[G.R. No. 130994.

September 18, 2002] SPOUSES FELIMON and MARIA

BARRERA, petitioners, vs. SPOUSES EMILIANO and MARIA CONCEPCION
LORENZO, respondents.
DECISION

2. to return to the plaintiffs the owners copy of TCT No. T-42.373 (M) offered as security;
3. to pay P20,000.000 as attorneys fees;

SANDOVAL-GUTIERREZ, J.:

4. to pay the costs of the suit.

On December 4, 1990, spouses Felimon and Maria Barrera, petitioners, borrowed

P230,000.00 from spouses Miguel and Mary Lazaro.The loan was secured by a real estate
mortgage[1] over petitioners residential lot consisting of 432 square meters located at
Bunlo, Bocaue, Bulacan and registered in their names under Transfer Certificate of Title
(TCT) T-42.373 (M)[2] of the Registry of Deeds of Bulacan.

The writ of preliminary injunction issued on March 21, 1994 is hereby made permanent.

A month and a half later, the Lazaro spouses needed money and informed petitioners
that they would transfer the loan to spouses Emiliano and Maria Concepcion Lorenzo,
respondents. Consequently, on May 14, 1991, petitioners executed another real estate
mortgage[3] over their lot, this time in favor of the respondents to secure the loan of
P325,000.00, which the latter claimed as the amount they paid spouses Lazaro. The
mortgage contract provides, among others, that the new loan shall be payable within three
(3) months, or until August 14, 1991; that it shall earn interest at 5% per month; and that
should petitioners fail to pay their loan within the said period, the mortgage shall be
foreclosed.
When petitioners failed to pay their loan in full on August 14, 1991, respondents
allowed them to complete their payment until December 23, 1993. On this date, they made
a total payment of P687,000.00.
On January 17, 1994, respondents wrote petitioners demanding payment of
P325,000.00, plus interest, otherwise they would foreclose the mortgage. [4] In turn,
petitioners responded, claiming that they have overpaid their obligation and demanding the
return of their land title and refund of their excess payment. [5] This prompted respondents
to file a petition[6] for extrajudicial foreclosure of mortgage with the Office of the Ex-Officio
Sheriff, Malolos, Bulacan, docketed therein as EJF 19-94.
For their part, petitioners filed with the Regional Trial Court (RTC), Branch 17,
Malolos, Bulacan, a complaint for the return of their TCT No. T-42.373 (M), sum of money
and damages, with application for a temporary restraining order and preliminary injunction,
docketed as Civil Case No. 156-M-94.[7]
In their opposition[8] to the application for a preliminary injunction, respondents
alleged that petitioners loan has been restructured three times and that their unpaid
balance as of March 14, 1994 was P543,622.00.
After hearing petitioners application for a preliminary injunction, the RTC issued an
order,[9] enjoining the sheriff from proceeding with the foreclosure of mortgage, upon their
posting of a bond in the amount of P543,622.00.
Thereafter, trial on the merits ensued.
On July 31, 1995, the RTC rendered judgment, [10] the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs
(now petitioners) and against the defendants (now respondents), ordering the latter:
1. to return to the plaintiffs the amount of P215,750.00 representing the overpaid amount;

SO ORDERED."[11]
The trial court held that the stipulated 5% monthly interest to be paid by
petitioners corresponds only to the period from May 14, 1991 up to August 14, 1991, the
term of the loan. Thereafter, the monthly interest should be 12% per annum. The trial court
concluded that petitioners made an overpayment of P214,750.00.
Upon appeal, docketed as CA GR-CV No. 51095, the Court of Appeals, in a
Decision[12] dated June 18, 1997, held:
We reverse.
The law and jurisprudence clearly provide that if the debt produces interest, payment of the
principal shall not be deemed to have been made until the interests have been
covered. (Article 1253, New Civil Code; Gobonseng, Jr. vs. Court of Appeals, 246 SCRA
472). Once it is admitted that an obligation bears interest, partial payments are to be
applied first on account of the interest and then to reduce the principal. (San Jose vs.
Ortega, 11 Phil. 442; Sunico vs. Ramirez, 14 Phil. 500). We thus find no support, whether
in law or in jurisprudence, for the Decision of the court a quo to apply the bigger amounts
of P40,000.00, P37,000.00, P50,000.00 among others, given several times by the Barrera
spouses x x x for the payment of the principal loan when the interests due on the loan that
have accumulated through the years have not been fully satisfied.
We also do not agree that the stipulated monthly interest of 5% was to apply only to the 3month effectivity period of the loan. This is a flawed and a grossly unfair interpretation of
the terms and conditions of the agreement of the parties. To rule in this wise is to sanction
the irregular performance of ones obligation. The Barrera spouses will be emboldened not
to pay their loan within the agreed period of 3-months since on the fourth month and
thereafter, they do not have to pay anymore the 5% monthly interest, but only the 12%
legal interest per annum, or a measly 1% interest per month. Such an interpretation is
totally unfair and unjust to the creditors who could have used their money in some other
ways. Until such time that the Barreras have fully paid their total indebtedness, the 5%
monthly interest subsists, there being no stipulation to the contrary.
While we commiserate with the plight of the Barrera spouses, we cannot change the terms
of the loan agreement between them and the Lorenzos as the courts have no right to make
contracts for (the) parties. (Tolentino and Manio vs. Gonzales Sy Chian, 5 Phil. 577). A
contract is the law between the parties which not even this Court can interfere with. The
only requirement is that the same be not contrary to law, morals and good customs x x x
(Article 1306, New Civil Code). We find the agreement to pay a 5% monthly interest until
the loan is fully paid to be reasonable and sanctioned by regular usage and practice.

The Barreras should, therefore, be required to pay the balance of their indebtedness,
including the interests thereof. Failure to pay the same should warrant the foreclosure of
their mortgaged property to satisfy their obligation to the Lorenzo spouses. [13]
Petitioners filed a motion for reconsideration but was denied.

[14]

Hence this petition.

The sole issue for our resolution is whether the 5% monthly interest on the loan was
only for three (3) months, or from May 14, 1991 up to August 14, 1991, as maintained by
petitioners, or until the loan was fully paid, as claimed by respondents.
When the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations governs. [15] In such cases, courts
have no authority to alter a contract by construction or to make a new contract for the
parties; its duty is confined to the interpretation of the one which they have made for
themselves without regard to its wisdom or folly as the court cannot supply material
stipulations or read into the contract words which it does not contain. [16] It is only when the
contract is vague and ambiguous that courts are permitted to resort to construction of its
terms and determine the intention of the parties therein.
The salient provisions of the mortgage contract read:
a) Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan, o hanggang
sa Agosto 14, 1991.
b) Ang tubo na aming napagkasunduan ay 5%, o cinco por ciento isang
buwan.
c) Na sakaling mabayaran ko ang aming pagkakautang sa mag-asawa na
P325,000.00 ang kasulatang ito ay wala ng lakas at kabuluhan, subalit
kung hindi ko mabayaran ang aming pinagkakautangan sa takdang
panahong 3 buwan sila ay binibigyan ko nang laya at kapangyarihan na
masubasta nila ang lupang aming ipinanagot sa labas ng hukuman sa bisa
ng Batas Blg. 3135 at susog nito at akong may utang ang siyang sagot sa
lahat ng gastos at pati bayad sa abogado sa nasabing subasta sa labas ng
hukuman.[17] (emphasis supplied)

please tell this Hon. Court whether there is a provision in clear and unequivocal
terms providing for that monthly interestafter August 14, 1991?
A No, sir, there is none.
Q Are you sure of that?
A Yes, sir.
Q You mean to say there is no stipulation in that document providing for the 5%
monthly interest to the loan after August 14, 1991?
A Yes, sir, they are supposed to return my money.
Court:
Q After they failed to comply with that provision, was there any subsequent agreement
between you and the plaintiffs?
xxx
Q Was there an agreement?
A There was, your Honor.
Q What was that agreement about?
A Verbal agreement, your Honor?
Q Why was that agreement not reduced into writing?
A It was not reduced into writing, your Honor.
Q Why?
A I am in good faith, your Honor.[18]
Article 1956 of the Civil Code mandates that (n)o interest shall be due unless it has
been expressly stipulated in writing. Applying this provision, the trial court correctly held
that the monthly interest of 5% corresponds only to the three-month period of the loan, or
from May 14, 1991 to August 14, 1991, as agreed upon by the parties in
writing. Thereafter, the interest rate for the loan is 12% per annum. InEastern Shipping
Lines, Inc. vs. Court of Appeals,[19] this Court laid down the following doctrine:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code. (emphasis supplied)

It is clear from the above stipulations that the loan shall be payable within three (3)
months, or from May 14, 1991 up to August 14, 1991. During such period, the loan shall
earn an interest of 5% per month. Furthermore, the contract shall have no force and effect
once the loan shall have been fully paid within the three-month period, otherwise, the
mortgage shall be foreclosed extrajudicially under Act No. 3135.

The above ruling was reiterated in Sulit vs. Court of Appeals,[20] Crismina Garments
vs. Court of Appeals,[21] Eastern Assurance and Surety Corporation vs. Court of Appeals,
[22]
Catungal vs. Hao,[23] and Yong et al. vs. Tiu et al..[24] Thus, the Court of Appeals erred in
reversing the RTC Decision and holding that the 5% monthly interest should be paid by
petitioners even beyond August 14, 1991.

Records show that upon maturity of the loan on August 14, 1991, petitioners failed to
pay their entire obligation. Instead of exercising their right to have the mortgage foreclosed,
respondents allowed petitioners to pay the loan on a monthly installment basis until
December, 1993. It bears emphasis that there is no written agreement between the parties
that the loan will continue to bear 5% monthly interest beyond the agreed three-month
period. Respondent Ma. Concepcion Lorenzo testified as follows:

WHEREFORE, the assailed Decision of the Court of Appeals dated June 18, 1997
and its Resolution dated October 17, 1997 are REVERSED and SET ASIDE. The Decision
of the Regional Trial Court, Branch 17, Malolos, Bulacan dated July 31, 1995 is
REINSTATED.

Atty. Marcos:
Q Now, based on this document which was marked as Exh. 1, there is no dispute that
the monthly interest for the three month period that is from May 14, 1991 to
August 14, 1991 is 5% monthly interest, there is no dispute about that. Now, Miss
Witness, my question is, could you go over the entire document that Exh. 1 and

SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ., concur.

SEBASTIAN SIGA-AN,
Petitioner,

G.R. No. 173227

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

-versus

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

Thereafter, respondent consulted a lawyer regarding the propriety of paying interest

on the loan despite absence of agreement to that effect. Her lawyer told her that petitioner could
not validly collect interest on the loan because there was no agreement between her and
petitioner regarding payment of interest. Since she paid petitioner a total amount
of P1,200,000.00 for theP540,000.00 worth of loan, and upon being advised by her lawyer that
she made overpayment to petitioner, she sent a demand letter to petitioner asking for the return
of the excess amount of P660,000.00. Petitioner, despite receipt of the demand letter, ignored
her claim for reimbursement.[8]
Respondent prayed that the RTC render judgment ordering petitioner to pay
respondent (1) P660,000.00 plus legal interest from the time of demand; (2) P300,000.00 as
moral damages; (3) P50,000.00 as exemplary damages; and (4) an amount equivalent to 25%
of P660,000.00 as attorneys fees.[9]
In his answer[10] to the complaint, petitioner denied that he offered a loan to
respondent. He averred that in 1992, respondent approached and asked him if he could grant
her a loan, as she needed money to finance her business venture with the PNO. At first, he was
reluctant to deal with respondent, because the latter had a spotty record as a supplier of the
PNO. However, since respondent was an acquaintance of his officemate, he agreed to grant her
a loan. Respondent paid the loan in full.[11]

CHICO-NAZARIO, J.:
Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision,[2]dated 16 December 2005, and Resolution,[3] dated 19 June
2006 of the Court of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the Decision,
[4]
dated 26 January 2001, of the Las Pinas City Regional Trial Court, Branch 255, in Civil Case
No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a complaint [5] for sum of money
against petitioner Sebastian Siga-an before the Las Pinas City Regional Trial Court (RTC),
Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged that she was a
businesswoman engaged in supplying office materials and equipments to the Philippine Navy
Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military officer and
comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her inside the PNO
and offered to loan her the amount ofP540,000.00. Since she needed capital for her business
transactions with the PNO, she accepted petitioners proposal. The loan agreement was not
reduced in writing. Also, there was no stipulation as to the payment of interest for the loan.[6]
On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as
partial payment of the loan. On 31 October 1993, she issued another check in the amount
of P200,000.00 to petitioner as payment of the remaining balance of the loan.Petitioner told her
that since she paid a total amount of P700,000.00 for the P540,000.00 worth of loan, the excess
amount ofP160,000.00 would be applied as interest for the loan. Not satisfied with the amount
applied as interest, petitioner pestered her to pay additional interest. Petitioner threatened to
block or disapprove her transactions with the PNO if she would not comply with his demand. As
all her transactions with the PNO were subject to the approval of petitioner as comptroller of the
PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in
the PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests for
the loan. She asked petitioner for receipt for the payments but petitioner told her that it was not
necessary as there was mutual trust and confidence between them. According to her
computation, the total amount she paid to petitioner for the loan and interest accumulated
to P1,200,000.00.[7]

Subsequently, respondent again asked him to give her a loan. As respondent had
been able to pay the previous loan in full, he agreed to grant her another loan. Later, respondent
requested him to restructure the payment of the loan because she could not give full payment on
the due date. He acceded to her request. Thereafter, respondent pleaded for another
restructuring of the payment of the loan. This time he rejected her plea. Thus, respondent
proposed to execute a promissory note wherein she would acknowledge her obligation to him,
inclusive of interest, and that she would issue several postdated checks to guarantee the
payment of her obligation. Upon his approval of respondents request for restructuring of the
loan, respondent executed a promissory note dated 12 September 1994 wherein she admitted
having borrowed an amount of P1,240,000.00, inclusive of interest, from petitioner and that she
would pay said amount in March 1995. Respondent also issued to him six postdated checks
amounting to P1,240,000.00 as guarantee of compliance with her obligation. Subsequently, he
presented the six checks for encashment but only one check was honored. He demanded that
respondent settle her obligation, but the latter failed to do so. Hence, he filed criminal cases for
Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The cases
were assigned to the Metropolitan Trial Court of Makati City, Branch 65 (MeTC).[12]
Petitioner insisted that there was no overpayment because respondent admitted in the
latters promissory note that her monetary obligation as of 12 September 1994 amounted
to P1,240,000.00 inclusive of interests. He argued that respondent was already estopped from
complaining that she should not have paid any interest, because she was given several times to
settle her obligation but failed to do so. He maintained that to rule in favor of respondent is
tantamount to concluding that the loan was given interest-free. Based on the foregoing
averments, he asked the RTC to dismiss respondents complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent
made an overpayment of her loan obligation to petitioner and that the latter should refund the
excess amount to the former. It ratiocinated that respondents obligation was only to pay the
loaned amount of P540,000.00, and that the alleged interests due should not be included in the
computation of respondents total monetary debt because there was no agreement between
them regarding payment of interest. It concluded that since respondent made an excess
payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the
said amount to respondent pursuant to the principle of solutio indebiti.[13]
The RTC also ruled that petitioner should pay moral damages for the sleepless nights
and wounded feelings experienced by respondent. Further, petitioner should pay exemplary

damages by way of example or correction for the public good, plus attorneys fees and costs of
suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the light
of the provisions of law and jurisprudence on the matter, judgment is hereby
rendered in favor of the plaintiff and against the defendant as follows:
(1)
Ordering defendant to pay plaintiff the amount
of P660,000.00 plus legal interest of 12% per annum computed from 3
March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00
as moral damages;
(3) Ordering defendant to pay plaintiff the amount of P50,000.00
as exemplary damages;
(4) Ordering defendant to pay plaintiff the amount equivalent to
25% of P660,000.00 as attorneys fees; and
(5) Ordering defendant to pay the costs of suit.[14]
Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate
court promulgated its Decision affirming in toto the RTC Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal is
hereby DENIED and the assailed decision [is] AFFIRMED in toto.[15]
Petitioner filed a motion for reconsideration of the appellate courts decision but this
was denied.[16] Hence, petitioner lodged the instant petition before us assigning the following
errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO
INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE
[17]
PRINCIPLE OF SOLUTIO INDEBITI.
Interest is a compensation fixed by the parties for the use or forbearance of
money. This is referred to as monetary interest. Interest may also be imposed by law or by
courts as penalty or indemnity for damages. This is called compensatory interest. [18] The right to
interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the
principal loan on which interest is demanded.[19]
Article 1956 of the Civil Code, which refers to monetary interest, [20] specifically
mandates that no interest shall be due unless it has been expressly stipulated in writing. As can
be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1)
there was an express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of the two conditions is required for
the payment of monetary interest. Thus, we have held that collection of interest without any
stipulation therefor in writing is prohibited by law.[21]
It appears that petitioner and respondent did not agree on the payment of interest for
the loan. Neither was there convincing proof of written agreement between the two regarding the
payment of interest. Respondent testified that although she accepted petitioners offer of loan
amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for her to
pay interest on the loan.[22]
Petitioner presented a handwritten promissory note dated 12 September
1994[23] wherein
respondent
purportedly
admitted
owing
petitioner
capital
and
interest. Respondent, however, explained that it was petitioner who made a promissory note and

she was told to copy it in her own handwriting; that all her transactions with the PNO were
subject to the approval of petitioner as comptroller of the PNO; that petitioner threatened to
disapprove her transactions with the PNO if she would not pay interest; that being unaware of
the law on interest and fearing that petitioner would make good of his threats if she would not
obey his instruction to copy the promissory note, she copied the promissory note in her own
handwriting; and that such was the same promissory note presented by petitioner as alleged
proof of their written agreement on interest. [24] Petitioner did not rebut the foregoing testimony.It
is evident that respondent did not really consent to the payment of interest for the loan and that
she was merely tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully
said that such promissory note pertains to an express stipulation of interest or written agreement
of interest on the loan between petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that
he and respondent agreed on the payment of 7% rate of interest on the loan; that the agreed 7%
rate of interest was duly admitted by respondent in her testimony in the Batas Pambansa Blg. 22
cases he filed against respondent; that despite such judicial admission by respondent, the RTC
and the Court of Appeals, citing Article 1956 of the Civil Code, still held that no interest was due
him since the agreement on interest was not reduced in writing; that the application of Article
1956 of the Civil Code should not be absolute, and an exception to the application of such
provision should be made when the borrower admits that a specific rate of interest was agreed
upon as in the present case; and that it would be unfair to allow respondent to pay only the loan
when the latter very well knew and even admitted in the Batas Pambansa Blg. 22 cases that
there was an agreed 7% rate of interest on the loan.[25]
We have carefully examined the RTC Decision and found that the RTC did not make a
ruling therein that petitioner and respondent agreed on the payment of interest at the rate of 7%
for the loan. The RTC clearly stated that although petitioner and respondent entered into a valid
oral contract of loan amounting to P540,000.00, they, nonetheless, never intended the payment
of interest thereon.[26] While the Court of Appeals mentioned in its Decision that it concurred in
the RTCs ruling that petitioner and respondent agreed on a certain rate of interest as regards the
loan, we consider this as merely an inadvertence because, as earlier elucidated, both the RTC
and the Court of Appeals ruled that petitioner is not entitled to the payment of interest on the
loan. The rule is that factual findings of the trial court deserve great weight and respect
especially when affirmed by the appellate court. [27]We found no compelling reason to disturb the
ruling of both courts.
Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22
cases that they had agreed on the payment of interest at the rate of 7% deserves scant
consideration. In the said case, respondent merely testified that after paying the total amount of
loan, petitioner ordered her to pay interest.[28] Respondent did not categorically declare in the
same case that she and respondent made an express stipulation in writing as regards payment
of interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was
an express stipulation in writing for the payment of interest.
There are instances in which an interest may be imposed even in the absence of
express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil
Code states that if the obligation consists in the payment of a sum of money, and the debtor
incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code
provides that interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent on this point.
All the same, the interest under these two instances may be imposed only as a
penalty or damages for breach of contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other words, the two instances apply only
to compensatory interest and not to monetary interest. [29] The case at bar involves petitioners
claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it
was not duly proven that respondent defaulted in paying the loan. Also, as earlier found, no
interest was due on the loan because there was no written agreement as regards payment of
interest.
Apropos the second assigned error, petitioner argues that the principle of solutio
indebiti does not apply to the instant case.Thus, he cannot be compelled to return the alleged
excess amount paid by respondent as interest.[30]
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there
has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall
be applied. Article 2154 of the Civil Code explains the principle ofsolutio indebiti. Said provision
provides that if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor
relationship is created under a quasi-contract whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the person who has no
right to receive such payment becomes obligated to return the same. The quasi-contract
of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at
the expense of another.[31] The principle of solutio indebitiapplies where (1) a payment is made
when there exists no binding relation between the payor, who has no duty to pay, and the person
who received the payment; and (2) the payment is made through mistake, and not through
liberality or some other cause.[32]We have held that the principle of solutio indebiti applies in case
of erroneous payment of undue interest.[33]
It was duly established that respondent paid interest to petitioner. Respondent was
under no duty to make such payment because there was no express stipulation in writing to that
effect. There was no binding relation between petitioner and respondent as regards the payment
of interest. The payment was clearly a mistake. Since petitioner received something when there
was no right to demand it, he has an obligation to return it.
We shall now determine the propriety of the monetary award and damages imposed
by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to P540,000.00 from
petitioner.[34] Respondent issued two checks with a total worth of P700,000.00 in favor of
petitioner as payment of the loan. [35] These checks were subsequently encashed by petitioner.
[36]
Obviously, there was an excess of P160,000.00 in the payment for the loan. Petitioner claims
that the excess ofP160,000.00 serves as interest on the loan to which he was entitled. Aside
from issuing the said two checks, respondent also paid cash in the total amount of P175,000.00
to petitioner as interest.[37] Although no receipts reflecting the same were presented because
petitioner refused to issue such to respondent, petitioner, nonetheless, admitted in his ReplyAffidavit[38] in the Batas Pambansa Blg. 22 cases that respondent paid him a total amount
of P175,000.00 cash in addition to the two checks. Section 26 Rule 130 of the Rules of Evidence
provides that the declaration of a party as to a relevant fact may be given in evidence against
him.Aside from the amounts of P160,000.00 and P175,000.00 paid as interest, no other proof of
additional payment as interest was presented by respondent. Since we have previously found
that petitioner is not entitled to payment of interest and that the principle of solutio
indebiti applies to the instant case, petitioner should return to respondent the excess amount
of P160,000.00 andP175,000.00 or the total amount of P335,000.00. Accordingly, the
reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be
reduced from P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas
Pambansa Blg. 22 against respondent. In the said cases, the MeTC found respondent guilty of
violating Batas Pambansa Blg. 22 for issuing five dishonored checks to petitioner. Nonetheless,
respondents conviction therein does not affect our ruling in the instant case. The two checks,
subject matter of this case, totaling P700,000.00 which respondent claimed as payment of
the P540,000.00 worth of loan, were not among the five checks found to be dishonored or
bounced in the five criminal cases. Further, the MeTC found that respondent made an
overpayment of the loan by reason of the interest which the latter paid to petitioner.[39]

Article 2217 of the Civil Code provides that moral damages may be recovered if the
party underwent physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injury. Respondent
testified that she experienced sleepless nights and wounded feelings when petitioner refused to
return the amount paid as interest despite her repeated demands. Hence, the award of moral
damages is justified. However, its corresponding amount ofP300,000.00, as fixed by the RTC
and the Court of Appeals, is exorbitant and should be equitably reduced. Article 2216 of the Civil
Code instructs that assessment of damages is left to the discretion of the court according to the
circumstances of each case. This discretion is limited by the principle that the amount awarded
should not be palpably excessive as to indicate that it was the result of prejudice or corruption
on the part of the trial court.[40] To our mind, the amount of P150,000.00 as moral damages is fair,
reasonable, and proportionate to the injury suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti,
exemplary damages may be imposed if the defendant acted in an oppressive manner. Petitioner
acted oppressively when he pestered respondent to pay interest and threatened to block her
transactions with the PNO if she would not pay interest. This forced respondent to pay interest
despite lack of agreement thereto. Thus, the award of exemplary damages is appropriate. The
amount of P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so as
to deter petitioner and other lenders from committing similar and other serious wrongdoings.[41]
Jurisprudence instructs that in awarding attorneys fees, the trial court must state the
factual, legal or equitable justification for awarding the same. [42] In the case under consideration,
the RTC stated in its Decision that the award of attorneys fees equivalent to 25% of the amount
paid as interest by respondent to petitioner is reasonable and moderate considering the extent
of work rendered by respondents lawyer in the instant case and the fact that it dragged on for
several years.[43] Further, respondent testified that she agreed to compensate her lawyer
handling the instant case such amount.[44] The award, therefore, of attorneys fees and its amount
equivalent to 25% of the amount paid as interest by respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the
amount refundable to respondent computed from 3 March 1998 until its full payment. This is
erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals, [45] that when an
obligation, not constituting a loan or forbearance of money is breached, an interest on the
amount of damages awarded may be imposed at the rate of 6% per annum. We further declared
that when the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum
from such finality until its satisfaction, thisinterim period being deemed equivalent to a
forbearance of credit.
In the present case, petitioners obligation arose from a quasi-contract of solutio
indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum should
be imposed on the amount to be refunded as well as on the damages awarded and on the
attorneys fees, to be computed from the time of the extra-judicial demand on 3 March 1998,
[46]
up to the finality of this Decision. In addition, the interest shall become 12% per annum from
the finality of this Decision up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated
16 December 2005, is herebyAFFIRMED with the following MODIFICATIONS: (1) the amount
of P660,000.00 as refundable amount of interest is reduced to THREE HUNDRED THIRTY FIVE
THOUSAND PESOS (P335,000.00); (2) the amount of P300,000.00 imposed as moral damages
is reduced to ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00); (3) an interest of 6%
per annum is imposed on the P335,000.00, on the damages awarded and on the attorneys fees
to be computed from the time of the extra-judicial demand on 3 March 1998 up to the finality of
this Decision; and (4) an interest of 12% per annum is also imposed from the finality of this
Decision up to its satisfaction. Costs against petitioner. SO ORDERED.

[ G.R. No. 187678, April 10, 2013 ]

SPOUSES IGNACIO F. JUICO AND ALICE P. JUICO, PETITIONERS, VS. CHINA BANKING
CORPORATION, RESPONDENT.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the February 20, 2009 Decision[1] and April 27, 2009
Resolution[2] of the Court of Appeals (CA) in CA G.R. CV No. 80338. The CA affirmed the April
14, 2003 Decision[3] of the Regional Trial Court (RTC) of Makati City, Branch 147.
The factual antecedents:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking
Corporation (respondent) as evidenced by two Promissory Notes both dated October 6, 1998
and numbered 507-001051-3[4]and 507-001052-0,[5] for the sums of P6,216,000 and P4,139,000,
respectively. The loan was secured by a Real Estate Mortgage (REM) over petitioners property
located at 49 Greensville St., White Plains, Quezon City covered by Transfer Certificate of Title
(TCT) No. RT-103568 (167394) PR-41208[6] of the Register of Deeds of Quezon City.
When petitioners failed to pay the monthly amortizations due, respondent demanded the full
payment of the outstanding balance with accrued monthly interests. On September 5, 2000,
petitioners received respondents last demand letter[7] dated August 29, 2000.
As of February 23, 2001, the amount due on the two promissory notes totaled P19,201,776.63
representing the principal, interests, penalties and attorneys fees. On the same day, the
mortgaged property was sold at public auction, with respondent as highest bidder for the amount
of P10,300,000.
On May 8, 2001, petitioners received[8] a demand letter[9] dated May 2, 2001 from respondent for
the payment of P8,901,776.63, the amount of deficiency after applying the proceeds of the
foreclosure sale to the mortgage debt. As its demand remained unheeded, respondent filed a
collection suit in the trial court. In its Complaint,[10]respondent prayed that judgment be rendered
ordering the petitioners to pay jointly and severally: (1) P8,901,776.63 representing the amount
of deficiency, plus interests at the legal rate, from February 23, 2001 until fully paid; (2) an
additional amount equivalent to 1/10 of 1% per day of the total amount, until fully paid, as
penalty; (3) an amount equivalent to 10% of the foregoing amounts as attorneys fees; and (4)
expenses of litigation and costs of suit.
In their Answer,[11] petitioners admitted the existence of the debt but interposed, by way of special
and affirmative defense, that the complaint states no cause of action considering that the
principal of the loan was already paid when the mortgaged property was extrajudicially
foreclosed and sold for P10,300,000. Petitioners contended that should they be held liable for
any deficiency, it should be only for P55,000 representing the difference between the total
outstanding obligation of P10,355,000 and the bid price of P10,300,000. Petitioners also
argued that even assuming there is a cause of action, such deficiency cannot be enforced by
respondent because it consists only of the penalty and/or compounded interest on the accrued
interest which is generally not favored under the Civil Code. By way of counterclaim, petitioners
prayed that respondent be ordered to pay P100,000 in attorneys fees and costs of suit.
At the trial, respondent presented Ms. Annabelle Cokai Yu, its Senior Loans Assistant, as
witness. She testified that she handled the account of petitioners and assisted them in
processing their loan application. She called them monthly to inform them of the prevailing rates
to be used in computing interest due on their loan. As of the date of the public auction,

petitioners outstanding balance was P19,201,776.63[12] based on the following statement of

account which she prepared:
STATEMENT OF ACCOUNT
As of FEBRUARY 23, 2001
IGNACIO F. JUICO
PN# 507-0010520 due on 04-07-2004
Principal balance of PN# 5070010520. . . . . . . . . . . . . .
Interest on P4,139,000.00 fr. 04-Nov-99
04-Nov-2000 366 days @ 15.00%. . . . . . . . . . . . . . . . .

4,139,000.00
622,550.96

Interest on P4,139,000.00 fr. 04-Nov-2000

04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . .
83,346.99
Interest on P4,139,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . .
Interest on P4,139,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . .
Interest on P4,139,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . .
Penalty charge @ 1/10 of 1% of the total amount due
(P4,139,000.00 from 11-04-99 to 02-23-2001 @ 1/10 of 1% per
day). . . . . . . . . . . . . . . . .

75,579.27
68,548.64
38,781.86
1,974,303.00

Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,002,110.73

PN# 507-0010513 due on 04-07-2004

Principal balance of PN# 5070010513. . . . . . . . . . . . . .
Interest on P6,216,000.00 fr. 06-Oct-99
04-Nov-2000 395 days @ 15.00%. . . . . . . . . . . . . . . . .
Interest on P6,216,000.00 fr. 04-Nov-2000
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . .
Interest on P6,216,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . .
Interest on P6,216,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . .
Interest on P6,216,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . .
Penalty charge @ 1/10 of 1% of the total amount due
(P6,216,000.00 from 10-06-99 to 02-23-2001 @ 1/10 of 1% per
day). . . . . . . . . . . . . . . . .
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,216,000.00
1,009,035.62
125,171.51
113,505.86
102,947.18
58,243.07
3,145,296.00
10,770,199.23
17,772,309.96

Less: A/P applied to balance of principal

(55,000.00)
Less: Accounts payable L & D

(261,149.39)
17,456,160.57

Add: 10% Attorneys Fee

1,745,616.06
Total amount due
Less: Bid Price
TOTAL DEFICIENCY AMOUNT AS OF FEB. 23, 2001

19,201,776.63
10,300,000.00
8,901,776.63[13]

Petitioners thereafter received a demand letter[14] dated May 2, 2001 from respondents counsel
for the deficiency amount of P8,901,776.63. Ms. Yu further testified that based on the Statement
of Account[15] dated March 15, 2002 which she prepared, the outstanding balance of petitioners
was P15,190,961.48.[16]
On cross-examination, Ms. Yu reiterated that the interest rate changes every month based on
the prevailing market rate and she notified petitioners of the prevailing rate by calling them
monthly before their account becomes past due. When asked if there was any written authority
from petitioners for respondent to increase the interest rate unilaterally, she answered that
petitioners signed a promissory note indicating that they agreed to pay interest at the prevailing
rate.[17]
Petitioner Ignacio F. Juico testified that prior to the release of the loan, he was required to sign a
blank promissory note and was informed that the interest rate on the loan will be based on
prevailing market rates. Every month, respondent informs him by telephone of the prevailing
interest rate. At first, he was able to pay his monthly amortizations but when he started to incur
delay in his payments due to the financial crisis, respondent pressured him to pay in full,
including charges and interests for the delay. His property was eventually foreclosed and was
sold at public auction.[18]
On cross-examination, petitioner testified that he is a Doctor of Medicine and also engaged in
the business of distributing medical supplies. He admitted having read the promissory notes and
that he is aware of his obligation under them before he signed the same.[19]
In its decision, the RTC ruled in favor of respondent. The fallo of the RTC decision reads:
WHEREFORE, premises considered, the Complaint is hereby sustained, and Judgment is
rendered ordering herein defendants to pay jointly and severally to plaintiff, the following:
1. P8,901,776.63 representing the amount of the deficiency owing to the plaintiff, plus interest
thereon at the legal rate after February 23, 2001;
2. An amount equivalent to 10% of the total amount due as and for attorneys fees, there being
stipulation therefor in the promissory notes;
3. Costs of suit.
SO ORDERED.[20]
The trial court agreed with respondent that when the mortgaged property was sold at public
auction on February 23, 2001 for P10,300,000 there remained a balance of P8,901,776.63 since
before foreclosure, the total amount due on the two promissory notes aggregated to
P19,201,776.63 inclusive of principal, interests, penalties and attorneys fees. It ruled that the
amount realized at the auction sale was applied to the interest, conformably with Article 1253 of
the Civil Code which provides that if the debt produces interest, payment of the principal shall

not be deemed to have been made until the interests have been covered. This being the case,
petitioners principal obligation subsists but at a reduced amount of P8,901,776.63.
The trial court further held that Ignacios claim that he signed the promissory notes in blank
cannot negate or mitigate his liability since he admitted reading the promissory notes before
signing them. It also ruled that considering the substantial amount involved, it is unbelievable
that petitioners threw all caution to the wind and simply signed the documents without reading
and understanding the contents thereof. It noted that the promissory notes, including the terms
and conditions, are pro forma and what appears to have been left in blank were the promissory
note number, date of the instrument, due date, amount of loan, and condition that interest will be
at the prevailing rates. All of these details, the trial court added, were within the knowledge of
the petitioners.
When the case was elevated to the CA, the latter affirmed the trial courts decision. The CA
recognized respondents right to claim the deficiency from the debtor where the proceeds of the
sale in an extrajudicial foreclosure of mortgage are insufficient to cover the amount of the debt.
Also, it found as valid the stipulation in the promissory notes that interest will be based on the
prevailing rate. It noted that the parties agreed on the interest rate which was not unilaterally
imposed by the bank but was the rate offered daily by all commercial banks as approved by the
Monetary Board. Having signed the promissory notes, the CA ruled that petitioners are bound
by the stipulations contained therein.
Petitioners are now before this Court raising the sole issue of whether the interest rates imposed
upon them by respondent are valid.
Petitioners contend that the interest rates imposed by respondent are not valid as they were not
by virtue of any law or Bangko Sentral ng Pilipinas (BSP) regulation or any regulation that was
passed by an appropriate government entity. They insist that the interest rates were unilaterally
imposed by the bank and thus violate the principle of mutuality of contracts. They argue that the
escalation clause in the promissory notes does not give respondent the unbridled authority to
increase the interest rate unilaterally. Any change must be mutually agreed upon.
Respondent, for its part, points out that petitioners failed to show that their case falls under any
of the exceptions wherein findings of fact of the CA may be reviewed by this Court. It contends
that an inquiry as to whether the interest rates imposed on the loans of petitioners were
supported by appropriate regulations from a government agency or the Central Bank requires a
reevaluation of the evidence on records. Thus, the Court would in effect, be confronted with a
factual and not a legal issue.
The appeal is partly meritorious.
The principle of mutuality of contracts is expressed in Article 1308 of the Civil Code, which
provides:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
Article 1956 of the Civil Code likewise ordains that [n]o interest shall be due unless it has been
expressly stipulated in writing.
The binding effect of any agreement between parties to a contract is premised on two settled
principles: (1) that any obligation arising from contract has the force of law between the parties;
and (2) that there must be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the contract
which is left solely to the will of one of the parties, is likewise, invalid.[21]
Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by
the contracting parties. This Court has long recognized that there is nothing inherently wrong

with escalation clauses which are valid stipulations in commercial contracts to maintain fiscal
stability and to retain the value of money in long term contracts.[22] Hence, such stipulations are
not void per se.[23]
Nevertheless, an escalation clause which grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to assent to an
important modification in the agreement is void. A stipulation of such nature violates the
principle of mutuality of contracts.[24] Thus, this Court has previously nullified the unilateral
determination and imposition by creditor banks of increases in the rate of interest provided in
loan contracts.[25]
In Banco Filipino Savings & Mortgage Bank v. Navarro,[26] the escalation clause stated: I/We
hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this
contract without advance notice to me/us in the event a law should be enacted increasing the
lawful rates of interest that may be charged on this particular kind of loan. While escalation
clauses in general are considered valid, we ruled that Banco Filipino may not increase the
interest on respondent borrowers loan, pursuant to Circular No. 494 issued by the Monetary
Board on January 2, 1976, because said circular is not a law although it has the force and effect
of law and the escalation clause has no provision for reduction of the stipulated interest in the
event that the applicable maximum rate of interest is reduced by law or by the Monetary Board
(de-escalation clause).
Subsequently, in Insular Bank of Asia and America v. Spouses Salazar[27] we reiterated that
escalation clauses are valid stipulations but their enforceability are subject to certain conditions.
The increase of interest rate from 19% to 21% per annum made by petitioner bank was
disallowed because it did not comply with the guidelines adopted by the Monetary Board to
govern interest rate adjustments by banks and non-banks performing quasi-banking functions.
In the 1991 case of Philippine National Bank v. Court of Appeals,[28] the promissory notes
authorized PNB to increase the stipulated interest per annum within the limits allowed by law at
any time depending on whatever policy [PNB] may adopt in the future; Provided, that, the
interest rate on this note shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. This Court declared the
increases (from 18% to 32%, then to 41% and then to 48%) unilaterally imposed by PNB to be in
violation of the principle of mutuality essential in contracts. [29]
A similar ruling was made in a 1994 case[30] also involving PNB where the credit agreement
provided that [PNB] reserves the right to increase the interest rate within the limits allowed by
law at any time depending on whatever policy it may adopt in the future: Provided, that the
interest rate on this accommodation shall be correspondingly decreased in the event that the
applicable maximum interest is reduced by law or by the Monetary Board x x x.
Again, in 1996, the Court invalidated escalation clauses authorizing PNB to raise the stipulated
interest rate at any time without notice, within the limits allowed by law. The Court observed that
there was no attempt made by PNB to secure the conformity of respondent borrower to the
successive increases in the interest rate. The borrowers assent to the increases cannot be
implied from their lack of response to the letters sent by PNB, informing them of the increases.[31]
In the more recent case of Philippine Savings Bank v. Castillo,[32] we sustained the CA in
declaring as unreasonable the following escalation clause: The rate of interest and/or bank
charges herein stipulated, during the terms of this promissory note, its extensions, renewals or
other modifications, may be increased, decreased or otherwise changed from time to time within
the rate of interest and charges allowed under present or future law(s) and/or government
regulation(s) as the [PSBank] may prescribe for its debtors. Clearly, the increase or decrease
of interest rates under such clause hinges solely on the discretion of petitioner as it does not
require the conformity of the maker before a new interest rate could be enforced. We also said
that respondents assent to the modifications in the interest rates cannot be implied from their

lack of response to the memos sent by petitioner, informing them of the amendments, nor from
the letters requesting for reduction of the rates. Thus:
the validity of the escalation clause did not give petitioner the unbridled right to unilaterally
adjust interest rates. The adjustment should have still been subjected to the mutual agreement
of the contracting parties. In light of the absence of consent on the part of respondents to the
modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the
inclusion of a de-escalation clause in the loan agreement. [33]
It is now settled that an escalation clause is void where the creditor unilaterally determines and
imposes an increase in the stipulated rate of interest without the express conformity of the
debtor. Such unbridled right given to creditors to adjust the interest independently and upwardly
would completely take away from the debtors the right to assent to an important modification in
their agreement and would also negate the element of mutuality in their contracts.[34] While a
ceiling on interest rates under the Usury Law was already lifted under Central Bank Circular No.
905, nothing therein grants lenders carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of their assets. [35]
The two promissory notes signed by petitioners provide:
I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the
case may be, the interest rate/service charge presently stipulated in this note without any
advance notice to me/us in the event a law or Central Bank regulation is passed or promulgated
by the Central Bank of the Philippines or appropriate government entities, increasing or
decreasing such interest rate or service charge.[36]
Such escalation clause is similar to that involved in the case of Floirendo, Jr. v. Metropolitan
Bank and Trust Company[37] where this Court ruled:
The provision in the promissory note authorizing respondent bank to increase, decrease or
otherwise change from time to time the rate of interest and/or bank charges without advance
notice to petitioner, in the event of change in the interest rate prescribed by law or the
Monetary Board of the Central Bank of the Philippines, does not give respondent bank
unrestrained freedom to charge any rate other than that which was agreed upon. Here, the
monthly upward/downward adjustment of interest rate is left to the will of respondent bank alone.
It violates the essence of mutuality of the contract.[38]
More recently in Solidbank Corporation v. Permanent Homes, Incorporated,[39] we upheld as
valid an escalation clause which required a written notice to and conformity by the borrower to
the increased interest rate. Thus:
The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December
1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905
which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for
secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the
parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury
Law is within the range of judicial notice which courts are bound to take into account. Although
interest rates are no longer subject to a ceiling, the lender still does not have an unbridled
license to impose increased interest rates. The lender and the borrower should agree on the
imposed rate, and such imposed rate should be in writing.
The three promissory notes between Solidbank and Permanent all contain the following
provisions:
5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate
agreed in this Note or Loan on the basis of, among others, prevailing rates in the local or
international capital markets. For this purpose, We/I authorize Solidbank to debit any deposit or
placement account with Solidbank belonging to any one of us. The adjustment of the interest
rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no
date is indicated, from the time the notice was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due
under this Note or Loan within thirty (30) days from the receipt by anyone of us of the written

notice. Otherwise, We/I shall be deemed to have given our consent to the interest rate
adjustment.
The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on
said stipulations; (2) repricing takes effect only upon Solidbanks written notice to
Permanent of the new interest rate; and (3) Permanent has the option to prepay its loan if
Permanent and Solidbank do not agree on the new interest rate. The phrases irrevocably
authorize, at any time and adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the
notice was sent, emphasize that Permanent should receive a written notice from Solidbank as a
condition for the adjustment of the interest rates. (Emphasis supplied.)
In this case, the trial and appellate courts, in upholding the validity of the escalation clause,
underscored the fact that there was actually no fixed rate of interest stipulated in the promissory
notes as this was made dependent on prevailing rates in the market. The subject promissory
notes contained the following condition written after the first paragraph:
With one year grace period on principal and thereafter payable in 54 equal monthly instalments
to start on the second year. Interest at the prevailing rates payable quarterly in arrears. [40]
In Polotan, Sr. v. CA (Eleventh Div.),[41] petitioner cardholder assailed the trial and appellate
courts in ruling for the validity of the escalation clause in the Cardholders Agreement. On
petitioners contention that the interest rate was unilaterally imposed and based on the
standards and rate formulated solely by respondent credit card company, we held:
The contractual provision in question states that if there occurs any change in the prevailing
market rates, the new interest rate shall be the guiding rate in computing the interest due on the
outstanding obligation without need of serving notice to the Cardholder other than the required
posting on the monthly statement served to the Cardholder. This could not be considered an
escalation clause for the reason that it neither states an increase nor a decrease in interest rate.
Said clause simply states that the interest rate should be based on the prevailing market rate.
Interpreting it differently, while said clause does not expressly stipulate a reduction in interest
rate, it nevertheless provides a leeway for the interest rate to be reduced in case the prevailing
market rates dictate its reduction.
Admittedly, the second paragraph of the questioned proviso which provides that the Cardholder
hereby authorizes Security Diners to correspondingly increase the rate of such interest in the
event of changes in prevailing market rates x x x is an escalation clause. However, it
cannot be said to be dependent solely on the will of private respondent as it is also
dependent on the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long as they are not
solely potestative but based on reasonable and valid grounds. Obviously, the fluctuation
in the market rates is beyond the control of private respondent.[42] (Emphasis supplied.)
In interpreting a contract, its provisions should not be read in isolation but in relation to each
other and in their entirety so as to render them effective, having in mind the intention of the
parties and the purpose to be achieved. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly.[43]
Here, the escalation clause in the promissory notes authorizing the respondent to adjust the rate
of interest on the basis of a law or regulation issued by the Central Bank of the Philippines,
should be read together with the statement after the first paragraph where no rate of interest
was fixed as it would be based on prevailing market rates. While the latter is not strictly an
escalation clause, its clear import was that interest rates would vary as determined by prevailing
market rates. Evidently, the parties intended the interest on petitioners loan, including any
upward or downward adjustment, to be determined by the prevailing market rates and not
dictated by respondents policy. It may also be mentioned that since the deregulation of bank
rates in 1983, the Central Bank has shifted to a market-oriented interest rate policy.[44]

There is no indication that petitioners were coerced into agreeing with the foregoing provisions
of the promissory notes. In fact, petitioner Ignacio, a physician engaged in the medical supply
business, admitted having understood his obligations before signing them. At no time did
petitioners protest the new rates imposed on their loan even when their property was foreclosed
by respondent.
This notwithstanding, we hold that the escalation clause is still void because it grants respondent
the power to impose an increased rate of interest without a written notice to petitioners and their
written consent. Respondents monthly telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the total debt should have been provided by
the respondent to enable petitioners to make an informed decision. An appropriate form must
also be signed by the petitioners to indicate their conformity to the new rates. Compliance with
these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided
impositions do not have the force of law between the parties, because such impositions are not
based on the parties essential equality.[45]
Modifications in the rate of interest for loans pursuant to an escalation clause must be the result
of an agreement between the parties. Unless such important change in the contract terms is
mutually agreed upon, it has no binding effect.[46] In the absence of consent on the part of the
petitioners to the modifications in the interest rates, the adjusted rates cannot bind them.
Hence, we consider as invalid the interest rates in excess of 15%, the rate charged for the first
year.
Based on the August 29, 2000 demand letter of China Bank, petitioners total principal obligation
under the two promissory notes which they failed to settle is P10,355,000. However, due to
China Banks unilateral increases in the interest rates from 15% to as high as 24.50% and
penalty charge of 1/10 of 1% per day or 36.5% per annum for the period November 4, 1999 to
February 23, 2001, petitioners balance ballooned to P19,201,776.63. Note that the original
amount of principal loan almost doubled in only 16 months. The Court also finds the penalty
charges imposed excessive and arbitrary, hence the same is hereby reduced to 1% per month
or 12% per annum.
Petitioners Statement of Account, as of February 23, 2001, the date of the foreclosure
proceedings, should thus be modified as follows:
Principal
P10,355,000.00
Interest at 15% per annum
2,029,863.70
P10,355,000 x .15 x 477 days/365 days
Penalty at 12% per annum
1,623,890.96
P10,355,000 x .12 x 477days/365 days
Sub-Total
14,008,754.66
Less: A/P applied to balance of principal
Less: Accounts payable L & D

(55,000.00)
(261,149.39)
13,692,605.27

Add: Attorneys Fees

1,369,260.53

Total Amount Due

15,061,865.79

Less: Bid Price

10,300,000.00

TOTAL DEFICIENCY AMOUNT

4,761,865.79

WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The February 20,
2009 Decision and April 27, 2009 Resolution of the Court of Appeals in CA G.R. CV No. 80338
are hereby MODIFIED. Petitioners Spouses Ignacio F. Juico and Alice P. Juico are
hereby ORDERED to pay jointly and severally respondent China Banking Corporation
P4,761,865.79 representing the amount of deficiency inclusive of interest, penalty charge and
attorneys fees. Said amount shall bear interest at 12% per annum, reckoned from the time of
the filing of the complaint until its full satisfaction.
No pronouncement as to costs.SO ORDERED.

Upon arrival of the shipment in Manila on December 12, 1981, it was

discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown
to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of the shipment to the consignee's warehouse. The latter
excepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on
a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the
arrastre operator and the customs broker; (b) whether the payment of legal interest on an award
for loss or damage is to be computed from the time the complaint is filed or from the date the
decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator
and broker-forwarder for damages sustained by a shipment while in
defendants' custody, filed by the insurer-subrogee who paid the consignee
the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.

Plaintiff contended that due to the losses/damage sustained by said drum,

the consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay
the consignee P19,032.95 under the aforestated marine insurance policy, so
that it became subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation", "Release" and Philbanking
check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate
court said:
Defendants filed their respective answers, traversing the material
allegations of the complaint contending that: As for defendant Eastern
Shipping it alleged that the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over
to the latter, is no longer its liability (p. 17, Record); Metroport averred that
although subject shipment was discharged unto its custody, portion of the
same was already in bad order (p. 11, Record); Allied Brokerage alleged
that plaintiff has no cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary care and
diligence in the handling/delivery of the cargo to consignee in the same
condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained
losses/damages;

2. Whether or not these losses/damages were

sustained while in the custody of defendants (in whose
respective custody, if determinable);

own exhibit, the "Turn-Over Survey of Bad Order

Cargoes" (Exhs. 3-Eastern) states that on December
12, 1981 one drum was found "open".

3. Whether or not defendant(s) should be held liable for

the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting
plaintiff's Records, p. 38).

and thus held:

As to the first issue, there can be no doubt that the

shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly
shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was
shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro
Port Service, Inc., it excepted to one drum in bad order.

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

Correspondingly, as to the second issue, it follows that

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

WHEREFORE, PREMISES CONSIDERED, judgment

is hereby rendered:

1. The amount of P19,032.95, with the present legal

interest of 12% per annum from October 1, 1982, the
date of filing of this complaints, until fully paid (the
liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss,
whichever is lesser, while the liability of defendant
Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each,
pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims
and crossclaim of defendant/crossclaimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the
conclusion drawn therefrom is correct. As there is sufficient evidence that
the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the
amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave
abuse of discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF
THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.

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

The petition is, in part, granted.

Let us first see a chronological recitation of the major rulings of this Court:
In this decision, we have begun by saying that the questions raised by petitioner carrier are not
all that novel. Indeed, we do have a fairly good number of previous decisions this Court can
merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from
the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time
for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be an express
finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs.
Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There
are, of course, exceptional cases when such presumption of fault is not observed but these
cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be
applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's
Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the
carrier and the arrastre operator liable in solidum,thus:
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad
Co., 19 SCRA 5 [1967]. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is
the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short
deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the
lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established in
its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in
lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment
ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the
complaint was filed on 28 December 1962 until full payment thereof. The appellants then
assailed,inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the
date of demand, judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest
"cannot be recovered upon unliquidated claims or damages, except when
the demand can be established with reasonable certainty." And as was held
by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit
were for damages, "unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof (Montilla c. Corporacion
de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision."
(Emphasis supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of
Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and

third party defendants and against the defendants and third party plaintiffs
as follows:
Ordering defendants and third party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the
value of the insurance recovered and the amount of P10,000.00 a month as
the estimated monthly loss suffered by them as a result of the fire of May 6,
1969 up to the time they are actually paid or already the total sum of
P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs
against defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing of the
complaint until fully paid. When the appellate court's decision became final, the case
was remanded to the lower court for execution, and this was when the trial court
issued its assailed resolution which applied the 6% interest per annum prescribed in
Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as
amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan, or forbearance of any
money, goods, or credits and the rate allowed in judgments, in the absence
of express contract as to such rate of interest, shall be twelve (12%)
percent per annum. This Circular shall take effect immediately. (Emphasis
found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations
involving loans or forbearance of any money, goods or credits. Any other
kind of monetary judgment which has nothing to do with, nor involving loans
or forbearance of any money, goods or credits does not fall within the
coverage of the said law for it is not within the ambit of the authority granted
to the Central Bank.
xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property
and does not involve any loan, much less forbearances of any money,
goods or credits. As correctly argued by the private respondents, the law
applicable to the said case is Article 2209 of the New Civil Code which
reads
Art. 2209. If the obligation consists in the payment of
a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal interest
which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28
July 1986. The case was for damages occasioned by an injury to person and loss of property.
The trial court awarded private respondent Pedro Manabat actual and compensatory damages
in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully
paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12%
to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the
complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of
damages arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the
modification of the amount granted by the lower court, the Court of Appeals sustained the trial
court's decision. When taken to this Court for review, the case, on 03 October 1986, was
decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to
attorney's fees) occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable
upon the finality of this decision. Upon failure to pay on such finality, twelve
(12%) per cent interest per annum shall be imposed upon aforementioned
amounts from finality until paid. Solidary costs against the defendant and
third-party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court 10 ruled out the applicability of

the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April
1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 . . . is applicable only in the following: (1)
loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final judgment, that will
cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in other
words, as part of the judgment for damages. Clearly, they are not applicable
to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the
then Intermediate Appellate Court reducing the amount of moral and exemplary damages
awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution,
dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09
November 1988, this Court, while recognizing the right of the private respondent to recover
damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
13

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz which arose
from a breach of employment contract. For having been illegally dismissed, the petitioner was
awarded by the trial court moral and exemplary damages without, however, providing any legal
interest thereon. When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of
Negros Oriental dated October 31, 1972 is affirmed in all respects, with the
modification that defendants-appellants, except defendant-appellant Merton
Munn, are ordered to pay, jointly and severally, the amounts stated in the
dispositive portion of the decision, including the sum of P1,400.00 in
concept of compensatory damages, with interest at the legal rate from the
date of the filing of the complaint until fully paid(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing
grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed
the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of
interest "at the legal rate"from the time of the filing of the complaint. . . Said
circular [Central Bank Circular No. 416] does not apply to actions based on
a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner
to pay the private respondents certain sums of money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal
interest per annum under the Civil Code, the Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of
money, goods or credits but expropriation of certain parcels of land for a
public purpose, the payment of which is without stipulation regarding
interest, and the interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be paid on the amount
of just compensation for the properties expropriated is manifestly in the form
of indemnity for damages for the delay in the payment thereof. Therefore,
since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not by
way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps
be classified into two groups according to the similarity of the issues involved and the
corresponding rulings rendered by the court. The "first group" would consist of the cases
of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in
these cases that there has been a consistent holding that the Central Bank Circular imposing the
12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as
well as to judgments involving such loan or forbearance of money, goods or credits, and that the
6% interest under the Civil Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance of

obligations in general. Observe, too, that in these cases, a common time frame in the
computation of the 6% interest per annum has been applied, i.e., from the time the complaint is
filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, 17depending on whether or not the amount involved is a loan or forbearance,
on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the running of the legal interest should be from
the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision
of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should
be from the date of the decision.'" American Express International v. IAC, introduced a different
time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the)
decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending on
the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of
clarification and reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 23 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate
of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. 26 Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero,
Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.
Mendoza, J., took no part.

[ G.R. No. 172139, December 08, 2010 ]

JOCELYN M. TOLEDO, PETITIONER, VS. MARILOU M. HYDEN, RESPONDENT.
DECISION
DEL CASTILLO, J.:
It is true that the imposition of an unconscionable rate of interest on a money debt is
immoral and unjust and the court may come to the aid of the aggrieved party to that
contract. However, before doing so, courts have to consider the settled principle that the
law will not relieve a party from the effects of an unwise, foolish or disastrous contract if
such party had full awareness of what she was doing.
This Petition for Review on Certiorari[1] assails the Decision[2] dated August 24, 2005 of the
Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed the Decision dated March
10, 2003[3] of the Regional Trial Court (RTC), Branch 22, Cebu City in Civil Case No.
CEB-22867. Also assailed is the
Resolution dated March 8, 2006 denying the motion for reconsideration.
Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the College
Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent Marilou M.
Hyden (Marilou). The transactions are briefly summarized below:
1) August 15, 1993

.........

P 30,000.00

with 6% monthly
interest

2) April 21, 1994

.........

100,000.00

with 6% monthly
interest

3) October 2, 1995

.........

30,000.00

with 6% monthly
interest

4) October 9, 1995

.........

30,000.00

with 6% monthly
interest

5) May 22, 1997

.........

100,000.00

TOTAL AMOUNT OF
LOAN

.........

P 290,000.00[4]

with 7% monthly
interest

From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously paying
Marilou the stipulated monthly interest by issuing checks and depositing sums of money in
the bank account of the latter. However, the total principal amount of P290,000.00
remained unpaid. Thus, in April 1998, Marilou visited Jocelyn in her office at CAP in Cebu
City and asked Jocelyn and the other employees who were likewise indebted to her to
acknowledge their debts. A document entitled "Acknowledgment of Debt"[5] for the amount
of P290,000.00 was signed by Jocelyn with two of her subordinates as witnesses. The
said amount represents the principal consolidated amount of the aforementioned previous
debts due on December 25, 1998. Also on said occasion, Jocelyn issued five checks to
Marilou representing renewal payment of her five previous loans, viz:
Check No. 0010761 dated September 2, 1998 . . . . . . . . . P 30,000.00
Check No. 0010762 dated September 9, 1998 . . . . . . . . .

30,000.00

Check No. 0010763 dated September 15, 1998 . . . . . . . . .

30,000.00

Check No. 0010764 dated September 22, 1998 . . . . . . . . .

100,000.00

Check No. 0010765 dated September 25, 1998 . . . . . . . . .

100,000.00

TOTAL

P 290,000.00

In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the amount of
P30,000.00 and replaced the same with six checks, in staggered amounts, namely:
Check No. 0010494 dated July 2, 1998

.........

P 6,625.00

TOTAL

P 35,725.00

After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered the stop
payment on the remaining checks and on October 27, 1998, filed with the RTC of Cebu
City a complaint[6] against Marilou for Declaration of Nullity and Payment, Annulment, Sum
of Money, Injunction and Damages.
Jocelyn averred that Marilou forced, threatened and intimidated her into signing the
"Acknowledgment of Debt" and at the same time forced her to issue the seven postdated
checks. She claimed that Marilou even threatened to sue her for violation of Batas
Pambansa (BP) Blg. 22 or the Bouncing Checks Law if she will not sign the said document
and draw the above-mentioned checks. Jocelyn further claimed that the application of her
total payment of P528,550.00 to interest alone is illegal, unfounded, unjust, oppressive and
contrary to law because there was no written agreement to pay interest.
On November 23, 1998, Marilou filed an Answer[7] with Special Affirmative Defenses and
Counterclaim alleging that Jocelyn voluntarily obtained the said loans knowing fully well
that the interest rate was at 6% to 7% per month. In fact, a 6% to 7% advance interest was
already deducted from the loan amount given to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not find any showing that Jocelyn was forced, threatened, or
intimidated in signing the document referred to as "Acknowledgment of Debt" and in
issuing the postdated checks. Thus, in its March 10, 2003 Decision the trial court ruled in
favor of Marilou, viz:
WHEREFORE, premised on the foregoing, the Court hereby declares the document
"Acknowledgment of Debt" valid and binding. PLAINTIFF is indebted to DEFENDANT [for]
the amount of TWO HUNDRED NINETY THOUSAND (P290,000.00) PESOS since
December 25, 1998 less the amount of EIGHTEEN THOUSAND NINE HUNDRED
(P18,900.00) PESOS, equivalent to the three checks made good (P6,625.00 dated 07-021998; P6,300.00 dated 08-02-1998; and P5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount of TWO
HUNDRED SEVENTY ONE THOUSAND ONE HUNDRED (P271,100.00) PESOS due on
December 25, 1998 with a 12% interest per annum or 1% interest per month until such
time that the said amount shall have been fully paid.
No pronouncement as to costs.
SO ORDERED.[8]

Check No. 0010495 dated August 2, 1998

.........

6,300.00

Check No. 0010496 dated September 2, 1998 . . . . . . . . .

5,975.00

On March 26, 2003, Jocelyn filed an Earnest Motion for Reconsideration, [9] which was
denied by the trial court in its Order[10] dated April 29, 2003 stating that it finds no sufficient
reason to disturb its March 10, 2003 Decision.

Check No. 0010497 dated October 2, 1998

.........

6,500.00

Ruling of the Court of Appeals

Check No. 0010498 dated November 2, 1998

.........

5,325.00

Check No. 0010499 dated December 2, 1998

.........

5,000.00

On appeal, Jocelyn asserts that she had made payments in the total amount of
P778,000.00 for a principal amount of loan of only P290,000.00. What is appalling,
according to Jocelyn, was that such payments covered only the interest because of the
excessive, iniquitous, unconscionable and exorbitant imposition of the 6% to 7% monthly
interest.

On August 24, 2005, the CA issued its Decision which provides:

WHEREFORE, premises considered, the Decision dated March 10, 2003 and the Order
dated April 29, 2003, of the Regional Trial Court, 7th Judicial Region, Branch 22, Cebu City,
in Civil Case No. CEB-22867 are herebyAFFIRMED. No pronouncement as to costs.

illegal if the same is unconscionable.[14] There is certainly nothing in said circular which
grants lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets. [15] In fact, in Medel v.
Court of Appeals,[16] we annulled a stipulated 5.5% per month or 66% per annum interest
with additional service charge of 2% per annum and penalty charge of 1% per month on a
P500,000.00 loan for being excessive, iniquitous, unconscionable and exorbitant.

SO ORDERED.[11]
The Motion for Reconsideration[12] filed by Jocelyn was denied by the CA through its
Resolution[13] dated March 8, 2006.
Issues
Hence, this petition raising the following issues:
I.
Whether the CA gravely erred when it held that the imposition of interest at the rate of six
percent (6%) to seven percent (7%) is not contrary to law, morals, good customs, public
order or public policy.
II.
Whether the CA gravely erred when it failed to declare that the "Acknowledgment of Debt"
is an inexistent contract that is void from the very beginning pursuant to Article 1409 of the
New Civil Code.
Petitioner's Arguments
Jocelyn posits that the CA erred when it held that the imposition of interest at the rates of
6% to 7% per month is not contrary to law, not unconscionable and not contrary to morals.
She likewise contends that the CA erred in ruling that the "Acknowledgment of Debt" is
valid and binding. According to Jocelyn, even assuming that the execution of said
document was not attended with force, threat and intimidation, the same must
nevertheless be declared null and void for being contrary to law and public policy. This is
borne out by the fact that the payments in the total amount of P778,000.00 was applied to
interest payment alone. This only proves that the transaction was iniquitous, excessive,
oppressive and unconscionable.
Respondent's Arguments
On the other hand, Marilou would like this Court to consider the fact that the document
referred to as "Acknowledgment of Debt" was executed in the safe surroundings of the
office of Jocelyn and it was witnessed by two of her staff. If at all there had been coercion,
then Jocelyn could have easily prevented her staff from affixing their signatures to said
document. In fact, petitioner had admitted that she was the one who went to the tables of
her staff to let them sign the said document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by Jocelyn is not excessive under the
circumstances of this case.
In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law ceiling
on interest effective January 1, 1983, parties to a loan agreement have wide latitude to
stipulate interest rates. Nevertheless, such stipulated interest rates may be declared as

In this case, however, we cannot consider the disputed 6% to 7% monthly interest rate to
be iniquitous or unconscionable vis--vis the principle laid down in Medel. Noteworthy is
the fact that in Medel, the defendant-spouses were never able to pay their indebtedness
from the very beginning and when their obligations ballooned into a staggering sum, the
creditors filed a collection case against them. In this case, there was no urgency of the
need for money on the part of Jocelyn, the debtor, which compelled her to enter into said
loan transactions. She used the money from the loans to make advance payments for
prospective clients of educational plans offered by her employer. In this way, her sales
production would increase, thereby entitling her to 50% rebate on her sales. This is the
reason why she did not mind the 6% to 7% monthly interest. Notably too, a business
transaction of this nature between Jocelyn and Marilou continued for more than five years.
Jocelyn religiously paid the agreed amount of interest until she ordered for stop payment
on some of the checks issued to Marilou. The checks were in fact sufficiently funded when
she ordered the stop payment and then filed a case questioning the imposition of a 6% to
7% interest rate for being allegedly iniquitous or unconscionable and, hence, contrary to
morals.
It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the
same carried with it an interest rate of 6% to 7% per month, yet she did not complain. In
fact, when she availed of said loans, an advance interest of 6% to 7% was already
deducted from the loan amount, yet she never uttered a word of protest.
After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to
7% per month and paying for the same, Jocelyn cannot now go to court to have the said
interest rate annulled on the ground that it is excessive, iniquitous, unconscionable,
exorbitant, and absolutely revolting to the conscience of man. "This is so because among
the maxims of equity are (1) he who seeks equity must do equity, and (2) he who comes
into equity must come with clean hands. The latter is a frequently stated maxim which is
also expressed in the principle that he who has done inequity shall not have equity. It
signifies that a litigant may be denied relief by a court of equity on the ground that his
conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the
controversy in issue." [17]
We are convinced that Jocelyn did not come to court for equitable relief with equity or with
clean hands. It is patently clear from the above summary of the facts that the conduct of
Jocelyn can by no means be characterized as nobly fair, just, and reasonable. This Court
likewise notes certain acts of Jocelyn before filing the case with the RTC. In September
1998, she requested Marilou not to deposit her checks as she can cover the checks only
the following month. On the next month, Jocelyn again requested for another extension of
one month. It turned out that she was only sweet-talking Marilou into believing that she
had no money at that time. But as testified by Serapio Romarate,[18] an employee of the
Bank of Commerce where Jocelyn is one of their clients, there was an available balance of
P276,203.03 in the latter's account and yet she ordered for the stop payments of the seven
checks which can actually be covered by the available funds in said account. She then
caught Marilou by surprise when she surreptitiously filed a case for declaration of nullity of
the document and for damages.
The document "Acknowledgment of Debt" is valid and binding.

Jocelyn seeks for the nullification of the document entitled "Acknowledgment of Debt" and
wants this Court to declare that she is no longer indebted to Marilou in the amount of
P290,000.00 as she had already paid a total amount of P778,000.00. She claims that said
document is an inexistent contract that is void from the very beginning as clearly provided
for by Article 1409[19] of the New Civil Code.
Jocelyn further claims that she signed the said document and issued the seven postdated
checks because Marilou threatened to sue her for violation of BP Blg. 22.
Jocelyn is misguided. Even if there was indeed such threat made by Marilou, the same is
not considered as threat that would vitiate consent. Article 1335 of the New Civil Code is
very specific on this matter. It provides:
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is
employed.
xxxx

More significantly, Jocelyn already availed herself of the benefits of the "Acknowledgment
of Debt," the validity of which she now impugns. As aptly found by the RTC and the CA,
Jocelyn was making a business out of the loaned amounts. She was actually using the
money to make advance payments for her prospective clients so that her sales production
would increase. Accordingly, she did not mind the 6% to 7% interest per month as she
was getting a 50% rebate on her sales.
Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
"Acknowledgment of Debt." "[A] party to a contract cannot deny the validity thereof after
enjoying its benefits without outrage to one's sense of justice and fairness." [21] "It is a long
established doctrine that the law does not relieve a party from the effects of an unwise,
foolish or disastrous contract, entered into with all the required formalities and with full
awareness of what she was doing. Courts have no power to relieve parties from
obligations voluntarily assumed, simply because their contracts turned out to be disastrous
or unwise investments."[22]

A threat to enforce one's claim through competent authority, if the claim is just or
legal, does not vitiate consent. (Emphasis supplied.)

WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 79805 dated August 24, 2005 affirming the Decision
dated March 10, 2003 of the Regional Trial Court, Branch 22, Cebu City, in Civil Case No.
CEB-22867 is AFFIRMED.

Clearly, we cannot grant Jocelyn the relief she seeks.

SO ORDERED.

As can be seen from the records of the case, Jocelyn has failed to prove her claim that she
was made to sign the document "Acknowledgment of Debt" and draw the seven Bank of
Commerce checks through force, threat and intimidation. As earlier stressed, said
document was signed in the office of Jocelyn, a high ranking executive of CAP, and it was
Jocelyn herself who went to the table of her two subordinates to procure their signatures
as witnesses to the execution of said document. If indeed, she was forced to sign said
document, then Jocelyn should have immediately taken the proper legal remedy. But she
did not. Furthermore, it must be noted that after the execution of said document, Jocelyn
honored the first three checks before filing the complaint with the RTC. If indeed she was
forced she would never have made good on the first three checks.

Corona, C.J., (Chairperson), Leonardo-De Castro, Abad,* and Perez, JJ., concur.
, in Civil Case No. CEB-22867 is AFFIRMED. SO ORDERED.

It is provided, as one of the conclusive presumptions under Rule 131, Section 2(a), of the
Rules of Court that, "Whenever a party has, by his own declaration, act or omission,
intentionally and deliberately led another to believe a particular thing to be true, and to act
upon such belief, he cannot, in any litigation arising out of such declaration, act or
omission, be permitted to falsify it." This is known as the principle of estoppel.
"The essential elements of estoppel are: (1) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at
least influence, the other party; and, (3) knowledge, actual or constructive, of the real
facts."[20]
Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of Debt" in
April 1998 and two of her subordinates served as witnesses to its execution, knowing fully
well the nature of the contract she was entering into. Next, Jocelyn issued five checks in
favor of Marilou representing renewal payment of her loans amounting to P290,000.00. In
June 1998, she asked to recall Check No. 0010761 in the amount of P30,000.00 and
replaced the same with six checks, in staggered amounts. All these are indicia that
Jocelyn treated the "Acknowledgment of Debt" as a valid and binding contract.

[ G.R. No. 197861, June 05, 2013 ]

SPOUSES FLORENTINO T. MALLARI AND AUREA V. MALLARI, PETITIONERS, VS.
PRUDENTIAL BANK (NOW BANK OF THE PHILIPPINE ISLANDS), RESPONDENT.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the Decision[1] dated
June 17, 2010 and the Resolution[2] dated July 20, 2011 of the Court of Appeals (CA) in CAG.R. CV No. 65993.
The antecedent facts are as follows:
On December 11, 1984, petitioner Florentino T. Mallari (Florentino) obtained from respondent
Prudential Bank-Tarlac Branch (respondent bank), a loan in the amount of P300,000.00 as
evidenced by Promissory Note (PN) No. BD 84-055.[3] Under the promissory note, the loan was
subject to an interest rate of 21% per annum (p.a.), attorney's fees equivalent to 15% of the
total amount due but not less than P200.00 and, in case of default, a penalty and collection
charges of 12% p.a. of the total amount due. The loan had a maturity date of January 10, 1985,
but was renewed up to February 17, 1985. Petitioner Florentino executed a Deed of
Assignment[4] wherein he authorized the respondent bank to pay his loan with his time deposit
with the latter in the amount of P300,000.00.
On December 22, 1989, petitioners spouses Florentino and Aurea Mallari (petitioners) obtained
again from respondent bank another loan of P1.7 million as evidenced by PN No. BDS 60689[5] with a maturity date of March 22, 1990. They stipulated that the loan will bear 23% interest

p.a., attorney's fees equivalent to 15% p.a. of the total amount due, but not less than P200.00,
and penalty and collection charges of 12% p.a. Petitioners executed a Deed of Real Estate
Mortgage[6] in favor of respondent bank covering petitioners' property under Transfer Certificate
of Title (TCT) No. T-215175 of the Register of Deeds of Tarlac to answer for the said loan.

Subsequently, respondent bank filed a Demurrer to Evidence.

Petitioners failed to settle their loan obligations with respondent bank, thus, the latter, through its
lawyer, sent a demand letter to the former for them to pay their obligations, which when
computed up to January 31, 1992, amounted to P571,218.54 for PN No. BD 84-055 and
P2,991,294.82 for PN No. BDS 606-89.

WHEREFORE, this case is hereby ordered DISMISSED. Considering there is no evidence of

bad faith, the Court need not order the plaintiffs to pay damages under the general concept that
there should be no premium on the right to litigate.

On February 25, 1992, respondent bank filed with the Regional Trial Court (RTC) of Tarlac, a
petition for the extrajudicial foreclosure of petitioners' mortgaged property for the satisfaction of
the latter's obligation of P1,700,000.00 secured by such mortgage, thus, the auction sale was
set by the Provincial Sheriff on April 23, 1992.[7]
On April 10, 1992, respondent bank's Assistant Manager sent petitioners two (2) separate
Statements of Account as of April 23, 1992, i.e., the loan of P300,000.00 was increased to
P594,043.54, while the P1,700,000.00 loan was already P3,171,836.18.
On April 20, 1992, petitioners filed a complaint for annulment of mortgage, deeds, injunction,
preliminary injunction, temporary restraining order and damages claiming, among others, that:
(1) the P300,000.00 loan obligation should have been considered paid, because the time
deposit with the same amount under Certificate of Time Deposit No. 284051 had already been
assigned to respondent bank; (2) respondent bank still added the P300,000.00 loan to the P1.7
million loan obligation for purposes of applying the proceeds of the auction sale; and (3) they
realized that there were onerous terms and conditions imposed by respondent bank when it tried
to unilaterally increase the charges and interest over and above those stipulated. Petitioners
asked the court to restrain respondent bank from proceeding with the scheduled foreclosure
sale.
Respondent bank filed its Answer with counterclaim arguing that: (1) the interest rates were
clearly provided in the promissory notes, which were used in computing for interest charges; (2)
as early as January 1986, petitioners' time deposit was made to apply for the payment of interest
of their P300,000.00 loan; and (3) the statement of account as of April 10, 1992 provided for a
computation of interest and penalty charges only from May 26, 1989, since the proceeds of
petitioners' time deposit was applied to the payment of interest and penalty charges for the
preceding period. Respondent bank also claimed that petitioners were fully apprised of the
bank's terms and conditions; and that the extrajudicial foreclosure was sought for the satisfaction
of the second loan in the amount of P1.7 million covered by PN No. BDS 606-89 and the real
estate mortgage, and not the P300,000.00 loan covered by another PN No. 84-055.
In an Order[8] dated November 10, 1992, the RTC denied the Application for a Writ of Preliminary
Injunction. However, in petitioners' Supplemental Motion for Issuance of a Restraining Order
and/or Preliminary Injunction to enjoin respondent bank and the Provincial Sheriff from effecting
or conducting the auction sale, the RTC reversed itself and issued the restraining order in its
Order[9] dated January 14, 1993.
Respondent bank filed its Motion to Lift Restraining Order, which the RTC granted in its Order [10]
dated March 9, 1993. Respondent bank then proceeded with the extrajudicial foreclosure of the
mortgaged property. On July 7, 1993, a Certificate of Sale was issued to respondent bank
being the highest bidder in the amount of P3,500,000.00.
Subsequently, respondent bank filed a Motion to Dismiss Complaint [11] for failure to prosecute
action for unreasonable length of time to which petitioners filed their Opposition.[12] On
November 19, 1998, the RTC issued its Order[13] denying respondent bank's Motion to Dismiss
Complaint.
Trial thereafter ensued. Petitioner Florentino was presented as the lone witness for the plaintiffs.

On November 15, 1999, the RTC issued its Order[14] granting respondent's demurrer to
evidence, the dispositive portion of which reads:

NO COSTS.
SO ORDERED.[15]
The RTC found that as to the P300,000.00 loan, petitioners had assigned petitioner
Florentino's time deposit in the amount of P300,000.00 in favor of respondent bank, which
maturity coincided with petitioners' loan maturity. Thus, if the loan was unpaid, which was later
extended to February 17, 1985, respondent bank should had just applied the time deposit to the
loan. However, respondent bank did not, and allowed the loan interest to accumulate reaching
the amount of P594,043.54 as of April 10, 1992, hence, the amount of P292,600.00 as penalty
charges was unjust and without basis.
As to the P1.7 million loan which petitioners obtained from respondent bank after the
P300,000.00 loan, it had reached the amount of P3,171,836.18 per Statement of Account dated
April 27, 1993, which was computed based on the 23% interest rate and 12% penalty charge
agreed upon by the parties; and that contrary to petitioners' claim, respondent bank did not add
the P300,000.00 loan to the P1.7 million loan obligation for purposes of applying the proceeds
of the auction sale.
The RTC found no legal basis for petitioners' claim that since the total obligation was P1.7
million and respondent bank's bid price was P3.5 million, the latter should return to petitioners
the difference of P1.8 million. It found that since petitioners' obligation had reached
P2,991,294.82 as of January 31, 1992, but the certificate of sale was executed by the sheriff
only on July 7, 1993, after the restraining order was lifted, the stipulated interest and penalty
charges from January 31, 1992 to July 7, 1993 added to the loan already amounted to P3.5
million as of the auction sale.
The RTC found that the 23% interest rate p.a., which was then the prevailing loan rate of
interest could not be considered unconscionable, since banks are not hospitable or equitable
institutions but are entities formed primarily for profit. It also found that Article 1229 of the Civil
Code invoked by petitioners for the reduction of the interest was not applicable, since petitioners
had not paid any single centavo of the P1.7 million loan which showed they had not complied
with any part of the obligation.
Petitioners appealed the RTC decision to the CA. A Comment was filed by respondent bank
and petitioners filed their Reply thereto.
On June 17, 2010, the CA issued its assailed Decision, the dispositive portion of which reads:
WHEREFORE, the instant appeal is hereby DENIED. The Order dated November 15, 1999
issued by the Regional Trial Court (RTC), Branch 64, Tarlac City, in Civil Case No. 7550 is
hereby AFFIRMED.[16]
The CA found that the time deposit of P300,000.00 was equivalent only to the principal amount
of the loan of P300,000.00 and would not be sufficient to cover the interest, penalty, collection
charges and attorney's fees agreed upon, thus, in the Statement of Account dated April 10,
1992, the outstanding balance of petitioners' loan was P594,043.54. It also found not persuasive
petitioners' claim that the P300,000.00 loan was added to the P1.7 million loan. The CA,
likewise, found that the interest rates and penalty charges imposed were not unconscionable

and adopted in toto the findings of the RTC on the matter.

Petitioners filed their Motion for Reconsideration, which the CA denied in a Resolution dated July
20, 2011.
Hence, petitioners filed this petition for review arguing that:
THE HON. COURT OF APPEALS ERRED IN AFFIRMING THE ORDER OF THE RTC-BRANCH
64, TARLAC CITY, DATED NOVEMBER 15, 1999, DESPITE THE FACT THAT THE SAME IS
CONTRARY TO SETTLED JURISPRUDENCE ON THE MATTER.[17]
The issue for resolution is whether the 23% p.a. interest rate and the 12% p.a. penalty charge
on petitioners' P1,700,000.00 loan to which they agreed upon is excessive or unconscionable
under the circumstances.
Parties are free to enter into agreements and stipulate as to the terms and conditions of their
contract, but such freedom is not absolute. As Article 1306 of the Civil Code provides, The
contracting parties may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy. Hence, if the stipulations in the contract are valid, the parties thereto are bound to
comply with them, since such contract is the law between the parties. In this case, petitioners
and respondent bank agreed upon on a 23% p.a. interest rate on the P1.7 million loan. However,
petitioners now contend that the interest rate of 23% p.a. imposed by respondent bank is
excessive or unconscionable, invoking our ruling in Medel v. Court of Appeals,[18] Toring v.
Spouses Ganzon-Olan,[19] and Chua v. Timan.[20]
We are not persuaded.
In Medel v. Court of Appeals,[21] we found the stipulated interest rate of 66% p.a. or a 5.5% per
month on a P500,000.00 loan excessive, unconscionable and exorbitant, hence, contrary to
morals if not against the law and declared such stipulation void. In Toring v. Spouses GanzonOlan,[22] the stipulated interest rates involved were 3% and 3.81% per month on a P10 million
loan, which we find under the circumstances excessive and reduced the same to 1% per month.
While in Chua v. Timan,[23] where the stipulated interest rates were 7% and 5% a month, which
are equivalent to 84% and 60% p.a., respectively, we had reduced the same to 1% per month or
12% p.a. We said that we need not unsettle the principle we had affirmed in a plethora of cases
that stipulated interest rates of 3% per month and higher are excessive, unconscionable and
exorbitant, hence, the stipulation was void for being contrary to morals.[24]
In this case, the interest rate agreed upon by the parties was only 23% p.a., or less than 2% per
month, which are much lower than those interest rates agreed upon by the parties in the abovementioned cases. Thus, there is no similarity of factual milieu for the application of those cases.
We do not consider the interest rate of 23% p.a. agreed upon by petitioners and respondent
bank to be unconscionable.
In Villanueva v. Court of Appeals,[25] where the issue raised was whether the 24% p.a. stipulated
interest rate is unreasonable under the circumstances, we answered in the negative and held:
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage
Bank, Dagupan City Branch, this Court held that the interest rate of 24% per annum on a loan of
P244,000.00, agreed upon by the parties, may not be considered as unconscionable and
excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to
comply with what is incumbent upon them under the contract of loan as the said contract is the
law between the parties and they are bound by its stipulations.
Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the parties to a
24% per annum interest on an P8,649,250.00 loan finding the same to be reasonable and
clearly evidenced by the amended credit line agreement entered into by the parties as well as
two promissory notes executed by the borrower in favor of the lender.
Based on the above jurisprudence, the Court finds that the 24% per annum interest rate,
provided for in the subject mortgage contracts for a loan of P225,000.00, may not be considered
unconscionable. Moreover, considering that the mortgage agreement was freely entered into by

both parties, the same is the law between them and they are bound to comply with the
provisions contained therein.[26]
Clearly, jurisprudence establish that the 24% p.a. stipulated interest rate was not considered
unconscionable, thus, the 23% p.a. interest rate imposed on petitioners' loan in this case can by
no means be considered excessive or unconscionable.
We also do not find the stipulated 12% p.a. penalty charge excessive or unconscionable.
In Ruiz v. CA,[27] we held:
The 1% surcharge on the principal loan for every month of default is valid. This surcharge or
penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated
damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest
payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an
accessory undertaking to assume greater liability on the part of an obligor in case of breach of
an obligation. The obligor would then be bound to pay the stipulated amount of indemnity without
the necessity of proof on the existence and on the measure of damages caused by the breach. x
x x[28]
And in Development Bank of the Philippines v. Family Foods Manufacturing Co., Ltd.,[29] we held
that:
x x x The enforcement of the penalty can be demanded by the creditor only when the nonperformance is due to the fault or fraud of the debtor. The non-performance gives rise to the
presumption of fault; in order to avoid the payment of the penalty, the debtor has the burden of
proving an excuse the failure of the performance was due to either force majeure or the acts of
the creditor himself.[30]
Here, petitioners defaulted in the payment of their loan obligation with respondent bank and their
contract provided for the payment of 12% p.a. penalty charge, and since there was no showing
that petitioners' failure to perform their obligation was due to force majeure or to respondent
bank's acts, petitioners cannot now back out on their obligation to pay the penalty charge. A
contract is the law between the parties and they are bound by the stipulations therein.
WHEREFORE, the petition for review is DENIED. The Decision dated June 17, 2010 and the
Resolution dated July 20, 2011 of the Court of Appeals are hereby AFFIRMED. SO ORDERED.
[ G.R. No. 182963, June 03, 2013 ]
SPOUSES DEO AGNER AND MARICON AGNER, PETITIONERS, VS. BPI FAMILY SAVINGS
BANK, INC., RESPONDENT.
PERALTA, J.:
This is a petition for review on certiorari assailing the April 30, 2007 Decision[1] and May 19, 2008
Resolution[2] of the Court of Appeals in CA G.R. CV No. 86021, which affirmed the August 11,
2005 Decision[3] of the Regional Trial Court, Branch 33, Manila City.
On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner .executed a
Promissory Note with Chattel Mortgage in favor of Citimotors, Inc. The contract provides, among
others, that: for receiving the amount of Php834,768.00, petitioners shall pay Php17,391.00
every 15th day of each succeeding month until fully paid; the loan is secured by a 2001
Mitsubishi Adventure Super Sport; and an interest of 6% per month shall be imposed for failure
to pay each installment on or before the stated due date.[4]
On the same day, Citimotors, Inc. assigned all its rights, title and interests in the Promissory
Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31,
2002, likewise assigned the same to respondent BPI Family Savings Bank, Inc.[5]
For failure to pay four successive installments from May 15, 2002 to August 15, 2002,
respondent, through counsel, sent to petitioners a demand letter dated August 29, 2002,
declaring the entire obligation as due and demandable and requiring to pay Php576,664.04, or
surrender the mortgaged vehicle immediately upon receiving the letter.[6]As the demand was left

unheeded, respondent filed on October 4, 2002 an action for Replevin and Damages before the
Manila Regional Trial Court (RTC).
A writ of replevin was issued.[7] Despite this, the subject vehicle was not seized.[8] Trial on the
merits ensued. On August 11, 2005, the Manila RTC Br. 33 ruled for the respondent and ordered
petitioners to jointly and severally pay the amount of Php576,664.04 plus interest at the rate of
72% per annum from August 20, 2002 until fully paid, and the costs of suit.
Petitioners appealed the decision to the Court of Appeals (CA), but the CA affirmed the lower
court's decision and, subsequently, denied the motion for reconsideration; hence, this petition.
Before this Court, petitioners argue that: (1) respondent has no cause of action, because the
Deed of Assignment executed in its favor did not specifically mention ABN AMRO's account
receivable from petitioners; (2) petitioners cannot be considered to have defaulted in payment
for lack of competent proof that they received the demand letter; and (3) respondent's remedy of
resorting to both actions of replevin and collection of sum of money is contrary to the provision of
Article 1484[9] of the Civil Code and the Elisco Tool Manufacturing Corporation v. Court of
Appeals[10] ruling.
The contentions are untenable.
With respect to the first issue, it would be sufficient to state that the matter surrounding the Deed
of Assignment had already been considered by the trial court and the CA. Likewise, it is an issue
of fact that is not a proper subject of a petition for review under Rule 45. An issue is factual when
the doubt or difference arises as to the truth or falsehood of alleged facts, or when the query
invites calibration of the whole evidence, considering mainly the credibility of witnesses,
existence and relevancy of specific surrounding circumstances, their relation to each other and
to the whole, and the probabilities of the situation.[11] Time and again, We stress that this Court is
not a trier of facts and generally does not weigh anew evidence which lower courts have passed
upon.
As to the second issue, records bear that both verbal and written demands were in fact made by
respondent prior to the institution of the case against petitioners.[12] Even assuming, for
argument's sake, that no demand letter was sent by respondent, there is really no need for it
because petitioners legally waived the necessity of notice or demand in the Promissory Note
with Chattel Mortgage, which they voluntarily and knowingly signed in favor of respondent's
predecessor-in-interest. Said contract expressly stipulates:
In case of my/our failure to pay when due and payable, any sum which I/We are obliged to pay
under this note and/or any other obligation which I/We or any of us may now or in the future owe
to the holder of this note or to any other party whether as principal or guarantor x x x then the
entire sum outstanding under this note shall, without prior notice or demand, immediately
become due and payable. (Emphasis and underscoring supplied)
A provision on waiver of notice or demand has been recognized as legal and valid in Bank of the
Philippine Islands v. Court of Appeals,[13] wherein We held:
The Civil Code in Article 1169 provides that one incurs in delay or is in default from the time the
obligor demands the fulfillment of the obligation from the obligee. However, the law expressly
provides that demand is not necessary under certain circumstances, and one of these
circumstances is when the parties expressly waive demand. Hence, since the co-signors
expressly waived demand in the promissory notes, demand was unnecessary for them to be in
default.[14]
Further, the Court even ruled in Navarro v. Escobido[15] that prior demand is not a condition
precedent to an action for a writ of replevin, since there is nothing in Section 2, Rule 60 of the
Rules of Court that requires the applicant to make a demand on the possessor of the property
before an action for a writ of replevin could be filed.
Also, petitioners' representation that they have not received a demand letter is completely
inconsequential as the mere act of sending it would suffice. Again, We look into the Promissory
Note with Chattel Mortgage, which provides:

All correspondence relative to this mortgage, including demand letters, summonses, subpoenas,
or notifications of any judicial or extrajudicial action shall be sent to the MORTGAGOR at the
address indicated on this promissory note with chattel mortgage or at the address that may
hereafter be given in writing by the MORTGAGOR to the MORTGAGEE or his/its assignee. The
mere act of sending any correspondence by mail or by personal delivery to the said
address shall be valid and effective notice to the mortgagor for all legal purposes and the
fact that any communication is not actually received by the MORTGAGOR or that it has
been returned unclaimed to the MORTGAGEE or that no person was found at the address
given, or that the address is fictitious or cannot be located shall not excuse or relieve the
MORTGAGOR from the effects of such notice.[16] (Emphasis and underscoring supplied)
The Court cannot yield to petitioners' denial in receiving respondent's demand letter. To note,
their postal address evidently remained unchanged from the time they executed the Promissory
Note with Chattel Mortgage up to time the case was filed against them. Thus, the presumption
that "a letter duly directed and mailed was received in the regular course of the mail" [17] stands in
the absence of satisfactory proof to the contrary.
Petitioners cannot find succour from Ting v. Court of Appeals[18] simply because it pertained to
violation of Batas Pambansa Blg. 22 or the Bouncing Checks Law. As a higher quantum of proof
that is, proof beyond reasonable doubt is required in view of the criminal nature of the
case, We found insufficient the mere presentation of a copy of the demand letter allegedly sent
through registered mail and its corresponding registry receipt as proof of receiving the notice of
dishonor.
Perusing over the records, what is clear is that petitioners did not take advantage of all the
opportunities to present their evidence in the proceedings before the courts below. They
miserably failed to produce the original cash deposit slips proving payment of the monthly
amortizations in question. Not even a photocopy of the alleged proof of payment was appended
to their Answer or shown during the trial. Neither have they demonstrated any written requests to
respondent to furnish them with official receipts or a statement of account. Worse, petitioners
were not able to make a formal offer of evidence considering that they have not marked any
documentary evidence during the presentation of Deo Agner's testimony.[19]
Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving
it; the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.[20] When the creditor is in possession of the document of credit, proof of non-payment
is not needed for it is presumed.[21] Respondent's possession of the Promissory Note with
Chattel Mortgage strongly buttresses its claim that the obligation has not been extinguished. As
held in Bank of the Philippine Islands v. Spouses Royeca:[22]
x x x The creditor's possession of the evidence of debt is proof that the debt has not been
discharged by payment. A promissory note in the hands of the creditor is a proof of indebtedness
rather than proof of payment. In an action for replevin by a mortgagee, it is prima facie evidence
that the promissory note has not been paid. Likewise, an uncanceled mortgage in the
possession of the mortgagee gives rise to the presumption that the mortgage debt is unpaid.[23]
Indeed, when the existence of a debt is fully established by the evidence contained in the
record, the burden of proving that it has been extinguished by payment devolves upon the
debtor who offers such defense to the claim of the creditor.[24] The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment. [25]
Lastly, there is no violation of Article 1484 of the Civil Code and the Court's decision in Elisco
Tool Manufacturing Corporation v. Court of Appeals.[26]
In Elisco, petitioner's complaint contained the following prayer:
WHEREFORE, plaintiffs [pray] that judgment be rendered as follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus legal interest
from the date of demand until the whole obligation is fully paid;

ON THE SECOND CAUSE OF ACTION

To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more particularly
described in paragraph 3 of the Complaint, from defendant Rolando Lantan and/or defendants
Rina Lantan, John Doe, Susan Doe and other person or persons in whose possession the said
motor vehicle may be found, complete with accessories and equipment, and direct deliver
thereof to plaintiff in accordance with law, and after due hearing to confirm said seizure and
plaintiff's possession over the same;
ON THE ALTERNATIVE CAUSE OF ACTION
In the event that manual delivery of the subject motor vehicle cannot be effected for any reason,
to render judgment in favor of plaintiff and against defendant Rolando Lantan ordering the latter
to pay the sum of SIXTY THOUSAND PESOS (P60,000.00) which is the estimated actual value
of the above-described motor vehicle, plus the accrued monthly rentals thereof with interests at
the rate of fourteen percent (14%) per annum until fully paid;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent to twentyfive percent (25%) of his outstanding obligation, for and as attorney's fees;
2. Ordering defendants to pay the cost or expenses of collection, repossession, bonding fees
and other incidental expenses to be proved during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable Court may deem just and equitable
under the premises.
The Court therein ruled:
The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars
the exercise of the others. This limitation applies to contracts purporting to be leases of personal
property with option to buy by virtue of Art. 1485. The condition that the lessor has deprived the
lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled
in this case by the filing by petitioner of the complaint for replevin to recover possession of
movable property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff
seized the vehicle on August 6, 1986 and thereby deprived private respondents of its use. The
car was not returned to private respondent until April 16, 1989, after two (2) years and eight (8)
months, upon issuance by the Court of Appeals of a writ of execution.
Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the amount
that they were supposed to pay as of May 1986, plus interest at the legal rate. At the same time,
it prayed for the issuance of a writ of replevin or the delivery to it of the motor vehicle "complete
with accessories and equipment." In the event the car could not be delivered to petitioner, it was
prayed that private respondent Rolando Lantan be made to pay petitioner the amount of
P60,000.00, the "estimated actual value" of the car, "plus accrued monthly rentals thereof with
interests at the rate of fourteen percent (14%) per annum until fully paid." This prayer of course
cannot be granted, even assuming that private respondents have defaulted in the payment of
their obligation. This led the trial court to say that petitioner wanted to eat its cake and have it
too.[28]
In contrast, respondent in this case prayed:
(a) Before trial, and upon filing and approval of the bond, to [forthwith] issue a Writ of Replevin
ordering the seizure of the motor vehicle above-described, complete with all its accessories and
equipments, together with the Registration Certificate thereof, and direct the delivery thereof to
plaintiff in accordance with law and after due hearing, to confirm the said seizure;
(b) Or, in the event that manual delivery of the said motor vehicle cannot be effected to render
judgment in favor of plaintiff and against defendant(s) ordering them to pay to plaintiff, jointly and
severally, the sum of P576,664.04 plus interest and/or late payment charges thereon at the rate
of 72% per annum from August 20, 2002 until fully paid;
(c) In either case, to order defendant(s) to pay jointly and severally:

(1) the sum of P297,857.54 as attorney's fees, liquidated damages, bonding fees and other
expenses incurred in the seizure of the said motor vehicle; and
(2) the costs of suit.
Plaintiff further prays for such other relief as this Honorable Court may deem just and equitable
in the premises.[29]
Compared with Elisco, the vehicle subject matter of this case was never recovered and
delivered to respondent despite the issuance of a writ of replevin. As there was no seizure that
transpired, it cannot be said that petitioners were deprived of the use and enjoyment of the
mortgaged vehicle or that respondent pursued, commenced or concluded its actual foreclosure.
The trial court, therefore, rightfully granted the alternative prayer for sum of money, which is
equivalent to the remedy of "[e]xact[ing] fulfillment of the obligation." Certainly, there is no double
recovery or unjust enrichment[30] to speak of.
All the foregoing notwithstanding, We are of the opinion that the interest of 6% per month should
be equitably reduced to one percent (1%) per month or twelve percent (12%) per annum, to be
reckoned from May 16, 2002 until full payment and with the remaining outstanding balance of
their car loan as of May 15, 2002 as the base amount.
Settled is the principle which this Court has affirmed in a number of cases that stipulated interest
rates of three percent (3%) per month and higher are excessive, iniquitous, unconscionable, and
exorbitant.[31] While Central Bank Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity, nothing in the said circular could possibly be read as granting carte
blanche authority to lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a hemorrhaging of their assets.[32] Since the stipulation on the interest rate
is void for being contrary to morals, if not against the law, it is as if there was no express contract
on said interest rate; thus, the interest rate may be reduced as reason and equity demand.[33]
WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH MODIFICATION the April
30, 2007 Decision and May 19, 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
86021. Petitioners spouses Deo Agner and Maricon Agner are ORDERED to pay, jointly and
severally, respondent BPI Family Savings Bank, Inc. (1) the remaining outstanding balance of
their auto loan obligation as of May 15, 2002 with interest at one percent (1%) per month from
May 16, 2002 until fully paid; and (2) costs of suit. SO ORDERED.
[ G.R. No. 194201, November 27, 2013 ]
SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, PETITIONERS, VS. PHILIPPINE
NATIONAL BANK, REGISTER OF DEEDS OF BATANGAS CITY, JOSE C. CORALES,
RESPONDENTS.

PEREZ, J.:
Before the Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court
seeking to partially set aside the Decision,[2] dated 30 March 2010, and the Resolution,[3] dated
13 October 2010, of the Court of Appeals (CA) in CA-G.R. CV No. 91250. The challenged
Decision dismissed the appeal of herein respondent Philippine National Bank (respondent bank)
and affirmed the decision of the Regional Trial Court (RTC), Branch 84, Batangas City with the
modification that the interest rate to be applied by respondent bank on the principal loan
obligation of petitioners Spouses Bayani H. Andal and Gracia G. Andal (petitioners-spouses)
shall be 12% per annum, to be computed from default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from [respondent bank] in the
amount of P21,805,000.00, for which they executed twelve (12) promissory notes x x x
[undertaking] to pay [respondent bank] the principal loan with varying interest rates of 17.5% to
27% per interest period. It was agreed upon by the parties that the rate of interest may be

increased or decreased for the subsequent interest periods, with prior notice to [petitionersspouses], in the event of changes in interest rates prescribed by law or the Monetary Board x x
x, or in the banks overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in favor of [respondent
bank] a real estate mortgage using as collateral five (5) parcels of land including all
improvements therein, all situated in Batangas City and covered by Transfer Certificate of Title
(TCT) Nos. T-641, T-32037, T-16730, T-31193 and RT 363 (3351) of the Registry of Deeds of
Batangas City, in the name of [petitioners-spouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their loan obligation,
otherwise the former will declare the latters loan due and demandable. On July 17, 2001,
[petitioners-spouses] paid P14,800,000.00 to [respondent bank] to avoid foreclosure of the
properties subject of the real estate mortgage. Accordingly, [respondent bank] executed a
release of real estate mortgage over the parcels of land covered by TCT Nos. T-31193 and RT363 (3351). However, despite payment x x x, [respondent bank] proceeded to foreclose the real
estate mortgage, particularly with respect to the three (3) parcels of land covered by TCT Nos. T641, T-32037 and T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent bank] emerging as
the highest and winning bidder. Accordingly, on August 30, 2002, a certificate of sale of the
properties involved was issued. [Respondent bank] consolidated its ownership over the said
properties and TCT Nos. T-52889, T-52890, and T-52891 were issued in lieu of the cancelled
TCT[s] x x x. This prompted [petitioners-spouses] to file x x x a complaint for annulment of
mortgage, sheriffs certificate of sale, declaration of nullity of the increased interest rates and
penalty charges plus damages, with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to religiously pay their
loan obligation to [respondent bank], but the exorbitant rate of interest unilaterally determined
and imposed by the latter prevented the former from paying their obligation. [Petitionersspouses] also alleged that they signed the promissory notes in blank, relying on the
representation of [respondent bank] that they were merely proforma [sic] bank requirements.
Further, [petitioners-spouses] alleged that the unilateral increase of interest rates and exorbitant
penalty charges are akin to unjust enrichment at their expense, giving [respondent bank] no right
to foreclose their mortgaged properties. x x x.
On August 27, 2004 [respondent bank] filed its answer, denying the allegations in the complaint.
x x x [respondent bank] alleged that: the penalty charges imposed on the loan was expressly
stipulated under the credit agreements and in the promissory notes; although [petitionersspouses] paid to [respondent bank] P14,800,000.00 on July 10, 2001, the former was still
indebted to the latter in the amount of P33,960,633.87; assuming arguendo that the imposition
was improper, the foreclosure of the mortgaged properties is in order since [respondent banks]
bid in the amount of P28,965,100.00 was based on the aggregate appraised rates of the
foreclosed properties. x x x[4]
After trial, the RTC rendered judgment[5] in favor of petitioners-spouses and against respondent
bank, ordering that:
1.

The rate of interest should be reduced as it is hereby reduced to 6% in accordance

with Article 2209 of the Civil Code effective the next 30, 31 and 180 days respectively from
the date of the twelve (12) promissory notes x x x covered by the real estate x x x
mortgages, to be applied on a declining balance of the principal after the partial payments of
P14,800,00.00 (paid July 17, 2001) and P2,000,000.00[6] (payments of P300,000.00 on
October 1, 1999, P1,800,000.00 as [of] December 1, 1999, P700,000.00 [on] January 31,
2000) per certification of [respondent bank] to be reckoned at (sic) the dates the said
payments were made, thus the corrected amounts of the liability for principal balance and
the said 6% charges per annum shall be the new basis for the [petitioners-spouses] to make
payments to the [respondent bank] x x x which shall automatically extinguish and release

the mortgage contracts and the outstanding liabilities of the [petitioners-spouses];

[respondent bank] shall then surrender the new transfer certificates of title x x x in its name
to the [c]ourt x x x, [c]anceling the penalty charges.
xxxx
3.

Declaring as illegal and void the foreclosure sales x x x, the Certificates of Sales and
the consolidation of titles of the subject real properties, including the cancellation of the new
Transfer Certificates of Title x x x in the name of the [respondent] bank and reinstating
Transfer Certificates of Title Nos. T-641, T-32037 and T-16730 in the names of the
[petitioners-spouses]; the latter acts to be executed by the Register of Deeds of Batangas
City.[7]

The foregoing disposition of the RTC was based on the following findings of fact:
As of this writing the [respondent] bank have (sic) not complied with the said orders as to the
interest rates it had been using on the loan of [petitioners-spouses] and the monthly computation
of interest vis a vis (sic) the total shown in the statement of account as of Aug 30, 2002. Such
refusal amounts to suppression of evidence thus tending to show that the interest used by the
bank was unilaterally increased without the written consent of the [petitioners-spouses]/borrower
as required by law and Central Bank Circular No. 1171. The latter circular provides that any
increase of interest in a given interest period will have to be expressly agreed to in writing by the
borrower. The mortgaged properties were subject of foreclosure and were sold on August 30,
2002 and the [respondent] banks statement of account as of August 30, 2002 x x x shows
unpaid interest up to July 17, 2001 of P12,695,718.99 without specifying the rate of interest for
each interest period of thirty days. Another statement of account of [respondent bank] x x x as
[of] the date of foreclosure on August 30, 2002 shows account balance of P20,505,916.51 with a
bid price of P28,965,100.00 and showing an interest of P16,163,281.65. Again, there are no
details of the interest used for each interest period from the time these loans were incurred up to
the date of foreclosure. These statements of account together with the stated interest and
expenses after foreclosure were furnished by the [respondent] bank during the [c]ourt hearings.
The central legal question is that there is no agreement in writing from the [petitionersspouses]/borrowers for the interest rate for each interest period neither from the data coming
from the Central Bank or the cost of money which is understood to mean the interest cost of the
bank deposits form the public. Such imposition of the increased interest without the consent of
the borrower is null and void pursuant to Article 1956 of the Civil Code and as held in the
pronouncement of the Supreme Court in several cases and C.B. Circular No. 1191 that the
interest rate for each re-pricing period under the floating rate of interest is subject to mutual
agreement in writing. Art. 1956 states that no interest is due unless it has been expressly
stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the creditor/mortgagee,
belongs to the class of potestative condition which is null and void under Art. 1308 of the New
Civil Code. The fulfillment of a condition cannot be left to the sole will of [one of] the contracting
parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure sale for a higher
amount than what is legally due is likewise null and void because under the Civil Code, a
mortgage may be foreclosed only to enforce the fulfillment of the obligation for whose security it
was constituted (Art. 2126, Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of interest since no interest
may be collected based on the stipulation that is null and void and legally inexistent and
unenforceable. x x x. Since the interest imposed is illegal and void only the rate of 6% interest
per month shall be imposed as liquidated damages under Art. 2209 of the Civil Code.

It is worth mentioning that these forms used by the bank are pre-printed forms and therefore
contracts of adhesion and x x x any dispute or doubt concerning them shall be resolved in favor
of the x x x borrower. This (sic) circumstances tend to support the contention of the [petitionersspouses] that they were made to sign the real estate mortgages/promissory notes in blank with
respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses] property and any foreclosure
thereof is illegal, unreasonable and void, since [petitioners-spouses] are not and cannot be
considered in default for their inability to pay the arbitrarily, illegally, and unconscionably adjusted
interest rates and penalty charges unilaterally made and imposed by [respondent] bank.
The [petitioners-spouses] submitted to the [c]ourt certified copies of the weighted average of
Selected Domestic Interest Rates of the local banks obtained from the Bangko Sentral ng
Pilipinas Statistical Center and it shows a declining balance of interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate was ever used to
increase or decrease the interest rates charged upon the [petitioners-spouses] mortgage loan
for the 30 day re-pricing period subsequent to the first 30 days from [the] dates of the promissory
notes. These documents submitted being certified public documents are entitled to being taken
cognizance of by the [c]ourt as an aid to its decision making. x x x.[8]
Respondent bank appealed the above judgment of the trial court to the CA. Its main contention
is that the lower court erred in ordering the re-computation of petitioners-spouses loans and
applying the interest rate of 6% per annum. According to respondent bank, the stipulation on the
interest rates of 17.5% to 27%, subject to periodic adjustments, was voluntarily agreed upon by
the parties; hence, it was not left to the sole will of respondent bank. Thus, the lower court erred
in reducing the interest rate to 6% and in setting aside the penalty charges, as such is contrary
to the principle of the obligatory force of contracts under Articles 1315 and 1159 of the Civil
Code.[9]
The CA disposed of the issue in the following manner:
We partly agree with [respondent banks] contention.
Settled is the rule that the contracting parties are free to enter into stipulations, clauses, terms
and conditions as they may deem convenient, as long as these are not contrary to law, morals,
good customs, public order or public policy. Pursuant to Article 1159 of the Civil Code, these
obligations arising from such contracts have the force of law between the parties and should be
complied with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly stipulated in the
promissory notes the rate of interest to be applied to the loan obtained by the latter from the
former, x x x.
[Respondent bank] insists that [petitioner-spouses] agreed to the interest rates stated in the
promissory notes since the latter voluntarily signed the same. However, we find more credible
and believable the version of [petitioners-spouses] that they were made to sign the said
promissory notes in blank with respect to the rate of interest and penalty charges, and
subsequently, [respondent] bank filled in the blanks, imposing high interest rate beyond which
they were made to understand at the time of the signing of the promissory notes.

The signing by [petitioners-spouses] of the promissory notes in blank enabled [respondent] bank
to impose interest rates on the loan obligation without prior notice to [petitioners-spouses]. The
unilateral determination and imposition of interest rates by [respondent] bank without
[petitioners-spouses] assent is obviously violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code x x x.
[Respondent banks] act converted the loan agreement into a contract of adhesion where the
parties do not bargain on equal footing, the weaker partys participation, herein [petitionersspouses], being reduced to the alternative to take it or leave it. [Respondent] bank tried to
sidestep this issue by averring that [petitioners-spouses], as businessmen, were on equal
footing with [respondent bank] as far as the subject loan agreements are concerned. That may
be true insofar as entering into the original loan agreements and mortgage contracts are
concerned. However, that does not hold true when it comes to the unilateral determination and
imposition of the escalated interest rates imposed by [respondent] bank.
The Court further notes that in the case at bar, [respondent] bank imposed different rates in the
twelve (12) promissory notes: interest rate of 18% in five (5) promissory notes; 17.5% in two (2)
promissory notes; 23% in one (1) promissory note; and 27% in three (3) promissory notes.
Obviously, the interest rates are excessive and arbitrary. Thus, the foregoing interest rates
imposed on [petitioners-spouses] loan obligation without their knowledge and consent should be
disregarded, not only for being iniquitous and exorbitant, but also for being violative of the
principle of mutuality of contracts.
However, we do not agree with the trial court in fixing the rate of interest of 6%. It is well-settled
that when an obligation is breached and consists in the payment of a sum of money, i.e., loan or
forbearance of money, the interest due shall be that which may have been stipulated in writing.
In the absence of stipulation, the rate of interest shall be 12% interest per annum to be
computed from default, i.e., from judicial or extra-judicial demand and subject to the provisions
of Article 1169 of the Civil Code. Since the interest rates printed in the promissory notes are void
for the reasons above-stated, the rate of interest to be applied to the loan should be 12% per
annum only.[10]
The CA, consequently, dismissed respondent banks appeal and affirmed the decision of the trial
court with the modification that the rate of interest shall be 12% per annum instead of 6%.
Respondent bank filed a Motion for Reconsideration of the CA decision. Petitioners-spouses, on
the other hand, filed a comment praying for the denial of respondent banks motion for
reconsideration. They also filed an Urgent Manifestation[11] calling the attention of the CA to its
respective decisions in the cases of Spouses Enrique and Epifania Mercado v. China Banking
Corporation, et. al. (CA-GR CV No. 75303)[12] and Spouses Bonifacio Caraig and Ligaya Caraig
v. The Ex-Officio Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No. 76029).[13]
According to petitioners-spouses, in Spouses Mercado v. China Banking, the Special Seventh
Division of the CA held that where the interest rate is potestative, the entire interest is null and
void and no interest is due. On the other hand, in the case of Spouses Caraig v. The Ex-Officio
Sheriff of RTC, Batangas City, the then Ninth Division of the CA ruled that under the doctrine of
operative facts, no interest is due after the auction sale because the loan is paid in kind by the
auction sale, and interest shall commence to run again upon finality of the judgment declaring
the auction sale null and void.[14]
The CA denied respondent banks Motion for Reconsideration for lack of merit. It likewise found
no merit in petitioners-spouses contention that no interest is due on their principal loan
obligation from the time of foreclosure until finality of the judgment annulling the foreclosure sale.
According to the CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the subject promissory
notes after finding that the same are iniquitous and exorbitant, and for being violative of the
principle of mutuality of contracts. Nevertheless, in Equitable PCI Bank v. Ng Sheung Ngor, the

Supreme Court ruled that because the escalation clause was annulled, the principal amount of
the loan was subject to the original or stipulated interest rate of interest, and that upon maturity,
the amount due was subject to legal interest at the rate of 12% per annum. In this case, while
we similarly annulled the escalation clause contained in the promissory notes, this Court opted
not to impose the original rates of interest stipulated therein for being excessive, the same being
17.5% to 27% per interest period.

interest rates and penalty charges unilaterally imposed by [respondent] bank.[17] This is
precisely the reason why the foreclosure proceedings involving petitioners-spouses properties
were invalidated. As pointed out by the CA, since the interest rates are null and void,
[respondent] bank has no right to foreclose [petitioners-spouses] properties and any foreclosure
thereof is illegal. x x x. Since there was no default yet, it is premature for [respondent] bank to
foreclose the properties subject of the real estate mortgage contract.[18]

Relevantly, the High Court held in Asian Cathay Finance and Leasing Corporation v. Spouses
Cesario Gravador and Norma De Vera, et. al. that stipulations authorizing the imposition of
iniquitous or unconscionable interest are contrary to morals, if not against the law. x x x. The
nullity of the stipulation on the usurious interest does not, however, affect the lenders right to
recover the principal of the loan. The debt due is to be considered without the stipulation of the
excessive interest. A legal interest of 12% per annum will be added in place of the excessive
interest formerly imposed.

Thus, for the purpose of computing the amount of liability of petitioners-spouses, they are
considered in default from the date the Resolution of the Court in G.R. No. 194164 (Philippine
National Bank v. Spouses Bayani H. Andal and Gracia G. Andal) which is the appeal
interposed by respondent bank to the Supreme Court from the judgment of the CA became
final and executory. Based on the records of G.R. No. 194164, the Court denied herein
respondent banks appeal in a Resolution dated 10 January 2011. The Resolution became final
and executory on 20 May 2011.[19]

Following the foregoing rulings of the Supreme Court, it is clear that the imposition by this Court
of a 12% rate of interest per annum on the principal loan obligation of [petitioners-spouses],
computed from the time of default, is proper as it is consistent with prevailing jurisprudence.

In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of the Governor of
the Bangko Sentral ng Pilipinas on 21 June 2013, and in accordance with the ruling of the
Supreme Court in the recent case of Dario Nacar v. Gallery Frames and/or Felipe Bordey, Jr.,
[20]
effective 1 July 2013, the rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as to such rate
of interest, shall be six percent (6%) per annum. Accordingly, the rate of interest of 12% per
annum on petitioners-spouses obligation shall apply from 20 May 2011 the date of default
until 30 June 2013 only. From 1 July 2013 until fully paid, the legal rate of 6% per annum shall
be applied to petitioners-spouses unpaid obligation.

While the decisions of the Special Seventh Division and the Ninth Division of this Court in CAG.R. CV No. 75303 and in CA-G.R. No. 76029 are final and executory, the same merely have
persuasive effect but do not outweigh the decisions of the Supreme Court which we are
duty-bound to follow, conformably with the principle of stare decisis. The doctrine
of stare decisis enjoins adherence to judicial precedents. It requires courts in a country
to follow the rule established in a decision of the Supreme Court thereof. That decision
becomes a judicial precedent to be followed in subsequent cases by all courts in the land. The
doctrine of stare decisis is based on the principle that once a question of law has been
examined and decided, it should be deemed settled and closed to further argument.
[15]
(Emphasis supplied.)
Petitioners-spouses are now before us, reiterating their position that no interest should be
imposed on their loan, following the respective pronouncements of the CA in the Caraig and
Mercado Cases. Petitioners-spouses insist that [i]f the application of the doctrine of operative
facts is upheld, as applied in Caraig vs. Alday, x x x, interest in the instant case would be
computed only from the finality of judgment declaring the foreclosure sale null and void.
If Mercado vs. China Banking Corporation x x x, applying by analogy the rule on void
usurious interest to void potestative interest rate, is further sustained, no interest is due when
the potestative interest rate stipulation is declared null and void, as in the instant case.[16]
Our Ruling

IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of the Court of
Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the MODIFICATION that the 12% interest
per annum shall be applied from the date of default until 30 June 2013 only, after which date and
until fully paid, the outstanding obligation of petitioners-spouses shall earn interest at 6% per
annum. Let the records of this case be remanded to the trial court for the proper computation of
the amount of liability of petitioners Spouses Bayani H. Andal and Gracia G. Andal, in
accordance with the pronouncements of the Court herein and with due regard to the payments
previously made by petitioners-spouses. SO ORDERED.
[ G.R. No. 192371, January 15, 2014 ]
LAND BANK OF THE PHILIPPINES, PETITIONER, VS. EMMANUEL OATE, RESPONDENT.

DEL CASTILLO, J.:

We dismiss the appeal.

We cannot subscribe to the contention of petitioners-spouses that no interest should be due on
the loan they obtained from respondent bank, or that, at the very least, interest should be
computed only from the finality of the judgment declaring the foreclosure sale null and void, on
account of the exorbitant rate of interest imposed on their loan.
It is clear from the contract of loan between petitioners-spouses and respondent bank that
petitioners-spouses, as borrowers, agreed to the payment of interest on their loan obligation.
That the rate of interest was subsequently declared illegal and unconscionable does not entitle
petitioners-spouses to stop payment of interest. It should be emphasized that only the rate of
interest was declared void. The stipulation requiring petitioners-spouses to pay interest on their
loan remains valid and binding. They are, therefore, liable to pay interest from the time they
defaulted in payment until their loan is fully paid.
It is worth mentioning that both the RTC and the CA are one in saying that [petitioners-spouses]
cannot be considered in default for their inability to pay the arbitrary, illegal and unconscionable

This Petition for Review on Certiorari[1] assails the December 18, 2009 Decision[2] of the Court of
Appeals (CA) in CA-G.R. CV No. 89346, which affirmed with modification the May 31, 2006
Decision[3] of the Regional Trial Court (RTC), Branch 141, Makati City. The RTC dismissed the
Complaint[4] for Sum of Money, which petitioner Land Bank of the Philippines (Land Bank) filed
against respondent Emmanuel C. Oate (Oate), and ordered Land Bank to return the amount
of P1,471,416.52 it unilaterally debited from his accounts. On separate appeals by both parties,
the CA affirmed the RTC Decision with modification that Land Bank was further ordered to pay
Oate the sums of P60,663,488.11 and US$3,210,222.85 representing the undocumented
withdrawals and drawings from his trust accounts with 12% per annum interest compounded
annually from June 21, 1991 until fully paid.
Also assailed is the CAs May 27, 2010 Resolution[5] denying Land Banks Motion for
Reconsideration.[6]
Factual Antecedents

Land Bank is a government financial institution created under Republic Act No. 3844.[7] From
1978 to 1980, Oate opened and maintained seven trust accounts with Land Bank, more
particularly described as follows:
Trust Account No.

Date Opened

Beginning Balance

01-014

09.07.78

P 250,000.00[8]

01-017

11.16.78

1,312,896.00[9]

01-024

02.23.79

900,000.00[10]

01-075

10.08.79

500,000.00[11]

01-082

10.25.79

200,001.00[12]

01-089

03.18.80

43.98[13]

01-125

03.13.80

188,161.00[14]

Each trust account was covered by an Investment Management Account (IMA) with Full
Discretion[15] and has a corresponding passbook where deposits and withdrawals were
recorded. Pertinent portions common to the IMAs read:
You [Land Bank] are appointed as my agent with full powers and discretion, subject only to the
following provisions:
1. You are authorized to hold, invest and reinvest the Fund and keep the same invested, in
your sole discretion, without distinction between principal and income, in any assets which you
deem advisable, without being restricted to those of the character authorized for fiduciaries
under any present or future law.
2. You shall have full power and authority:
(a) to treat all the Fund as one aggregate amount for purposes of
investment, and to deposit all or any part thereof with a reputable
bank including your own commercial banking department;

(b) to pay all costs, expenses and charges incurred in connection with
the administration, preservation, maintenance and protection of the
Fund and to charge the same to the Fund;

(e) to cause any asset of the Fund to be issued, held or registered in

your name or in the name of your nominee, or in such form that title
will pass by delivery, provided your records shall indicate the true
ownership of such assets;

(f) to hold the Fund in cash and to invest the same in fixed income
placements traded and sold by your own Money Market Division;
and

(g) to sign all documents pertinent to the transaction which you will
make in behalf of this Account.
3. All actions taken by you hereunder shall be for my account and risk. Except for willful
default or gross misconduct, you shall not be liable for any loss or depreciation in the value of
the assets of the Fund arising from any cause whatsoever.
4. You shall maintain accurate records of all investments, receipts, disbursements and other
transactions of the Account. Records relating thereto shall be open at all reasonable times to
inspection and audit by me either personally or through duly authorized representatives.
Statements consisting of a balance sheet, portfolio analysis, statement of income and expenses,
and summary of investment changes are to be sent to me/us quarterly.
I/We shall approve such accounting by delivering in writing to you a statement to that effect or by
failure to express objection to such accounting in writing delivered to you within thirty (30) days
from my receipt of the accounting.
Upon your receipt of a written approval of the accounting, or upon the passage of said period of
time within which objections may be filed, without written objections having been delivered to
you, such accounting shall be deemed to be approved, and you shall be released and
discharged as to all items, matters and things set forth in such accounting as if such accounting
had been settled and allowed by a decree of a court of competent jurisdiction, in an action or
proceeding in which you and I were parties.[16] (Emphasis supplied)
In a letter[17] dated October 8, 1981, however, Land Bank demanded from Oate the return of P4
million it claimed to have been inadvertently deposited to Trust Account No. 01-125 as his
additional funds but actually represents the total amount of the checks issued to Land Bank by
its corporate borrowers as payment for their pre-terminated loans. Oate refused. To settle the
matter, a meeting was held, but the parties failed to reach an agreement. Since then, the issue
of miscrediting remained unsettled. Then on June 21, 1991, Land Bank unilaterally applied the
outstanding balance in all of Oates trust accounts against his resulting indebtedness by reason
of the miscrediting of funds. Although it exhausted the funds in all of Oates trust accounts,
Land Bank was able to debit the amount of P1,528,583.48 only.[18]
Proceedings before the Regional Trial Court

(c) to vote in person or by proxy on any stocks, bonds or other

securities held by you, for my/our account;

To recoup the remaining balance of Oates indebtedness, Land Bank filed a Complaint [19] for
Sum of Money seeking to recover the amount of P8,222,687.89[20] plus interest at the legal rate
of 12% per annum computed from May 15, 1992 until fully paid. Pertinent portions of Land
Banks Complaint reads:

(d) to borrow money for the Fund (from your banking department or
from others) with or without giving securities from the Fund;

5. By virtue of the Deeds of Revocable Trust executed on January 9, 1989[21] [sic] and February
5, 1989[22] [sic] by Philippine Virginia Tobacco Administration (PVTA) and Philippine Virginia
Tobacco Board (PVTB), LANDBANK likewise became a Trustee of certain funds belonging to

PVTA and PVTB.

6. As authorized under the [Deeds] of Revocable Trust, on October 10, 1980, LANDBANK
invested P4 Million of the trust accounts of PVTA and PVTB, through a direct lending scheme to
the following companies:
(a) Republic Telephone Company, Inc. (RETELCO), under Promissory Note No. 1145 dated
October 10, 1980, for P1,021,250.00 with maturity date on November 24, 1980, subject to
automatic roll-over up to October 10, 1981 at 17% interest per annum.
(b) Philippine Blooming Mills Company, Inc. (PBM), under Promissory Note (unnumbered) dated
October 10, 1980, for P1,021,250.00, with maturity date on November 24, 1980, subject to
automatic roll-over up to October 10, 1981, at 17% interest per annum;
(c) Cheng Ban Yek (CBY), under Promissory Note (unnumbered) dated October 10, 1980, for
P1,023,138.89, with maturity date on November 28, 1980, subject to automatic roll-over up to
October 10, 1981, at 17% interest per annum;
(d) Philippine Tobacco Filters Corporation (PHILTOFIL), under Promissory Note (unnumbered)
dated October 10, 1980, for P1,021,250.00, with maturity date on November 24, 1980, subject to
automatic roll-over up to October 10, 1981, at 17% interest per annum.
7. Pursuant to such direct loan transactions granted to the aforementioned companies,
LANDBANK issued four (4) cashiers checks for P1 Million each payable to RETELCO, PBM,
CBY, and PHILTOFIL x x x
8. On or about November 24 and 28, 1980, the aforesaid borrowers (RETELCO, PBM, CBY,
AND PHILTOFIL), pre-terminated their corresponding loans and paid their respective obligations
in the form of checks payable to LANDBANK and delivered by [Oates] representative, Mr.
Eduardo Polonio.
9. When the checks were delivered, [Oate] fraudulently misrepresented to LANDBANK that
they were [Oates] additional capital contribution to his personal trust account. On the basis of
this misrepresentation, LANDBANK credited the payments made by the aforementioned
corporate borrowers to [Oates] Trust Account No. 01-125.
10. After the payments were credited to his personal trust account, Oate proceeded to
withdraw the same, to the damage and prejudice of LANDBANK as the owner thereof.[23]
In his Answer (With Compulsory Counterclaim),[24] Oate asserted that the setoff was without
legal and factual bases. He specifically denied any knowledge or involvement in the transaction
between Land Bank and its clients Philippine Virginia Tobacco Administration (PVTA) and
Philippine Virginia Tobacco Board (PVTB). He also denied that he made fraudulent
misrepresentation to induce the bank to deposit to his Trust Account No. 01-125 as his additional
capital the payments allegedly tendered by the banks corporate borrowers. He maintained that
all the funds in his accounts came from legitimate sources and that he was totally unaware of
and had nothing to do with the alleged miscrediting. While Oate admitted having received the
October 8, 1981 demand letter, he argued that he did not acquiesce thereto and, in fact,
disputed the same during a meeting with an officer of Land Bank. He also refuted Land Banks
claim that it formally demanded for the return of the disputed amount as the September 3, 1991
letter[25] it alluded to is not a demand letter. It was sent in response to his counsels letter
requesting for an accounting of his trust accounts.
By way of compulsory counterclaim, Oate pointed out that per Balance Sheets [26] as of June 30,
1982 the funds in his trust accounts already totaled P35,555,464.78. And as of January 1993,
the accumulated balance of his accounts reached P229,222,160.25 and $3,472,683.94
computed as follows:

With interest at the rate of eighteen percent (18%) compounded every ninety (90) days from the
third quarter of 1982 to January, 1993, the trustors equity of P35,555,464.78 has
earned interest in the amount ofP193,666,695.47. Adding the trustors equity to the aforesaid
accrued interest thereon, [Oates] peso deposits [in] his trust accounts with plaintiff bank have
an accumulated balance of P229,222,160.25 as of January 1993.
But that is not all. [Oates] dollar deposits to Trust Account No. 01-014 (which is for an
Undisclosed Principal) from the period July-September, 1980 alone, already amounted to
$1,690,943.78. x x x
With interest at the rate of six percent (6%) compounded every ninety (90) days from the first
quarter of 1981, the said dollar deposits have earned interest of $1,781,740.16 up to January,
1993. Thus, [Oates] dollar deposits [in] Trust Account No. 01-014 have an aggregate balance
of $3,472,683.94 as of January 1993.[27]
Hence, even if the amount of P8,222,687.89 as of May 15, 1992 is deducted from the
outstanding balance of his trust accounts as of January 1993, the bank still owes him
P220,999,472.36 on top of his dollar deposits amounting to $3,472,683.94.
Oate prayed that a judgment be issued dismissing the Complaint and ordering Land Bank to
pay him:
i) The sum of P220,999,472.36, representing the outstanding balance on the peso deposits [of
Oates] various trust accounts as of January 1993, with interest thereon from said date at the
rate of eighteen percent (18%) compounded every ninety (90) days, until the said amount is fully
paid;
ii) The sum of $3,472,683.94, representing the aggregate balance as of January 1993 on
[Oates] dollar deposits [in] Trust Account No. 01-014, with interest thereon from said date at
the rate of six percent (6%) compounded every ninety (90) days, until the said amount is fully
paid;
iii) The sum of P100,000,000.00 as and by way of moral damages;
iv) The sum of P50,000,000.00 as and by way of exemplary damages; and
v) The sum of P15,000,000.00, or 20% of all sums collected, whichever is higher, as and for
attorney's fees, the further sum of P3,000.00 as appearance fee for each hearing attended, and
such other sums that may be proved during the trial as litigation expenses.[28]
Upon Oates motion, the RTC issued an Order[29] dated May 27, 1994, creating a Board of
Commissioners (the Board) for the purpose of examining the records of Oates seven trust
accounts, as well as to determine the total amount of deposits, withdrawals, funds invested,
earnings, and expenses incurred. It was composed of Atty. Engracio M. Escasinas, the Clerk of
Court of the RTC of Makati City, as the Chairman; and, Atty. Ma. Cristina C. Malab and Ms.
Adeliza M. Jaranilla representing Land Bank and Oate, respectively, as members.
Initially, the Board submitted three reports.[30] But for clarity, the trial court ordered[31] the Board to
reconvene and to submit a consolidated report furnishing copies of the same to both parties,
who were given 10 days from receipt thereof to file their respective comments thereto. The
Board complied and on August 16, 2004 submitted its consolidated report.[32] As summarized by
the RTC, the said consolidated report revealed that there were undocumented and over
withdrawals and drawings[33] from Oates trust accounts:
Thus, the Commissioners Report showed that the total amount of drawings and withdrawals
from each account without withdrawal slips are as follows:
In Trust Account No. 01-014, there was a total withdrawals [sic] without withdrawal slips but
reflected in the passbook in the amount of P45,103,297.33 and this account showed a negative
balance of P40,367,342.34. On the dollar deposit under the same trust account, there was a
total [withdrawal] without withdrawal slips but reflected in the passbook in the amount of
$3,210,222.85.
In Trust Account No. 01-017, there was a total withdrawal without withdrawal slips in the amount

of P2,682,088.58 and there was an over withdrawal of P11,738,470.53 and $30,000.00.

In Trust Account No. 01-024, there was a total withdrawal without withdrawal slips of
P900,000.00 and over withdrawal of P13,310,328.01.
In Trust Account No. 01-075, there was a total withdrawal of P500,000.00 without withdrawal
slips and there was a negative balance of P33,342,132.64 and $286,399.34 on the dollar
account.
In Trust Account No. 01-082, the total amount of withdrawal without withdrawal slips but
reflected in the passbook was P1,782,741.86 and there was an over withdrawal of P14,031.63.
In Trust Account No. 01-089, there was a total withdrawal without withdrawal slips in the amount
of P5,054,809.00 but the report indicated that there was a negative balance of P1,296,441.92.
In Trust Account No. 01-125, there was a total withdrawal without withdrawal slips in the amount
of P4,640,551.34 and there was a negative balance of P58,327,459.23.[34]
On even date, the Board also submitted a Manifestation[35] informing the RTC that its findings as
to the outstanding balance of each trust account may not be accurate considering that it was not
given ample opportunity to collate and sort out the documents related to each trust account and
that there may have been double take up of accounts since the documents previously reviewed
may have been considered again in subsequent reports.
In his Comment,[36] Oate asserted that the undocumented withdrawals mentioned in the
consolidated report should not be considered as cash outflows. Rather, they should be treated
as unauthorized transactions and the amounts subject thereof must be credited back to his
accounts.
Land Bank did not file any comment or objection to the Boards consolidated comment.
During the pre-trial conference, the parties agreed that they would submit the case for decision
based on the reports of the Board after they have submitted their respective memoranda. They
also stipulated on the following issues for resolution of the RTC:
1.
Whether x x x Oate could claim on Trust Account Nos. 01-014 and 01-017 which
were opened for an undisclosed principal;
2.
Whether x x x the undocumented withdrawals and drawings are considered valid and
regular and, conversely, if in the negative, whether x x x such amounts shall be credited
[back] to the accounts.[37]
In his Memorandum[38] filed on July 12, 2005, Oate reiterated that Land Bank should be held
liable for the undocumented withdrawals and drawings. For its part, Land Bank posited, inter
alia, that Trust Account Nos. 01-014 and 01-017 should be excluded from the computation of
Oates counterclaim considering his allegation that said accounts are owned by an undisclosed
principal whom/which he failed to join as indispensable party. Land Bank further theorized that
Oate must answer for the negative balances as revealed by the Boards reports.[39]
Thereafter, the case was submitted for decision.
Ruling of the Regional Trial Court
On May 31, 2006, the RTC rendered a Decision[40] dismissing Land Banks Complaint for its
failure to establish that the amount of P4,086,888.89 allegedly miscredited to Oates Trust
Account No. 01-125 actually came from the investments of PVTA and PVTB. Hence, the RTC
ordered Land Bank to restore the total amount of P1,471,416.52 which the bank unilaterally
debited from Oates five trust accounts.[41]
With regard to Oates counterclaim for the recovery of P220,999,472.36, as well as the alleged
US$3,472,683.94 balance of his dollar deposits in Trust Account No. 01-014, the RTC ruled that
under the IMAs, Land Bank had the authority to withdraw funds (as in fact it was at all times in

possession of the passbooks) from Oates accounts even without a letter of instruction or
withdrawal slip coming from Oate. It thus gave weight to the entries in the passbooks since the
same were made in the ordinary course of business. The RTC also ruled that Oate is deemed
to have approved the entries in the statements of account that were sent to him as he never
interposed any objection thereto within the period given him to do so.
Anent Land Banks claim for the negative balances, the RTC likewise denied the same for Land
Bank never sought them in its Complaint. Moreover, being the manager of the funds and keeper
of the records, the RTC held that Land Bank should not have allowed further withdrawals if there
were no more funds.
The RTC likewise debunked Land Banks argument that Oates counterclaim with respect to
Trust Account Nos. 01-014 and 01-017 should be dismissed for his failure to join his undisclosed
principal. According to the RTC, Land Bank should have earlier invoked such defense when it
filed its answer to the counterclaim. Also, if it is true that said accounts are not owned by Oate,
then the bank had no right to apply the funds in said accounts as payment for the alleged
personal indebtedness of Oate.
The dispositive portion of the RTCs Decision reads:
WHEREFORE, in view of all the foregoing, decision is hereby rendered dismissing the complaint
and ordering [Land Bank] to pay [Oate] the total amount of P1,471,416.52 representing the
total amount of funds debited from the five (5) trust accounts of the defendant with legal rate of
interest of 12% per annum, compounded yearly, effective on 21 June 1991 until fully paid.
No pronouncement as to costs.
SO ORDERED.[42]
Land Bank filed a Motion for Reconsideration.[43] In an Order[44] dated July 11, 2006, however,
the RTC denied the same.
Both parties appealed to the CA.
Ruling of the Court of Appeals
In its December 18, 2009 Decision,[45] the CA denied Land Banks appeal and granted that of
Oate. The CA affirmed the RTCs ruling that Land Bank failed to establish the source of the
funds it claimed to have been erroneously credited to Oates account. With respect to Oates
appeal, the CA agreed that he is entitled to the unaccounted withdrawals which, as found by the
Board, stood at P60,663,488.11 and $3,210,222.85.[46] The CAs ruling is anchored on the
banks failure to observe Sections X401 and X425 of the Bangko Sentral ng Pilipinas Manual of
Regulation for Banks (MORB) requiring it to give full disclosure of the services it offered and
conduct its dealings with transparency, as well as to render reports that would sufficiently
apprise its clients of the significant developments in the administration of their accounts. Aside
from allowing undocumented withdrawals, the CA likewise noted that Land Bank failed to keep
an accurate record and render an accounting of Oates accounts. For the CA, the entries in the
passbooks are not sufficient because they do not specify where the funds withdrawn from
Oates accounts were invested.
The dispositive portion of the CAs Decision reads:
WHEREFORE, the appeal of plaintiff-appellant Land Bank is DENIED.
The appeal of defendant-appellant Emmanuel Oate is hereby partially GRANTED. Accordingly,
the May 31, 2006 Decision of the Regional Trial Court, Branch 141, Makati City is hereby
MODIFIED in that, in addition to the previous grant of P1,471,416.52 representing the total
amount of funds debited from defendant-appellant Oates trust accounts, plaintiff-appellant

Land Bank is hereby ordered to pay defendant-appellant Oate the sum of P60,663,488.11 and
$3,210,222.85 representing the undocumented withdrawals it debited from the latters trust
account with interest at the rate of 12% per annum, compounded yearly from June 21, 1991 until
fully paid.

balance of all the trust accounts amounted to P1,471,416.52, but that the same was setoff to
recoup the miscredited funds. It faults Oate for not interposing any objection as his silence
constitutes as his approval after 30 days from receipt thereof. Land Bank asseverates that
Oate could have also inspected and audited the records of his accounts at any reasonable
time. But he never did.

SO ORDERED.[47]
Land Bank filed a Motion for Reconsideration.[48] In a Resolution[49] dated May 27, 2010,
however, the CA denied its motion. Hence, Land Bank filed the instant Petition for Review
on Certiorari based on the following issues:

1.

2.
3.

4.
5.

Issues
WHETHER X X X THE ENTRIES IN THE PASSBOOK ISSUED BY LBP IN OATES
TRUST ACCOUNT (EXPRESS TRUST) COVERED BY AN INVESTMENT MANAGEMENT
AGREEMENT (IMA) WITH FULL DISCRETION ARE SUFFICIENT TO MEET THE RULE
ON PRESUMPTION OF REGULARITY OF ENTRIES IN THE COURSE OF BUSINESS
PROVIDED FOR UNDER SECTION 43, RULE 130 OF THE RULES OF COURT.
WHETHER X X X OATE IS ENTITLED TO CLAIM FOR P1,471,416.52 WHICH IS
NOT PLEADED AS COUNTERCLAIM IN HIS ANSWER PURSUANT TO SECTION 2, RULE
9 OF THE RULES OF COURT.
WHETHER X X X OATE IS ENTITLED TO THE AWARD OF P60,663,488.11 AND
$3,210,222.85 REPRESENTING THE ALLEGED UNDOCUMENTED WITHDRAWALS
DEBITED FROM HIS TRUST ACCOUNTS ON THE GROUND OF LBPS ALLEGED
FAILURE TO MEET THE STANDARDS SET FORTH UNDER THE 2008 MANUAL ON
REGULATIONS FOR BANKS (MORB) ISSUED BY BSP.
WHETHER X X X OATE MAY SUE [ON] TRUST ACCOUNT NOS. 01-014 AND 01017 OPENED FOR AN UNDISCLOSED PRINCIPAL WITHOUT JOINING HIS
UNDISCLOSED PRINCIPAL.
WHETHER X X X THE AWARD OF INTEREST TO OATE AT THE RATE OF
TWELVE PERCENT (12%) PER ANNUM, COMPOUNDED YEARLY FROM JUNE 21, 1991
UNTIL FULLY PAID, IS VIOLATIVE OF ARTICLE 1959 OF THE CIVIL CODE. [50]

Land Banks Arguments

Land Bank disputes the ruling of both lower courts that it failed to prove the fact of miscrediting
the amount of P4,086,888.89 to Oates Trust Account No. 01-125 as the deposit slips pertaining
thereto were not presented. Land Bank maintains that in trust accounts the passbooks are
always in the banks possession so that it can record the cash inflows and outflows even without
the corresponding deposit or withdrawal slips. Citing Section 43, Rule 130 of the Rules of Court,
it asserts that the entries in the passbooks must be accepted as proof of the regularity of the
transactions reflected in the trust accounts, including the miscrediting of P4,086,888.89, for
they were made in the regular course of business. In addition, said entries are supported by
demand letters dated October 8, 1981[51]and September 3, 1991,[52] as well as a Statement of
Account[53] as of May 15, 1992. Land Bank avers that Oate never questioned the statements of
account and the reports it presented to him and, hence, he is deemed to have approved all of
them.
Land Bank also imputes error on the lower courts in ordering the restoration of the amount of
P1,471,416.52 it debited from Oates five trust accounts because he never sought it in his
Answer.
Petitioner bank vigorously argues that Oate is not entitled to the undocumented withdrawals
amounting to P60,663,488.11 and $3,210,222.85. According to Land Bank, in holding it liable for
the said amounts, the CA erroneously relied on the 2008 MORB which was not yet in existence
at the time the transactions subject of this case were made or even at the time when Land Bank
filed its Complaint. In any case, Land Bank insists that it made proper accounting and apprised
Oate of the status of his investments in accordance with the terms of the IMAs. In its demand
letter[54] dated September 3, 1991 Land Bank made a full disclosure that the total outstanding

Land Bank likewise faults the CA in treating the undocumented withdrawals as unauthorized
transactions as the Boards reports do not state anything to that effect. It claims that the CAs
reliance on the consolidated report in awarding the extremely huge amounts of P60,663,488.11
and $3,210,222.85 is a grievous mistake because the Board itself already manifested that said
report may not be accurate. Consequently too, Land Bank asserts that the reports of the
Board cannot prevail over the entries in the passbooks which were made in the regular course of
business.
Land Bank further states that as computed by the Board, the amount of negative balances in
Oates accounts reached P131,747,487.02 and $818,674.71.[55] It thus proposes that if the CA
awarded to Oate the undocumented withdrawals on the basis of the Boards reports, then it
should have also awarded to Land Bank said negative balances or over withdrawals as reflected
in the same reports. After all, Oate admitted in his Answer that all withdrawals from his trust
accounts were done in the ordinary course of business.
Furthermore, Land Bank claims that it argued before the CA that Oate cannot sue on Trust
Account Nos. 01-014 and 01-017. While Oate alleged that said accounts were opened for an
undisclosed principal, he did not, however, join as an indispensable party said principal in
violation of Section 3, Rule 3 of the Rules of Court.[56] Unfortunately, the CA sidestepped the
issue and proceeded to grant Oate the unaccounted withdrawals from said accounts in the
aggregate amounts of P47,785,385.91 and $3,210,222.85. Following Quilatan v. Heirs of
Lorenzo Quilatan,[57] Land Bank insists that this case should be remanded to the trial court even
if the issue of failure to implead an indispensable party was raised for the first time in a Motion
for Reconsideration of the trial courts Decision.
Finally, Land Bank questions the ruling of the CA imposing 12% per annum rate of interest. It
contends that trust accounts are in the nature of Express Trust and not in the nature of a
regular deposit account where a debtor-creditor relationship exists between the bank and its
depositor. It was not indebted to Oate but merely held and managed his funds. There being
no loan or forbearance of money involved, in the absence of stipulation, the applicable rate of
interest is only 6% per annum. Land Bank claims that the CA further erred when it compounded
the 12% interest even in the absence of any such stipulation.
Oates Arguments
In opposing the Petition, Oate argues that the issues raised by Land Bank involve factual
matters not proper in a petition for review on certiorari. He posits that the Petition does not fall
under any of the exceptions where this Court could review factual issues.
As to Land Banks allegation that he cannot claim the funds without divulging and impleading as
an indispensable party his undisclosed principal, Oate points out that in his Answer (With
Compulsory Counterclaim) he alleged that Trust Account Nos. 01-014 and 01-017 were opened
for an undisclosed principal. Yet Land Bank did not controvert his allegation. It is, therefore,
too late in the day for Land Bank to invoke non-joinder of principal as an indispensable party.
Besides, when he executed the IMAs, he was acting for himself and on behalf of an undisclosed
principal. Hence, he could claim and recover the amounts owing not only to himself but also to
his undisclosed principal.
Oate likewise asserts that Land Bank, as uniformly found by both lower courts, failed to prove
by preponderance of evidence the fact of miscrediting. As to the demand letters adverted to by
Land Bank, Oate asserts that the lower courts did not consider the same because they were
not formally offered. Land Bank also failed to present competent and sufficient evidence that he
admitted his indebtedness on account of the miscrediting of funds. Since Land Bank failed to
prove the fact of miscrediting it had no right to debit any amount from his accounts and must
restore whatever funds it had debited therefrom. Oate also denies having failed to seek the
return of the funds debited from his account.
Oate further claims that in 1982 his peso trust accounts had a total balance of P35,555,464.78
while the dollar trust accounts had a balance of US$1,690,943.78. Since then, however, he

never received any report or update regarding his accounts until the bank sent him financial
reports dated June 30, 1991 indicating that the balances of his trust accounts had been
unilaterally setoff. According to Oate, Land Banks failure to keep an accurate record of his
accounts and to make proper accounting violate several circulars of the Central Bank.[58] Hence,
it is only proper to require the bank to return the undocumented withdrawals which, as found by
the Board, amount to P60,663,488.11 and $3,210,222.82. In addition, Oate points out Land
Banks failure to keep an accurate record of his accounts as shown by the huge amounts of
unsupported withdrawals and drawings which constitutes willful default if not gross misconduct
in violation of the IMAs which, in turn, makes the bank liable for its actions.
Anent Land Banks invocation that the entries in the passbook made in the ordinary course of
business are presumed correct and regular, Oate argues that such presumption does not
relieve the trustee, Land Bank in this case, from presenting evidence that the undocumented
withdrawals and drawings were authorized. In any case, the presumption invoked by Land Bank
does not lie as one of its elements that the entrant must be deceased or unable to testify is
lacking. Land Bank cannot also excuse itself for failing to regularly submit to him accounting
reports as, anyway, he was free to inspect the records at any reasonable day. Oate
emphasizes that it is the duty of the bank to keep him updated with significant developments in
his accounts.
In refutation of Land Banks claim to negative balances and over withdrawals, Oate posits that
the bank cannot benefit from its own negligence in mismanaging the trust accounts.
Lastly, Oate defends the CAs grant of 12% per annum rate of interest as under BSP Circular
No. 416, said rate shall be applied in cases where money is transferred from one person to
another and the obligation to return the same or a portion thereof is adjudged. In any event,
Land Bank is estopped from disputing said rate for Land Bank itself applied the same 12% per
annum rate of interest when it sought to recover the amount allegedly miscredited to his
account. As to the compounding of interest, Oate claims that the parties intended that interest
income shall be capitalized and shall form part of the principal.
Our Ruling
We deny the Petition.
The issues raised are factual and do not involve questions of law.
From the very start the issues involved in this case are factual the very reason why the RTC
created a Board of Commissioners to assist it in examining the records pertaining to Oates
accounts and determine the respective cash inflows and outflows in said accounts. Thereafter,
the parties agreed to submit the case based on the Boards reports. And when the controversy
reached the CA, the appellate court basically conducted an assiduous assessment of the
evidentiary records.[59] No question of law was ever raised for determination of the lower
courts. Now, Land Bank practically beseeches us to assess the probative weight of the
documentary evidence on record to resolve the same basic issues of (i) whether Land Bank
miscredited P4,086,888.89 to Trust Account No. 01-125 and (ii) whether x x x the
undocumented withdrawals and drawings are considered valid and regular and, conversely, if in
the negative, whether x x x such amounts shall be credited to the accounts.[60]
These issues could be resolved by consulting the evidence extant on records, such as the IMAs,
the passbooks, the letters of instructions, withdrawal and deposit slips, statements of account,
and the Boards reports. Land Banks heavy reliance on Section 43, Rule 130 of the Rules of
Court[61] also attests to the factual nature of the issues involved in this case. Well-settled is the
rule that in petitions for review on certiorari under Rule 45, only questions of law can be
raised.[62] In Velayo-Fong v. Spouses Velayo,[63] we defined a question of law as distinguished
from a question of fact:
A question of law arises when there is doubt as to what the law is on a certain state of facts,
while there is a question of fact when the doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question posed is one of
fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to

such question by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise, it is a question of fact. (Italics supplied)
While there are recognized exceptions[64] to this rule, none exists in this case.
Anent Land Banks contention that the determination of whether the CA erred in retroactively
applying the 2008 MORB poses a legal question, the same deserves scant consideration. True,
the CA included in its ratio decidendia discussion on the 2008 MORB to give emphasis to the
duties of banks to keep an accurate record and regularly apprise their clients of the status of
their accounts. But the issue of whether Land Bank failed to comply with those duties can be
resolved even without the MORB as the same duties are also imposed on Land Bank by the
IMAs, the contract that primarily governs the parties in this case. As a general rule, a contract
is the law between the parties. Thus, from the moment the contract is perfected, the parties are
bound not only to the fulfilment of what has been expressly stipulated but also to all
consequences which, according to their nature, may be in keeping with good faith, usage and
law. Also, the stipulations of the contract being the law between the parties, courts have no
alternative but to enforce them as they were agreed [upon] and written x x x.[65]
Based on the factual milieu of this case even without touching on the MORB, we found that Land
Bank still failed to perform its bounden duties to keep accurate records and render regular
accounting. We also found no cogent reason to disturb the other factual findings of the CA.
Land Bank failed to prove that the miscredited funds came from the
proceeds of the pre-terminated loans of its corporate borrowers.
Land Bank argues that the entries in the passbooks were made in the regular course of
business and should be accepted as prima facie evidence of the facts stated therein. But before
entries made in the course of business may qualify under the exception to the hearsay rule and
given weight, the party offering them must establish that: (1) the person who made those entries
is dead, outside the country, or unable to testify; (2) the entries were made at, or near the time of
the transaction to which they refer; (3) the entrant was in a position to know the facts stated
therein; (4) the entries were made in the professional capacity or in the course of duty of the
entrant; and, (5) the entries were made in the ordinary or regular course of business or duty.[66]
Here, Land Bank has neither identified the persons who made the entries in the passbooks nor
established that they are already dead or unable to testify as required by Section 43,[67] Rule 130
of the Rules of Court. Also, and as correctly opined by the CA, [w]hile the deposit entries in the
banks passbook enjoy a certain degree of presumption of regularity x x x, the same do not
indicate or explain the source of the funds being deposited or withdrawn from an individual
account.[68] They are mere prima facie proof of what are stated therein the dates of the
transactions, the amounts deposited or withdrawn, and the outstanding balances. They do not
establish that the total amount of P4,086,888.89 deposited in Oates Trust Account No. 01-125
in November 1980 came from the proceeds of the pre-terminated loans of Land Banks
corporate borrowers. It would be too presumptuous to immediately conclude that said amount
came from the checks paid to Land Bank by its corporate borrowers just because the maturity
dates of the loans coincided with the dates said total amount was deposited. There must be
proof showing an unbroken link between the proceeds of the pre-terminated loans and the
amount allegedly miscredited to Oates Trust Account No. 01-125. As a bank and custodian
of records, Land Bank could have easily produced documents showing that its borrowers preterminated their loans, the checks they issued as payment for such loans, and the deposit slips
used in depositing those checks. But it did not.
Land Bank did not also bother to explain how Oate or his representative, Eduardo Polonio
(Polonio), obtained possession of the checks when, according to it, the corporate borrowers
issued the checks in its name as payment for their loans.[69] Under paragraph 8 of its Complaint,
Land Bank alleged that its corporate borrowers paid their respective obligations in the form of
checks payable to LANDBANK x x x.[70] If it is true, then why were the checks credited to

Oates account? Unless subsequently endorsed to Oate, said checks can only be deposited in
the account of the payee appearing therein. We cannot thus lend credence to Land Banks
excuse that the proximate cause of the alleged miscrediting was the fraudulent representation
of Polonio, for assuming that the latter indeed employed fraudulent machinations, with the
degree of prudence expected of banks, Land Bank and its tellers could have easily detected that
Oate was not the intended payee. In Traders Royal Bank v. Radio Philippines Network, Inc.,
[71]
we held that petitioner bank was remiss in its duty and obligation for accepting and paying a
check to a person other than the payee appearing on the face of the check sans valid
endorsement. Consequently, it was made liable for its own negligence and in disregarding
established banking rules and procedures.
We are also groping in the dark as to the number of checks allegedly deposited by Polonio to
Oates Trust Account No. 01-125. According to Land Bank, the entire amount of P4,086,888.89
represents the proceeds of the pre-terminated loans of four of its clients, namely, RETELCO,
PBM, CBY and PHILTOFIL. But it could only point to two entries made on two separate dates in
the passbook as reproduced below:

28NOV80

1,023,138.89 CK

3,059,159.95[72]

Were there only two checks issued as payment for the separate loans of these four different
entities? These hanging questions only confirm the correctness of the lower courts uniform
conclusion that Land Bank failed to prove that the amount allegedly miscredited to Oates
account came from the proceeds of the pre-terminated loans of its clients. It is worth
emphasizing that in civil cases, the party making the allegations has the burden of proving them
by preponderance of evidence. Mere allegation is not sufficient.[73]
As a consequence of its failure to prove the source of the claimed miscredited
funds, Land Bank had no right to debit the total amount of P1,471,416.52 and
must, therefore, restore the same.

xxx

P250,704.60

24NOV80

159,000.00

409,704.60

24NOV80

3,063,750.00CK

3,473,454.60

In view of the above, Land Banks argument that the lower courts erred in ordering the return of
the amount of P1,471,416.52 it debited from Oates five trust accounts since he did not seek
such relief in his Answer as a counterclaim, falls flat on its face. The order to restore the debited
amount is consistent with the lower courts ruling that Land Bank failed to prove that the amount
of P4,086,888.89 was miscredited to Oates account and, hence, it had no right to seek
reimbursement or debit any amount from his accounts in payment therefor. Without such right,
Land Bank should return the amount of P1,471,416.52 it debited from Oates accounts in its
attempt to recoup what it allegedly lost due to miscrediting. Moreover, contrary to Land Banks
assertion, Oate contested the banks application of the balance of his trust accounts in payment
for the allegedly miscredited amount in his Answer (With Compulsory Counterclaim) for being
without any factual and legal [bases].[74]

3,431,454.60

Land Bank was remiss in performing its duties under the IMAs and as a banking
institution.

Date

WITHDRAWAL

xxx

24NOV80

BALANCE

42,000.00

25NOV80
25NOV 80

DEPOSIT

275,923.75 CK
1,235,962.00

3,707,378.35
2,471,416.35

26NOV80

193,800.00 CK

2,665,216.35

26NOV80

250,000.00 CK

2,915,216.35

26NOV80

2,915,216.35

The contractual relation between Land Bank and Oate in this case is primarily governed by the
IMAs. Paragraph 4 thereof expressly imposed on Land Bank the duty to maintain accurate
records of all his investments, receipts, disbursements and other transactions relating to his
accounts. It also obliged Land Bank to provide Oate with quarterly balance sheets, statements
of income and expenses, summary of investments, etc. Thus:
4. You shall maintain accurate records of all investments, receipts, disbursements and
other transactions of the Account. Records relating thereto shall be open at all reasonable
times to inspection and audit by me either personally or through duly authorized
representatives. Statements consisting of a balance sheet, portfolio analysis, statement of
income and expenses, and summary of investment changes are to be sent to me/us
quarterly.

2,915,216.35
321,188.38 CK
26NOV80

1,373,167.00

3,236,404.73
1,863,237.73

27NOV80

1,021,250.00 CK

2,884,487.73

28NOV80

70,833.33 CK

2,955,321.06

27NOV80

919,300.00

2,036,021.06

I/We shall approve such accounting by delivering in writing to you a statement to that effect or by
failure to express objections to such accounting in writing delivered to you within thirty (30) days
from my receipt of the accounting.
Upon your receipt of a written approval of the accounting, or upon the passage of said period of
time within which objections may be filed, without written objections having been delivered to
you, such accounting shall be deemed to be approved, and you shall be released and
discharged as to all items, matters and things set forth in such accounting as if such accounting
had been settled and allowed by a decree of a court of competent jurisdiction, in an action or
proceeding in which you and I were parties.[75] (Emphasis supplied)
These are the obligations of Land Bank which it should have faithfully complied with in good
faith.[76]Unfortunately, Land Bank failed in its contractual duties to maintain accurate records of all
investments and to regularly furnish

Oate with financial statements relating to his accounts. Had Land Bank kept an accurate
record there would have been no need for the creation of a Board of Commissioners or at least
the latters work would have been a lot easier and more accurate. But because of Land Banks
inefficient record keeping, the Board performed the tedious task of trying to reconcile messy and
incomplete records. The lackadaisical attitude of Land Bank in keeping an updated record of
Oates accounts is aggravated by its reluctance to accord the Board full and unrestricted
access to the records when it was conducting a review of the accounts upon the orders of the
trial court. Thus, in its Manifestation[77] dated August 16, 2004, the Board informed the trial court
that its report pertaining to outstanding balances may not be accurate because the documents
were then in the custody of Land Bank and the documents to be reviewed by the Board at a
designated hearing depended on what was released by the then handling lawyer of Land Bank.
They were not given the opportunity to collate/sort-out the documents related to each trust
account[78] and the folders being reviewed contained documents related to different trust
accounts.[79] As a result, [t]here may have been double take up of accounts since the
documents previously reviewed may have been repeatedly considered in the reports.[80]
For its failure to faithfully comply with its obligations under the IMAs and for having
agreed to submit the case on the basis of the reports of the Board of Commissioners, the
latters findings are binding on Land Bank.
Because of Land Banks failure to keep an updated and accurate record of Oates account, it
would have been difficult, if not impossible, to determine with some degree of accuracy the
outstanding balances in Oates accounts. Indeed, the creation of a Board of Commissioners
was a significant development in this case as it facilitated the examination of the records and
helped in the determination of the balances in each of Oates accounts. In a span of four
years, the Board held 60 meetings and scoured the voluminous and scattered records of subject
accounts. In the course thereof, it found several undocumented withdrawals and over
withdrawals. Thereafter, the Board submitted its consolidated report, to which Land Bank did not
file its comment despite having been given the opportunity to do so. It did not question the result
of the examinations conducted by the Board, particularly the Boards computation of the
outstanding balance in each account, the existence of undocumented and over withdrawals, and
how often the bank sent Oate statements of account. In fact, during the pre-trial conference,
Land Bank agreed to submit the case based on the reports of the Board.
Consequently, we found no cogent reason to deviate from the same course taken by the CA
give weight to the consolidated report of the Board and treat it as competent and sufficient
evidence of what are stated therein. After all, the dearth of evidentiary documents that could
have shed light on the alleged unintended crediting and unexplained withdrawals was brought
about by Land Banks failure to maintain accurate records as required by the IMAs. In Simex
International (Manila), Inc. v. Court of Appeals,[81] we elucidated on the nature of banking
business and the responsibility of banks:
The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business and commerce, banks have become
an ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not
hesitated to entrust his lifes savings to the bank of his choice, knowing that they will be safe in
its custody and will even earn some interest for him. The ordinary person, with equal faith,
usually maintains a modest checking account for security and convenience in the settling of his
monthly bills and the payment of ordinary expenses. As for business entities like the petitioner,
the bank is a trusted and active associate that can help in the running of their affairs, not only in
the form of loans when needed but more often in the conduct of their day-to-day transactions
like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo and as promptly as

possible. This has to be done if the account is to reflect at any given time the amount of money
the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs. x x x
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligations to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. x x x (Emphasis supplied)
As to the conceded inaccuracies in the reports, we cannot allow Land Bank to benefit therefrom.
Time and again, we have cautioned banks to spare no effort in ensuring the integrity of the
records of its clients.[82] And inPhilippine National Bank v. Court of Appeals,[83] we held that as
between parties where negligence is imputable to one and not to the other, the former must
perforce bear the consequences of its neglect. In this case, the Board could have submitted a
more accurate report had Land Bank faithfully complied with its duty of maintaining a complete
and accurate record of Oates accounts. But the Board could not find and present the
corresponding slips for the withdrawals reflected in the passbooks. In addition, and as earlier
mentioned, Land Bank was less than cooperative when the Board was examining the records of
Oates accounts. It did not give the Board enough leeway to go over the records systematically
or in orderly fashion. Hence, we cannot allow Land Bank to benefit from possible inaccuracies
in the reports.
Neither does Oates failure to exercise his rights to inspect the records and audit his accounts
excuse the bank from sending the required notices, for under the IMAs it behooved upon Land
Bank to keep him fully informed of the status of his investments by sending him regular reports
and statements. Oates failure to inspect the record of his accounts should neither be
construed as his waiver to be furnished with updates on his accounts nor authority for the bank
to make undocumented withdrawals. As aptly opined by the CA:
x x x The least that Land Bank could have done was to keep a detailed quarterly report on [its]
file. In this case, Land Bank did away with this procedure that made [its] records a complete
mess of voluminous and meaningless records of numerous folders containing more than 7,600
leaves/pages and some 90 passbooks, with 1,355 leaves/pages of entries, corresponding to the
seven (7) Trust Accounts.
The passbook entries alone are insufficient compliance with Land Banks duty to keep accurate
records of all investments, receipts, disbursements and other transactions of the Account.
These passbooks do not inform what investments were made on the funds withdrawn.
Moreover, these passbook entries do not show if the amounts purported to have been invested
were indeed received by the concerned entity, facility, or borrower. From these entries alone,
Oate would have no way of knowing where his money went.[84]
But Land Bank next postulates that if Oate is entitled to the undocumented withdrawals on the
basis of the reports of the Board, then it should also be entitled to the negative balances or over
withdrawals as reflected in the same reports.
We cannot agree for a number of reasons. First, as earlier discussed, Land Bank is guilty of
negligence while Oate (at least insofar as over withdrawals are concerned) is not. Had Land
Bank maintained an accurate record, it would have readily detected and prevented over
withdrawals. But without any qualms, Land Bank asks for the negative balances, unmindful that
such claim is actually detrimental to its cause because it amounts to an admission that it allowed
over withdrawals. As aptly observed by the CA:
Corollarily, the Court cannot allow Land Bank to recover the negative balances from Oates
trust accounts. Examining the Commissioners Report, the Court notes that the funds of Oates
trust accounts became seriously depleted due to the unaccounted withdrawals that Land Bank
charged against his accounts. At any rate, those negative balances on Oates accounts show
Land Banks inefficient performance in managing his trust accounts. Reasonable bank practice

and prudence [dictate] that Land Bank should not have authorized the withdrawal of various
sums from Oates accounts if it would result to overwithdrawals. x x x[85]
Second, Land Bank never prayed for the recovery of the negative balances in its Complaint.
It is settled that courts cannot grant a relief not prayed for in the pleadings or in excess of what is
being sought by the party. x x x Due process considerations require that judgments must
conform to and be supported by the pleadings and evidence presented in court.
In Development Bank of the Philippines v. Teston,[86] this Court expounded that:
Due process considerations justify this requirement. It is improper to enter an order which
exceeds the scope of relief sought by the pleadings, absent notice which affords the opposing
party an opportunity to be heard with respect to the proposed relief. The fundamental purpose of
the requirement that allegations of a complaint must provide the measure of recovery is to
prevent surprise to the defendant.[87]
Last, during the pre-trial conference, the issue of the validity of undocumented withdrawals was
properly put into issue. The parties also agreed, as a collateral issue, that should it appear that
the bank was not authorized to make the undocumented withdrawals, the next issue for
consideration would be whether the amount subject thereof should be credited back to Oates
accounts.[88] The case of negative balances as alluded to by Land Bank, however, is different. It
was never put into issue during the pre-trial conference. In Caltex (Philippines), Inc. v. Court of
Appeals,[89] we held that to obviate the element of surprise, parties are expected to disclose at a
pre-trial conference all issues of law and fact which they intend to raise at the trial, except such
as may involve privileged or impeaching matters. The determination of issues at a pre-trial
conference bars the consideration of other questions on appeal. Land Bank interposed its
claim to the negative balances for the first time only when it filed its Memorandum with the RTC.
Land Bank knew from the start and admitted during trial that Trust Account Nos. 01-014
and 01-017 do not belong to Oate; hence, it should not have debited any amount
therefrom to compensate for the alleged personal indebtedness of Oate.
Land Bank claims that Oate cannot sue on Trust Account Nos. 01-014 and 01-017 without
joining as an indispensable party his undisclosed principal.
But if anyone in this case is guilty of failing to join an indispensable party, it is Land Bank that
first committed a violation. The IMAs covering Trust Account Nos. 01-014 and 01-017 attached
as Annexes A[90] and B,[91]respectively, of Land Banks Complaint clearly state that Oate
signed the same FOR: UNDISCLOSED PRINCIPAL. As party to the said IMAs, Land Bank
knew and ought not to forget that Oate is merely an agent and not the owner of the funds in
said accounts. Yet Land Bank garnished the total amount of P792,595.25 from Trust Account
Nos. 01-014 and 01-017 to answer for the alleged personal indebtedness of Oate. Worse,
when Land Bank filed its Complaint for Sum of Money, it did not implead said undisclosed
principal or inform the trial court thereof. Now that Oate is seeking the restoration of the
amounts debited and withdrawn without withdrawal slips from said accounts, Land Bank is
invoking the defense of failure to implead an indispensable party. We cannot allow Land Bank to
do this. As aptly observed by the trial court:
Under the circumstances obtaining, it is highly unfair, unjust and iniquitous, to dismiss the suit
with respect to the two Trust Accounts after [Land Bank] had garnished the balances of said
accounts to pay the alleged indebtedness of [Oate] allegedly incurred by the erroneous
crediting of P4 million to x x x Trust Account No. 01-125 which does not appear to be owned by
an undisclosed principal. Trust Account No. 01-125 is [Oates] personal trust account with
plaintiff. Stated differently, [Land Bank] having now recognized and admitted that Trust Account
Nos. 01-014 and 01-017 were not owned by [Oate], it has perforce no right, nay unlawful for it,
to apply the funds in said accounts to pay the alleged indebtedness of [Oates] personal
account. Equity and justice so demand that the funds be restored to Trust Account Nos. 01-014
and 01-017.[92]
Oate protested the contents of the statements of account at the earliest opportunity.

As to Land Banks insistence that Oate is deemed to have accepted the contents of the
statements of account for his failure to manifest his objection thereto within 30 days from receipt
thereof, it should be recalled that from the time the alleged miscrediting occurred in November
1980, the first communication coming from Land Bank was its letter dated October 8, 1981.[93]
This, however, was the subject of a failed negotiation between the parties. Besides, said letter
can hardly be considered as an statement that would apprise Oate of the status of his
investments. It is not a balance sheet, portfolio analysis, statement of income and expenses or
a summary of investment changes as contemplated in paragraph 4 of the IMAs. It is a demand
letter seeking the return of the alleged miscredited amount. The same goes true with Land
Banks letter dated September 3, 1991. As can be readily seen from its opening paragraph, said
letter is in response to Oates demand for information regarding the offsetting, [94] which Oate
protested and is now one of the issues involved in this case. In fine, it cannot be said that Oate
approved and adopted the outstanding balances in his accounts for his failure to object to the
contents of those letters within the 30-day period allotted to him under the IMAs.
From what is available on the voluminous records of this case and as borne out by the Boards
consolidated report dated August 16, 2004, the statements which Land Bank sent to Oate are
only the following:
Based on the Annexes[95] attached to Oates Answer (With Compulsory Counterclaim)
ITF No.

Balance Sheet
As of

Total Liabilities and

Trustors Equity

01-014

June 30, 1982

P 1,909,349.80

01-017

June 30, 1982

6,003,616.35

01-089

June 30, 1982

551,267.24

01-082

June 30, 1982

1,915.28

01-075

June 30, 1982

12,113,262.95

01-125

June 30, 1982

13,595,271.16

01-024

June 30, 1982

1,131,854.20

Based on the Consolidated Report

ITF No Report Details

Last Date
of Report

Balances

01-024 Schedule of Money Market Placement

03.31.82

P
453,140.69

01-075 Statement of Income and Expenses

03.31.90

0.00
1,207,501.6

Sheet Balance

03.31.90

01-014 Schedule of Money Market Placement

Statement of Income and Expenses
Balance Sheet

06.30.91
06.30.91
06.30.91

14,767.20
3,267.19
20,673.58

01-017 Schedule of Investment

Statement of Income and Expenses
Balance Sheet

06.30.91
06.30.91
06.30.91

38,502.06
10,437.22
39,659.56

01-082 Statement of Income and Expense

Balance Sheet

06.30.91
06.30.91

59.75
70.28

01-125 Schedule of Investment

Statement of Income and Expenses
Balance Sheet

06.30.91
06.30.91
06.30.91

44,055.72
10,079.16
60,920.42

The patent wide gap between the time Land Bank furnished Oate with Balance Sheets as of
June 30, 1982 and the date it sent him an Statement of Income and Expenses, as well as a
Balance Sheet, on March 31, 1990 is a clear and gross violation of the IMAs requiring it to
furnish him with balance sheet, portfolio analysis, statement of income and expenses and the
like, quarterly. As to the reports dated June 30, 1991 and letters subsequent thereto, it should
be noted that during those times Oate had already interposed his objections to the outstanding
balances of his accounts.[96]
The proper rate of legal interest.
Land Banks argument that the lower courts erred in imposing 12% per annum rate of interest is
likewise devoid of merit. The unilateral offsetting of funds without legal justification and the
undocumented withdrawals are tantamount to forbearance of money. In the analogous case
of Estores v. Supangan,[97] we held that [the] unwarranted withholding of the money which
rightfully pertains to [another] amounts to forbearance of money which can be considered as an
involuntary loan. Following Eastern Shipping Lines, Inc. v. Court of Appeals,[98]therefore, the
applicable rate of interest in this case is 12% per annum. Besides, Land Bank is estopped from
assailing the award of 12% per annum rate of interest. In its Complaint, Land Bank arrived at
P8,222,687.89 as the outstanding indebtedness of Oate by using the same 12% per
annum rate of interest. It was only after the lower courts rendered unfavorable decisions that
Land Bank started to insist that the applicable rate of interest is 6% per annum.
Of equal importance is the determination of when the said 12% per annum rate of interest
should commence. Recall that both the RTC and the CA reckoned the running of the 12% per
annum rate of interest from June 21, 1991, or the day Land Bank unilaterally applied the
outstanding balance in all of Oates trust accounts, until fully paid. The compounding of
interest, on the other hand, was based on the provision of the IMAs granting Land Bank to hold,
invest and reinvest the Fund and keep the same invested, in your sole discretion, without
distinction between principal and income.
While we find sufficient basis for the compounding of interest, we find it necessary however to
modify the commencement date. In Eastern Shipping,[99] it was observed that the
commencement of when the legal interest should start to run varies depending on the factual
circumstances obtaining in each case.[100] As a rule of thumb, it was suggested that where the

demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made[101] (at which time the
quantification of damages may be deemed to have been reasonably ascertained).[102]
In the case at bench, while Oate protested the setting off, no proof was presented that he
formally demanded for the return of the amount so debited prior to the filing of the Complaint.
Quite understandably so because at that time he could not determine with some degree of
certainty the outstanding balances of his accounts as Land Bank neglected on its duty to keep
him updated on the status of his accounts. Land Bank even undertook to furnish him with the
exact computation[103] of what remains in his accounts after the set off. But this never happened
until Land Bank initiated the Complaint on September 7, 1992. Oate, on the other hand, filed
his Answer (With Compulsory Counterclaim) on May 26, 1993. In other words, we cannot
reckon the running of the interest prior to the filing of the Complaint or Oates Counterclaim as
no demand prior thereto was made. Neither could the interest commence to run at the time of
filing of any of aforesaid pleadings (as to constitute judicial demand) since the undocumented
withdrawals in the sums of P60,663,488.11 and US$3,210,222.85, as well as the amount
actually debited from all of Oates accounts, were determined only after the Board submitted its
consolidated report on August 16, 2004 or more than 10 years after Land Bank and Oate filed
their Complaint and Answer, respectively. Note too that while Oate sought to recover the
amount of undocumented withdrawals before the RTC,[104] the same was denied in the latters
May 31, 2006 Decision. The RTC granted Oate only the total amount of funds debited from his
trust accounts. It was only when the CA rendered its December 18, 2009 Decision that Oate
was awarded the undocumented withdrawals. Hence, we find it just and proper to reckon the
running of the interest of 12% per annum, compounded yearly, for the debited amount and
undocumented withdrawals on different dates. The debited amount of P1,471,416.52, shall
earn interest beginning May 31, 2006 or the day the RTC rendered its Decision granting said
amount to Oate. As to the undocumented withdrawals of P60,663,488.11 and
US$3,210,222.85, the legal rate of interest should start to run the day the CA promulgated its
Decision on December 18, 2009.
During the pendency of this case, however, the Monetary Board issued Resolution No. 796
dated May 16, 2013, stating that in the absence of express stipulation between the parties, the
rate of interest in loan or forbearance of any money, goods or credits and the rate allowed in
judgments shall be 6% per annum. Said Resolution is embodied in Bangko Sentral ng Pilipinas
Circular No. 799, Series of 2013, which took effect on July 1, 2013. Hence, the 12% annual
interest mentioned above shall apply only up to June 30, 2013. Thereafter, or starting July 1,
2013, the applicable rate of interest for both the debited amount and undocumented withdrawals
shall be 6%per annum, compounded annually, until fully paid.
WHEREFORE, the Petition is hereby DENIED and the December 18, 2009 Decision of the
Court of Appeals in CA-G.R. CV No. 89346 is AFFIRMED with modification in that the interest of
12% per annum, compounded annually, for the debited amount of P1,471,416.52 shall
commence to run on May 31, 2006, while the same rate of interest shall apply to the
undocumented withdrawals in the amounts of P60,663,488.11 and US$3,210,222.85 starting
December 18, 2009. Beginning July 1, 2013, however, the applicable rate of interest on all
amounts awarded shall earn interest at the rate of 6% per annum, compounded yearly, until fully
paid. SO ORDERED.