this case the Court finds ample justification in the aforesaid award for interest and indemnity. NAKPIL. 2206 of the Civil Code of the Philippines which allows a minimum indemnity of P3.000..00 to the Philippine Bar Association to be . and JUAN F. 51771-R modifying the decision of the Court of First Instance of Manila.
C. the sum of P989. judgment is hereby rendered: (a) Ordering defendant United Construction Co. the judgment appealed from is modified to include an award of P200.00 as exemplary damages. 1978 requiring the respective respondents to comment.335.000.. pp. pp. Inc. Nakpil and Sons and Juan F. jointly and severally.00 for the loss of the PBA building plus four (4) times such amount as damages resulting in increased cost of the building. L-47851. (Record on Appeal p. (d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit. 1968 until full payment to be paid jointly and severally by defendant United Construction Co. and P100. incorporated under the Corporation Law. and by the third-party defendants Juan F. 1971 as modified in the December 8. Nakpil & Sons in L-47851 and United Construction Co. 169). 269-348. Record on Appeal.000.. 172). SO ORDERED. Philippine Bar Association. 1968. Inc. with interest at the legal rate from November 29. (c) Dismissing the third-party complaint.68 with interest at the legal rate from November 29. P100. and third-party defendants (except Roman Ozaeta) to pay the costs in equal shares. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE.. 1971 Order of the lower court is hereby affirmed with COSTS to be paid by the defendant and third party defendant (except Roman Ozaeta) in equal shares. Rollo. p. decided to construct an office building on its 840 square meters lot located at . L-47851. The dispositive portion of the modified decision of the lower court reads: WHEREFORE. and third party defendants (except Roman Ozaeta). Nakpil.47851. Inc.paid jointly and severally by the defendant United Construction Co. C. for exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the modification of aforesaid decision to obtain an award of P1. Carlos in L-47863 seek the reversal of the decision of the Court of Appeals. Inc. SO ORDERED. and third-party defendants (except Roman Ozaeta) to pay the plaintiff.000. 169) and affirmed by the Court of Appeals are as follows: The plaintiff. the date of the filing of the complaint until full payment. a civic-non-profit association. In all other respects. 520-521. Carlos. p. (b) Dismissing the complaint with respect to defendant Juan J. the judgment dated September 21. L.. among other things.830. and Juan J.00 in favor of plaintiff-appellant Philippine Bar Association. 521. Petitioners Juan F. 74958. (Rollo. (e) Ordering defendant United Construction Co. p. Rollo.000. The facts as found by the lower court (Decision.00 as attorney's fees. These petitions arising from the same case filed in the Court of First Instance of Manila were consolidated by this Court in the resolution of May 10. No.
L-47851. In the early morning of August 2. Carlos as defendants.. pp. The building was completed in June. Rollo. 3. a third-party defendant in this case. at the cost of P13. against Juan F. The front columns of the building buckled. The construction was undertaken by the United Construction. 1966. Inc. The tenants vacated the building in view of its precarious condition. the plaintiff commenced this action for the recovery of damages arising from the partial collapse of the building against United Construction. Carlos. and specifications p by the thirdparty defendants. or in the event that the Court may find Juan F. and specifications prepared by them and/or failure in the performance of their contract with plaintiff.28. Nakpil presented a written stipulation which reads: 1. 274-275. among others. 1969. 2. Inc. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta. That in the event (unexpected by the undersigned) that the Court should find after the trial that the above-named defendants Juan J. Both parties hereby jointly petition this Honorable Court to approve this stipulation.169). as party defendant. Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications.party complaints and the third-party defendants Nakpil & Sons' answer thereto. Inc. Nakpil personally as parties defendant. 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage. The plans and specifications for the building were prepared by the other third-party defendants Juan F. the plaintiff need not amend its complaint by including the said Juan F. the building was shored up by United Construction. the parties agreed to refer the technical issues involved in the case to a Commissioner. designs. Nakpil contributorily negligent or in any way jointly and solidarily liable with the defendants. Nakpil & Sons and Juan F. 1969. Nakpil as parties defendant and by alleging causes of action against them including. the then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included Juan J. As a temporary remedial measure. 1968. during which among others. judgment may be rendered in whole or in part. designs. Intramuros. Nakpil & Sons and Juan F.. That in relation to defendants' answer with counterclaims and third. the defects or inadequacy of the plans. . (Record on Appeal.p.the comer of Aduana and Arzobispo Streets. on the suggestion of Juan J. Nakpil and Sons and/or Juan F. the president and general manager of said corporation. Carlos and United Construction Co. Inc. On November 29. as the case may be. Nakpil & Sons and Juan F. a pre-trial was conducted on March 7.661. the plaintiff and third-party defendants Juan F. Nakpil & Sons. and its President and General Manager Juan J. Upon the issues being joined. alleging in essence that the collapse of the building was due to the defects in the said plans and specifications. Roman Ozaeta. the failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract. Manila. Carlos. Plaintiff alleges that the collapse of the building was accused by defects in the construction. On March 3. are free from any blame and liability for the collapse of the PBA Building. causing the building to tilt forward dangerously. Nakpil in favor of the plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended by including the said Juan F. Inc. on an "administration" basis. and should further find that the collapse of said building was due to defects and/or inadequacy of the plans. Nakpil & Sons and/or Juan F. President of the United Construction Co.
(Record on Appeal. L-47851. 2. the determination of the cost of such restoration or repair. pp. 3. deviations from said plans and specifications by the defendant contractors and failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors. the degree or proportion in which each individual factor contributed to the damage sustained. (c) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building. such as the foundation. In the latter case. which may still be utilized or availed of (Record on Appeal. plaintiff moved twice for the demolition of the building on the ground that it may topple down in case of a strong earthquake. and 12. by: (a) The inadequacies or defects in the plans and specifications prepared by thirdparty defendants. Rollo. As aforestated the technical issues were referred to the Commissioner. 1968 earthquake whose magnitude was estimated at 7. architects and even the owners to exercise the requisite degree of supervision in the construction of subject building. Hizon.Mr. The motions were opposed by the defendants and the matter was referred to the Commissioner. assumed his office as Commissioner.3 they were also caused by the defects in the plans and specifications prepared by the third-party defendants' architects. p. 1968 earthquake had been caused.) After the protracted hearings. The actual demolition was undertaken by the buyer of the damaged building. Thus. Andres O. and (f) Any other cause not herein above specified. 275-276. on April 30. but not another earthquake of high intensity on April 7. Meanwhile. who was ultimately appointed by the trial court. (b) The deviations. Whether the damage sustained by the PBA building during the August 2. directly or indirectly. Whether the building is now a total loss and should be completely demolished or whether it may still be repaired and restored to a tenantable condition. the Commissioner eventually submitted his report on September 25. 169). if any. If the cause of the damage suffered by the building arose from a combination of the above-enumerated factors. the issues of this case were divided into technical issues and non-technical issues. the contractor and/or the owner of the building. Ibid. (d) The alleged failure to exercise the requisite degree of supervision expected of the architect. and the value of any remaining construction. Finally. The non-technical issues were tried by the Court. caused further damage to the property. pp. 1979 the building was authorized to be demolished at the expense of the plaintiff. 1970 with the findings that while the damage sustained by the PBA building was caused directly by the August 2. 1970. (e) An act of God or a fortuitous event. made by the defendants from said plans and specifications and how said deviations contributed to the damage sustained. charged with the duty to try the following issues: 1. 1970 followed by other strong earthquakes on April 9. 278-280. .
Ibid). these petitions.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while United Construction Co. parties who are otherwise liable because of their negligence. deviations from plans and specifications and other imperfections in the case of United Construction Co. But the Commissioner. the amicus curiae were granted a period of 60 days within which to submit their position. . 1978. the lower court rendered the assailed decision which was modified by the Intermediate Appellate Court on November 28. plans and specifications prepared by petitioners in the case of the Nakpils. 309-328. and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. on September 21. Inc. The pivotal issue in this case is whether or not an act of God-an unusually strong earthquakewhich caused the failure of the building. Both UCCI and the Nakpils object to the payment of the additional amount of P200. In their respective briefs petitioners. 1978. The motion having been granted. 1971.. p. They proposed to present a position paper on the liability of architects when a building collapses and to submit likewise a critical analysis with computations on the divergent views on the design and plans as submitted by the experts procured by the parties. raised the following assignments of errors: Philippine Bar Association claimed that the measure of damages should not be limited to P1.All the parties registered their objections to aforesaid findings which in turn were answered by the Commissioner. exempts from liability. (Record on Appeal. The Court sees no legal or contractual basis for such conclusion. The position papers of the amicus curiae (submitted on November 24. and the Nakpils claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility and not the defective construction. 174). After the parties had all filed their comments. still the deficiency in the original design and jack of specific provisions against torsion in the original plans and the overload on the ground floor columns (found by an the experts including the original designer) certainly contributed to the damage which occurred.100. UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of P13. the United Architects of the Philippines. the Association of Civil Engineers. poor workmanship.661.000.000. reiterated his conclusion that the defects in the plans and specifications indeed existed. On May 11. We gave due course to the petitions in Our Resolution of July 21. No. when asked by Us to comment. ( Ibid. pp. Inc.28 while the Nakpils opposed the payment of damages jointly and solidarity with UCCI.. the Commissioner added that even if it can be proved that the defects in theconstruction alone (and not in the plans and design) caused the damage to the building. or the deficiencies in the design. The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full nine supervision of the construction. among others. Thus. All the parties herein appealed from the decision of the Intermediate Appellate Court. Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. 1977.00 imposed by the Court of Appeals. 1978) were duly noted. The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. Hence. 4131) and the 1966 Asep Code.
due directly and exclusively to natural causes without human intervention. 45 Phil. Limpangco & Sons v. Yangco Steamship Co. which provides: Art. 55 Phil. could have been prevented. or due to the defects in the ground. or aggravation of the injury to the creditor. The engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen years from the completion of the structure the same should collapse by reason of a defect in those plans and specifications. The contractor is likewise responsible for the damage if the edifice fags within the same period on account of defects in the construction or the use of materials of inferior quality furnished by him. which results in loss or damage. 4379. (1 Corpus Juris 1174). he shall be solidarily liable with the contractor. New Civil Code). pains or care.G. (b) the event must be either unforseeable or unavoidable. Smith. and (d) the debtor must be free from any participation in. if upon the happening of a fortuitous event or an act of God. Phil. (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. There is no dispute that the earthquake of August 2. 657). the cause of which is to be considered. 138 SCRA 553. and removed from the rules applicable to the acts of God. 39 SCRA 527. 594. (Fish & Elective Co. Smith. To exempt the obligor from liability under Article 1174 of the Civil Code. Thus. v. 71 SCRA 423. after completion. or due to any violation of the terms of the contract. the general rule is that no person shall be responsible for events which could not be foreseen or which though foreseen. On the other hand. Estrada v. Milan. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. as it were. whether it be from active intervention or neglect. were inevitable (Article 1174. v. 1968 is a fortuitous event or an act of God. The action must be brought within ten years following the collapse of the building. An act of God has been defined as an accident. there concurs a corresponding fraud. reasonably to have been expected. 34 Phil.The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil Code. Republic of the Phil. such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. the whole occurrence is thereby humanized.. the obligor cannot escape liability. delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code.. negligence. which by no amount of foresight. 129. If the engineer or architect supervises the construction. Court of Appeals. Lasam v. (Vasquez v. Court of Appeals. Motors. Austria v. for a breach of an obligation due to an "act of God. 21 SCRA 279. 45 Phil. 49 O. he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. 604. 1174-1175). Tucker v. does not imply waiver of any of the causes of action by reason of any defect mentioned in the preceding paragraph. Luzon Stevedoring Corp. (1 Corpus Juris. Lasam v. Acceptance of the building. To be exempt from liability for loss because of an act of God. Consolacion. is found to be in part the result of the participation of man. or failure to act." the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor. When the effect. 1723. 657). pp. . Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss.
1967. No. p. surmise and conjectures. Defendant United Construction Co. July 10. Sandiganbayan. 1970 (L-47896. The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial collapse (and eventual complete collapse) of its building. July 30. However. 366). (4) the judgment is based on misapprehension of facts. 1985. p. 1968. The PBA further urges that the . (Decision. 1986). 247. June 30. 19). p. 33 SCRA 622. January 17..00 in favor of the PBA (L. PBA's No. (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents (Garcia vs. 291-292. CA. Buan. In any event. The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner that the total amount required to repair the PBA building and to restore it to tenantable condition was P900. Sandiganbayan.000. The PBA in its brief insists that the proper award should be P1. 19 SCRA 289. (5) the findings of fact are conflicting . Oct. February 8.R. 30-31). 1970.00 representing the damage suffered by the PBA building as a result of another earthquake that occurred on April 7." cannot be ignored. 651). 6. NAKPIL's Brief as Petitioner. pp. the relevant and logical observations of the trial court as affirmed by the Court of Appeals that "while it is not possible to state with certainty that the building would not have collapsed were those defects not present. 25). 1979. It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this court (cases cited in Tolentino vs. while both the NAKPILS and UNITED question the additional award of P200. Court of Appeals. de Jesus. plus unrealized rental income for onehalf year. the Court of Appeals modified the amount by awarding in favor of PBA an additional sum of P200. (10) the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by evidence on record (Salazar vs. Cited in G. Court of Appeals. 92). (8) said findings of facts are conclusions without citation of specific evidence on which they are based.000. Alsua-Bett vs.000. 1 Assignment of Error. Roque vs. Vol. Inc. (7) the findings of facts of the Court of Appeals are contrary to those of the trial court. Sacay v. 1970.00 representing the total value of the building (L-47896. 92 SCRA 322. 56 SCRA 67.000. (3) there is grave abuse of discretion. the records show that the lower court spared no effort in arriving at the correct appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties whose findings and conclusions remained convincingly unrebutted by the intervenors/amicus curiae who were allowed to intervene in the Supreme Court. and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision. 31. 66497-98. p. I. UNITED's Brief as Petitioner.830. For this reason the defendant and third-party defendants cannot claim exemption from liability.00 inasmuch as it was not initially a total loss. (2) the inference made is manifestly mistaken. Gutierrez.. while the trial court awarded the PBA said amount as damages. Cesar vs. May 29. Pepsi-Cola Bottling Co. unless (1) the conclusion is a finding grounded entirely on speculation. It is evident that the case at bar does not fall under any of the exceptions above-mentioned. 21 SCRA 648. 121). As correctly assessed by both courts. the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected. 1967. 33 SCRA 243. On the contrary. (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees (Ramos vs.The negligence of the defendant and the third-party defendants petitioners was established beyond dispute both in the lower court and in the Intermediate Appellate Court. the defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August 2. 134 SCRA 105. while the third-party defendants were found to have inadequacies or defects in the plans and specifications prepared by them. was found to have made substantial deviations from the plans and specifications.47851.
1970. The collapse of the PBA building as a result of the August 2. Fortunately. 1968 earthquake (L-47896. authorized the total demolition of the building (L-47896. 1. Nakpil and Sons alleges that the designs were adequate in accordance with preAugust 2. poor workmanship.76 a year until the judgment for the principal amount shall have been satisfied L. defective construction. 19). Because of the earthquake on April 7. 1968 earthquake was only partial and it is undisputed that the building could then still be repaired and restored to its tenantable condition. The lengthy discussion of United on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous events and extraordinary fortuitous events leads to its argument that the August 2. Following the same line of reasoning. as a unique and distinct construction with no reference or comparison to other buildings. Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of Appeals: There is no question that an earthquake and other forces of nature such as cyclones. drought. The failure of the PBA building. p. 1968 knowledge and appear inadequate only in the light of engineering information acquired after the earthquake. UNITED. It does not necessarily follow. We are not convinced on the basis of the evidence on record that from the thousands of structures in Manila. pp. p. thru no fault of its own. that specific losses and suffering resulting from the occurrence of these natural force are also acts of God. CA Decision. 53-54). God singled out the blameless PBA building in Intramuros and around six or seven other buildings in various parts of the city for collapse or severe damage and that God alone was responsible for the damages and losses thus suffered.unrealized rental income awarded to it should not be limited to a period of one-half year but should be computed on a continuing basis at the rate of P178. 1968 earthquake was of such an overwhelming and destructive character that by its own force and independent of the particular negligence alleged. The act-of-God arguments of the defendants. lightning. . deviation from plans and specifications and other imperfections. the injury would have been produced. in view of its lack of needed funding.28 to shore up the building after the August 2. the facts on record allow a more down to earth explanation of the collapse. 46). and perils of the sea are acts of God. We quote with approval the following from the erudite decision penned by Justice Hugo E. There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the partial and eventual collapse of the PBA building as a result of the earthquakes. If this were so. on the other hand. If we follow this line of speculative reasoning. to have the building repaired. The record is replete with evidence of defects and deficiencies in the designs and plans. The PBA.661. These deficiencies are attributable to negligent men and not to a perfect God. hundreds of ancient buildings which survived the earthquake better than the two-year old PBA building must have been designed and constructed by architects and contractors whose knowledge and foresight were unexplainably auspicious and prophetic. floods. PBA's No.671.appellants and third party defendants-appellants presented in their briefs are premised on legal generalizations or speculations and on theological fatalism both of which ignore the plain facts. the trial court after the needed consultations. spent P13. to weather the severe earthquake forces was traced to design deficiencies and defective construction. however. we will be forced to conclude that under such a situation scores of buildings in the vicinity and in other parts of Manila would have toppled down.47896. 11 Assignment of Errors. however. was unable. Vol.
Designs and constructions vary under varying circumstances and conditions but the requirement to design and build well does not change.factors which are neither mysterious nor esoteric. not a mysterious act of an inscrutable God. The embedded 4" diameter cast iron down spout on all exterior columns reduces the cross-sectional area of each of the columns and the strength thereof. earthquakes. 2. as designed and constructed. Plaintiffs' Reply to the Commissioner's Answer. Increase the inertia forces that move the building laterally toward the Manila Fire Department." The requirement that a building should withstand rains. 1. The evidence sufficiently supports a conclusion that the negligence and fault of both United and Nakpil and Sons. Third Party Defendants' Objections to the Report. Defendants' Objections to the Report. Plaintiff's Objections to the Report. inadequate design was the cause of the failure of the building. and the rain descended and the floods came and the winds blew and beat upon that house. floods. The theological allusion of appellant United that God acts in mysterious ways His wonders to perform impresses us to be inappropriate. b. and Third-Party Defendants' Reply to the Commissioner's Report not to mention the exhibits and the testimonies show that the main arguments raised on appeal were already raised during the trial and fully considered by the lower Court. and engineers. among them: The Commissioner also found merit in the allegations of the defendants as to the physical evidence before and after the earthquake showing the inadequacy of design. and it fell and great was the fall of it. . Instead of laying the blame solely on the motions and forces generated by the earthquake. Sun-baffles on the two sides and in front of the building. to withstand and successfully weather those forces. And the rain descended and man which built his house the floods came. Matthew 7: 24-27). The findings of the lower Court on the cause of the collapse are more rational and accurate. A reiteration of these same arguments on appeal fails to convince us that we should reverse or disturb the lower Court's factual findings and its conclusions drawn from the facts. (St. The Report of the Commissioner. and beat upon that house. and it fen not. It was a result of the imperfections in the work of the architects and the people in the construction company. 3. Commissioner's Answer to the various Objections. it also examined the ability of the PBA building. and natural forces is precisely the reason why we have professional experts like architects. The collapse of the PBA building was no wonder performed by God. were responsible for the damages. More relevant to our mind is the lesson from the parable of the wise man in the Sermon on the Mount "which built his house upon a rock. Counter-Reply to Defendants' Reply. for it was founded upon a rock" and of the "foolish upon the sand. a. and the winds blew. The evidence reveals defects and deficiencies in design and construction. There is no mystery about these acts of negligence. winds. Create another stiffness imbalance. to wit: Physical evidence before the earthquake providing (sic) inadequacy of design. Defendants' Reply to the Commissioner's Answer.
is not an exact . The Third-party defendants. (c) the Commissioner has failed to back up or support his finding with extensive. (b) the finding that there were defects and a deficiency in the design of the building would at best be based on an approximation and. 1. The issue presently considered is admittedly a technical one of the highest degree. 5. that the design is essentially that of a heavy rectangular box on stilts with shear wan at one end. It involves questions not within the ordinary competence of the bench and the bar to resolve by themselves. 4. complex and highly specialized computations and analyzes which he himself emphasizes are necessary in the determination of such a highly technical question. but in the light of recent and current standards. rather than of certainty and could very possibly be outright error. 6. Slab at the corner column D7 sagged by 38 cm. that the fact that those deficiencies or defects may have arisen from an obsolete or not too conservative code or even a code that does not require a design for earthquake forces mitigates in a large measure the responsibility or liability of the architect and engineer designer. Building leaned and sagged more on the front part of the building. therefore. who are the most concerned with this portion of the Commissioner's report. Physical Evidence After the Earthquake.4. A7 and D7 columns were very much less reinforced. rightly belonged to the realm of speculation. voiced opposition to the same on the grounds that (a) the finding is based on a basic erroneous conception as to the design concept of the building. to wit. Proving Inadequacy of design. Column A7 suffered the severest fracture and maximum sagging. The Commissioner answered the said objections alleging that third-party defendants' objections were based on estimates or exhibits not presented during the hearing that the resort to engineering references posterior to the date of the preparation of the plans was induced by the third-party defendants themselves who submitted computations of the third-party defendants are erroneous. Maximum sagging occurs at the column A7 where the floor is lower by 80 cm. and (d) the Commissioner has analyzed the design of the PBA building not in the light of existing and available earthquake engineering knowledge at the time of the preparation of the design. however. He conceded. There was a lateral displacement of the building of about 8". plans and specifications of the PBA building which involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. not only in columns but also in slabs. There are more damages in the front part of the building than towards the rear. Counsel for the third-party defendants has aptly remarked that "engineering. although dealing in mathematics. than the highest slab level. Two front corners. Also D7. 2. Floors showed maximum sagging on the sides and toward the front corner parts of the building. The Commissioner concluded that there were deficiencies or defects in the design. 3.
eccentricity being 3" off when on one face the main bars are only 1 1/2' from the surface. on the codes to be used and even as to the type of structure that the PBA building (is) was (p. The findings of the Commissioner on these issues were as follows: We now turn to the construction of the PBA Building and the alleged deficiencies or defects in the construction and violations or deviations from the plans and specifications. as to what earthquake co-efficients are. will be discussed together. All these may be summarized as follows: a. or over spacing of spiral hoops. Specification requires no larger than 1 inch. made by the defendants from the plans and specifications. the Court sees no compelling reasons to disturb the findings of the Commissioner that there were defects and deficiencies in the design. (5) Prevalence of honeycombs. and that said defects and deficiencies involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. (4) Reinforcement assembly is not concentric with the column. constituted the reason for the reference of the said issues to a Commissioner whose qualifications and experience have eminently qualified him for the task. Bundalian. (2) Absence of effective and desirable integration of the 3 bars in the cluster. (7) Absence. The difficulty expected by the Court if tills technical matter were to be tried and inquired into by the Court itself. . so much so "that the experts of the different parties. cannot agree on what equation to use. or omission. (6) Contraband construction joints. and how said deviations contributed to the damage sustained by the building. (b) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building. plans and specifications prepared by third-party defendants. Memo. and whose competence had not been questioned by the parties until he submitted his report.science and that the present knowledge as to the nature of earthquakes and the behaviour of forces generated by them still leaves much to be desired. These two issues. (1) Wrongful and defective placing of reinforcing bars. who are all engineers.party defendants before the Commissioner). Summary of alleged defects as reported by Engineer Mario M. coupled with the intrinsic nature of the questions involved therein. 29. (2) (a) The deviations. and the objections voiced to the same. being interrelated with each other. Within the pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's report on this issue. if any. (3) Oversize coarse aggregates: 1-1/4 to 2" were used. of third.
(4) Column D7 — Lack of lateral ties.(8) Deliberate severance of spirals into semi-circles in noted on Col. b. . Columns are first (or ground) floor. ground floor. (11) Column A4 — (second floor Column is completely hollow to a height of 30" (12) Column A5 — Spirals were cut from the floor level to the bottom of the spandrel beam to a height of 6 feet. Antonio Avecilla. Spirals are uneven 2" to 4". (13) Column A6 — No spirals up to a height of 30' above the ground floor level. (8) Column B7 — Spirals not tied to vertical reinforcing bars. second floor. Summary of alleged defects as reported by the experts of the Third-Party defendants. Summary of alleged defects as reported by Engr. (9) Column A3 — Lack of lateral ties. Columns buckled worst where there are no spirals or where spirals are cut. (12) Columns buckled at different planes. (10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars. Columns suffered worst displacement where the eccentricity of the columnar reinforcement assembly is more acute. D-7 and D-4. (14) Column A7— Lack of lateralties or spirals. A-5. (3) Column D6 — Spacing of spiral over 4 l/2. c. (2) Column D5 — No spiral up to a height of 22" from the ground floor. (9) Defective construction joints in Columns A-3. ground floor. Spirals are at 2" from the exterior column face and 6" from the inner column face. (1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers. (10) Undergraduate concrete is evident. unless otherwise stated. (11) Big cavity in core of Column 2A-4. C-7. (6) Column B6 — Lack of spiral on 2 feet below the floor beams. (7) Column B5 — Lack of spirals at a distance of 26' below the beam. (5) Column C7 — Absence of spiral to a height of 20" from the ground level.
spaced 16" on centers. (11) Column D7 — Lateral ties are too far apart. As heretofore mentioned. There were also unmistakable evidences that the spacings of the spirals and ties in the columns were in many cases greater than those called for in the plans and specifications resulting again in loss of earthquake-resistant strength. There were several clear evidences where this was not done especially in some of the ground floor columns which failed. The explanations given by the engineering experts for the defendants are either contrary to general principles of engineering design for reinforced concrete or not applicable to the requirements for ductility and strength of reinforced concrete in earthquake-resistant design and construction. We shall first classify and consider defects which may have appreciable bearing or relation to' the earthquake-resistant property of the building.Ground floor columns. (7) Column B7 — At upper fourth of column spirals missing or improperly spliced. (5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced. (4) Column A7 — Ties are too far apart. And even granting that there be no loss in strength at the yield point (an assumption which is very doubtful) the cutting or improper spacings of spirals will certainly result in the loss of the plastic range or ductility in the column . (6) Column B6 — At upper 2 feet spirals are absent. details which insure ductility at or near the connections between columns and girders are desirable in earthquake resistant design and construction. (8) Column C7— Spirals are absent at lowest 18" (9) Column D5 — At lowest 2 feet spirals are absent. (3) Column A6 — At lower 18" spirals are absent. (1) Column A4 — Spirals are cut. Specifications. 970. p. The assertion of the engineering experts for the defendants that the improper spacings and the cutting of the spirals did not result in loss of strength in the column cannot be maintained and is certainly contrary to the general principles of column design and construction. The omission of spirals and ties or hoops at the bottom and/or tops of columns contributed greatly to the loss of earthquake-resistant strength. (10) Column D6 — Spirals are too far apart and apparently improperly spliced. 1. Reference 11). There is merit in many of these allegations. (2) Column A5 — Spirals are cut. The plans and specifications required that these spirals and ties be carried from the floor level to the bottom reinforcement of the deeper beam (p.
Other than a strong allegation and assertion that it is the plumber or his men who may have done the cutting (and this was flatly denied by the plumber) no conclusive proof was presented. . The proper way is to produce correct spirals down from the top of the main column bars. The cutting of the spirals in column A5. The engineering experts for the defendants submitted an estimate on some of these defects in the amount of a few percent. should be held responsible for the consequences arising from the loss of strength or ductility in column A5 which may have contributed to the damages sustained by the building. If the reinforcement for the girder and column is to subsequently wrap around the spirals. The lack of proper length of splicing of spirals was also proven in the visible spirals of the columns where spalling of the concrete cover had taken place. This lack of proper splicing contributed in a small measure to the loss of strength. therefore.and it is precisely this plastic range or ductility which is desirable and needed for earthquake-resistant strength. is the responsibility of the general contractor which is the UCCI. therefore. ground floor. While these can certainly be absorbed within the factor of safety. and although this column did not fail. therefore. second floor. There is evidence to show that the pouring of concrete for columns was sometimes done through the beam and girder reinforcements which were already in place as in the case of column A4 second floor. The burden of proof. The effects of all the other proven and visible defects although nor can certainly be accumulated so that they can contribute to an appreciable loss in earthquakeresistant strength. The effect on the measured eccentricity of 2 inches. There is no excuse for the cavity or hollow portion in the column A4. a procedure which can not be done if either the beam or girder reinforcement is already in place. including the effect of eccentricity in the column the loss in strength due to these minor defects may run to as much as ten percent. that this cutting was done by others is upon the defendants. The proper placing of the main reinforcements and spirals in column A5. This belief together with the difficulty of slipping the spirals on the top of the column once the beam reinforcement is in place may be a sufficient motivation for the cutting of the spirals themselves. The main effect of eccentricity is to change the beam or girder span. If accumulated. this would not do for the elasticity of steel would prevent the making of tight column spirals and loose or improper spirals would result. ground floor is the subject of great contention between the parties and deserves special consideration. therefore. The engineering experts for the defendants strongly assert and apparently believe that the cutting of the spirals did not materially diminish the strength of the column. The engineering experts for the defendants asserted that they could have no motivation for cutting the bar because they can simply replace the spirals by wrapping around a new set of spirals. is to increase or diminish the column load by a maximum of about 1% and to increase or diminish the column or beam movements by about a maximum of 2%. This is not quite correct. The effect of eccentricities in the columns which were measured at about 2 1/2 inches maximum may be approximated in relation to column loads and column and beam moments. this is certainly an evidence on the part of the contractor of poor construction. The defendants. they nevertheless diminish said factor of safety.
D-5 and B-7. Since the execution and supervision of the construction work in the hands of the contractor is direct and positive. therefore. As the parties most directly concerned with this portion of the Commissioner's report. (pp. by calling attention to the fact that the missing spirals and ties were only in two out of the 25 columns. second floor. ground floor. which rendered said supposition to be improbable. but averred that it is "evidence of poor construction. Answering the said objections. that the proven defects. the Commissioner specified groundfloor columns B-6 and C-5 the first one without spirals for 03 inches at the top. C-7. The liability for the cutting of the spirals in column A5. Commissioners Report). did not aggravate or contribute to the damage. The Commissioner conceded that the hollow in column A-4. that the Commissioner failed to indicate the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement of the deeper beam. The objection to the failure of the Commissioner to specify the number of columns where there was lack of proper length of splicing of spirals. It is reasonable to conclude. these defects and deficiencies not only tend to add but also to multiply the effects of the shortcomings in the design of the building. As regards the objection as to failure to state the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement. and in the latter. resulting in some loss of strength which could be critical near the ends of the columns. C-6. the defendants voiced their objections to the same on the grounds that the Commissioner should have specified the defects found by him to be "meritorious". the Commissioner mentioned groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and were not welded. the presence of existence of all the major defects and deficiencies noted and proven manifests an element of negligence which may amount to imprudence in the construction work. the Commissioner answered that. the lack of proper length of splicing of spirals.To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of some of the ground floor columns contributed greatly to the collapse of the PBA building since it is at these points where the greater part of the failure occurred. and the cut in the spirals in column A5. . We may say. since many of the defects were minor only the totality of the defects was considered. C-5. second floor. the Commissioner stated that. was done by the plumber or his men. that the defects in the construction were within the tolerable margin of safety. the eccentricities in the columns. that the defects and deficiencies in the construction contributed greatly to the damage which occurred." On the claim that the eccentricity could be absorbed within the factor of safety. ground floor. did not aggravate or contribute to the damage suffered by the building. or where the spacing of the spirals and ties in the columns were greater than that called for in the specifications. 1968 and the vice of these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the design of the structure. He answered the supposition of the defendants that the spirals and the ties must have been looted. that the hollow in column A4. and not by the defendants. in the considered opinion of the Commissioner rests on the shoulders of the defendants and the loss of strength in this column contributed to the damage which occurred. In other words. therefore. The Commissioner likewise specified the first storey columns where the spacings were greater than that called for in the specifications to be columns B-5. ground floor. and that the cutting of the spirals in column A5. there were no spirals for 10 inches at the bottom. 42-49. deficiencies and violations of the plans and specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2. B-6.
4380) which may be in point in this case reads: One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof. or an act of God for which he is not responsible.00) Pesos as and for attorney's fees. 1723. Civil Code. designs.R.000. (Rollo. Upon failure to pay on such finality.G. Milan (49 O. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5. the destruction was not purely an act of God. and construction of the PBA building and We hold such negligence as equivalent to bad faith in the performance of their respective tasks. twelve (12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality until paid. As already discussed.while the same may be true.00) Pesos to cover all damages (with the exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100. although the act of a third person. G. the defendants should be held liable for the same as the general contractor of the building. 79552 November 29. Only one thing spells out the fatal difference. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta). the Court concurs in the findings of the Commissioner on these issues and fails to find any sufficient cause to disregard or modify the same. We deem it reasonable to render a decision imposing. Relative thereto. as evidenced by the actual failure of this column. the total sum being payable upon the finality of this decision. the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case. I. groundfloor. As found by the Commissioner.000. Vol. No. intervenes to precipitate the loss. without which the damage would not have occurred. the ruling of the Supreme Court in Tucker v. pp. 128-142) The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in effecting the plans. the "deviations made by the defendants from the plans and specifications caused indirectly the damage sustained and that those deviations not only added but also aggravated the damage caused by the defects in the plans and specifications prepared by third-party defendants. 1988 . 4379.000. Supra. WHEREFORE. it also contributed to or aggravated the damage suffered by the building. The Commissioner further stated that the loss of strength of the cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the spiral containment in the column and resulted in the loss of strength. was answered by the Commissioner by reiterating the observation in his report that irrespective of who did the cutting of the spirals. upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) asolidary (Art. specifications. p. SO ORDERED. as We do hereby impose. The objection regarding the cutting of the spirals in Column A-5. Again. gross negligence and evident bad faith.
Molo. Branch XXIII. SR. on the security of the same property which they redeemed from Asencio. who is an aunt of Jesena. CV No. The loan is evidenced by the following promissory note (Exh. respondents. SANGRADOR. in the event of litigation arising from this note. petitioners. principal and interest and charges then unpaid.000. 9).000. Enrique G.00. they were able to obtain on April 6. 16210. Iloilo City. 1 984 providing for the payment of P1. VALDERRAMA.000 loan from the plaintiff Teresita Sangrador. PADILLA. then the value of the Philippine Peso at the time of the 1 . SPOUSES FRANCISCO VALDERRAMA and TERESITA M.R. the sum of ONE MILLION FOUR HUNDRED THOUSAND PESOS (P1. in Civil Case No. Foreseeing that they would not be able to pay the loan and redeem their property upon maturity of the loan. the defendants scouted around for money-lenders who would be willing to lend them money with which to pay off their mortgage to Asencio. jointly and severally undertake that in the event that an extraordinary inflation of the Philippine Peso should supervene between now and eight (8) months after date. the makers shall jointly and severally pay TWENTY (20) PER CENTUM of the amount due. Sangrador. SANGRADOR. joined by her husband RODRIGO SANGRADOR. which in no case shall be less than P1. Philippines. Defendants. The makers of this note.000 loan from Manuel Asencio payable on or before April 12. versus Spouses Francisco Valderrama and Teresita Valderrama. vs. Sixth Judicial Region. The makers hereby submit to the jurisdiction of the Municipal Trial Court of Iloilo or the Regional Trial Court of Iloilo. 1983 the defendants-spouses Francisco and Teresita Valderrama obtained a P500. Wilson Jesena. 2 Locsin Street. 1984 a P1. entitled "Evelyn J. and secured by a real estate mortgage on their house and lot (actually 3 lots) in front of the Jaro Plaza in Iloilo City (Exh.00) Philippine Currency.EVELYN J." The factual background of the case is narrated in the decision of the Court of Appeals as follows: On April 11. Should we default in the payment of the obligation or in the manner of performance thereof and it shall become necessary to enforce and collect on this note by or through an attorney. B) dated April 6. at her address at No. joined by her husband. Plaintiffs. Rex Suiza Castillon for respondents. dated 13 August 1987.: This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G. Rodrigo Sangrador. Through the help of a loan broker. or order.000. Arguelles for petitioners. EIGHT (8) MONTHS after date without need of demand. Iloilo City. we jointly and severally promise to pay EVELYN J. which modified the decision of the Regional Trial Court of Iloilo City.400.000 to the creditor eight months after date'.. J.400. as the case may be. 1984. 2 08813. FOR VALUE RECEIVED.
40 — Balance (Exh.000. Sec. of the Registry of Deeds for the City of Iloilo. of the Rules of Court. P692. Philippines. 13.398. shall be the basis of payment pursuant to Art. 1250 of the Civil Code of the Philippines. Jesena. EXECUTED in the City of Iloilo. This note is secured by a Real Estate Mortgage over three (3) parcels of residential land. on a memo pad of "Jesena Realty" as follows: From the desk of: REALTOR WILSON President & Gen. the debtors waive all their rights under the provisions of Rule 39. The corresponding adjustment in the value of the Philippine Peso shall be made in the event that at the time of the maturity of this obligation. respectively. the rate of exchange will have changed as a result of the supervening inflation.000. shall be the basis of this adjustment. on this 6th day of April 1984.000. T-41719. (SGD) Maker (SGD) Maker Signed in the presence of. 692.I. 701 and 750.R.000. we hereby acknowledge the official exchange rate of the Philippine Peso to the US Dollar at P14. and for this purpose. together with the improvements thereon. B) (illegible) TERESITA MONTINOLA-VALDERRAMA FRANCISCO VALDERRAMA The debtors allege that the amount actually received by them was only P1.69 P1.00 — P307. 1) Asencio Boy Arguelles fees— G.398. (illegible) (Exh.601.398.000. T41721 and T-41720.000.000 the disposition of which was itemized by the broker.establishment of this obligation.00—Atty.00—Manuel 50.69 . Wilson Jesena a. of the Cadastral Survey of Jaro. Jr. Lots 700. We further agree that the official rate of exchange as set by the Central Bank of the Philippines for private transactions. In case of judicial execution of this obligation or any part thereof.002 to $1. 12. covered by TCT Nos.00—Commission 4. Manager EXPENSES P625.69—Transfer Register of Deeds and B.
JR. 4) was also signed by the mortgagors: RECEIPT April 7. 3441-R (Exh.601. Arguelles' attorney's fees was duly acknowledged by him (Exh. . 1984 Received from EVELYN JESENA SANGRADOR the amount of SIX HUNDRED TWENTY FIVE THOUSAND PESOS (625. 2) Plaintiff Evelyn Sangrador made a list of the expenses chargeable to the debtors (Exh.000 was issued by Sangrador to Asencio to redeem the defendants' property from him. a Prudential Bank Cashier's check for P625.601. RECEIPT Received from Spouses Francisco Valderrama and Teresita Montinola Valderrama the amount of FIFTY THOUSAND PESOS (P50.s. (SGD) FRANCISCO (SGD) TERESITA MONTINOLA.000.00) Bank Prudential Bank Cashier's Check No. 1984 Received from EVELYN J. SANGRADOR the amount of THREE HUNDRED SEVEN THOUSAND SIX HUNDRED ONE PESOS AND FORTY CENTAVOS (P307.000.. attorney's fees.n. 3) The balance of P307. (SGD) REALTOR REB License No. (SGD) FRANCISCO (SGD) TERESITA MONTINOLA. A receipt for that check was issued by the Valderramas to the plaintiff as follows: RECEIPT Date April 6. 8).00) representing commission for my efforts and expertise in effecting the procurement of a loan from a financier for the amount of ONE MILLION PESOS (P1.VALDERRAMA VALDERRAMA WILSON JESENA.Accordingly.000. 5) and submitted it to them (22 t. The balance of THREE HUNDRED SEVENTY FIVE THOUSAND PESOS (P375. Bureau of Internal Revenue fees and Register of Deeds fees. All expenses are to be supported by receipts. 1985).00).40 was paid to the defendants by means of another Prudential Bank check for which the corresponding receipt (Exh. May 7.00) is to be paid to the undersigned after deducting all expenses incurred in payment of real estate taxes. Payment of Atty. commission.VALDERRAMA VALDERRAMA (Exh. Jesena issued the following receipt to the defendants for his 5% commission in procuring the loan for them.40) representing full payment per Promissory Note dated April 6.000.000. 14937 .1984.
plus 12% interest per annum from December 18.69 itemized in Jesena's and her lists (Exhs.601. May 7.00 plus the sum of P569.00 and that the additional P400.000 was received by the defendants. P307. 1985 binding the debtors to 3 the terms of the promissory note and mortgage deed. A) provided for a loan of only P1 million since that was the amount which they borrowed and received from the plaintiffs. They alleged that it was only P1.000 for Asencio and the check of P307. judgment is hereby rendered: 1) Directing the foreclosure of the Deeds of Real Estate Mortgage (Exh. On the other hand Francisco Valderrama testified that he thought all along that the promissory note (Exh.40 Evelyn Sangrador admitted that the receipts (Exhs. considerations and findings of this Court.. 1 and 5). The dispositive part of the trial court's judgment reads as follows: WHEREFORE. SO ORDERED.000. She alleged that besides the expenses of P67.400. in the light of the foregoing. At the trial.000 represented usurious interest. (Exh. B) and deed of real estate mortgage (Exh.400.400.000 in cash for which no receipt was issued by them.400. He allegedly did not notice that both documents provided for a loan of P1. The defendants in their answer denied that the loan was P1.61 pursuant to the escalation clause contained in paragraph 14 of the Deed of Real Estate Mortgage.000. 3) In default of such payment.400. all of which shall be paid into Court within 90 days from date of the service of the order.40 which she issued to the defendants for the balance of the loan. 4 .n. 4) Bank 1984 Chk. the check of P625. 21 t. 'A').1984 until fully paid. the court rendered judgment on November 7. Sangrador (Exh. she gave to the defendants the amount of P400. When the defendants failed to pay the sum of P1.000.Paid by—Prudential #144358-2—April 7. 1985). 2) Ordering the defendants to pay the mortgage obligation in the amount of P1.718.000 stated in the promissory note on December 6.601. 2 and 4) were issued to her by the defendants (14. 1984. ordering the mortgaged properties to be sold at public auction to realize the mortgage debt and costs. 1984 despite the plaintiffs' written demands (Exhs. After the trial.s. C and D) a complaint for judicial foreclosure of the real estate mortgage was filed against them on December 21.000. c/o #0033-00022-0 paid by—Evelyn J. to pay attorney's fees equivalent to twenty (20%) percentum of the total indebtedness including costs.000. G).398. the plaintiff testified that the sum of P1.
000.000. . In resolving this issue. The pivotal issue to be resolved in this case is whether or not the loan obtained by private respondents from petitioners was in the amount of P1.400.400.000.000. where the appeal was docketed as CA G. This is a case.000. SECOND ASSIGNED ERROR: THE HONORABLE COURT OF APPEALS ERRED IN FINDING THE PRINCIPAL LOAN TO BE IN THE SUM OF P1. she also gave them P400.000. until demands for payment were sent to him by the plaintiffs' counsel.000 as attorney's fees.000.00 or P1.000.61. to pay to the plaintiffs the principal loan of P1. as follows: WHEREFORE. where both parties prevaricated. In default of such payment.400. Like the trial court.000 admittedly received by the defendants and evidenced by checks and receipts.000 as stated in the promissory note (Exh.000. and the costs of this suit. therefore.00 only. defendants in the trial court.1984 until fully paid. CV No.000.000.000. On 12 August 1987. held: After carefully reviewing the evidence. We do not believe defendant Valderrama's allegation that he did not notice that the amount stated in the promissory note was P1. 08813.718. appealed to the Court of Appeals. the present petition for review on certiorari of the decision of the Court of Appeals. B) and deed of mortgage.00 in cash without receipt. Petitioners present the following— ASSIGNMENT OF ERRORS 1. the dispositive part of which reads. THIRD ASSIGNED ERROR: THE HONORABLE COURT OF APPEALS ERRED IN REDUCING PETITIONER'S AWARD OF ATTORNEY'S FEES TO P50.400. respondent Court of Appeals promulgated 5 its decision modifying the decision of the trial court. FIRST ASSIGNED ERROR: THE HONORABLE COURT OF APPEALS ERRED IN NULLIFYING THE ESCALATION CLAUSE AS FOUND BY THE TRIAL COURT ORDERING THE PAYMENT BY RESPONDENTS OF THE SUM OF P569.000. the Court of Appeals in its decision under review. the mortgaged property shall be sold at public auction to realize the sums due to plaintiffs under this judgment.00 AS FOUND BY THE LOWER COURT.R. the appealed decision is hereby modified by ordering the defendants. We are convinced that the trial court erred in finding that the loan was P1.Private respondents.00 INSTEAD OF 20% OF THE TOTAL INDEBTEDNESS AS FOUND BY 7 THE TRIAL COURT. within (90) days from date of service of this decision. 3. 2. 6 Hence. But neither do We believe the plaintiff Evelyn Sangrador's allegation that besides the sum of P1.00 INSTEAD OF P1.000 with 12% interest per annum from April 6. P50. instead of only P1. SO ORDERED.
B) and the Deed of Real Estate Mortgage (Exh.000.000.00. Thus. is conclusive proof that it was not a part of the loan.601.398.000. Enrique Arguelles (for attorney's fees) 13. 1). expenses in the Register of Deeds and payments to the BIR (Exh.000.00 representing his commission in effecting the loan "for the amount of P1.000.000. All told. Obviously. 4).00" (Exh. one would require some sort of receipt or acknowledgment from the recipient. . the amount of P400.00 and not P1. the other documents executed by the parties contemporaneously with said Promissory Note and Deed of Real Estate Mortgage clearly show that the actual loan.00 (Exh.000.000 commission was computed on the basis of 5% of P1 million.000. However.000.000 in cash to the debtors is not evidenced by a receipt. The loan was only P1 million. for the payment made by the petitioners for the account of the respondents to Manuel Asencio.40 — to P1.00 only is supported by substantial evidence. to say the least. Petitioners assail the foregoing findings and conclusions of the Court of Appeals. 3).00 — to pay Atty. the amount received by respondents.000.<äre||anº•1àw> The attorney who assisted in the transaction was paid attorney's fees in the amount of P4.000.000.000. made by the loan broker Wilson Jesena (Exh. was only P1.000. said amount (P400. so that it could in turn be mortgaged to the petitioners.09 TOTAL pay respondents as balance of the loan The above itemization tallies with the breakdown of the proceeds of the loan. Normally. A) executed by the respondents in favor of the petitioners indeed state that the loan is in the amount of P1." representing full payment per promissory note dated 6 April 1984" (Exh. The Promissory Note (Exh. thereby releasing the mortgage on the property.601.00. It is contrary to ordinary human experience.000.000.400.00 only. i.400.000. not P1. Even the broker's P50. the P400. 8). the respondents signed a receipt in favor of the petitioners in the amount of P625. Because the findings of the trial court and the Court of Appeals differ on this crucial factual issue. 5).000. contending that the 9 amount of the loan as clearly and expressly stated in the Deed of Real Estate Mortgage and the 10 Promissory Note.00 (Exh. totalling P13. 2). is P1.The documentary evidence preponderantly proves that the loan was only P1.69 — to pay transfer fees and other expenses in Register of Deeds and BIR 307.000.000.00) is already included in the statement of the loan amount in the promissory note and the deed of real estate mortgage. The petitioners submitted a list of expenses chargeable to the respondents.00.000.00.69 covering transfer fees.00 — to pay Wilson Jesena (for broker's commission) 4.000. The broker who arranged for the loan signed a receipt in favor of the respondents for the amount of P50.00 obtained by the respondents from the petitioners was applied or used in the following manner at the time the loan was obtained: P625. in delivering a hefty sum like P400.00 — to pay Manuel Asencio (first creditor) 50.00. anyway.000.000. The circumstance that the alleged payment of P400.40.000.000. The finding of the Court of Appeals that the loan is in the amount of P1.000. The respondents executed another receipt in favor of the petitioners for the amount of P307. which is P1.000.398. the loan of P1.400.400.000. The checks and receipts and the broker's computations found in Exhibit 'l' show clearly that the loan was only P1. We find this contention to be quite incredible.e.000 that was added to the principal represents a hidden interest charge for the promissory note contains no express provision fixing the rate of interest on 8 the loan.00 was delivered by them to the respondents in cash and that this delivery was not evidenced by a receipt because. we have carefully reviewed and examined the evidence.00 in cash. Petitioners contend that over and above the P1.000.
The rate of interest.000. MORTGAGORS hereby recognize the official exchange rate of the Philippine Peso to the US dollar at 14. Circular No. This conclusion is strengthened by the fact that the promissory note and the deed of real estate mortgage (Exhs. the loan of P1.400.00. 905 of the Central Bank dated 10 December 1982 provides: Section 1. In short. said separate receipts were required by petitioners of the respondents. Petitioners also impugn the Court of Appeals in nullifying the escalation clause in the Deed of Real Estate Mortgage and Promissory Note. (Emphasis supplied) The rate of interest for loans or forbearance of money. And if.00. The rate of interest for the loan or forbearance of any money.000. granting that the disputed amount of P400. goods.000. in line with this Court's decision in Liam Law vs. 1250 of the New Civil Code of the Philippines. The Deed of Real Estate Mortgage provides.00 was a hidden interest that the petitioners had required the respondents to pay at the maturity of the loan. in the case at bar. or rate of interest. goods or credits and the rate allowed in judgments. but said amount of P400.000. then. when the loan involved therein is in the substantial amount of allegedly P1. in the absence of express contract as to such rate 12 of interest.00 is interest on the loan of P1. do not contain any express stipulation on interest. strangely enough. shall not be subject to any ceiling prescribed under or pursuant to the Usury law. For this purpose. there was no reason why they would not require another receipt from the respondents for said amount of P400.Moreover. This may be so in a situation where the parties openly and expressly agree on a specific rate of interest to accrue on the loan but. as follows: 14. including commissions. shall continue to be twelve per cent (1 2%) per annum. it is hereby stipulated that the value of the currency at the time of the establishment of the obligation shall be the basis of payment pursuant to Art. premiums. fees and other charges on a loan or forbearance of any money. they did not anymore require a receipt for the P400.002 to one. if petitioners were careful enough to require from the respondents the separate receipts abovementioned.000. there is no longer any ceiling on interest or interest rates on loans.400. Accordingly. et 11 al.00 allegedly delivered by them in cash to the respondents because the loan amount stated in the promissory note and the real estate mortgage already included said amount of P400.00 was not received by or delivered to the respondents. The corresponding adjustment in the value of the Philippine Peso shall be made should at the ..000. as the Court of Appeals in its decision under review correctly pointed out. or credits. in the absence of express contract as to such rate of interest.000. Under such escalation clause. we agree with the finding of the Court of Appeals that the disputed amount of P400. there was no need for requiring the other separate receipts abovementioned —as the amounts they referred to were already a part of the loan amount stated in the promissory note and real estate mortgage—and yet.000. Oriental Sawmill Co. yet. as amended. whether natural or juridical.61 was awarded to herein petitioners by way of adjustment of the loan of P1.00. Petitioners may conceivably argue that. shall continue therefore to be twelve per cent (12%) per annum.000.000. that may be charged or collected by any person . B and A). as petitioners now allege. among others.000.00 in the instant case should earn a twelve per cent (12%) interest per annum computed from 6 April 1984 when the loan was obtained by the respondents from the petitioners until paid. the amount of P569.00 after 13 the eight (8) month period of the loan. That in the event that an extra-ordinary inflation of the Philippine peso should supervene. regardless of maturity and whether secured or unsecured.. Section 2.718.000. no interest rate is expressly stipulated in the promissory note and deed of real estate mortgage. by the same reasoning.00. sustained by the trial court.
Consequently. the value of the (peso) currency at the time of the establishment of the obligation shall be the basis of payment. this downward fall of the currency cannot be considered "extraordinary. p. billions.S. then every day.) An example of extraordinary inflation is the following description of what happened to the deutschmark in 1920: More recently.) While appellant's voluminous records and statistics proved that there has been a decline in the purchasing power of the Philippine peso. . In Filipino Pipe and Foundry Corporation vs. "(t)he corresponding adjustment in the value of the Philippine Peso" at the maturity of the obligation crucially depends upon the supervening of an 14 extraordinary inflation in the sense contemplated in Article 1250 of the Civil Code of the Philippines. 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. (Emphasis supplied). "The Money Baloon" New York. it had stumbled to 62 to the U. held: 15 this Court Extraordinary inflation exists 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.2 to the U. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. A cursory reading of the aforequoted provision of the Deed of Real Estate Mortgage (similar stipulation is contained in the Promissory Note) shows that the escalation clause takes effect "in the event that an extraordinary inflation of the Philippine Peso should supervene. who would rush to unload the nearly worthless paper. In early 1921.2 trillion to the U." between the date the loan was granted and the date of its maturity. An Introduction [Third Edition]." It is simply a universal trend that has not spared our 16 country. A postage stamp cost millions of marks and a loaf of bread. the value of the German mark was 4.S. As reported. for instance. By May of the same year. the rate of exchange will have changed as a result of the supervening inflation.time of the maturity of this obligation. To give meaning to the "value of the currency at the time of the establishment of the obligation. It is further agreed that the official rate of exchange as set by the Central Bank for private transactions shall be the basis of this adjustment. so that by October 1923. 1975. under the aforesaid escalation clause. dollar. An Introduction by Villegas & Abola. in the 1920's Germany experience a case of hyperinflation. the exchange rate of the peso to the US dollar was 14.S. Some workers tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives. 3rd Ed." the parties agreed that on 6 April 1984 (date of loan). cited in Economics. Villegas & Victor R. it had reached 4.002 to one. in which case. dollar. Since petitioners failed to prove the supervening of extraordinary inflation between 6 April 1984 and 7 December 1984—no proofs were presented on how much. 284. the price index of goods and services had risen during the intervening period —an extraordinary inflation cannot be assumed. then every hour. IV. p. "prices were going up every week. 19. dollar! (Bernardo M. Economics. And as prices went up rapidly. National Waterworks and Sewerage Authority . Abola." (Sidney Rutberg. Simon and Schuster. and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.
As of November 25. 1978. 705 dated December 1.050. The contractual provision for attorney's fees may be modified by the courts in the exercise of 17 their sound judicial discretion. 1983. GUTIERREZ.00 ) payable on or before December 12. vs.. defendants-appellees Epifania Salazar and Ricardo Salazar obtained a loan from the plaintiff-appellant in the amount of Forty Two Thousand and Fifty Pesos ( P42.R. SO ORDERED. and attorney's fees. there is no reason or basis. On November 22. the plaintiff-appellant increased the rate of interest to 21% pursuant to Central Bank Circular No. .676. J. JR. The promissory note matured but the defendants-appellees failed to pay their account. 1984. The facts are not disputed. In the event the account was referred to an attorney for collection. they were able to pay a total of P68. for adjusting the value of the Philippine Peso in the settlement of respondents' obligation. No. plaintiff-appellant. 1984.647. the Court of Appeals did not commit any error in reducing the award of attorney's fees to P50. the plaintiff-appellant filed a complaint with the Regional Trial Court alleging that the defendants-appellees were indebted to IBAA in the amount of P87. In accordance with the agreement. The decision of the Court of Appeals dated 12 August 1987 is AFFIRMED. 1979. the petition is DENIED. 6932 for collection of a sum of money with preliminary attachment.consequently. With costs against petitioners. 1980. The appeal was originally brought to the Court of Appeals but was certified to us by that tribunal because it raises only a question of law. On September 12. It was only after several demands that the defendants-appellees were able to make partial payment. legal or factual. SPOUSES EPIFANIA SALAZAR and RICARDO SALAZAR. This loan transaction was evidenced by a promissory note where the defendants-appellees bound themselves jointly and severally to pay the amount with interest at 19% per annum and with the express authority to increase without notice the rate of interest up to the maximum allowed by law and subject further to penalty charges or liquidated damages upon default equivalent to 2% per month on any amount due and unpaid. defendants-appellees. the defendants-appellees were also bound to pay 25% of any amount due as attorney's fees plus expenses of litigation and costs.00. including interest at 21% per annum penalty charges. 1988 INSULAR BANK OF ASIA AND AMERICA. 82082 March 25.75 which payments were applied to partially satisfy the penalty and interest charges.: This is an appeal by the Insular Bank of Asia and America (IBAA) from the judgment of the Regional Trial Court of Leyte in Civil Case No. Finally.19 as of September 15. WHEREFORE. G.000.
050. The defendants are further ordered to pay the plaintiff-attorney's fees in the amount of one Thousand Pesos ( P1. under the law. 1979 pursuant to Central Bank Circular No. Finding strength in the argument that the promissory note is the contract between the parties and.300. 1976. In the Banco Filipino case. 1984 until fully paid. The defendant-spouses admitted the execution of the promissory note in consideration of P48. 4. the parties and their counsels appeared.000.APPELLANT ATTORNEY'S FEES EQUIVALENT TO 25% OF THE AMOUNT DUE AND EXPENSES OF LITIGATION. L-46591. (p. Pertinent portions of the letter read: In this connection. please be advised that the Monetary Board. 1984. In a letter written by the Central Bank to the borrower. However.253. the borrower questioned the additional interest charges on the loan of P41.Appellant's Brief). with interest thereon at the rate of 19% per annum from the filing of the complaint on September 12. It is the nile that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. especially to compensate for any in Central Bank interests or rediscounting rates. and IV THE LOWER COURT ERRED IN NOT ORDERING DEFENDANTS-APELLEES TO JOINTLY AND SEVERALLY PAY THE OBLIGATION. the enforceability of such stipulations are subject to certain conditions. 1155 dated June 11. In line with the Court's ruling in the case of Banco Filipino v. July 28.25 ). 1976 adopted the following guidelines to govern interest rate adjustments . in its Resolution No.At the pre-trial on October 31. 494. II THE LOWER COURT ERRED IN NOT AWARDING INTEREST ON THE LOAN AT 21 % PER ANNUM. (pp. issued on January 2. the plaintiff-appellant increased the interest rate to 21% per annum effective December 1. 4-5. Navarro (G. without notice. judgment is hereby ordered in favor of the plaintiff ordering the defendant spouses Ricardo Salazar and Epifania Salazar to pay Insular Bank of Asia and America (IBAA) the sum of Eleven Thousand Two Hundred Fifty Three Pesos and Twenty Five Centavos ( P11.00. obligations arising from contracts have the force of law between the parties. the interest rate may not be increased by the plaintiff-appellant in the instant case. depending on whatever policy IBAA may in the future adopt conformable to law. III THE LOWER COURT ERRED IN THE COMPUTATION OF THE AMOUNT OF OBLIGATION DUE FROM DEFENDANTS-APPELLEES APPELLEES IN FAVOR OF PLAINTIFF-APPELLANT III THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF. No. 705.1987).00 she obtained when the interest rates were increased from 12% to 17% per Central Bank Circular No.00 ) and to pay the costs. Plaintiff. Plaintiff-appellant now raises the following assigned errors: I THE LOWER COURT ERRED IN NOT AWARDING TO PLAINTIFF-APPELLANT PENALTY CHARGES OR LIQUIDATED DAMAGES IN THE AMOUNT OF 2% PER MONTH ON ALL AMOUNTS DUE AND UNPAID. Plaintiff-Appellant's Brief) The Escalation Clause provided in the promissory note reads: The interest herein charged shall be subject to in . The trial court then rendered a summary judgment the dispositive portion of which reads: WHEREFORE.R. some clarifications were made.
we have upheld the validity of such agreements in several cases. in the light of Central Rank Circulars Nos. subject. the remaining maturity of the loan was less than 730 days. in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans. although. the Escalation Clause is a valid provision in the loan agreement provided that. and 2.banking functions on loans already existing as of January 3. 1976 or on a later date. the Court explained: xxx xxx xxx . December 1. however. authorizing the increase from 19% to 21% was issued on December 1.1976. and as such the two are different and distinct things which may be demanded separately. We have not overlooked the 14% interest that appellant has been sentenced to pay. as of this date. 1226. Civil Code of the Philippines). (supra). the loan was obtained on November 21. The increase in the rate of interest can be effective only as of January 2. the penalty may . Obviously. 705. the Central Bank took the position that the issuance of its circulars is a valid exercise of its authority to prescribe maximum rates of interest and based on the general principles of contract. (2) the increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase and (3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase. 297). to an additional rate of 5%. Should there be such an agreement. Reiterating the same principle in the later case of Equitable Banking Corp. The pertinent loan contracts/documents contain escalation clauses expressly authorizing lending bank or non-bank performing quasibanking functions to increase the rate of interest stipulated in the contract.. 1980. (Emphasis supplied) Moreover. The stipulation about payment of such additional rate partakes of the nature of a penalty clause. where this Court held that the stipulation about payment of such additional rate partakes of the nature of a penalty clause. in the event of default. In the case of Equitable Banking Corporation v. Said loans were directly granted by them and the remaining maturities thereof were more than 730 days as of January 2. 1978 and was payable on or before November 12. provided that: a. but it is not so.41) the increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board.by banks and non-banks performing quasi. 321): In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits the agreement upon a penalty apart from the interest. (Art. and b. Hence. This may appear to be usurious. Court of appeals (145 SCRA 311. the plaintiff-appellant's second assignment of error is without merit. winch is sanctioned by law. 492-498: 1 Only banks and non-bank financial intermediaries performing quasi-banking functions may interest rates on I already existing as of January 2. As the Court stated in the case of Government Service Insurance System v. ted upon orders of this Court. The rate stipulated was 9%.. which is sanctioned by law. 1979. With respect to the penalty clause. 1979. the penalty does not include the interest. (Emphasis supplied) In the case at bar. 1976. in its comment and supplemental comment submit. Liwanag (32 SCRA 293. Central Bank Circular No. 1976.
989. JR. However. The defendants-appellants Ricardo Salazar and Epifania Salazar are ordered to pay Insular Bank of Asia and America (IBAA) the sum of THIRTYEIGHT THOUSAND NINE HUNDRED PESOS and EIGHTEEN CENTAVOS (P38. In accordance with Article 1229 of the Civil Code.339. owed the bank the amount of P38. the date of filing the complaint.75 had been paid. G. making it appear that the spouses Salazars refused to pay the loan. Admittedly.75. SPOUSES EPIFANIA SALAZAR and RICARDO SALAZAR..676.050. merely applied this amount to satisfy the penalty and interest charges which it additionally imposed. defendantsappellees. GUTIERREZ. a total of P68. Considering that the defendants-appellees have paid the amount of P68. J. 1988 INSULAR BANK OF ASIA AND AMERICA. on the other hand. vs.75 (p. the bank was enriched by P 26. We note the trial court's observation that the plaintiff-appellant did not even state in the complaint that the defendants-appellees had made partial payments. The promissory note signed by the defendants-appellants states that the loan of P42.626. 1983.18 ) with interest thereon at the rate of Twelve Percent (12%) per annum from the filing of the complaint until fully paid.915. therefore.915.00 shall bear interest at the rate of 19% per annum.202. penalty charges should be P19.R.18 when the complaint was filed.. 82082 March 25.00 ) pesos by the trial court appears to be enough. the court is likewise empowered to reduce the same if they are unreasonable or unconscionable notwithstanding the express contract for attorney's fees. Records). In their answer with counterclaim. therefore.676. we agree with the trial court that the bank has already profited considerably from the loan. the decision of the lower court is MODIFIED. the Court is constrained to reduce the penalty for being highly iniquitous With respect to the attorney's fees. therefore.: .. Civil Code of the Philippines).also be reduced by the courts if it is iniquitous or unconscionable. the defendants-appellees in the instant case failed to pay the loan on the due date.83. 1980 up to September 12. WHEREFORE. 1984. Furthermore. The penalty charges of 2% a month are.50 per annum or a total of P 46. the defendantsappellees alleged that the bank neglected to credit said payments in the defendant's account folio and subjected it as it did to the additional charges. (Art 1229. No. There is no indication in the records as to the fluctuation of actual interest rates from 1984 and.plaintiff-appellant. 1984. We do not find any evidence of bad faith on the part of the defendants-appellees in their failure to pay the loan on time. This would yield interest of P7. 17. In a span of about six (6) years. they tried to pay the loan little by little so that as of November 25. we order interest at the legal rate of 12% per annum on the unpaid amount. The plaintiff-appellant. The award of one thousand ( P1.10 from November 22. out of proportion to the damage incurred by the bank. Penalty interest of 1% a month or 12% per annum is reasonable so that from December 12. 1978 to September 12. SO ORDERED. Efforts were indeed made to make good their promise. .000. they. with earnest efforts.
00.19 as of September 15. In the event the account was referred to an attorney for collection. 705 dated December 1.This is an appeal by the Insular Bank of Asia and America (IBAA) from the judgment of the Regional Trial Court of Leyte in Civil Case No. The appeal was originally brought to the Court of Appeals but was certified to us by that tribunal because it raises only a question of law. As of November 25. The trial court then rendered a summary judgment the dispositive portion of which reads: WHEREFORE. they were able to pay a total of P68. It was only after several demands that the defendants-appellees were able to make partial payment. 1984.050. The defendant-spouses admitted the execution of the promissory note in consideration of P48.050. 1984. 1984. In accordance with the agreement. The promissory note matured but the defendants-appellees failed to pay their account. 1979. At the pre-trial on October 31. the plaintiff-appellant filed a complaint with the Regional Trial Court alleging that the defendants-appellees were indebted to IBAA in the amount of P87. On November 22. judgment is hereby ordered in favor of the plaintiff ordering the defendant spouses Ricardo Salazar and Epifania Salazar to pay Insular Bank of Asia and America (IBAA) the sum of .647. 6932 for collection of a sum of money with preliminary attachment. 1983. the parties and their counsels appeared. This loan transaction was evidenced by a promissory note where the defendants-appellees bound themselves jointly and severally to pay the amount with interest at 19% per annum and with the express authority to increase without notice the rate of interest up to the maximum allowed by law and subject further to penalty charges or liquidated damages upon default equivalent to 2% per month on any amount due and unpaid. and attorney's fees. 1978. defendants-appellees Epifania Salazar and Ricardo Salazar obtained a loan from the plaintiff-appellant in the amount of Forty Two Thousand and Fifty Pesos ( P42.00 ) payable on or before December 12. The facts are not disputed.75 which payments were applied to partially satisfy the penalty and interest charges. including interest at 21% per annum penalty charges.676. the plaintiff-appellant increased the rate of interest to 21% pursuant to Central Bank Circular No. 1980. On September 12. the defendants-appellees were also bound to pay 25% of any amount due as attorney's fees plus expenses of litigation and costs.
Plaintiff. 1984 until fully paid. obligations arising from contracts have the force of law between the parties. especially to compensate for any in Central Bank interests or rediscounting rates. No.Appellant's Brief). depending on whatever policy IBAA may in the future adopt conformable to law. (p. Plaintiff-appellant now raises the following assigned errors: I THE LOWER COURT ERRED IN NOT AWARDING TO PLAINTIFFAPPELLANT PENALTY CHARGES OR LIQUIDATED DAMAGES IN THE AMOUNT OF 2% PER MONTH ON ALL AMOUNTS DUE AND UNPAID. with interest thereon at the rate of 19% per annum from the filing of the complaint on September 12. 4-5.00 ) and to pay the costs.1987). In line with the Court's ruling in the case of Banco Filipino v. L46591.000.25 ). the interest rate may not be increased by the plaintiff- . 4. 1979 pursuant to Central Bank Circular No. under the law. July 28.APPELLANT ATTORNEY'S FEES EQUIVALENT TO 25% OF THE AMOUNT DUE AND EXPENSES OF LITIGATION. Finding strength in the argument that the promissory note is the contract between the parties and. The defendants are further ordered to pay the plaintiffattorney's fees in the amount of one Thousand Pesos ( P1. Plaintiff-Appellant's Brief) The Escalation Clause provided in the promissory note reads: The interest herein charged shall be subject to in . (pp. II THE LOWER COURT ERRED IN NOT AWARDING INTEREST ON THE LOAN AT 21 % PER ANNUM.Eleven Thousand Two Hundred Fifty Three Pesos and Twenty Five Centavos ( P11. III THE LOWER COURT ERRED IN THE COMPUTATION OF THE AMOUNT OF OBLIGATION DUE FROM DEFENDANTS-APPELLEES APPELLEES IN FAVOR OF PLAINTIFF-APPELLANT III THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF. without notice. Navarro (G.R. the plaintiff-appellant increased the interest rate to 21% per annum effective December 1.253. and IV THE LOWER COURT ERRED IN NOT ORDERING DEFENDANTSAPELLEES TO JOINTLY AND SEVERALLY PAY THE OBLIGATION. 705.
and b.appellant in the instant case. in its Resolution No. 1976. 1976 or on a later date. the borrower questioned the additional interest charges on the loan of P41. issued on January 2. (2) the . in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans. In a letter written by the Central Bank to the borrower.41) the increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board. However. In the Banco Filipino case.00 she obtained when the interest rates were increased from 12% to 17% per Central Bank Circular No. The increase in the rate of interest can be effective only as of January 2. 1976. 494. 492-498: 1 Only banks and non-bank financial intermediaries performing quasi-banking functions may interest rates on I already existing as of January 2. some clarifications were made. 1976 adopted the following guidelines to govern interest rate adjustments by banks and nonbanks performing quasi. the Escalation Clause is a valid provision in the loan agreement provided that. 1976. The pertinent loan contracts/documents contain escalation clauses expressly authorizing lending bank or non-bank performing quasi-banking functions to increase the rate of interest stipulated in the contract. (Emphasis supplied) Moreover. ted upon orders of this Court. in its comment and supplemental comment submit.300.1976. the enforceability of such stipulations are subject to certain conditions.banking functions on loans already existing as of January 3. in the light of Central Rank Circulars Nos. provided that: a. It is the nile that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. Pertinent portions of the letter read: In this connection. Said loans were directly granted by them and the remaining maturities thereof were more than 730 days as of January 2. the Central Bank took the position that the issuance of its circulars is a valid exercise of its authority to prescribe maximum rates of interest and based on the general principles of contract. please be advised that the Monetary Board. and 2. 1155 dated June 11.
to an additional rate of 5%. Hence. they tried to pay the loan little by . the plaintiff-appellant's second assignment of error is without merit. 1978 and was payable on or before November 12. The rate stipulated was 9%. In the case of Equitable Banking Corporation v. The stipulation about payment of such additional rate partakes of the nature of a penalty clause. where this Court held that the stipulation about payment of such additional rate partakes of the nature of a penalty clause. .. authorizing the increase from 19% to 21% was issued on December 1. the remaining maturity of the loan was less than 730 days. the Court explained: xxx xxx xxx . Civil Code of the Philippines). Admittedly. Central Bank Circular No. in the event of default. Liwanag (32 SCRA 293. (Art. Obviously. (Art 1229. (Emphasis supplied) In the case at bar. the penalty does not include the interest. although. the penalty may also be reduced by the courts if it is iniquitous or unconscionable. 1979. but it is not so. With respect to the penalty clause. and as such the two are different and distinct things which may be demanded separately. We have not overlooked the 14% interest that appellant has been sentenced to pay. subject. This may appear to be usurious.. however. Reiterating the same principle in the later case of Equitable Banking Corp. 1226.increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase and (3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase. the defendants-appellees in the instant case failed to pay the loan on the due date. 705. Court of appeals (145 SCRA 311. However.. Civil Code of the Philippines). the loan was obtained on November 21. as of this date. 321): In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits the agreement upon a penalty apart from the interest. December 1.. 297). with earnest efforts. Should there be such an agreement. As the Court stated in the case of Government Service Insurance System v. which is sanctioned by law. (supra). 1979. 1980. winch is sanctioned by law. we have upheld the validity of such agreements in several cases.
the court is likewise empowered to reduce the same if they are unreasonable or unconscionable notwithstanding the express contract for attorney's fees. 1978 to September 12. Furthermore. Efforts were indeed made to make good their promise. The defendantsappellants Ricardo Salazar and Epifania Salazar are ordered to pay Insular Bank of Asia and America (IBAA) the sum of THIRTY-EIGHT THOUSAND NINE HUNDRED PESOS and EIGHTEEN CENTAVOS (P38.75. owed the bank the amount of P38.75 (p. making it appear that the spouses Salazars refused to pay the loan. the Court is constrained to reduce the penalty for being highly iniquitous With respect to the attorney's fees. 1984. There is no indication in the records as to the fluctuation of actual interest rates from 1984 and. on the other hand.202.915. Penalty interest of 1% a month or 12% per annum is reasonable so that from December 12. The plaintiff-appellant.000. 1983. In a span of about six (6) years.75 had been paid. Considering that the defendants-appellees have paid the amount of P68.83. We note the trial court's observation that the plaintiff-appellant did not even state in the complaint that the defendants-appellees had made partial payments.50 per annum or a total of P 46. merely applied this amount to satisfy the penalty and interest charges which it additionally imposed. a total of P68. 1984.339. we order interest at the legal rate of 12% per annum on the unpaid amount. The penalty charges of 2% a month are.676. therefore.676. The promissory note signed by the defendants-appellants states that the loan of P42. we agree with the trial court that the bank has already profited considerably from the loan.989. 1980 up to September 12. 17. SO ORDERED. they. Records). . the bank was enriched by P 26. WHEREFORE.10 from November 22.little so that as of November 25. out of proportion to the damage incurred by the bank.915. the defendants-appellees alleged that the bank neglected to credit said payments in the defendant's account folio and subjected it as it did to the additional charges.18 ) with interest thereon at the rate of Twelve Percent (12%) per annum from the filing of the complaint until fully paid. penalty charges should be P19.00 ) pesos by the trial court appears to be enough. In accordance with Article 1229 of the Civil Code. the date of filing the complaint.050. This would yield interest of P7. In their answer with counterclaim. The award of one thousand ( P1.00 shall bear interest at the rate of 19% per annum.18 when the complaint was filed. We do not find any evidence of bad faith on the part of the defendants-appellees in their failure to pay the loan on time. therefore. therefore.626. the decision of the lower court is MODIFIED.
said defendants obtained a loan of P80. and that the defendants had failed and refused to pay the outstanding balance of said obligation in the sum of P27. 1967 or P10.74 as of April 11. C. Carreon and Tañada for defendant-appellant. with interest thereon.00 and denying the rest of the averments in the complaint "for lack of knowledge sufficient to form a belief as to the truth thereof. vs.6348. the defendants would pay the equivalent of 10% of the amount due. Equitable Banking Corporation. Nazareno and Azada for plaintiff-appellee. together with 10% of the whole amount due as attorney's fees and the cost of the suit. within 120 days. 1963. it is alleged that.G. No. L-28335 March 30. and together with the principal shall bear interest at the rate of 12% per annum.: Direct appeal. CONCEPCION. 1967 plus interest on said sum of P27. in addition to the costs. said amount. in case the matter is referred to an attorney for collection.J. in case of non-payment at maturity. "the sum of P27. appellant Liwanag filed an answer admitting that he and his co-defendant had obtained said loan of P80.66 at 14% per annum from April 12. until fully paid. plaintiff-appellee. Paredes. jointly and severally." Appellant further incorporated in his answer a cross-claim against his co-defendant Michael Parsons who. Poblador.000. 1970 EQUITABLE BANKING CORPORATION. they would similarly pay an additional interest of 5% per annum. daily until the obligation is fully paid. appellant alleged. at the rate of 9% per annum.346. taken by defendant Felipe Liwanag. attorney's fees and costs. sentencing him to pay the plaintiff. against appellant Felipe Liwanag and one Michael Parsons." In the complaint filed. on the total amount due until paid." By way of special defenses.R. for which judgment was prayed. FELIPE LIWANAG AND MICHAEL PARSONS. "is liable for . which shall be compounded monthly.346. appellant further alleged that plaintiff "has no cause of action" and that its "claim for interest and attorney's fees is exhorbitant.000. on November 4.66 with accrued interest thereon in the sum of P321. on questions purely of law.00. with interest. on April 26.346.66. 1967. evidenced by a promissory note executed by them. that. defendants. from a decision of the Court of First Instance of Manila. that. Upon service of summons. stipulating that they would pay. for attorney's fees.
" Alleging that appellant's answer failed to tender any issue. G. thus. The same thing can be said in the present case. 1967. Justice Villamor. for judgment on the pleadings. vs. however."2 Thus. 1958 (103 Phil. this appeal in which appellant has limited himself to assailing the propriety of said judgment. on July 5. Rule 8. No. Hence. Although the Rules of Court permit a litigant to file an answer alleging lack of knowledge to form a belief as to the truth of certain allegations in the complaint. L9531. The question. according to this Court. Although his counsel was served copy of this motion. under conditions almost identical to those obtaining in the case at bar. Yabut. et al. is whether paragraph 2 of defendant-appellant's answer constitutes a specific denial under the said rule.."1 Indeed. plaintiff moved. 662)..R. his form of denial "must be availed of with sincerity and in good faith. is so plainly and necessarily within the defendant's knowledge that his averment of ignorance must be palpably untrue. it had been held that said mode of denial is unavailing "where the fact as to which want of knowledge is asserted is to the knowledge of the court as plainly and necessarily within the defendant's knowledge that his averment of ignorance must be palpably untrue. May 14. Ltd. does not apply where the fact as to which want of knowledge is asserted.reimbursement or contribution of the amounts paid and which shall be paid" by him "by reason of plaintiff's claim. upon the ground "that specific denials and affirmative defenses" had allegedly been interposed in his answer. This pretense is manifestly devoid of merit. speaking through Mr.3 from which we quote: We agree with defendant-appellant that one of the modes of specific denial contemplated in Section 10. this Court said that the rule authorizing an answer to the effect that the defendant has no knowledge or information sufficient to form a belief as to the truth of an averment and giving such answer the effect of a denial. where a . On July 8. is a denial by stating that the defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment in the complaint. appellant did not object thereto. this Court. In Warner Barnes & Co. Reyes. Nemesio I. and a copy of the deed of mortgage was attached to the complaint. it would have been easy for the defendants to specifically allege in their answer whether or not they had executed the alleged mortgage. the lower court rendered the judgment prayed for. — certainly neither for the purpose of confusing the adverse party as to what allegations of the complaint are really put in issue nor for the purpose of delay. upheld a judgment on the pleadings in Capitol Motors vs. In said case the suit was one for foreclosure of mortgage. We do not think so. 1967.
In fact.) on January 4. G. is authority for the proposition that this form of denial must be availed of with sincerity and good faith. however. in the event of default. under oath. Yet. Juan & Sons. also. his own brief has not even tried to prove the contrary. appellant has.copy of the promissory note sued upon was attached to the complaint. but it is not so. subject. in addition to annexing to the complaint a copy of the promissory note executed by appellant and his codefendant. as averred in paragraph 4 of the complaint. Lianga Industries. 1969 (28 SCRA 807). Obviously. This may appear to be usurious. Hence. Moreover.R. The rate stipulated was 9%.P. plaintiff's case is even stronger. for. G. No. Marsman. L25137. beginning from March 16. this Court's decision in Warner Barnes vs. he cannot avail of the provision allowing a denial "for lack of knowledge sufficient to form a belief. We have not overlooked the 14% interest that appellant has been sentenced to pay. Inc. plaintiff attached to said copy a statement of their account. The stipulation about payment of such additional rate partakes of the nature of a penalty clause." Neither did his special or affirmative defenses tender any real issue. vs. The doctrine in Warner Barnes & Co. In the case at bar. Inc. this Court said: 'With regard to the plea of lack of knowledge or information set up in paragraph 3 of the answer. 103 Phil. nor for purposes of delay. L-23426. so lacking in sincerity and good faith is this part of the answer that defendantsappellants go to the limit of denying knowledge or information as to whether they (defendants) were in the premises (Marsman Bldg. And inSy-quia vs. 1964. July 28. not only failed to deny specifically.. Yet whether such a fact was or was not true could not be unknown to these defendants. Ltd. with specification of the partial payments made on account of the defendants' obligation and the dates of said partial payments. not for the purpose of confusing the other party. which . there is nothing in appellant's answer to give any semblance of seriousness to or merit in these defenses. 1968 (22 SCRA 927). had been made. Reyes. Aside from the bare affirmation that plaintiff has "no cause of action" and that "plaintiff's claim for interest and attorney's fees is exhorbitant". apart from the sum due from them at the end of each month. admitted expressly having contracted the obligation therein set forth. No. he should know whether the partial payments abovementioned or any payment at all. 1961. the authenticity and due execution of said note. to an additional rate of 5%.R. but. March 1. Michael Parsons. 665. was reiterated in J. 662.
Zaldivar. Castro. J. Reyes. to be paid.4 although "the penalty may also be reduced by the courts if it is iniquitous or unconscionable."5 Appellant has not even attempted to show that it is so. jointly and severally.. Makalintal. with treble costs. as it is hereby affirmed. concur.L. Barredo.B. It is. . in view of which the decision appealed from should be... Fernando.is sanctioned by law. obvious that this appeal has been interposed for the sole purpose of delay. J. by appellant Felipe Liwanag and his counsel of record. took no part. Dizon. accordingly. Teehankee and Villamor.6 It is so ordered. JJ.
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