Commodatum

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

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

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

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

and Queaño issued to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200. On 11 August 1980. which Naguiat appealed to the Court of Appeals. vs. without pronouncement as to costs.000. No. Naguiat instituted the present petition. NAGUIAT. 118375 October 3. Queaño executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat.000.4 On the same day.1ªvvphi1. for the .3 To secure the loan. respondents. Simple Loan or Mutuum G. The proceeds of these checks were to constitute the loan granted by Naguiat to Queaño.5Queaño also issued a Security Bank and Trust Company check. TINGA. 2003 CELESTINA T. which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay City. to the order of Queaño. the mortgage deed was notarized. After the Court of Appeals upheld the RTC decision. She also issued her own Filmanbank Check No.000. J.000. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95. which was earlier issued to Naguiat by the Corporate Resources Financing Corporation.00). petitioner. the writ of execution appealed from is set aside. private respondent Aurora Queaño (Queaño) filed a complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). 065314. payable on 11 September 1980. postdated 11 September 1980. also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (P95. declaring the questioned Real Estate Mortgage void.R.nét The operative facts follow: Queaño applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200. The RTC rendered a decision.: Before us is a Petition for Review on Certiorari under Rule 45. and surrendered to the latter the owner‘s duplicates of the titles covering the mortgaged properties. the administratrix appointed by the court.2 The case arose when on 11 August 1981. Naguiat indorsed to Queaño Associated Bank Check No. with interest at 12% per annum.00). assailing the decision of the Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 19941.00).but must be presented to the probate court for payment by the appellant. ACCORDINGLY.00). COURT OF APPEALS and AURORA QUEAÑO. which Naguiat granted.

13 The resolution of factual issues is the function of lower courts.000. both the decisions of the appellate and trial courts are supported by the evidence on record and the applicable laws. Three days before the scheduled sale. there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower courts. The Court of Appeals promulgated the decision now assailed before us that affirmed in toto the RTC decision. Shortly thereafter. declaring the Deed of Real Estate Mortgage null and void. only questions of law may be raised12 as the Supreme Court is not a trier of facts. who then scheduled the foreclosure sale on 14 August 1981. adding that the checks were retained by Ruebenfeldt. Capitalizing on the status of the mortgage deed as a public . and ordering Naguiat to return to Queaño the owner‘s duplicates of her titles to the mortgaged lots. Naguiat claims that being a notarial instrument or public document. Upon presentment on its maturity date.11 The resolution of the issues presented before this Court by Naguiat involves the determination of facts. Hence. but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds. Queaño received a letter from Naguiat‘s lawyer. Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.amount of TWO HUNDRED THOUSAND PESOS (P200. On the following day.17 But Naguiat‘s case does not fall under any of the exceptions. invoking the rule on the non-binding effect of the admissions of third persons. At the meeting.00) and payable to the order of Naguiat. Queaño requested Security Bank to stop payment of her postdated check.9 On 8 March 1991.15 There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts. Against the common finding of the courts below.7 Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province. who purportedly was Naguiat‘s agent.6 On 16 October 1980. there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.10 Naguiat appealed the decision before the Court of Appeals. 12 September 1980.16 Surely. the RTC rendered judgment. Naguiat also questions the admissibility of various representations and pronouncements of Ruebenfeldt. whose findings on these matters are received with respect and are in fact generally binding on the Supreme Court. Queaño told Naguiat that she did not receive the proceeds of the loan. Naguiat questions the findings of facts made by the Court of Appeals. In any event. Queaño filed the case before the Pasay City RTC. the mortgage deed enjoys the presumption that the recitals therein are true. a function which this Court does not exercise in an appeal by certiorari. making no less than eleven assignments of error. The trial court eventually stopped the auction sale. demanding settlement of the loan. especially on the issue of whether Queaño had actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued or indorsed. the present petition. Naguiat vigorously insists that Queaño received the loan proceeds.14 A question of law which the Court may pass upon must not involve an examination of the probative value of the evidence presented by the litigants. the Security Bank check was dishonored for insufficiency of funds.8 seeking the annulment of the mortgage deed. Under Rule 45 which governs appeal by certiorari.

The Court of Appeals. as in this case. however.00 payable to Naguiat. but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. on her own and without Queaño asking for it. is perfected only upon the delivery of the object of the contract. As correctly pointed out by the Court of Appeals.000.24 The Court of Appeals recognized the existence of an "agency by estoppel25 citing Article 1873 of the Civil Code. Ruebenfeldt served as agent of Naguiat on the loan application of Queaño‘s friend. absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed or deposited.19 On the other hand.18 This Court has held that the presumption of truthfulness engendered by notarized documents is rebuttable. the rule is clear. In that situation. not consensual.nét Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that they could not bind her following the res inter alia acta alteri nocere non debet rule. and it was in connection with that transaction that Queaño came to know Naguiat.22 Still.21 In this case. The mere issuance of the checks did not result in the perfection of the contract of loan. as a consequence of the interaction between Naguiat and Ruebenfeldt. cannot be permitted to deny the authority of such person to act as his . it considered that at the very least. Queaño got the impression that Ruebenfeldt was the agent of Naguiat. Naguiat insists that Ruebenfeldt was not her agent. Reubenfeldt actually drew a check for the sum ofP220. yielding as it does to clear and convincing evidence to the contrary. the existence of an agency relationship between Naguiat and Ruebenfeldt is supported by ample evidence.1awphi1. and. The Court of Appeals rejected the argument. is correct in ruling that the presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing evidence in this case that pointed to the absence of consideration. it follows that the checks were not encashed or credited to Queaño‘s account. such as the returned checks and the pertinent bank records. Ruebenfeldt was not a stranger or an unauthorized person. Since Naguiat presented no such proof. Suffice to say. Marilou Farralese. but Naguiat did nothing to correct Queaño‘s impression. If indeed the checks were encashed or deposited. holding that since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a recognized exception to the rule.20 It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected. Naguiat would have certainly presented the corresponding documentary evidence.23 It was also Ruebenfeldt who accompanied Queaño in her meeting with Naguiat and on that occasion.document. Art. the objects of the contract are the loan proceeds which Queaño would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. she cites the rule that a public document enjoys the presumption of validity and truthfulness of its contents. however. as such.26Apparently. 1934 of the Civil Code provides: "An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties. Naguiat instructed Ruebenfeldt to withhold from Queaño the checks she issued or indorsed to Queaño. and holds him out to the public as such. pending delivery by the latter of additional collateral. to cover for Queaño‘s alleged liability to Naguiat under the loan agreement. One who clothes another with apparent authority as his agent. For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed." A loan contract is a real contract.

the petition is denied and the assailed decision is affirmed. which reversed and set aside the Decision2 dated June 17. vs. and 1192-M-95 but ordering her to pay civil liability to the following: Amelia Casanova in the total amount of P130. 1190-M-95: That in or about the months of May to November. assailing the Decision1 dated April 30. we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit and the borrower did not receive the proceeds of the loan.00.1awphi1. to the prejudice of innocent third parties dealing with such person in good faith. respondent.28 A mortgage contract being a mere accessory contract. CR No. Branch 79. 1191-M-95. Costs against petitioner. All told.00. Philippines and within the jurisdiction of this Honorable Court.27 The Court of Appeals is correct in invoking the said rule on agency by estoppel. 158495 October 21. 1999 of the Regional Trial Court of Malolos. and in the honest belief that he is what he appears to be. SO ORDERED. to wit: In Criminal Case No. J.agent. and Manolito Eusebio in the total amount of P60. and pretending to have sufficient funds with the Allied Bank.250. it follows that the mortgage which is supposed to secure the loan is null and void. 2004 ELIZABETH EUSEBIO-CALDERON. YNARES-SANTIAGO.R. 1190-M95. whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queaño were never encashed or deposited to her account of Naguiat. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life. its validity would depend on the validity of the loan secured by it. 1994. the above-named accused. Bulacan. by means of deceit. Plaridel Branch.000. That being the case. petitioner.900. province of Bulacan. acquitting the accused of the crime of Estafa in the consolidated Criminal Cases No.nét More fundamentally. G. PEOPLE OF THE PHILIPPINES. No. Petitioner Elizabeth Eusebio-Calderon was charged with Estafa in three separate Informations. false pretenses and fraudulent manifestations. and without which it cannot exist as an independent contract.29 WHEREFORE. 2001 of the Court of Appeals in CA-G.R. Teresita Eusebio in the total amount of P172.: This is a petition for review under Rule 45 of the Rules of Court. in the municipality of Pulilan. Planters Bank and PCIBank.00. did then . 23466.

500.00 4. prepared. to the damage and prejudice of the said Amelia Casanova in the said total amount of P130. unlawfully and feloniously.00 12-03-94 2. that upon presentation of the said checks with the said banks for deposit or encashment.00. so much so.00 12-2-94 12-4-94 12-4-94 12-7-94 12-7-94 12-9-94 4.000. and deliver the said checks to one Amelia Casanova as exchange for cash received from the said Amelia Casanova.000. issue and make out the following checks to wit: BANK Allied Bank CHECK NO.000. 16041982 DATE AMOUNT 11-30-94 P100. prepared. did then and there willfully.000.00 2.00 12-03-94 5. the above-named accused.00 11-30-94 1.000.500.and there willfully. knowing fully well that at the time the checks were issued.00.500.00 11-30-94 2. the same were dishonored and refused payment for having been drawn against a "Closed Account" and inspite of repeated demands to deposit with the said banks the total amount of P130.00 Planters Bank 115954 -do-do-doPCIB 115961 15109854 15109930 214723 Planters Bank 115968 (Total Amount Supplied) drawn against the said banks. her representations were false for she had no sufficient funds in the said bank. 1191-M-95: That in or about the months of May to November 1994. 16076401 16076402 214730 214796 DATE AMOUNT 11-15-94 P52.3 In Criminal Case No. false pretenses and fraudulent manifestations.900. Philippines and within the jurisdiction of this Honorable Court. Plaridel Branch. in the municipality of Pulilan.500.400.750. unlawfully and feloniously. the said accused failed and refused to do so.900.00 9.00 5. PCIBank and Planters Bank.00 Planters Bank 15109960 Allied Bank 16083156 .500. province of Bulacan. and pretending to have sufficient funds with the Allied Bank.500.00 P130.900. by means of deceit.00 5. issue and make out the following checks to wit: BANK Allied Bank -doPCIB PCIB CHECK NO.00 11-30-94 105.

00 P172. Eusebio.00 P60. Amelia Casanova and Manolito Eusebio. the same were dishonored and refused payment for having been drawn against a "Closed Account" and inspite of repeated demands to deposit with the said banks the total amount of P172. 16076401. Eusebio in the said total amount of P60. province of Bulacan. the said accused failed and refused to do so. 1192-M-95: That in or about the months of June to November. unlawfully and feloniously. Eusebio as exchange for cash received from the said Manolito G. prepared.500.000.250. to the damage and prejudice of the said Manolito G. so much so. Philippines and within the jurisdiction of this Honorable Court. respectively. by means of deceit.000.00 12-13-94 2. issue and make out the following checks to wit: BANK Allied Bank -do-do-doCHECK NO. and pretending to have sufficient funds with the Allied Bank and Planters Bank. the above-named accused.500. 1994. . that upon presentation of the said checks with the said banks for deposit or encashment.000.00 Planters Bank 116202 (Total Amount Supplied) drawn against the said banks. and deliver the said checks to one Manolito G.250. 1994. to the damage and prejudice of the said Teresita Eusebio in the said total amount of P172.Planters Bank 15094519 11-30-94 3. that upon presentation of the said checks with the said banks for deposit or encashment.00 2. postdated November 15.4 In Criminal Case No. On May 15. petitioner visited her Aunt Teresita in Bulacan to borrow P50. knowing fully well that at the time the checks were issued.250.00. so much so. the said accused failed and refused to do so.500.500.00. 16083115 16063578 16063577 16076436 DATE 12-3-94 12-6-94 12-6-94 AMOUNT P 2. knowing fully well that at the time the checks were issued.00. and deliver the said checks to one Teresita Eusebio as exchange for cash received from the said Teresita Eusebio. in the municipality of Pulilan.5 The private complainants.00 50. the same were dishonored and refused payment for having been drawn against a "Closed Account" and inspite of repeated demands to deposit with the said banks the total amount of P60. did then and there willfully.000.000.00 (Total Amount Supplied) drawn against the said banks. false pretenses and fraudulent manifestations.00 12-13-94 2. Plaridel Branch.000. in exchange for which she issued an Allied Bank Check No. her representations were false for she had no sufficient funds in the said bank. her representations were false for she had no sufficient funds in the said bank.00. Teresita Eusebio.00. are petitioner‘s aunt and cousins.

she continued to make good the value of the postdated checks she issued until 1990. In exchange. postdated November 30. Pulilan. WHEREFORE. They gave her the money because she showed them her pieces of jewelry which convinced them that she has the ability to pay the loans. According to private complainants. Although her uncle died in 1989.000.00. the lower court rendered a joint decision finding petitioner guilty beyond reasonable doubt of three counts of Estafa but ruled that her liability for the "interest checks" was only civil.1994. 16041982. she asserts that she is an educated woman and she never had any intention to deceive the private complainants. 1994. 2 (d) of Art. petitioner again borrowed from Teresita the amount of P100. After trial. She claims that her dealings with private complainants started in 1987 with her uncle Alberto. and four other postdated checks for the interests thereon. To pay the cost.500. and . 1994. 16076402. Revised Penal Code as amended by P. 16063578 covering the principal amount of the loan.00. 2. in the amount of P105. Manolito loaned her P50.000. 1190-M-95: PREMISES CONSIDERED the complainant in Criminal Case No. 1994. Bulacan guilty beyond reasonable doubt of the crime of Estafa defined and penalized under Par. the Court hereby renders judgment finding accused ELIZABETH E. 1994. Amelia Casanova went to the drugstore of petitioner and lent her the amount of P100.000. 1190-M-95 wherein the complainant is one Amelia Casanova was able to prove beyond reasonable doubt the culpability of herein accused because she would not have parted with her P100.00. in the amount of P52.00 if not for the assurance that the check issued was properly funded. 818 and sentencing the said accused as follows: 1. Also on May 30. On May 30.D. petitioner assured them that the checks will be honored upon maturity. Manolito Eusebio alleges that in November 1994. To suffer an indeterminate sentence of imprisonment of nine (9) years and one (1) day of PRISION MAYOR as minimum to SEVENTEEN (17) YEARS FOUR (4) months and one (1) day of RECLUSION TEMPORAL as maximum.000. for which she issued Allied Bank Check No. allegedly to be used for the expansion of her business. petitioner issued Allied Bank Check No. the husband of complainant Teresita and the father of Amelia and Manolito. petitioner admits that she issued the checks but alleges that it was not done to defraud her creditors. 1994. CALDERON of Poblacion. postdated November 14. 3. for P100. In her defense. in exchange for which she issued Allied Bank Check No.00. 315.000. petitioner borrowed money from him because she needed it for her pharmaceutical business.000.00 and six other checks in various amounts purportedly to cover the interests. Finally.00. The dispositive portion of the decision reads: In Criminal Case No. dated December 6. To suffer the accessory penalties provided by law.

00 is hereby DISMISSED the same being civil in nature and are interest of transaction other than the principal amount of P100. 1191-M-95: PREMISES CONSIDERED. the court hereby renders judgment finding accused Elizabeth Calderon guilty beyond reasonable doubt of the Crime of ESTAFA defined and penalized under Par. 818 and sentencing the said accused as follows: 1.000.7 In Criminal Case No. To pay the cost. P5. petitioner appealed the judgment of the trial court to the Court of Appeals.D. 315. P4. 2001.400. 2 (d) of Art. 2.00. 1192-M-95: WHEREFORE. 2. To indemnify the complainant Manolito Eusebio the sum of P50. 315 of the Revised Penal Code as amended by P. "F" and "G" in the amount of P5. In its Decision dated April 30. exhibits "A" and "B".8 The trial court denied petitioner‘s Motion for Reconsideration for lack of merit.00. The other checks exhibit "B" to "E" are hereby DISMISSED.00 representing the two checks. To suffer the accessory penalties provided by law. To indemnify the complainant Amelia Casanova the sum of P100.900. "E".00.00. (Exh.00 and P 2.D. P9. To indemnify the complainant Teresita Eusebio the sum of P157.000.4.00.000. P4.500. and 4.00 respectively in the total amount of P30. "C". 2 (d) of Art.9 Hence. To pay the costs.000.500. "D". and 4. the other checks exhibits "B".00. To suffer an indeterminate sentence of imprisonment of FOUR (4) years 2 months and one (1) day of PRISION CORRECCIONAL as minimum to eight (8) years and one (1) day of PRISION MAYOR. 3.00. To suffer an indeterminate sentence of imprisonment of Ten (10) years and One (1) day of PRISION MAYOR as minimum to seventeen (17) years FOUR (4) months and one (1) day of RECLUSION TEMPORAL as maximum. 3. 818 sentencing the said accused as follows: 1. "A") Necessarily. the court finds accused Elizabeth Calderon guilty beyond reasonable doubt of the crime of ESTAFA defined and penalized under Par.500. To suffer the accessory penalties provided by law. Revised Penal Code as amended by P.500.6 In Criminal Case No.000. the Court of Appeals disposed of the appeal as follows: .

With utmost due respect.10 In the instant petition for review.900. the Honorable Court of Appeals failed to consider that under the sorry state of affairs which petitioner experienced when the instant three criminal cases were pending before RTC – Branch 79. Malolos City. The Honorable Court of Appeals failed to consider that on the face of the Decision rendered by the Presiding Judge of RTC – Branch 17. The appeal conferred . In a criminal case.12 When petitioner appealed her conviction. 3. she is held civilly liable as follows: In Criminal Case No. all with interest thereon at the rate of 12% per annum effective December 20. The Honorable Court of Appeals failed to consider that the whole transactions that transpired between appellant and private appellees covered a period lasting in years whereby private appellees charged appellant highly usurious interests which under current jurisprudence maintains that usurious interests are void. In Criminal Case No. SO ORDERED. and to pay costs.00. 1191-M-95: To indemnify Teresita Eusebio the total amount of P172. 1994. the dismissal of the interest checks by the lower court did not preclude the Court of Appeals from reviewing such decision and modifying her civil liability. Issues whether raised or not by the parties may be resolved by the appellate court. the Decision appealed from in so far as it bears on the criminal liability of the accused is REVERSED and SET ASIDE and a new judgment is issued ACQUITTING the accused of the crimes charged on the ground that her guilt has not been proven beyond reasonable doubt. petitioner raises the following errors: 1. that interest checks were dismissed but found the appellant guilty with respect to the principal loan checks in the three cases above mentioned. the date of complainants‘ demand thru their counsel.250. 1190-M-95: To indemnify Amelia Casanova the total amount of P130.000. However. an appeal throws the whole case wide open for review.00. 1192-M-95: To indemnify Manolito Eusebio the total amount of P60. Since the 1st and 3rd issues are interrelated they shall be discussed jointly. In Criminal Case No.WHEREFORE. 2. until fully paid.11 The issues for resolution are as follows: (1) Did the Court of Appeals err in finding the appellant civilly liable to complainants with respect to the interest in the principal loan despite the dismissal of the interest checks by the Regional Trial Court? (2) Is the interest agreed upon by the parties usurious? (3) Should the private respondents file a separate civil complaint for the claim of Sum of Money? We find the petition meritorious. Malolos City.00. that private respondents should have filed a separate civil complaint for their alleged claim of Sum of Money.

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

and Manolito Eusebio the sum of P50.. the Decision of the Court of Appeals in CA-G. WHEREFORE. petitioner vs.R. J. CR No. 1994. the date when she received the demand letter. . a loan or forbearance of money.000.R.. the interest due should be that which may have been stipulated in writing. Inc.21 In view of our ruling that there can be no stipulated interest in this case. respondent. INC. Teresita Eusebio the sum of P157. and it consists in the payment of a sum of money. G. COURT OF APPEALS and EQUITABLE CREDIT CARD NETWORK. entitled ―Equitable Credit Card Network.R. SO ORDERED. 1994 until its satisfaction. the amount due shall earn interest at 12% per year. there is no need to pass upon the second issue of whether or not the interests were usurious. The facts of this case are undisputed. the interim period being deemed equivalent to a forbearance of credit.500. (Emphasis supplied) Hence. the interest due shall itself earn legal interest from the time it is judicially demanded. After the judgment becomes final and executory until the obligation is satisfied. Crisostomo Alcaraz. petitioner is liable for the payment of legal interest per annum to be computed from December 20. The case stemmed from an action for the collection of sum of money. Furthermore. Costs de oficio. i.e.: Assailed before this Court in a Petition for Review on Certiorari is the decision of the Court of Appeals in CA-G. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. i. 2006 CRISOSTOMO ALCARAZ.00. In the absence of stipulation. PUNO. v.Shipping Lines. Inc..00 as civil liability with legal interest of twelve percent (12%) per annum from December 20. 152202 July 28. 65911. the rate of interest.00. in view of the foregoing. 23466 isAFFIRMED with the MODIFICATION that petitioner is ordered to pay Amelia Casanova the sum of P100.‖ affirming the decision of Branch 147 of the Regional TrialCourt of Makati City. as well as the accrual thereof as follows: When the obligation is breached. CV No. No.20 we established the guidelines particularly for the award of interest in the concept of actual and compensatory damages. the rate of interest shall be 12% per annum to be computed from default.e. Court of Appeals.00. v.

Equitable Credit Card Network.5% monthly interest and 1% late penalty/surcharge per month for the dollar account until full payment thereof as provided in the ―Terms and Conditions Governing the Issuance and Use of Equitable Visa Card‖ (hereinafter referred to as the Terms and Conditions). private respondent Equitable sought the payment of the accumulated outstanding balance including interest of 2. The private respondent also prayed for liquidated damages of 25% of the total amount of both accounts and attorney‘s fees at the same rate allegedly also in accordance with the Terms and Conditions. he formally requested for a reconciliation of his accounts with the private respondent but the same has remained unanswered until the present day. the petitioner accumulated unpaid credit with private respondent and despite the receipt of several demand letters. and 1. Inc. is a company engaged in the business of extending credit accommodations/facilities through the use of the credit cards issued to its clientele. and P192. 1999. to petitioner Crisostomo Alcaraz.Private respondent.[5] The petitioner admitted he had made use of the credit card issued in his name by private respondent Equitable. he was not required to submit any application or sign any document prior to the issuance of the card and he was entitled to pay on an installment basis without any interest. . cash advances may be availed from automated teller machines or ATMs. the case filed against him was premature.970. (Equitable). failed to pay his outstanding obligations.5% per month as well as a monthly late penalty/surcharge of 1. Thus. but contested the amount of his liability. Through these credit cards.500. and goods or services may be purchased on credit from accredited merchant shops. He denied signing the document Terms and Conditions Governing the Issuance and Use of Equitable Visa Card.[2] Thus.[4] Private respondent Equitable claims petitioner Alcaraz has an accumulated outstanding balance of US$8.‖ As such.[1] In May 1995. The petitioner through the use of the said credit card secured cash advances and purchased goods and services on credit with private respondent Equitable‘s affiliated merchant establishments.00 on his peso account as of February 28. Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 49210100-0743-2005 with peso and dollar accounts/facilities. PetitionerAlcaraz further alleged that prior to the filing of the complaint.54 in his dollar account as of February 18.5% for the peso account.[3] In its complaint before the lower court. private respondent Equitable issued a credit card. 1999inclusive of interest and surcharges. Petitioner alleged that he was issued the credit card as an ―honorary member.

000.34 or its peso equivalent. he maintains that.After several postponements of the pretrial conference.[10] Petitioner Alcaraz also charge the trial court with arbitrariness and of depriving him of the right to have the case against him heard before an impartial judge or tribunal.‖ Instead. one of its collection officers. on his dollar account‖ with 12% annual interest from June 25. while permissible. The appellate court likewise reduced the amount of attorney‘s fees to P20. Ben Ibuyan. the trial court declared petitioner Alcaraz as in default upon motion of private respondent Equitable and allowed the latter to present its evidence ex parte. and the submission of documents. suffered from a ―lingering gall bladder ailment. however. It. The petition is without merit.[7] Petitioner Alcaraz filed a Motion for New Trial which was denied.00.[12] This case. 1999 despite the manifestation of petitioner‘s wife that petitioner Alcaraz suffered a stroke which rendered him paralyzed while Atty. on his peso account. petitioner comes to this Court via a petition for review on certiorari raising the following issues: (1) whether the trial court violated the petitioner‘s right to due process when the private respondent was allowed to present its evidence ex parte. Postponements.[8] The petitioner elevated the case to the appellate court. 1996 until full payment thereof. however. It modified the trial court‘s judgment by ordering petitioner Alcaraz to pay private respondent Equitable ―the principal amount of P81. must not be countenanced except for . 1999 pretrial conference. aside from brushing aside the clearly meritorious reasons for his and his counsel‘s absence on the February 23. does not fall within those exceptions. the trial court judge and its personnel have shown their bias against him in several occasions such as the alleged difficulty his counsel encountered in filing a Motion for New Trial.00. Petitioner Alcaraz laments that the trial court did not postpone and reschedule the pretrial conference on February 23. upon motion of private respondent Equitable. it is well-settled that this Court is not a trier of facts. the petitioner‘s counsel.000.[9] Undaunted. and the amount of US$4. This Court accords due respect to the findings of the trial court and the appellate court save in clearly exceptional cases.397. the trial court declared the petitioner as in default and allowed the private respondent to present its evidence ex-parte. [13] This must be so as it is the trial court which was able to witness firsthand the events as they unfolded in the trial of a case. and (2) whether the monetary award ordered by the Court of Appeals is in accord with the evidence. The trial court clearly has the discretion on whether to grant or deny a motion to postpone and/or reschedule the pretrial conference in accordance with the circumstances then obtaining in the case. and applicable law and jurisprudence. rejected private respondent Equitable‘s claim for liquidated and exemplary damages. The Court of Appeals partially affirmed the decision of the trial court. In support of his allegations.[6] After the private respondent‘s presentation of evidence which included the testimony of its sole witness.[11] With regard to the first issue. the court ruled in favor of private respondent Equitable.

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

[20] Private respondent Equitable responded by proposing that the amount due as stated in the statement of accounts sent to the petitioner instead be paid in six (6) equal monthly installments.[21] Petitioner Alcaraz likewise made partial payments before and after he made the proposed payment scheme to the private respondent. the petitioner was not able to show that it was in fact the agreement between him and the private respondent or that the same is the policy and/or practice of the latter. While the petitioner did request the private respondent in writing for a computation of his outstanding balance. When a client is classified as pre-screened. It is private respondent Equitable‘s assertion that by signing the credit card and subsequently using the same. the petitioner never disputed his use of the credit card issued to him by the private respondent.[19] With regard to the second issue. the usual screening procedures of prospective cardholders. such as the filing of an application form and . did petitioner Alcaraz contest any specific purchase or cash advance charged to the credit card. nowhere in the records of this case.[22] Private respondent Equitable.such finding with regard to the disallowance of the requests for postponement.[23] Private respondent Equitable contends that the waiver of the filing of an application simply means that petitioner Alcaraz has been pre-screened. Petitioner Alcaraz likewise claims that the contested provisions are not applicable to him because he was considered an honorary member who is entitled to pay for his credit purchases and cash advances on an installment basis free of any interest. what the petitioner contests is the application of the interests. Such a status is conferred on a person by virtue of his good credit standing or upon recommendation of a reputable client or officer of private respondent Equitable. The petitioner asserts that the ―honorary‖ status given to him was evidenced by the fact that private respondent Equitable issued the credit card in his name without the necessity of any application or document submitted and signed by him prior to such issuance. avers that while petitioner Alcaraz did not file or sign an application for the credit card. this did not exempt him from the provisions of the Terms and Conditions. on the other hand. penalties and other charges as provided for in the Terms and Conditions when he never signed nor conformed to the said document. The evidence sustains the claim of private respondent Equitable that petitioner Alcaraz is what is known as a pre-screened client. however. the petitioner has agreed to the Terms and Conditions and any amendment thereto as stated in the back of the credit card itself. the CA [Court of Appeals] cannot overturn the decision of the judge. While he maintains that there is a ―great disparity‖ between the amount of credit he availed of and what was actually being collected from him by the private respondent.[24] Except from his bare assertions that the non-filing of application entitles him to pay for his credit card obligations free of interest on an installment basis. whether the peso or the dollar account. Petitioner‘s claim of honorary membership which allegedly entitles him to pay his obligations on an interest-free installment basis is fallacious and groundless. Much less can it assume his bias and partiality based merely on the denial of the requests for postponement. the petitioner likewise in the very same letter offered to pay his outstanding obligations in twelve (12) equal monthly installments. Clearly.

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

Inc. petitioner Alcaraz is liable for the payment thereof. until full payment thereof..e. such stipulation is not sufficient to bind the petitioner to the Terms and Conditions without a clear showing that the petitioner was aware of and consented to the provisions of this document.[34] while the dollar account of the same credit card has an unpaid balance of $4. the records reveal that the principal amount of the obligation on the peso account of the subject credit card as of March 17. 1996. shall be 12% per annum from such finality until its satisfaction. i. The records likewise reveal that it was only on October 5. whether the case falls under paragraph 1 or paragraph 2. i. 1996 is P81. 1996 demand letter was. v. Furthermore. As such. When the obligation is breached. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. this interim period being deemed to be by then an equivalent to a forbearance of credit. the interest due should be that which may have been stipulated in writing. above. the legal interest on obligations consisting of loan or forbearance of money shall apply. Since the provisions of the Terms and Conditions are inapplicable to petitioner Alcaraz. respectively. silent on the unpaid balance on the peso account. In the absence of stipulation.[31] to wit: 1. It is. Court of Appeals.. penalties and other charges as of March 3. the interest due shall itself earn legal interest from the time it is judicially demanded. the rate of legal interest.private respondent‘s averment that the stipulation quoted earlier is printed at the back of each and every credit card issued by private respondent Equitable.000.. however.00. however.34 exclusive of any interests. it is only from the aforesaid dates that the legal rate of interest shall apply on the dollar and peso accounts. 1996 that private respondent Equitable may be deemed to have extrajudicially demanded payment of the outstanding obligation of petitioner Alcaraz on his peso account.. This.[32] . the petition is DISMISSED and the February 11. the private respondent failed to do. the rate of interest shall be 12% per annum to be computed from default. The June 25.. Hence. 2002 decision of the Court of Appeals is AFFIRMED with MODIFICATIONS and the petitioner is ordered to pay the following: . 3.[35] The extrajudicial demand for payment for the dollar account was made on June 25. 1996 by virtue of a letter sent to and duly received by the petitioner. As this Court ruled in the landmark case of Eastern Shipping Lines.e. undeniable that petitioner Alcaraz accumulated unpaid obligations both in his peso and dollar accounts through the use of the credit card issued to him by private respondent Equitable. When the judgment of the court awarding a sum of money becomes final and executory. IN VIEW WHEREOF.[33] In the present case.397. and it consists in the payment of a sum of money. a loan or forbearance of money.

1996 until the said amount is paid in full. 2. on the peso account of Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 4921-0100-0743-2005. payable semi-annually in arrears.R. 113412 April 17. and 3. G. petitioner.00 with interests thereon at the rate of 12% per annum from October 5. ALMEDA. A credit agreement embodying the terms and conditions of the loan was executed between the parties. No. xxx xxx xxx III. No costs. Pertinent portions of the said agreement are quoted below: SPECIAL CONDITIONS xxx xxx xxx The loan shall be subject to interest at the rate of twenty one per cent (21%) per annum.1.34 with interests thereon at the rate of 12% per annum from June 25. 1996 until full payment thereof. KAPUNAN.000. THE COURT OF APPEALS and PHILIPPINE NATIONAL BANK. together with the building erected thereon (the Marvin Plaza) located at Pasong Tamo.500 square meter parcel of land.000. SO ORDERED. OTHER CONDITIONS . the amount of P20. J. vs. the spouses Almeda executed a Real Estate Mortgage Contract covering a 3.:p On various dates in 1981.397. the Philippine National Bank granted to herein petitioners. the principal amount of P81. on the dollar account of Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 4921-0100-0743-2005. The loan shall likewise be subject to the appropriate service charge and a penalty charge of three per cent (30%) per annum to be imposed on any amount remaining unpaid or not rendered when due. the first interest payment to become due and payable six (6) months from date of initial release of the loan. respondents. To secure the loan. Almeda and Eufemia P. Metro Manila. the spouses Ponciano L. Almeda several loan/credit accommodations totaling P18.0 Million pesos payable in a period of six years at an interest rate of 21% per annum. the principal amount of $4. 1996 Spouses PONCIANO ALMEDA and EUFEMIA P.00 as and by way of attorney‘s fees. Makati.

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

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

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

Circular No. Clearly. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. hence.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan. In order that obligations arising from contracts may have the force of law between the parties. Hence. were arbitrary. escalation clauses in credit agreements are perfectly valid and do not contravene public policy. over the latter's vehement protests." The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24%per annum. as found by the Court of Appeals. where the parties do not bargain on equal footing. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties. is void (Garcia vs.D. violated the mutuality of contracts ordained in Article 1308 of the Civil Code: Art.B. its validity or compliance cannot be left to the will of one of them. Such clauses.. which agreements — while they may be the law between the contracting parties — implicitly incorporate provisions of existing law. however. 21 SCRA 555). 116. Series of 1982 did not authorize the bank. 1956 of the Civil Code which provides that "no interest shall be due unless it has been expressly stipulated in writing.Besides violating P. respondent bank's reliance on C. 308.. were arbitrary as they violated an express provision of the Credit Agreement (Exh. True. 85).01 that its terms "may be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment. PNB's successive increases of the interest rate on the private respondent's loan. Inc. It would have invested the loan agreement with the character of a contract of adhesion. the galloping increases in interest rate imposed by respondent bank on petitioners' loan. Consequently. to progressively increase interest rates on borrowings to an extent which would have made it virtually impossible for debtors to comply with their own obligations. (as are stipulations in other contracts) are nonetheless still subject to laws and provisions governing agreements between parties. while the Usury Law ceiling on interest rates was lifted by C. even assuming that the P1. is indisputable." The increases imposed by PNB also contravene Art. Rita Legarda. he is not bound to pay a higher rate than that. That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive.B. The contract must bind both contracting parties. the unilateral action of the PNB in increasing the interest rate on the private respondent's loan. the weaker party's (the debtor) participation being reduced to the alternative "to take it or lease it" (Qua vs. 1) Section 9. Law Union & Rock Insurance Co. or any lending institution for that matter. 905. 95 Phil. Moreover. over the latter's protest. nothing in the said circular could possibly be read as . that license would have been null and void for being violative of the principle of mutuality essential in contracts. there must be mutuality between the parties based on their essential equality. Circular 905.

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

" (Emphasis supplied). That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. Provided. According to the guidelines. it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. 1976 (supra)." The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the latter to the BORROWER of Ms. It is now clear that from March 17. the force and effect of law. petitioners had paid an amount equivalent to virtually half of the entire principal (P7. goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board: Provided. 1684. it has. however. although it has the effect of law. Paderes of September 24. "An administrative regulation adopted pursuant to law has the force and effect of law. 494.66) which was applied to interest alone.D." The distinction is again recognized by P." "That administrative rules and regulations have the force of law can no longer be questioned. further. escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board.CIRCULAR No. is not a law. 494. By the time the spouses tendered the . Between 1981 and 1984. providing that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased "by law or by the Monetary Board. That an increase in interest rates from 18% to as much as 68% is excessive and unconscionable is indisputable. there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the maximum rate for loans. adding section 7-a to the Usury Law. No. "Although a circular duly issued is not strictly a statute or a law.004. 1980. for a loan's interest to be subject to the increases provided in CIRCULAR No.' (Paragraphing and emphasis supplied)." Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the tenor of their credit agreement.735. Parties to an agreement pertaining to a loan or forbearance of money." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law. and (2) in order for such stipulation to be valid. 7-a." To quote: Sec. 1980. That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. promulgated on March 17.

We find respondent's pretense untenable. Presidential Decree No.D. P. Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds. This matter should rightfully be litigated below in the main action. not exempted from observing basic principles of law. 11 In the first place.518. Intermediate Appellate Court.377. the government is however. We go now to respondent bank's claim that the principal issue in the case at bench involves its right to foreclose petitioners' properties under P.D. In Republic Planters Bank v. we held that: We cannot. and only after the spouses refused to meet their obligations following such determination. even if only in part. Thus. its employees and their families. respondent bank was demanding P58. as clearly demonstrated above. at this point. held: . 385 will have to await the presentation of evidence in a trial on the merits.D.142.00 in settlement of their obligations. 385's provisions on mandatory foreclosure. the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P. 385 to satisfy the whole amount of the loan would be a gross mistake.D. 12 involving P. 385. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan.amount of P40.10 In facilitating collection of debts through its automatic foreclosure provisions. the foreclosure provisions of P. not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable. the exact amount of petitioner's obligations could not be determined.487. Consequently. In Filipinas Marble Corporation v. Pending the outcome of such litigation. 9 Here. Court of Appeals 13 the Court reiterating the dictum in Filipinas Marble Corporation. 385 was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the government's development projects all over the country by large borrowers who resort to litigation to prevent or delay the government's collection of their debts or loans. and ordinary fairness and decency under the due process clause of the Constitution. conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is "persuasive" evidence that such acts were committed by the respondent.D. but also there are no valid and reasonable standards upon which the increases are anchored. an issue which was never settled on merit in the courts below.D. It would unduly prejudice the petitioner. Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not. because of the dispute regarding the interest rate increases. for the benefit of the petitioner be determined. 385 could be validly invoked by respondent only after settlement of the question involving the interest rate on the loan. then the foreclosure of the petitioner's properties under the provisions of P.00 over and above those amounts already previously paid by the spouses.

CV No. honestly believed to be the real amount of their remaining obligations with the respondent bank. in good faith and in compliance with the letter of the Credit Agreement. to gain the upper hand over petitioners. That these increases. Thio received from petitioner Carolyn M. 385 will sweep under the rug' this iceberg of a scandal in the sugar industry during the Marcos Martial Law years. Sometime in February 1995.: Assailed in this petition for review on certiorari1 are the June 19.D. 2002 resolution3of the Court of Appeals (CA) in CA-G. 1997 decision of the Regional Trial Court (RTC) of Makati City. 56577 which set aside the February 28.000 payable to the order of a certain Marilou Santiago. 1994 is hereby REVERSED AND SET ASIDE. RICA MARIE S. petitioner received from respondent every . Furthermore.R. we hold that the unilateral and progressive increases imposed by respondent PNB were null and void.The enforcement of P. In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring the parties to agree to changes in the interest rate in writing. Respondent's rush to inequitably invoke the foreclosure provisions of P. WHEREFORE. GARCIA. 154878 March 16. Branch 58. 2002 decision2 and August 20. The latter could not therefore claim that there was no honest-to-goodness attempt on the part of the spouse to settle their obligations. petitioners made a valid consignation of what they. 1995 in the amount of US$100. the decision of the Court of Appeals dated August 27. The case is remanded to the Regional Trial Court of Makati for further proceedings. occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur business cannot be disputed. J. This we can not allow to happen. Petitioner. PREMISES CONSIDERED. respondent Rica Marie S. SO ORDERED. It is of paramount national interest. Their effect was to increase the total obligation on an eighteen million peso loan to an amount way over three times that which was originally granted to the borrowers. vs. CORONA.5 Thereafter. 385 through its legal machinations in the courts below. 1993. all the dirty linen in the PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in public so that the same may NEVER be repeated. No. THIO.D.R. 2007 CAROLYN M. as well as the resolution dated February 10. Respondent. Garcia a crossed check4 dated February 24. that we allow the trial court to proceed with dispatch to allow the parties below to present their evidence. For the benefit of future generations. in spite of the unsettled differences in interpretation of the credit agreement was obviously made in bad faith. G.

also payable to the order of Marilou Santiago.000. Branch 58 against respondent. petitioner received from respondent the amount of P20. 1995 in the amount ofP500. In June 1995. with interest thereon at 3% a month from October 26. 1995. 1995.00 as and for attorney‘s fees.000 with interest thereon at the rate of 3% per month. 1995.000. on March 24.161awphi1. October 5 and November 5.18 In a decision dated February 28.14 The amount of this loan was covered by the second check. 1995 until fully paid. 1995. 3. [respondent‘s] counterclaim is perforce dismissed. petitioner filed a complaint for sum of money and damages in the RTC of Makati City. She claimed she was merely asked by petitioner to give the crossed checks to Santiago. April 26. the RTC ruled in favor of petitioner. 1995.00 with interest thereon at 4% per month from November 5.000 and P20.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates. September 5. June 26 and July 26. P50.00 as and for actual damages. 1996. For both loans. on February 22. 1997. . On June 29.000. respondent failed to pay the principal amounts of the loans (US$100.8 August 26. 1995. seeking to collect the sums of US$100. and 4.12 Petitioner alleged that on February 24.000. September 26 and October 26. For lack of merit.00] or its peso equivalent with interest thereon at 3% per month from October 26. respondent borrowed from her the amount of US$100.000. which loan would mature on October 26. P500. 1995 until fully paid.0006 and P76. P100. all in 1995) the amount of US$3.000 every month on August 5. respondent received from petitioner another crossed check9 dated June 29. the maturity date of which was on November 5. [US$100.10 Consequently.000 at a monthly interest of 4%:20 WHEREFORE. sentencing [respondent] to pay the former the amount of: 1.000.nét Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money.19 It found that respondent borrowed from petitioner the amounts of US$100. 2.000) when they fell due.17 She issued the checks for P76. no promissory note was executed since petitioner and respondent were close friends at the time. with interest thereon at 4% a month from November 5. finding preponderance of evidence to sustain the instant complaint. she failed to pay the principal amounts despite repeated demands.000 not as payment of interest but to accommodate petitioner‘s request that respondent use her own checks instead of Santiago‘s.11 According to petitioner. 1995 and P500. Thus.000 and P500. plus attorney‘s fees and actual damages.000. respondent again borrowed the amount of P500.5007 on July 26.13 The amount of this loan was covered by the first check.000 with monthly interest of 3% and P500.month (specifically.000 at an agreed monthly interest of 4%. judgment is hereby rendered in favor of [petitioner]. 1995.

(c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner].000. again payable to the order of Marilou Santiago. not consensual.24 The petition is impressed with merit. with intent to transfer title thereto.00. 1995 in the sum of US$100. Consequently. However. x x x (emphasis supplied)22 Hence this petition. both of which were issued by [petitioner].25 This is evident in Art. otherwise. the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties: A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. this case falls under one of the exceptions.. With the foregoing circumstances. he is not a holder in due course. IT IS SO ORDERED. (b) the check may be negotiated only once—to one who has an account with the bank. may not be encashed but only deposited in the bank by the payee thereof. as a payee or indorsee thereof. and as such is perfected only upon the delivery of the object of the contract.e. A loan is a real contract. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24. that is. it may be fairly inferred that there were really no contracts of loan that existed between the parties.With costs against [respondent]. being crossed. The checks received by [respondent]. i. the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder. payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29. by Marilou Santiago herself.. when the factual findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there werecontracts of loan) are contradictory.21 On appeal.23 As a rule.00. (Emphasis supplied) . 1995 in the amount of P500. i. There is nothing in the record that shows that [respondent] received money from [petitioner]. It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank.000. 1934 of the Civil Code which provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties. but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.e.

this Court is guided by the rule that for evidence to be believed. respondent admitted issuing her own checks in the amount of P76.27 She maintains that it was also upon respondent‘s instruction that both checks were delivered to her (respondent) so that she could. in turn. already had transactions with Santiago at that time. Several factors support this conclusion. she merely accommodated petitioner‘s request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago. Respondent has not shown any reason why Ruiz‘ testimony should not be believed.28 Furthermore.000 loan. deliver the same to Santiago. the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor).000 each for four months. on the other hand. these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.000 loan. Respondent. We declared in one case that: In the assessment of the testimonies of witnesses. a friend of both petitioner and respondent (and whose name appeared in both parties‘ list of witnesses) testified that respondent‘s plan was for petitioner to lend her money at a monthly interest rate of 3%. respondent admitted that petitioner did not personally know Santiago.32 Second.36 Her explanation is simply incredible. she argues that once respondent received the checks. it must not only proceed from the mouth of a credible witness.31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Leticia Ruiz. but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. Thus the main question to be answered is: who borrowed money from petitioner — respondent or Santiago? Petitioner insists that it was upon respondent‘s instruction that both checks were made payable to Santiago. For the P500. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. However. she also issued her own checks in the amount of P20. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest.Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. however.29 We agree with petitioner.000) for eight months to cover the monthly interest. We have no test of the truth of human testimony except its conformity to our .30 Although respondent did not physically receive the proceeds of the checks.33 This explained why respondent instructed petitioner to make the checks payable to Santiago. Third. from her own funds.000 each (peso equivalent of US$3. First.34 According to respondent. for loans she allegedly did not contract. that Santiago would replace the checks with cash. after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%. to retain them or to return them to petitioner.26 It is undisputed that the checks were delivered to respondent. for the US$100.35 She claimed.

It is well-settled that: When the obligation is breached.000 and P500. not petitioner.38 Last. the interest due shall itself earn legal interest from the time it is judicially demanded.39 The presumption is that "evidence willfully suppressed would be adverse if produced. the petition is hereby GRANTED and the June 19.000 at 12% per annum interest from November 21. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing. there can be legal interest pursuant to Article 2209 of the Civil Code. observation. In the absence of stipulation. respondent is liable for the payment of legal interest per annum to be computed from November 21. the interest due should be that which may have been stipulated in writing. a loan or forbearance of money. 2002 decision and August 20.41 Hence.knowledge. the amount due shall earn interest at 12% per annum. respondent inexplicably never presented Santiago as a witness to corroborate her story. i. however. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100."40 Respondent was not able to overturn this presumption. and experience. the interim period being deemed equivalent to a forbearance of credit.000 and P500. 56577 are REVERSED and SET ASIDE. The award of actual damages and attorney‘s fees is deleted.43 The award of actual damages in the amount of P50. CV No. 1995.. it was respondent.000 andP500. 1995 until the finality of the decision. Furthermore. We do not. Whatever is repugnant to these belongs to the miraculous. WHEREFORE.42 From the finality of the decision until it is fully paid. agree that respondent is liable for the 3% and 4% monthly interest for the US$100. The February 28. while there can be no stipulated interest." Be that as it may. The total amount due as of the date of finality will earn interest of 12% per annum until fully paid. 1997 decision of the Regional Trial Court in Civil Case No.. in the petition for insolvency sworn to and filed by Santiago.000 loans respectively. who was listed as one of her (Santiago‘s) creditors.000 from petitioner. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100.e. SO ORDERED. the date when she received petitioner‘s demand letter. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. i.R. . 2002 resolution of the Court of Appeals in CA-G.000 and P100. and it consists in the payment of a sum of money.e. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans. and is outside of juridical cognizance.37 Fourth. the rate of interest shall be 12% per annum to be computed from default.000 attorney‘s fees is deleted since the RTC decision did not explain the factual bases for these damages.

respondent. On appeal. SO ORDERED. respondent is now estopped from questioning the provisions of the promissory notes. PADILLO. CV No. which reversed and set aside the decision of the Regional Trial Court of Manila. 2003.5% and 5% monthly interest rates.00 on February 2. and on the counterclaim. respondent Gloria D. and not 4.R.R. ordered her to pay petitioner P311.00 loan from petitioner. respondent made 11 monthly interest payments of P25. On October 12.4 the trial court dismissed respondent‘s complaint.2 For the first loan. respondent obtained another P500. On July 22. GLORIA D.125. respectively.00 to Gloria D.5% and 5% per annum. On September 7.500. 1999.3 In sum. seeking a reversal of the Court of Appeals‘ decision in CA-G.000.000. based on the disclosure statements executed by respondent.000. 1999 until fully paid plus 10% of the amount due as attorney‘s fees and costs of the suit.000.000. On January 27. Padillo.000. Alleging that she only agreed to pay interest at the rates of 4. 0096235.00 each before she settled the P500.00 with legal interest from February 3. 751831 dated October 16.6 The appellate court ruled that.00 for the first loan and P775.00 loan from petitioner First Fil-Sin Lending Corp. for the two loans. 160533 January 12. vs. As regards the second loan. and (2) deleting the award of attorney‘s fees in favor of appellee.00 each before paying the principal loan of P500. J.5% and 5% per month.500. respondent filed an action for sum of money against herein petitioner before the Regional Trial Court of Manila. the Court of Appeals (CA) reversed and set aside the decision of the court a quo.00 outstanding principal obligation on February 2.00 for the second loan. 1997.5 The trial court ruled that by issuing checks representing interest payments at 4. Other claims and counterclaims are dismissed for lack of sufficient causes. the interest rates should be imposed on a monthly basis but only for the 3-month term of the . 1999. No pronouncement as to cost.: Before us is a petition for review under Rule 45 of the Rules of Court. the appealed decision is REVERSED and SET ASIDE and a new one entered: (1) ordering First Fil-Sin Lending Corporation to return the amount of P114.G. respondent made 13 monthly interest payments of P22. In both instances. YNARES-SANTIAGO. respondent executed a promissory note and disclosure statement. respondent paid a total of P792. 1997. Branch 21 in Civil Case No. No. 2000. the dispositive portion of which reads: IN VIEW OF ALL THE FOREGOING. respondent sought to recover the amounts she allegedly paid in excess of her actual obligations. 2001. 2005 FIRST FIL-SIN LENDING CORPORATION. Padillo obtained a P500. petitioner.000.

Perusal of the promissory notes and the disclosure statements pertinent to the July 22. the legal interest rate will apply. 1997 loan obligations of respondent clearly and unambiguously provide for interest rates of 4. Nowhere was it stated that the interest rates shall be applied on a monthly basis.1awphi1. it insists that the 4. petitioner argues that the 12% per annum penalty imposed by the CA in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate terms and conditions as they may deem proper. III THE COURT OF APPEALS ERRED IN DELETING THE ATTORNEY‘S FEES AWARDED BY THE REGIONAL TRIAL COURT.loan. Thus.net Thereafter.5% and 5% monthly interest shall be imposed until the outstanding obligations have been fully paid. avers that the interest on the loans is per annum as expressly stated in the promissory notes and disclosure statements.l^vvphi1. Respondent asserts that any ambiguity in the promissory notes and disclosure statements should not favor petitioner since the loan documents were prepared by the latter. the instant petition on the following assignment of errors: I THE COURT OF APPEALS ERRED IN FINDING THAT THE APPLICABLE INTEREST SHOULD BE THE LEGAL INTEREST OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE. when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties. The provision as to annual interest rate is clear and requires no room for interpretation.7 Petitioner maintains that the trial court and the CA are correct in ruling that the interest rates are to be imposed on a monthly and not on a per annum basis. 1997 and September 7. Thus. Respondent. the terms are to be understood literally just as . Hence. The CA also found the penalty charges pegged at 1% per day of delay highly unconscionable as it would translate to 365% per annum. Petitioner finally contends that the CA erred in deleting the trial court‘s award of attorney‘s fees arguing that the same is anchored on sound and legal ground.nét We agree with respondent. on the other hand. respectively. II THE COURT OF APPEALS ERRED IN IMPOSING A PENALTY COMPUTED AT THE RATE OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE.5% per annum and 5% per annum. As to the penalty charges. However. it was reduced to 1% per month or 12% per annum.

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

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

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

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

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

5 Phil.00 ang kasulatang ito ay wala ng lakas at kabuluhan. A contract is the law between the parties which not even this Court can interfere with. c) Na sakaling mabayaran ko ang aming pagkakautang sa mag-asawa na P325. they do not have to pay anymore the 5% monthly interest. 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. 1991 up to August 14. This is a flawed and a grossly unfair interpretation of the terms and conditions of the agreement of the parties. Failure to pay the same should warrant the foreclosure of their mortgaged property to satisfy their obligation to the Lorenzo spouses. Gonzales Sy Chian. b) Ang tubo na aming napagkasunduan ay 5%. including the interests thereof. as maintained by petitioners.[15] In such cases.‖[13] Petitioners filed a motion for reconsideration but was denied. 1991. Until such time that the Barreras have fully paid their total indebtedness. ―While we commiserate with the plight of the Barrera spouses. The only requirement is that the same be not contrary to law.―We also do not agree that the stipulated monthly interest of 5% was to apply only to the 3month effectivity period of the loan. be required to pay the balance of their indebtedness. or from May 14. 577).[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. o cinco por ciento isang buwan. the 5% monthly interest subsists. 3135 at susog nito at akong may utang ang . To rule in this wise is to sanction the irregular performance of one‘s obligation.[14] Hence this petition.000. 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. 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. o hanggang sa Agosto 14. The sole issue for our resolution is whether the 5% monthly interest on the loan was only for three (3) months. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties. courts have no authority to alter a contract by construction or to make a new contract for the parties. morals and good customs x x x (Article 1306. or until the loan was fully paid. ―The Barreras should. 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. there being no stipulation to the contrary. as claimed by respondents. but only the 12% legal interest per annum. therefore. 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. The salient provisions of the mortgage contract read: ―a) Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan. 1991. Such an interpretation is totally unfair and unjust to the creditors who could have used their money in some other ways. or a measly 1% interest per month. the literal meaning of its stipulations governs. New Civil Code).‘ (Tolentino and Manio vs.

sir. the contract shall have no force and effect once the loan shall have been fully paid within the three-month period. your Honor. they are supposed to return my money. your Honor? Why was that agreement not reduced into writing? It was not reduced into writing. 1991. sir. You mean to say there is no stipulation in that document providing for the 5% monthly interest to the loan after August 14. there is none. my question is. Marcos: Q Now. 1991.siyang sagot sa lahat ng gastos at pati bayad sa abogado sa nasabing subasta sa labas ng hukuman. was there any subsequent agreement between you and the plaintiffs? x Q A Q A Q A Q A Was there an agreement? There was. 3135. Now. or from May 14. 1991? Yes. A Q A Q A Court: Q After they failed to comply with that provision.‘ there is no dispute that the monthly interest for the three month period that is from May 14. sir. there is no dispute about that. Miss Witness. your Honor. 1991 up to August 14.”[17] (emphasis supplied) It is clear from the above stipulations that the loan shall be payable within three (3) months. petitioners failed to pay their entire obligation. the mortgage shall be foreclosed extrajudicially under Act No. Instead of exercising their right to have the mortgage foreclosed. 1993. 1991 to August 14.‖[18] x x . 1991 is 5% monthly interest. Why? I am in good faith. 1991? No. respondents allowed petitioners to pay the loan on a monthly installment basis until December. What was that agreement about? Verbal agreement. During such period. Records show that upon maturity of the loan on August 14. the loan shall earn an interest of 5% per month. Are you sure of that? Yes. Respondent Ma. 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. based on this document which was marked as Exh. Furthermore. your Honor. could you go over the entire document that Exh. Court whether there is a provision in clear and unequivocal terms providing for that monthly interest after August 14. ‗1. Concepcion Lorenzo testified as follows: ―Atty. otherwise. ‗1‘ and please tell this Hon.

inclusive – ELBA) and secured by surety bonds (Exhibits ‗M‘ to ‗Q‘ inclusive – JIGS..992. Thereafter.e. 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. a loan or forbearance of money.Article 1956 of the Civil Code mandates that ―(n)o interest shall be due unless it has been expressly stipulated in writing. .[21] Eastern Assurance and Surety Corporation vs. Petitioner.‖ Applying this provision.00 and the latter for P998. (ELBA). i.. 444732. Hao. and it consists in the payment of a sum of money.05 from the case-to-case basis and trust receipts. 1991. 2004 COMMONWEALTH INSURANCE CORPORATION.37 plus P478.[22] Catungal vs. 1997 and its Resolution dated October 17.033.[20] Crismina Garments vs. Court of Appeals.000.R. the interest due should be that which may have been stipulated in writing.e. Court of Appeals. Bulacan dated July 31. J. Malolos. the other. Respondents. the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation.[24] Thus.00 to Jigs Manufacturing Corporation (JIGS) and. one. Court of Appeals. plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines..[23] and Yong et al. the rate of interest shall be 12% per annum to be computed from default.[19] this Court laid down the following doctrine: ―When the obligation is breached. vs. 1991. These loans were evidenced by promissory notes (Exhibits ‗A‘ to ‗L‘. denying petitioner‘s motion for reconsideration. The Decision of the Regional Trial Court. The facts of the case as summarized by the Court of Appeals are as follows: In 1984. vs. the trial court correctly held that the monthly interest of 5% corresponds only to the three-month period of the loan.000. CV No. No. Inc. 1997 are REVERSED and SET ASIDE. as agreed upon by the parties in writing.‖ (emphasis supplied) The above ruling was reiterated in Sulit vs. Exhibits ‗V‘ to ‗BB‘.985.500. and the Resolution3 dated September 25. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 1997. SO ORDERED. In Eastern Shipping Lines. 1997 in CA-G. Inc. Tiu et al. i. forP2. vs. JIGS and ELBA which are sister corporations both drew from their respective credit lines.R. for P1. AUSTRIA-MARTINEZ.00 to Elba Industries. the former in the amount of P2. G. or from May 14. Furthermore.000. 1995 is REINSTATED. Court of Appeals. COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION. WHEREFORE. which modified the decision dated March 5. the assailed Decision of the Court of Appeals dated June 18. 1993 of the Regional Trial Court of Makati (Branch 64). the interest rate for the loan is 12% per annum. 1991 to August 14.: Before us is a petition for review on certiorari assailing the Decision1 of the Court of Appeals (CA). inclusive – JIGS. promulgated on May 16. 130886 January 29.499. Branch 17.

00.Exhibits ‗CC‘ to ‗FF‘. 1984 for appellee CIC to pay ELBA‘s account to the full extend (sic) of the suretyship. 1988 in the total amount of P2.00 and to pay the costs of suit. the total face value of the surety bonds issued by appellee CIC was P4. Hence. 1997. inclusive – ELBA) executed by defendant-appellee Commonwealth Insurance Company (CIC). ruling thus: . 1985 to February 10. Specifically. On October 30.464. in the light of the above facts. Elba Industries and Iluminada de Guzman solidarily liable to pay herein plaintiff Rizal Commercial Banking Corporation the sum of Two Million Four Hundred Sixty-Four Thousand One Hundred Twenty-Eight Pesos (P2.00 while that securing ELBA‘s obligation was P1. appellant RCBC filed the Complaint for a Sum of Money on September 19. the CA rendered the herein assailed decision. the extend (sic) of his liability remains to be the amount of the bond. "IT IS SO ORDERED. appellant RCBC made a written demand (Exhibit ‗N‘) on appellee CIC to pay JIG‘s account to the full extend (sic) of the suretyship. But if he fails or refuses without justifiable cause to pay his obligation upon a valid demand so that he is in mora solvendi (Art. he can be sued alone for the entire obligation. then. 1988 upon appellee CIC but the latter ignored it. However. If he pays his obligation at maturity upon demand. appellee CIC made several payments from February 25. and more important.128. This does not mean however that even if he defaults in the performance of his obligation. appellant RCBC made a final demand for payment (Exhibit ‗P‘) on July 7. 1169. and defaulted third party defendants Jigs Manufacturing Corporation. There having been a substantial balance unpaid. However. 1988 against appellee CIC. then he must pay damages . 1216 of the Civil Code.464. CC). he cannot be made to pay more than the amount of the bond. the surety bonds issued by appellee CIC in favor of appellant RCBC to secure the obligations of JIGS totaled P2.00.570.. In response to those demands.00. the trial court denied the motion. one very important characteristic of this contract is the fact that a surety‘s liability shall be limited to the amount of the bond (Sec.000. a surety‘s obligation is primary so that according to Art. discussion. Being solidarily bound. RCBC then appealed to the Court of Appeals.4 The trial court rendered a decision dated March 5. On May 16.00).. JIGS and ELBA defaulted in the payment of their respective loans. Insurance Code). 1984."5 Not satisfied with the trial court‘s decision. 1993. RCBC filed a motion for reconsideration praying that in addition to the principal sum of P2. the law and jurisprudence. defendant CIC be held liable to pay interests thereon from date of demand at the rate of 12% per annum until the same is fully paid. to pay the plaintiff attorney‘s fees of P10. premises considered.00. A similar demand (Exhibit ‗O‘) was made on December 17. 176. Thus.128.000.128. arguments.000.000.464. the dispositive portion of which reads as follows: "WHEREFORE.128.894. the Court finds the defendants Commonwealth Insurance Co.

therefore.00 ONLY with 12% legal interest per annum from December 17. Therefore. the position of appellee CIC which upholds the appealed decision is untenable. then that stipulation controls. .00 and cost of this suit. Defendant-appellee Commonwealth Insurance Company shall pay plaintiff-appellant RIZAL COMMERCIAL BANKING CORP. . the defaulting surety is liable according to settled jurisprudence.Appellee CIC refutes this argument stating that since the surety bonds expressly state that its liability shall in no case exceed the amount stated therein. The obligation to pay such interest does not arise from the contract of suretyship but from law as a result of delay or mora. ELBA INDUSTRIES and ILUMINADA N. That would be absurd and the law could not have intended it.. covered by the limitation of appellee’s liability expressed in the contract.00 ONLY with 12% legal interest per annum from October 30.894. 2. supra.570. his liability can never exceed P1 million.000.000.128. Appellant RCBC contends that when appellee CIC failed to pay the obligation upon extrajudicial demand.. 1169 and 1170 of the Civil Code and the case of Asia Surety & Insurance Co. It can choose to pay only after several years – after all. and on the account of ELBA. 1984 minus payments made by the latter to the former after that day.or interest in consequence thereof according to Art. 3. The best way to show the untenability of this argument is to give this hypothetical case situation: Surety issued a bond for P1 million to secure a Debtor‘s obligation of P1 million to Creditor. 1170. it cannot be made to assume an obligation more than what it secured to pay. and (sic) attorney‘s fee of P10. On the account of JIGS. The third-party defendants JIGS MANUFACTURING CORPORATION..P1. DE GUZMAN shall respectively indemnify COMMONWEALTH INSURANCE CORPORATION for whatever it had paid and shall pay to RIZAL COMMERCIAL BANKING CORPORATION of their respective individual obligations pursuant to this decision. The contention of appellant RCBC is correct because it is supported by Arts. 1984 minus payments made by the latter to the former after that date. Even if this interest is in excess of the amount of the bond. the appealed Decision is MODIFIED in the manner following: The appellee Commonwealth Insurance Company shall pay the appellant Rizal Commercial Banking Corporation: 1. then the Surety may just as well not pay and use the P1 million in the meantime. respecting in both accounts the applications of payment made by appellant RCBC on appellee CIC‘s payments. it incurred in delay in consequence of which it became liable to pay legal interest. On the other hand. Debtor defaults and Creditor demands payment from Surety. P2. and Manila Surety & Fidelity Co. Inc. Such an interest is not.6 (Emphasis supplied) and disposed of the case as follows: WHEREFORE. If the theory of appellee and the lower court is correct.

sent a final letter of demand asking petitioner to pay the remaining balance of its obligation including .11. it is clear from the above-cited jurisprudence that petitioner‘s liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement.16 Petitioner made payments on an installment basis spanning a period of almost three years. to wit: Respondent Court of Appeals grievously erred in ordering petitioner to pay respondent RCBC the amount of the surety bonds plus legal interest of 12% per annum minus payments made by the petitioner. Court of Appeals and R & B Surety and Insurance Company. vs. Aldanese and Union Gurantee Co.00. petitioner should not be made to pay more than its assumed obligation under the surety bonds.. 1988.10. 1988. We are not persuaded. Inc.7 CIC filed a motion for reconsideration but the CA denied the same. RCBC. from February 25. Nonetheless. Jurisprudence is clear on this matter. or after a period of almost five months from its last payment. P. Inc. it insists that mere delay does not warrant the payment of interest.14 petitioner submits that under the said provision of law.00 petitioner was only able to pay P2. On July 7. 1984.13However. Hence. he can be held liable for interest. It is not disputed that out of the principal sum of P4. its liability becomes more than the principal obligation... Inc. i. even if in thus paying. 1985 until February 10. we have sustained the principle that if a surety upon demand fails to pay. We are not convinced. interest shall accrue only when the delay or refusal to pay is unreasonable.000.128. Petitioner‘s argument is misplaced. herein petition by CIC raising a single assignment of error. As early as Tagawa vs. and more recently. 198415 and December 17.9 and reiterated inPlaridel Surety & Insurance Co. thru its legal counsel. in Republic vs. Petitioner admits having incurred in delay.000.8 The sole issue is whether or not petitioner should be held liable to pay legal interest over and above its principal obligation under the surety bonds issued by it. Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds. Galang Machinery Co. that the delay in the payment of its obligation is not unreasonable because such delay was brought about by negotiations being made with RCBC for the amicable settlement of the case.12 Petitioner‘s liability under the suretyship contract is different from its liability under the law.464.L. Citing Section 244 of the Insurance Code. There is no question that as a surety.SO ORDERED. Letters demanding the payment of the respective obligations of JIGS and ELBA were initially sent by RCBC to petitioner on October 30. The increased liability is not because of the contract but because of the default and the necessity of judicial collection.e.

When an obligation.464. II. When the obligation is breached. regardless of its source. As of the date of the filing of the complaint on September 19.e. Considering that petitioner admits its obligation to pay the principal amount. No interest. Its failure to pay is. we do not agree with petitioner‘s contention that the rate should be 6% per annum. vs. the interest due shall itself earn legal interest from the time it is judicially demanded.128. petitioner was even unable to pay the remaining balance of P2.. It is in accordance with our ruling in Eastern Shipping Lines.1âwphi1 Thus.18 wherein we have established certain guidelines in awarding interest in the concept of actual and compensatory damages. as well as the accrual thereof. not constituting a loan or forbearance of money. With regard particularly to an award of interest in the concept of actual and compensatory damages.128.. however. i. the interest due should be that which may have been stipulated in writing. delicts or quasi-delicts is breached. i. unreasonable. therefore. the contravenor can be held liable for damages.00 out of the principal amount it owes RCBC. and it consists in the payment of a sum of money. Civil Code) but when such certainty cannot be reasonably established at the time the demand is made. As to the rate of interest. as follows 1. Petitioner offered no valid excuse for not paying the balance of its principal obligation when demanded by RCBC. Accordingly.464. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. the rate of interest. Court of Appeals.17 Petitioner failed to pay. The issue of petitioner‘s payment of interest is a matter that is totally different from its obligation to pay the principal amount covered by the surety bonds it issued. In the absence of stipulation. The appellate court is correct in imposing 12% interest. a loan or forbearance of money. 1988. is imposed. When an obligation. then it should have paid the remaining balance of P2.e.interest. we find no error in the appellate court‘s ruling that petitioner is liable to pay interest. to wit: I. notwithstanding any disagreements with RCBC regarding the payment of interest.e. is breached. Inc. contracts. the rate of interest shall be 12% per annum to be computed from default. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. where the demand is established with reasonable certainty. law. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. quasi-contracts. Furthermore. i. Petitioner‘s contention that what prevented it from paying its obligation to RCBC is the fact that the latter insisted on imposing interest and penalties over and above the principal sum it seeks to recover is not plausible. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. The fact that the negotiations for the settlement of petitioner‘s obligation did not push through does not excuse it from paying the principal sum due to RCBC. 2. the interest shall begin to run only from the date the judgment .00. shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 1169.

vs. J. there is no dispute that petitioner‘s obligation consists of a loan or forbearance of money.: The case before the Court is a petition for review on certiorari. PARDO. until the entire amount is fully paid. under Rule 45 of the Revised Rules of Court.000. 1986. MEDEL. RAFAEL MEDEL and SERVANDO FRANCO.21 RCBC‘s extra-judicial demand for the payment of JIGS‘ obligation was made on October 30. 1998 LETICIA Y. the appealed judgment is hereby MODIFIED such that defendants are hereby-ordered to pay the plaintiff: the sum of P500. while the extra-judicial demand for the payment of ELBA‘s obligation was made on December 17. JR. 2 the dispositive portion of which decision reads as follows: WHEREFORE. this interim period being deemed to be by then an equivalent to a forbearance of credit. shall be 12% per annum from such finality until its satisfaction. COURT OF APPEALS. 3.19 (Emphasis supplied) In the present case. No. the Court of Appeals correctly imposed the rate of interest at 12% per annum to be computed from the time the extra-judicial demand was made. the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals are AFFIRMED in toto. 1984. respondents.R. plus 1% per month of the total amount due and demandable as penalty charges effective August 23. interest on the amount due begins to run not from the date of the filing of the complaint but from the date of such extra-judicial demand. doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES". SPOUSES VERONICA R. in any case.00. whether the case falls under paragraph 1 or paragraph 2. 1988. No interest has been agreed upon in writing between petitioner and respondent. GONZALES and DANILO G. plus 5. WHEREFORE. seeking to set aside the decision of the Court of Appeals. . G. On the other hand. the complaint for a sum of money was filed by RCBC with the trial court only on September 19. 1986. GONZALES. Applying the above-quoted rule to the present case. This is in accordance with the provisions of Article 116920 of the Civil Code and of the settled rule that where there has been an extra-judicial demand before action for performance was filed. be on the amount finally adjudged. 131622 November 27. DR.of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). the rate of legal interest. 1 and its resolution denying reconsideration. When the judgment of the court awarding a sum of money becomes final and executory. SO ORDERED. The actual base for the computation of legal interest shall.5% per month interest and 2% service charge per annum effective July 23. above. 1984. petitioners.

5 and the petitioners to reply thereto. consolidated all their previous unpaid loans totaling P440. only the sum of P275.00.000. They executed a promissory note to evidence the loan.00. payable on August 23. at 6% interest per month. 3 The Court required the respondents to comment on the petition. On July 23. 6 We now resolve to give due course to the petition and decide the case.000. authorizing her to execute the mortgage. Servando and Leticia executed a promissory note for P50. Servando and Leticia secured from Veronica still another loan in the amout of P300. to the borrowers.000. as found by the Court of Appeals in its decision.000.000. 1986 Maturity Date Augsut 23.00. Dr.00. Veronica gave only the amount of P47. maturing on Janaury 19. On November 19. However. 1986. bringing their indebtedness to a total of P500. 1986. 1985. 4 which was filed on April 3. in the amount of P50.00. and sought from Veronica another loan in the amount of P60.00. which was filed on May 29. Gonzales (hereafter Veronica). was given to them out of the proceeds of the loan.00 .00. payable in two months. maturing in one month. to evidence the loan. Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. payable on January 7. 1998. as the appeal is limited to questions of law. The facts of the case.000. Like the previous loans.00.000.000. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300. payable in two months.000.00 as attorney's fees is affirmed. Rafael Medel.000. Servando and Liticia obtained from Veronica another loan in the amount of P90. 1985. On June 11. the borrowers failed to pay the indebtedness. Bulacan July 23.000. 1986. They executed a promissory note. after a month. as advance interest for one month at 6% per month. 1986. 1986.The award to the plaintiff of P50.00. They received only P84. Servando and Leticia with the latter's husband. or on July 11.00. as she retained P3. SO ORDERED. who was engaged in the money lending business under the name "Gonzales Credit Enterprises". On maturity of the two promissory notes. who issued a special power of attorney in favor of Leticia Medel.000. secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay. which are considered binding and conclusive on the parties herein. 1986 P500. out of the proceeds of the loan. are as follows: On November 7.00.000. 1998. reading as follows: Baliwag. 1986.000. And so is the imposition of costs against the defendants.00. Servando and Medel failed to pay the third loan on maturity.

of Baliwag. evidenced by the above-quoted promissory note. and if there be any change in the value thereof. married to Danilo G. Bulacan. then the peso-obligation herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of the obligation. a complaint for collection of the full amount of the loan including interests and other charges. due to extraordinary inflation or deflation. that it was defendants Leticia and Dr. Veronica R. Holder may accept partial payments and grant renewals of this note or extension of payments. reserving rights against each and all indorsers and all parties to this note. the holder shall have the option to apply and collect the increased interest charges without notice although the original interest have already been collected wholly or partially unless the contrary is required by law. filed with the Regional Trial Court of Bulacan. (Emphasis supplied) Payment will be made in full at the maturity date. Gonzales. Rule 39.. . 1990. without deductions as Attorney's Fee whether actually incurred or not. Bulacan. Filipino. 1990.00. Demand and notice of dishonor waived. exclusive of costs and judicial or extra judicial expenses. I/WE jointly and severally promise to pay to the order of VERONICA R.00) Philippine Currency with interest thereon at the rate of 5.000. Jr. IN CASE OF JUDICIAL Execution of this obligation. On maturity of the loan. joined by her husband Danilo G. .5 PER CENT per month plus 2% service charge per annum from date hereof until fully paid according to the amortization schedule contained herein. the sum of PESOS . or any other cause or reason. Gonzales. the borrowers failed to pay the indebtedness of P500. (P500. Should I/WE fail to pay any amortization or portion hereof when due.FOR VALUE RECEIVED. the debtors waive all his/their rights under the provisions of Section 12. plus interests and penalties. of the Revised Rules of Court. WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines. . and the further sum of TWENTY FIVE PER CENT (25%) thereof in full. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES. defendant Servando alleged that he did not obtain any loan from the plaintiffs. of the total amount due and demandable. or any part of it. at Malolos. On February 20. (Emphasis supplied). . . I. In his answer to the complaint filed with the trial court on April 5. FIVE HUNDRED THOUSAND . all the other installments together with all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid. It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this agreement is based on the present value of the peso. of legal age. Gonzales. Branch 16.000.

jointly and severally. until the whole amount is fully paid. Batangas. Ordering the defendants Servando Franco and Leticia Medel. which consolidated all the unpaid loans of the defendants. Hence. on December 9. In their separate answer filed on April 10. and ruled that although the Usury Law had been repealed. 1985 and 1% per month as penalty. 1991. 5.00 plus 12% interest per annum and 1% per month as penalty from July 11. and that substantial payments made were applied to interest. Ordering the defendants to pay plaintiffs. 2. is the law that governs the parties.000. 8 In due time.Rafael Medel who borrowed from the plaintiffs the sum of P500. as follows: 1.000. jointly and severally the amount of P84. the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved.00 as attorney's fees. penalties and other charges. and actually received the amount and benefited therefrom. the dispositive portion of which reads as follows: WHEREFORE. Ordering the defendants Servando Franco and Leticia Y. After due trial. In their appeal.00. 1985 until the whole amount is fully paid.00 plus 12% interest per annum from November 7. defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay. until the entire amount is paid in full. the trial court rendered judgment. who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan. and penalty charge of 1% per month. the amount of P285. plaintiffs-appellants argued that the promissory note." 7 Accordingly. 3.00 with 12% interest per annum and 1% per cent per month as penalty from November 19. that the stipulation for attorney's fees of 25% of the amount due is unconscionable. 1986. With costs against the defendants.000. illegal and excessive. premises considered. All counterclaims are hereby dismissed. the amount of P50.000. that the interest rate is excessive at 5. They further argued that . judgment is hereby rendered. that the loan was secured by a real estate mortgage executed in favor of the plaintiffs. and that he (Servando Franco) signed the promissory note only as a witness.5% per month with additional service charge of 2% per annum. jointly and severally. 1990. goods or credit is 12% per annum. the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money. both plaintiffs and defendants appealed to the Court of Appeals. 4. Medel to plaintiffs. jointly and severally. Ordering the defendants to pay the plaintiffs. to pay plaintiffs the amount of P47.000.

000. defendants interposed the present recourse via petition for review on certiorari. the issue revolves on the validity of the interest rate stipulated upon. 116. 9 The Court of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid' was allowed by law". has expressly removed the interest ceilings prescribed by the Usury Law 14 and that the Usury Law is now "legally inexistent".5% per month on the loan in the sum of P500. Thus. 1986. Branch 61 16 the Court held that CB Circular No. defendants-appellants filed a motion for reconsideration of the said decision. 10 Accordingly. Court of . disposing as follows: WHEREFORE. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money. 1986. In other words. unconscionable and exorbitant.5% per month on the P500. the Court of Appeals promulgated its decision reversing that of the Regional Trial Court.000. 905 of the Central Bank. 12 Hence. applies only in the absence of a stipulation on interest rate. iniquitous. on March 21. Only a law can repeal another law.5% per month interest and 2% service charge per annum effective July 23. plus 5. No. the question presented is whether or not the stipulated rate of interest at 5. Regional Trial Court of Makati. plus 1% per month of the total amount due and demandable as penalty charges effective August 24. 905. It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 1997. the lender and borrower could agree on any interest that may be charged on the loan". 1982. 1997. No.Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity.00. the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of P500. The award to the plaintiffs of P50. 1684? We agree with petitioners that the stipulated rate of interest at 5. 13 However. but not when the parties agreed thereon. we can not consider the rate "usurious" because this Court has consistently held that Circular No. By resolution dated November 25. 15 In Security Bank and Trust Company vs. until the entire amount is fully paid. 905. that plaintiffs extended to the defendants is usurious. SO ORDERED. 13 We find the petition meritorious. Basically.D. goods or credit at 12% per annum.000." Indeed. adopted on December 22.000. 1982. 1997. or has it been repealed by Central Bank Circular No. pursuant to its powers under P. The Court of Appeals sustained the plaintiffs-appellants' contention.00. And so is the imposition of costs against the defendants. the Court of Appeals denied the motion." 17 In the recent case of Florendo vs. we have held that "a Central Bank Circular can not repeal a law.00 loan is excessive.00 as attorney's fees is affirmed. 11 On April 15. as amended by P.D. adopted on December 22. is the Usury Law still effective.

Bulacan. CV No. and the latter denied petitioner‘s motion for reconsideration. 1997. or 66% per annum. Bulacan. covered by Transfer Certificate of Title (TCT) No. Bulacan. JR. 134-M-90. RAMOS. 21 The courts shall reduce equitably liquidated damages. the PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang. vs. for and in consideration of P150. 1997. RODRIGO V. Malolos. involving the same parties.R. This document was annotated at the back of the title. contrary to morals ("contra bonos mores"). hence. .Appeals 18.5% per month. Instead. respondent. The PASCUALs did not exercise their right to repurchase the property within the stipulated one-year period. No. 526-M-93. stipulated upon by the parties in the promissory note iniquitous or unconscionable. The case at bar stemmed from the petition[3] for consolidation of title or ownership filed on 5 July 1993 with the trial court by herein respondent Rodrigo V. we agree with the trial court that. The former affirmed the 5 June 1995 and 7 September 1995 Orders of the Regional Trial Court. 1991. of the Regional Trial Court of Bulacan. and. under the circumstances. 22 Consequently.R. 20 The stipulation is void. 305626 of the Registry of Deeds of Bulacan. we render judgment REVIVING and AFFIRMING the decision dated December 9. petitioners. hence." 19 Nevertheless. whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. 52848. in Civil Case No.. In his petition. RAMOS prayed that the title or ownership over the subject parcels of land and improvements thereon be consolidated in his favor. the Court reiterated the ruling that "by virtue of CB Circular 905. C. SO ORDERED. Spouses Silvestre and Celia Pascual (hereafter the PASCUALs). interest at 12% per annum. the Usury Law has been rendered ineffective". Branch 16. Rather. if not against the law. the Court of Appeals erred in upholding the stipulation of the parties. [G. and an additional 1% a month penalty charge as liquidated damages may be more reasonable. we find the interest at 5. No pronouncement as to costs in this instance. DAVIDE. July 4. Ramos (hereafter RAMOS) against herein petitioners. Interest can now be charged as lender and borrower may agree upon. 144712.000.: Before us is a petition for review on certiorari assailing the 5 November 1999 Decision[1] and the 18 August 2000 Resolution[2] of the Court of Appeals in CA G. and its resolution dated November 25. in Civil Case No. the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21. Bulacan.J. Malolos. "Usury has been legally non-existent in our jurisdiction. WHEREFORE. Branch 21. 2002] SPOUSES SILVESTRE and CELIA PASCUAL. RAMOS alleged that on 3 June 1987.

Bulacan na pautangin ako ng halagang P150. Ramos ng isang taon hanggang June 3. (b) RAMOS had no legal capacity to sue. Bulacan. The contents of the document read: Ako.500. nasa hustong gulang.000. respectively. After the pre-trial. appearance fee of P1. 1988 upang mabiling muli ang aking isinanla sa kaniya sa kasunduang babayaran kong lahat ang capital na P150. si SILVESTRE PASCUAL.000. Na bilang sangla (collateral security) sa aking utang. (e) the claim or demand set forth in RAMOS‘s pleading had been paid. si RODRIGO RAMOS ay pumayag sa aking kahilingan na kung sakali na hindi ko mabayaran ng buo ang aking pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon. kami ay nagkasundo na mag-execute ng Deed of Sale with Right to Repurchase para sa aking bahay at lupa (TCT No. Bulacan.000. may asawa at kasalukuyang naninirahan sa Bambang. or otherwise extinguished. 2. abandoned.000 but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. waived. Filipino. and costs of suit. Pulilan. return the amount they had overpaid. 4. ay nagsasabing buong katotohanan at sumusumpa sa aking mga salaysay sa kasulatang ito: 1. plus attorney‘s fees of P100. Bambang.00.In their Answer. ang nakasanglang bahay at lupa ay hindi muna niya iilitin (foreclose) o ipalilipat . Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo ng seven percent (7%) o P10. and pay each of them moral damages and exemplary damages in the amounts of P200. 1987 dahil sa aking matinding pangangailangan ng puhunan ay lumapit ako at nakiusap kay Rodrigo Ramos ng Taal. 3. and (f) RAMOS has not complied with the required confrontation and conciliation before the barangay. the trial court issued an order[5] wherein it identified the following issues: (1) whether the Deed of Absolute Sale with Right to Repurchase is an absolute sale or a mere mortgage. Taliptip. 1987 at binigyan ako ni Mr. Bulacan ngayong June 3. Na bilang karagdagang condition. the PASCUALs prayed that RAMOS be ordered to execute a Deed of Cancellation.000. Among the documents offered in evidence by RAMOS during the trial on the merits was a document denominated as Sinumpaang Salaysay[6]signed by RAMOS and Silvestre Pascual. Na ngayong June 3.000 and P50. T-305626. (c) the cause of action. and (4) whether damages may be awarded.[4] the PASCUALs admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150. (3) whether the ownership over the parcel of land may be consolidated in favor of RAMOS. (d) the petition stated no cause of action. (2) whether the PASCUALs have paid or overpaid the principal obligation.00 pati na ang P10.500 per hearing. 305626) sa Bo. litigation expenses. deliver to them the owner‘s duplicate of TCT No.00 isang buwan (7% per month).00 na tubo buwan buwan. By way of counterclaim. if any. Furthermore. but not notarized. Release or Discharge of the Deed of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mortgage. Bulacan. They further alleged that there was no agreement limiting the period within which to exercise the right to repurchase and that they had even overpaid RAMOS. was barred by the statute of limitations.500. they interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition.

305626. Awarding the defendants the sum of P141. kung sakaling hindi ako makabayad ng tubo for six (6) consecutive months (1/2 year after June 3.00 for litigation expenses. Granting the defendants attorney‘s fee in the sum of P15.sa pangalan niya at hindi muna kami paaalisin sa tinitirhan naming bahay hanggat ang tubo (interest) na P10.500. 6. 305626. the PASCUALs had overpaid the loan by P141. and that with interest at 7% per annum.00 as overpayment on the loan and interests. Accordingly. (Sgd. With costs against the plaintiff. the PASCUALs presented documentary evidence consisting of acknowledgment receipts[7] to prove the payments they had made. . It also found that the PASCUALs had made payments in the total sum of P344.000.00 and P3. ako ay nangangako na hindi maghahabol ng ano mang sukli sa pagkakailit ng aming bahay at lupa kung sakali mang dumating sa ganuong pagkakataon o sitwasyon o di kaya’y magsasampa ng reklamo kanino man.)Rodrigo Ramos Nagpautang Sgd. 4. kami ay lumagda sa ibaba nito kalakip ng aming mga pangalan ngayong ika-3 ng Hunyo. 1988 (6 na buwang hindi bayad ang interest ang utang ko) si Rodrigo Ramos ay binibigyan ko ng karapatan at kapangyarihan na mag-mayari ng aming bahay at lupa at kami ng aking pamilya ay kusang loob na aalis sa nasabing bahay at lupa na lumalabas na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga pinagkasunduang usapan. 1988 at puro interest lamang ang aking naibabayad buwan-buwan.000.500. Dismissing the plaintiff‘s petition. 2.) Silvestre Pascual Umutang For their part.000. judgment is hereby rendered in favor of the defendants and against the plaintiff in the following manner: 1.500. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos na pagkatapos ng isang taon mula ngayon hanggang June 3. 5.00 ay nababayaran ko buwan buwan. in its Decision[8] of 15 March 1995 the trial court decreed as follows: WHEREFORE. Bilang pagsang-ayon sa mga nasabing kasunduan. 1987. The trial court found that the transaction between the parties was actually a loan in the amount of P150. At bilang finale ng aming kasunduan. the payment of which was secured by a mortgage of the property covered by TCT No.000. 3. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with Right to Repurchase on the dorsal side of TCT No.

Moreover. the interest of either 5% or 7% a month is exorbitant. the PASCUALs seasonably appealed to the Court of Appeals.000 was still due as interest. RAMOS opposed the motion of the PASCUALs. the PASCUALs filed a motion to reconsider the Order of 5 June 1995. Adding the latter to the principal sum of P150. they had already paid the interests and had in fact overpaid the principal sum of P150. The trial court acknowledged that it had inadvertently declared the interest rate to be 7% per annum when. Adding thereto the loan principal of P150. which mandates the courts to be vigilant for the protection of a party at a disadvantage due to his moral dependence. Their motion for reconsideration having been denied in the Order[10] of 7 September 1995. Besides. Thus. the total amount due from the PASCUALs was P511.000.000.000. the trial court had already reduced the interest rate to 5% per month. no opposition was filed. in fact.500 to the PASCUALs as overpayment of the loan and interest and ordering them to pay RAMOS P511. indigence. the interest due from 3 June 1987 to 3 April 1995 was P705. He contended that the non-compliance with the 3-day-notice rule was cured when the trial court gave them an opportunity to file their opposition. the amount of P643. unconscionable. the total amount due from the PASCUALs as of 3 April 1995 was P793. which was not opposed by the PASCUALs. It ruled that while RAMOS‘s petition for consolidation of title or ownership did not include a prayer for the payment of the balance of the petitioners‘ obligation and a prayer for general relief. The total interest due from 3 June 1987 to 3 April 1995 was P987.000 representing the principal loan plus interest. In its Decision[11] of 5 November 1999.000. Deducting therefrom the payments made by the PASCUALs in the amount of P344. Deducting therefrom the interest payments made in the sum of P344. Invoking the protective mantle of Article 24 of the Civil Code. their agreement embodied in the Sinumpaang Salaysay should be respected. being an individual. It is not correct to say that he was not allowed to collect more than 1% per month interest considering that with the moratorium on the Usury Law. and. but despite the lapse of the period given them. the net interest due was P361. the trial court unilaterally reduced the interest rate from 7% per month to 5% per month.000. Aggrieved by the modification of the decision. alleging that the trial court erred in using an interest rate of 7% per annum in the computation of the total amount of obligation because what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. unconscionable. the court declared that the 7% per month interest is too burdensome and onerous.000. Furthermore.RAMOS moved for the reconsideration of the decision. usurious and inequitable. the issue of whether there was still a . mental weakness. could not charge more than 1% interest per month or 12% per annum. force or undue influence exerted upon the PASCUALs when they entered into the transaction in question. the Sinumpaang Salaysay stipulated 7% per month. RAMOS.000. tender age or other handicap.000. unreasonable. ignorance. the Court of Appeals affirmed in toto the trial court‘s Orders of 5 June 1995 and 7 September 1995. In the absence of any evidence that there was fraud. unreasonable and inequitable. the PASCUALs never disputed the stipulated interest rate. It noted that during trial.000. Finding merit in the motion for reconsideration. However. They alleged that the motion for reconsideration filed by RAMOS was a mere scrap of paper because they received a copy of said motion only a day before the hearing. They pointed out that since the only prayer of RAMOS in his petition was to have the title or ownership over the subject land and the improvements thereon consolidated in his favor and he did not have any prayer for general relief. the allowable interest is that agreed upon by the parties.000. a rate which is not exorbitant. the trial court had no basis in ordering them to pay him the sum of P511. the trial court issued on 5 June 1995 an Order[9]modifying its decision by deleting the award of P141.000. in violation of the 3-day-notice rule.

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

tender age or other handicap. In these contests men must depend upon themselves – upon their own abilities. in fact. the debtors were also required. ignorance. Court of Appeals. good customs. In their relations with others in the business of life. to pay service charge of 2% per annum and a penalty charge of 1% per month plus attorney‘s fee of equivalent to 25% of the amount due. In that case. or better trained. and when the two meet on a fair field the inferior cannot murmur if the battle goes against him. When of age and sane. sometimes to a few only. but that does not mean that the law will give it back to them again. the excessiveness of the stipulated interest at the rate of 5. morals. exorbitant and hence.5% in the Medel case was found to be excessive. they must take care of themselves. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law. the PASCUALs were at a disadvantage on account of their moral dependence. In the case at bar. In Manila Bay Club Corp. thereby making such stipulation null and void. there is no other stipulation for the payment of an extra amount except interest on the principal loan.[13] this Court ruled that if an issue is raised only in the motion for reconsideration of the decision of the Court of Appeals.000 representing the principal and unpaid interest. the interest rate of 5. Moreover. as per stipulation in the promissory note. judgment.5 % per month was put in issue by the defendants in the Answer. hence. The foolish may lose all they have to the wise. Villa: All men are presumed to be sane and normal and subject to be moved by substantially the same motives. sense. Thus. with loss and injury to others. we are not prepared to apply the former lest it be construed that we can strike down anytime interest rates agreed upon by parties in a loan transaction. there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with RAMOS. The fact that one may be worsted by another. training. mental weakness. iniquitous. furnishes no cause of complaint. There is nothing from the records and.was that RAMOS‘s petition did not contain a prayer for general relief and. The law furnishes protection to both alike – to one no more or less than to the other. Our ruling in Medel v. unconscionable. which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil Code.[15] The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs. wits. protect him from unwise investments. contrary to morals. talents. Courts cannot follow one every step of his life and extricate him from bad bargains. public order. intelligence. One man cannot complain because another is more able. v. or has better sense or judgment than he has. Court of Appeals[14] is not applicable to the present case. Apropos in our ruling in Vales vs. the great and the small. relieve him from one- . the effect is that it is as if it was never duly raised in that court at all. or public policy. acumen. sense. It makes no distinction between the wise and the foolish. Neither is there a showing that in their contractual relations with RAMOS. The law furnishes no protection to the inferior simply because he is inferior. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the PASCUALs made an issue of the interest rate and prayed for its reduction to 12% per annum. sometimes with gain and advantage to all. ability and judgment meet and clash and contest. in addition to the interest. training. Considering the variance in the factual circumstances of the Medel case and the instant case. It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. the strong and the weak. the trial court had no basis for ordering them to pay RAMOS P511. any more than it protects the strong because he is strong. of itself. taken in conjunction with the stipulated service charge and penalty.

Courts cannot constitute themselves guardians of persons who are not legally incompetent. in addition. the parties are free to stipulate the interest to be imposed on loans. all they have in the world. As declared in the decision of Cuizon v. CV No. the ruling in Vales v. The PASCUALs cannot then claim that they did not know the real transaction.[17] It is not the province of the court to alter a contract by construction or to make a new contract for the parties. SO ORDERED. Court of Appeals. we cannot supplant the interest rate. but because he has been defeated or overcome illegally. It is undisputed that simultaneous with the execution of the said deed was the execution of the Sinumpaang Salaysay. Thus.R. 52848 isAFFIRMED in toto. but not for that alone can the law intervene and restore. Incidentally. the order of the trial court should stand.[16] With the suspension of the Usury Law and the removal of interest ceiling. RAMOS‘s claim that the interest due should earn legal interest cannot be acted upon favorably because he did not appeal from the Order of the trial court of 5 June 1995. which simply ordered the payment by the PASCUALs of the amount of P511. No. the interest agreed upon is binding upon them. he should not be allowed to collect more than 1% per month interest. we noticed that in the Memorandum filed by RAMOS. the commission of what the law knows as an actionable wrong. No relief can be granted a party who does not appeal. Such act constitutes plagiarism. Valle was reproduced by his counsel without the proper citation. make ridiculous contracts. undue influence. 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. or any vice of consent exercised by RAMOS on the PASCUALs. 149004 April 14. Mangahas is hereby warned that a repetition of such act shall be dealt with accordingly. We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by imposing upon them the execution of a Deed of Absolute Sale with Right to Repurchase. in view of all the foregoing. Atty. a violation of law.000 without interest thereon. the petition is DENIED. 2004 . This Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon. and lose money by then – indeed.R. Costs against petitioners. Felimon B. The assailed decision of the Court of Appeals in CA-G. WHEREFORE. use miserable judgment. which set forth the true agreement of the parties. Men may do foolish things. which was reduced to 5% per month without opposition on the part of RAMOS. G. before the courts are authorized to lay hold of the situation and remedy it. or annul the effects of foolish acts.sided contracts. Courts operate not because one person has been defeated or overcome by another. Absent any evidence of fraud. There must be.[18] Therefore.

assailing the July 19. for attorney‘s fees. reads as follows: "Wherefore. on October 26. penalty. especially when the defendant‘s checks were dishonored. series of 1982 to be of no force and legal effect. Naga City. premises considered. declaring that the rate of interest."4 The assailed Resolution denied petitioner‘s Motion for Reconsideration. 5th Judicial Region. The complaint alleges. promulgated by the Regional Trial Court (RTC) of Naga City (Branch 21) and affirmed by the CA. computed from August 31. If reasonably exercised. IMPERIAL. and in addition. in Civil Case No. 905.: Iniquitous and unconscionable stipulations on interest rates. J. otherwise known as the Usury Law. 1993. Judgment is hereby rendered declaring Section I. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court. it having been promulgated by the Monetary Board of the Central Bank of the Philippines with grave abuse of discretion amounting to excess of jurisdiction. 43635. JAUCIAN. . and charges for attorney‘s fees agreed upon between the parties are unconscionable. Philippine currency. PANGANIBAN. Jaucian against Restituta Imperial. and ordering Defendant to pay Plaintiff the amount of FOUR HUNDRED SEVENTY-EIGHT THOUSAND. plaintiff made repeated oral and written demands for payment. such authority shall not be disturbed by appellate courts. petitioner. and in violation of Act No. that defendant obtained from plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate promissory notes and issued several checks as guarantee for payment. dated August 31.RESTITUTA M. Consequently. 1993 Decision. Branch 21. Central Bank Circular No. inter alia. vs. When the said loans became overdue and unpaid. iniquitous. The decretal portion of the Decision is as follows: "WHEREFORE. ONE HUNDRED NINETY-FOUR and 54/100 (P478. filed by Alex A. courts are granted authority to reduce them equitably. 1989."5 The Facts The CA summarized the facts of the case in this wise: "The present controversy arose from a case for collection of money. 89-1911 for Sum of Money. without pronouncement as to costs.54) PESOS. 2000 Decision2 and the June 14.194. penalties and attorney‘s fees are contrary to morals. is hereby AFFIRMED in toto. an amount equivalent to ten (10%) per centum of the total amount due and payable. the appealed Decision of the Regional Trial Court. respondent. with regular and compensatory interests thereon at the rate of twenty-eight (28%) per centum per annum. The dispositive portion of the August 31. ALEX A. 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 2655. 1993 until full payment of the said amount. as amended.

with face value of P164. which indicate the interest of 16% per month. 1988 after certain payments. 1988 after certain payments. and which was renewed finally for the second time on January 4. are indicated in each of the promissory notes. with [a] face value of P12.000. 1988.00 on January 12.00. which was renewed for the first time on June 4.000. Exhibit ‗G‘ – for loan of P100. with a face value of P56.240. 1988 (e) January 12.00 on November 13.000.000. the six (6) separate loans obtained by defendant from plaintiff on various dates are as follows: (a) November 13. Exhibit ‗D‘ – for loan of P40.000.00 50.00.000.00 on December 28.000. with face value of P65. 1988 (f) January 13. etc. date of issue. and which was finally renewed for the second time on August 6. the corresponding guarantee checks issued by defendant. "The particulars about the postdated checks.00.760. with face value of P82.000. 1988 (d) January 11. due date. penalties and attorney‘s fees.000.00 (b) December 28. The face value of each promissory notes is bigger [than] the amount released to defendant because said face value already include[d] the interest from date of note to date of maturity.000.000.00 on January 11..00 on January 13. for Exhibit ‗D‘. 1988. 2.00 P320.e.000.00 (c) January 6. are the following: 1. which was renewed for the first time on March 16. also after certain payments. 1988 Total 30. 6. with face value of P82.. Exhibit ‗E‘ – for loan of P50. 5. 1987 40.000. i. four (4) PB checks were . date. Exhibit ‗F‘ – for loan of P50.000. 1988.00.000. amount.00 "The loans were covered by six (6) separate promissory notes executed by defendant. 1988.000.00 50. Said promissory notes. 1987."Specifically. Exhibit ‗I‘ – This particular promissory note covers the second renewal of the original loan ofP30.00. 4. Thus.000.00 on January 6. number. 1988. 3. 1987 P 50.00. 1987. Exhibit ‗H‘ – This particular promissory note covers the second renewal of the original loan ofP50.00 100. 1988 also after certain payments.

As of August 16. 1987 40. for Exhibit ‗H‘ one (1) check.000.00 P320. 1987 to January 13. this is the reason why these were not included in the complaint. "Defendant alleges that all the above amounts were released respectively by checks drawn by the plaintiff.000. The above amount are the real amount released to the defendant but the plaintiff by masterful machinations made it appear that the total amount released was P462. since it include[d] the unconscionable interest for four months. defendant claims that she was extended loans by the plaintiff on several occasions. the total payments made by defendants [were] as follows: a. defendant made several payments.000. for Exhibit ‗I‘ one (1) check.00 at the rate of sixteen percent (16%) per month.784. and the latter must produce these checks as these were returned to him being the drawer if only to serve the truth. defendant claims that as of January 25. 1987 P 50. from November 13. admittedly.00 50. Because in his computation he made it appear that the true amounts released was not the original amount. 1987 ofP50.000.00 .000. 1989.000.00 "The loan on November 13. 1988 ha[d] been fully paid including the usurious interests of 16% per month.000.00.e.00 50. 1988 (d) January 11. "The arrangement between plaintiff and defendant regarding these guarantee checks was that each time a check matures the defendant would exchange it with cash. 1991. "Further. Paid releases on November 13. the same were not enough and she always defaulted whenever her loans mature[d].000. i. for Exhibit ‗E‘ four (4) checks.00 (b) December 28. 1988 Total 30.issued. The notes mature[d] every four (4) months with unearned interest compounding every four (4) months if the loan [was] not fully paid. 1988 (e) January 12. in the total sum of P320. "On the other hand. 1988 ofP30. penalties and attorney‘s fees. 1988 (f) January 13.807. for Exhibit ‗G‘ four (4) checks. 1988.00 100.00 these two items were not P 80.00 and January 6. "Although.00 (c) January 6. including accrued interest. for Exhibit ‗F‘ four (4) checks. the total unpaid amount.000.000. 1987 and January 6.600..20. [was] P2. The loan releases [were] as follows: (a) November 13.000.

That the petitioner has fully paid her obligations even before filing of this case.00 320. The non-inclusion of the husband of the petitioner at the time the case was filed should have dismissed this case. Central Bank Circular No. Exhibit ‗8-25‘ Receipt d.000. That charging of excessive attorney‘s fees is hemorrhagic.00 P441. "4.780.000. Series of 1982. "3.00 65. Charging of excessive penalties per month is in the guise of hidden interest. "2. it was improper for the RTC to rule on the constitutionality of Section 1. "On 31 August 1993.00 P121.000. 905. 1989. Exhibit ‗27‘ Receipt Total Less: Excess Payment 231. That the charging of interest of twenty-eight (28%) per centum per annum without any writing is illegal. "5. this Petition.300. Exhibit ‗26‘ Receipt c. Hence."8 The Court’s Ruling . the trial court rendered the assailed decision.7 The Issues Petitioner raises the following arguments for our consideration: "1. the CA held that without judicial inquiry.included in the complaint affirming the fact that these were paid b. Nonetheless. the total releases have been fully paid. holding that the latter‘s clear and detailed computation of petitioner‘s outstanding obligation to respondent was convincing and satisfactory.00 is more than the interest that could be legally charged.00 "Defendant contends that from all perspectives the above excess payment of P121. the appellate court affirmed the judgment of the trial court. and in fact as of January 25."6 Ruling of the Court of Appeals On appeal.00 65.780.780.

and that she paid a total of onlyP116. from 5 percent to 1. "While the Usury Law ceiling on interest rates was lifted by C.430. the latter‘s factual findings.167 percent per month or 14 percent per annum. the amount of the outstanding obligation has been meticulously computed by the trial court and affirmed by the CA. unconscionable and exorbitant. as affirmed by the CA. nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Second Issue: Rate of Interest The trial court. As a rule. are final and conclusive and may not be reviewed on appeal.The Petition has no merit.167 percent per month or 14 percent per annum. their relation to each other and to the whole. Moreover. 905. The records show that there was a written agreement between the parties for the payment of interest on the subject loans at the rate of 16 percent per month. we find no compelling reason to overturn the factual findings of the RTC -.540 on twenty-nine dates.that the total amount of the loans extended to petitioner was P320.10 The jurisdiction of this Court over cases brought to it is limited to the review and rectification of errors of law allegedly committed by the lower court. and the probabilities of the situation. Circular No. Such question exists when a doubt or difference arises as to the truth or the falsehood of alleged facts. This issue involves a question of fact. considering mainly the credibility of witnesses and the existence and the relevancy of specific surrounding circumstances. reduced the interest rate from 16 percent to 1. when adopted and affirmed by the CA.12 In the present case.11 Generally. as this remedy is generally confined to questions of law. Petitioner has not given us sufficient reason why her cause falls under any of the exceptions to this rule on the finality of factual findings. the lower courts should have imposed the rate of 12 percent per annum only. this Court is not required to analyze and weigh all over again the evidence already considered in the proceedings below. As decreed by the lower courts.B. this rate must be equitably reduced for being iniquitous. Petitioner alleges that absent any written stipulation between the parties. These findings are supported by a preponderance of evidence."13 .9 It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by certiorari under Rule 45 of the Rules of Court. and when there is need for a calibration of the evidence. and the stipulated penalty charge. First Issue: Computation of Outstanding Obligation Arguing that she had already fully paid the loan before the filing of the case.000. petitioner alleges that the two lower courts misappreciated the facts when they ruled that she still had an outstanding balance of P208.

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

assailing the Decision 1 of the Court of Appeals in CA-G. They executed a promissory note providing that the amount shall be payable within a period of ten (10) years with a monthly amortization of P5.: Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure. BANCO FILIPINO SAVINGS AND MORTGAGE BANK.00 beginning March 11. CV No. 148491 February 8.R. herein petitioners. 1993. petitioners paid respondent bank P412. the Petition is DENIED. 199. registered under Transfer Certificate of Title No. WHEREFORE. as amended.000. From March 11.36. an action for extra-judicial foreclosure of mortgage. 1991. Costs against petitioner.00 from Banco Filipino Savings and Mortgage Bank. as it is merely a formal requirement that may be cured by amendment.380.We are not persuaded. Petitioners. respondent. On August 7. On February 11. vs. with a penalty of three percent (3%) on any unpaid monthly amortization. 1982.Respondents. 47732 promulgated on February 23. 40827. BONUAN. on March 5. As security for the loan. 1982 and every 11th day of the month thereafter. SANDOVAL-GUTIERREZ. petitioners received from respondent bank a statement of account stating that their indebtedness as of July 31. 1992 amounts to P840. Pangasinan. Dagupan City Branch. that the interest rate shall be twenty-four percent (24%) per annum. petitioners shall be liable for ten percent (10%) of the amount due as attorney‘s fees and fifteen percent (15%) of the amount due as liquidated damages. petitioners mortgaged with respondent bank their parcel of land located in Dagupan City. Thereafter. respondent bank informed petitioners that should they fail to pay their loan within fifteen (15) days from notice. such an amendment has thus become moot.20 Since petitioner alleges that her husband has already passed away. 1982 to July 10. 1992. . In its letter dated January 13. J. that there shall be a service charge of three percent (3%) per annum on the loan. Due to petitioners‘ failure to settle their obligation. SO ORDERED. spouses Zacarias and Catherine Bacolor. The husband‘s non-joinder does not warrant dismissal.61. DAGUPAN CITY BRANCH and MARCELINO C. No. 1993. they failed to pay the remaining balance of the loan.845. 2001 and its Resolution dated May 30. 2007 SPOUSES ZACARIAS BACOLOR and CATHERINE BACOLOR. respondent instituted. appropriate action shall be taken against them.R. G. and that in case respondent bank seeks the assistance of counsel to enforce the collection of the loan. obtained a loan ofP244. 2001.

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

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

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

G. it is unthinkable that respondent would sell her property worth one and a half million .000. could continue collecting interests from petitioners. Leonides C. the amount borrowed by respondent during the first week of January 1987 was only P50. but since said amount was insufficient to buy construction materials for the house she was then building. LINA JARDINES. such period expired but neither respondent nor any of her legal representatives were able to redeem or repurchase the subject property. the transaction actually entered into by the parties was one of simple loan and the Deed of Sale withPacto de Retro was executed just as a security for the loan. the consideration for which amounted to P165. the value of respondent‘s residential house alone is over a million pesos and if the value of the lot is added. On December 14.Among these transactions were the prosecution of suits against debtors for collection and for foreclosure of mortgages. 47732.000. 2000 denying the motion for reconsideration.2 Respondent countered in her Answer that: the Deed of Sale with Pacto de Retro did not embody the real intention of the parties. 56118 and the Resolution dated October 25. Costs against petitioners. we DENY the petition and AFFIRM the challenged Decision and Resolution of the Court of Appeals in CA-G.00. She alleged that: on January 31. J. The antecedent facts are as follows. as a consequence.R. CV No. No. WHEREFORE.000. it was never the intention of respondent to sell her property to petitioner. Lina Jardines (respondent) executed in her favor a Deed of Sale with Pacto de Retro over a parcel of land with improvements thereon covered by Tax Declaration No. Diño (petitioner) filed a Petition for Consolidation of Ownership with the Regional Trial Court of Baguio City. The bank was allowed to collect interests on its loans while under liquidation. provided that the interests were legal. we hold that the interest rate on the loan agreed upon between the parties is not excessive or unconscionable. 1992. it could still function as a bonding institution. 1987. DIÑO.R. 1987. In fine. Branch 7 (RTC). Respondent. SO ORDERED. 2000 dismissing the appeal in CA-G. it would be around one and a half million pesos. CV No. absolute ownership over the property has been consolidated in favor of petitioner. vs.00 with monthly interest of 9% to be paid within a period of six months.: This resolves the petition for review on certiorari seeking to set aside the Decision1 of the Court of Appeals (CA) dated June 9. AUSTRIA-MARTINEZ.00. it was stipulated in the deed that the period for redemption would expire in six months or on July 29. 145871 January 31. she again borrowed an additional amount of P30. 44250. hence.R. 2006 LEONIDES C. petitioner. and that during the closure of respondent bank.

respondent has been the one paying for the realty taxes on the subject property. and over the rights.00. . and due to the malicious suit filed by petitioner. A) entered into by the contending parties as one of deed of sale with right to repurchase or pacto de retro sale. but petitioner insisted on appropriating the property of respondent which she put up as collateral for the loan. After trial. she prayed that she be declared the absolute owner of the property and/or that respondent be ordered to pay her P165.000. e) Ordering the cancellation of Tax Declaration 44250.00 out of the amount borrowed and she is willing to settle the unpaid amount.00 plus the agreed monthly interest of 10%. petitioner filed an Amended Complaint adding allegations that she suffered actual and moral damages.pesos for only P165.000. after the plaintiff has complied with all the requirements and has paid the fees necessary or incident to the issuance of a new tax declaration as required by law. and ordering the corresponding government official (The City Assessor) of Baguio City to undertake the consolidation by putting in the name of plaintiff Diño the ownership and/or rights which she acquired from the defendant Jardines in the corresponding document (Tax Declarations) on file in his/her office. the dispositive portion of which reads as follows: WHEREFORE. attorney‘s fees and expenses of litigation. respondent has even paid a total of P55. Thus.00 representing expenses in going to and from Jardines‘ place to collect the redemption money. d) Ordering the consolidation of ownership of Diño over the residential house and other improvements. judgment is hereby rendered as follows: a) Declaring the contract (Exh. f) Ordering defendant Jardines to pay actual and/or compensatory damages to the plaintiff as follows: 1) P3. she (Diño) acquired over the parcel of land in question. c) Declaring the plaintiff Diño the owner of the residential house and other improvements standing on the parcel of land in question. b) Declaring the plaintiff Diño to have acquired whatever rights Jardines has over the parcel of land involved it being that Jardines has no torrens title yet over said land. in view of all the foregoing. moral and exemplary damages. 1996.000. 1993. respondent suffered moral damages. the RTC rendered its Decision dated November 20. On September 14.000. Respondent then filed her Answer to the Amended Complaint reiterating the allegations in her Answer but increasing the alleged valuation of the subject property to more than two million pesos.

earns monthly interest. Branch 07. herein petition for review on certiorari alleging that: 1. foregoing premises considered. 3. SO ORDERED. but the same was denied per Resolution dated October 25.000. 3) P10. (b) respondent is the one paying the real property taxes on the property. as shown by the fact that (a) respondent is still in actual physical possession of the property. THE LOWER COURT COMMITTED AN ERROR IN DECLARING THAT THE TRUE NATURE OF THE CONTRACT ENTERED INTO BY THE PARTIES AS ONE EQUITABLE MORTGAGE AND NOT A PACTO DE RETRO SALE.00 from July 29. The appeal at bar is herby GRANTED and the assailed decision is hereby REVERSED and SET ASIDE. Ordering the defendant-appellant to pay plaintiff-appellee legal interest on the amount of P165. Diño. etc. THE FINDINGS OF FACTS OF THE LOWER COURT ARE CONTRARY TO EVIDENCE AND THE ADMISSIONS OF THE PARTIES. 3. The dispositive portion of the CA Decision promulgated on June 9. 2.000. Baguio City. 2. we find that the Regional Trial Court.2) P1.3 Respondent then appealed to the CA which reversed the RTC judgment. Declaring that the true nature of the contract entered into by the contending parties as one of equitable mortgage and not a pacto de retro sale. 2669-R. 1987. committed reversible errors in rendering its decision dated 20 November 1996 in Civil Case No.4 Petitioner moved for reconsideration of said decision. Costs against defendant Jardines.00 times the number of times Diño came to Baguio to attend the hearing of the case as evidenced by the signatures of Diño appearing on the minutes of the proceedings found in the Rollo of the case. . Let a new judgment be entered as follows: 1. 2000 reads: WHEREFORE.000. and (c) the amount of the supposed sale price. entitled Leonides G. THE LOWER COURT COMMITTED AN ERROR IN ORDERING THE RESPONDENT TO PAY PETITIONER LEGAL INTEREST DESPITE THE CONFLICTING ADMISSIONS OF THE PARTIES THAT THE AGREED INTERESTS WAS EITHER 9% OR 10%. Lina Jardines".000. First Judicial Region. The CA held that the true nature of the contract between herein parties is one of equitable mortgage.00.00 attorney‘s fee. the time the said interest fell due. vs. SO ORDERED. Hence. P165. 2000. No pronouncement as to cost. until fully paid.

A close examination of the records of this case reveals that the findings of fact of the CA are all based on documentary evidence and on admissions and stipulation of facts made by the parties. to wit: Art. (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed. 1987. Article 1602 of the Civil Code enumerates the instances when a purported pacto de retro sale may be considered an equitable mortgage.4.00 earns monthly interest was based on petitioner‘s own testimony and admission in her appellee‘s brief that the amount of P165. 5 The petition lacks merit. in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate. The CA correctly ruled that the true nature of the contract entered into by herein parties was one of equitable mortgage. which stated that the actual market value of subject residential house in 1986 was only P93. (2) When the vendor remains in possession as lessee or otherwise. The finding that the purchase price in the amount ofP165.000.00. (4) When the purchaser retains for himself a part of the purchase price. THE LOWER COURT COMMITTED AN ERROR IN GOING BEYOND THE ISSUES OF THE CASE BY DELETING THE AWARD FOR DAMAGES DESPITE THE FACT THAT THE SAME WAS NOT RAISED AS AN ISSUE IN THE APPEAL. was based on respondent‘s own evidence. if not paid on July 29.00. The Court sees no reversible error with the foregoing findings of fact made by the CA. The fact that respondent has remained in actual physical possession of the property in question. (5) When the vendor binds himself to pay the taxes on the thing sold. The contract shall be presumed to be an equitable mortgage. shall bear an interest of 10% per month. The CA‘s finding that there was no gross inadequacy of the price of respondent‘s residential house as stated in the contract. and that respondent has been the one paying the real property taxes on the subject property was established by the admission made by petitioner during the pre-trial conference and embodied in the Pre-Trial Order6 dated May 25. The Court finds the allegations of petitioner that the findings of fact of the CA are contrary to evidence and admissions of the parties and that it erred in declaring the contract between the parties as an equitable mortgage to be absolutely unfounded. 1602. 1994. .080.000. 44250. (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Tax Declaration No.

Clearly. InVillegas vs. or closely related to or dependent on an assigned error and properly argued in the brief. Questions that may be decided. The transaction between herein parties was then correctly construed by the CA as an equitable mortgage. The allegation that the appellate court should not have deleted the award for actual and/or compensatory damages is likewise unmeritorious. clearly show that the intention of the parties was merely for the property to stand as security for a loan.7 the Court further explained that: The presence of even one of the above-mentioned circumstances as enumerated in Article 1602 is sufficient basis to declare a contract of sale with right to repurchase as one of equitable mortgage. fruits. Petitioner‘s only evidence to prove her claim for actual damages is her testimony that she has spentP3. any money.9 In the instant case. which provides that in case of doubt.10 the Court held: [T]he Court is clothed with ample authority to review matters. a contract purporting to be a sale with pacto de retro is drawn up. – No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors. the real intention of the parties is that the pretended purchase price is money loaned and in order to secure the payment of the loan. (Emphasis supplied) In Legaspi vs.11 In the present case. As stated by the Code Commission which drafted the new Civil Code. even if they are not assigned as errors in the appeal. to Baguio in order to attend the hearings. or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.000. a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. and the fact that petitioner herself demands payment of interests on the purported purchase price of the subject property.00 every time she travels from Bulacan. the appellate court may pass upon plain errors even if they are not stated in the assignment of errors.8 In the same case. the Court cited Article 1603 of the Civil Code. In People vs. 8.12 the Court held that a witness‘ testimony cannot be "considered as competent proof and cannot replace the probative value of official receipts to justify the award of . Ong. the RTC‘s award for actual damages is a plain error because a reading of said trial court‘s Decision readily discloses that there is no sufficient evidence on record to prove that petitioner is entitled to the same. Court of Appeals. save as the court may pass upon plain errors and clerical errors.000.00 in going to and from respondent‘s place to try to collect payment and that she spent P1. Sara. the presence of the circumstances provided for under paragraphs (2) and (5) of Article 1602 of the Civil Code. Section 8. if it finds that their consideration is necessary in arriving at a just decision of the case. Rule 51 of the Rules of Court provides as follows: Sec.In any of the foregoing cases. in practically all of the so-called contracts of sale with right of repurchase. where she resides.

From that perspective. 1987. we reduced the interest rate from 16% to 1. In the case at bar. Salazar. we annulled the stipulation of 6% per month or 72% per annum interest on a P60.00. at 9% (according to respondent) or 10% (according to petitioner) per month. which she believed was exorbitant. the inescapable conclusion is that the agreed interest rate of 9% per month or 108% per annum. one of the issues for resolution of the trial court was "whether or not the interest to be paid under the agreement is 10% or 9% or whether or not this amount of interest shall be reduced equitably pursuant to law. there being no official receipts whatsoever to support petitioner‘s claim for actual or compensatory damages. By the standards set in the above-cited cases. The 10% and 8% interest rates per month on a P1.167% per month or 14% per annum. In the Pre-Trial Order14 dated May 25.000. provided they are not contrary to law. Recently. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code. terms and conditions as they may deem convenient. In the Carpo case. good customs. In Solangon v. public order. Although respondent admitted that she agreed to the interest rate of 9%.000. this stipulation is similarly invalid. iniquitous. if she is unable to pay the principal amount of P165. Both parties admit that they came to an agreement whereby respondent shall pay petitioner interest. iniquitous. There is no need to unsettle the principle affirmed in Medel and like cases. unconscionable and exorbitant. Salud. unconscionable and exorbitant.00 on July 29. or 10% per month or 120% per annum. unconscionable and exorbitant."15 The factual milieu of Carpo vs.00 loan were reduced to 12% per annum in Cuaton v. for jurisprudence instructs that the same must be duly substantiated by receipts.actual damages. Court of Appeals. In Imperial v. In the ordinary course. Jaucian.000. morals. As declared in the Medel case19 and Imperial . we equitably reduced the agreed 3% per month or 36% per annum interest to 1% per month or 12% per annum interest. in Arrofo v. 1994. the stipulated interest rate is 6% per month. The Court then held thus: In a long line of cases. contracting parties may establish such stipulations. this Court. or 72% per annum.00 from respondents therein. as claimed by petitioner.000.00 loan amounting to 84% interest per annum to 18% per annum.000. iniquitous. it is apparent that the stipulated interest in the subject loan is excessive. The loan was not paid upon demand. In Ruiz v. petitioners therein contracted a loan in the amount of P175. Court of Appeals.18 Applying the afore-cited rulings to the instant case.00 loan. Quino. iniquitous. as claimed by respondent. unconscionable and exorbitant. payable within six months with an interest rate of 6% per month.000. is clearly excessive."13 Hence. or public policy.000. this Court has invalidated similar stipulations on interest rates for being excessive. said claim must be denied. clauses.17 the rate of interest of 6% per month or 72% per annum as stipulated in the principal loan agreement is null and void for being excessive. she explained that she was constrained to do so as she was badly in need of money at that time. reduced the 7% interest per month on a P15. the codal provision may be invoked to annul the excessive stipulated interest. x x x. The appellate court was also correct in ordering respondent to pay "legal interest" on the amount of P165. Therein petitioners claimed that following the Court‘s ruling in Medel vs. Chua16 is closely analogous to the present case.

subject to the provisions of Article 1169 of the Civil Code. v. the rate of interest being charged on the principal loan ofP165. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. this Court laid down the following rules with respect to the manner of computing legal interest: I. the interest due shall itself earn legal interest from the time it is judicially demanded. When the obligation is breached. to wit: Art. law. in the present case. as when the obligor has rendered it beyond his power to perform. i. delicts or quasi-delicts is breached.20 "[i]niquitous and unconscionable stipulations on interest rates. as well as the accrual thereof. is imposed. With regard particularly to an award of interest in the concept of actual and compensatory damages.vs. i. and it consists in the payment of a sum of money. be it 9% or 10% per month. 1169.Furthermore. the 12% interest should be reckoned from the date of extrajudicial demand. or (3) When demand would be useless. the parties are considered to have no stipulation regarding the interest rate." In Trade & Investment Development Corporation of the Philippines vs. In the absence of stipulation. penalties and attorney‘s fees are contrary to morals. quasi-contracts." Thus.000. Court of Appeals. the rate of interest shall be 12% per annum to be computed from default. the rate of interest.. as follows: 1. the rate of interest should be 12% per annum to be computed from judicial or extrajudicial demand. 22 (Underscoring supplied) Applied to the present case. since the agreed interest rate is void. is void. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of the obligation. the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares. regardless of its source. The CA correctly reduced the exhorbitant rate to "legal interest.00.e. a loan or forbearance of money.e. or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract. Jaucian.21 the Court held that: In Eastern Shipping Lines. Thus. When an obligation. Roblett Industrial Construction Corporation. the contravenor can be held liable for damages. xxxx The records do not show any of the circumstances enumerated above.e. contracts. . II. i.. Consequently. the interest due should be that which may have been stipulated in writing. The provisions under Title XVIII on 'Damages' of the Civil Code govern in determining the measure of recoverable damages. Inc. However..

adopted by the Court of Appeals. . and (c) whether the applicable rate of interest. the arrastre operator and the customs broker. vs. 1989. On December 4. INC. Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. filed by the insurer-subrogee who paid the consignee the value of such losses/damages. B). the date respondent received the demand letter from petitioner.38. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY.. WHEREFORE. 1994 EASTERN SHIPPING LINES. VITUG.382. YMA-8 (Exh. 81/01177 for P36.: The issues. is twelve percent (12%) or six percent (6%).Petitioner testified that she went to respondent‘s place several times to try to collect payment. The findings of the court a quo. 1989 (Exh. The shipment was insured under plaintiff's Marine Insurance Policy No. HON. but she (petitioner) failed to specify the dates on which she made such oral demand. The Decision of the Court of Appeals dated June 9.. liability of the common carrier. 2000 isAFFIRMED with the MODIFICATION that the legal interest rate to be paid by respondent on the principal amount of P165. albeit not completely novel. respondents. on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company. are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary. arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody. J. Hence.466. two fiber drums of riboflavin were shipped from Yokohama. (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. SO ORDERED. referred to above. G. petitioner. 1981. or joint and several. No. 1989 per the Registry Return Receipt (Exh. INC.000. the petition is hereby DENIED. "C"). which was received by respondent or her agent on March 29. the interest of 12% per annum should only begin to run from March 29.R. 97412 July 12. 1989 until fully paid.00 is twelve (12%) percent per annum from March 29. "C-1"). The only evidence which clearly shows the date when petitioner made a demand on respondent is the demand letter dated March 19.

Allied Brokerage alleged that plaintiff has no cause of action against it. M. one drum opened and without seal (per "Request for Bad Order Survey. 2. and O). Inc. 10649. 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. The latter excepted to one drum which contained spillages. due to the fault and negligence of defendants. which damage was unknown to plaintiff. E). it was discharged unto the custody of defendant Metro Port Service. 17. From the evidence the court found the following: The issues are: 1. while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No.032. Claims were presented against defendants who failed and refused to pay the same (Exhs. (pp. The latter excepted to one drum. other factual issues that confronted both courts. Exhs.Upon arrival of the shipment in Manila on December 12. H." Exh. so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation". Rollo. defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. As a consequence of the losses sustained.95 under the aforestated marine insurance policy. to be sure. 11. the consignee suffered losses totaling P19. 1981. Metroport averred that although subject shipment was discharged unto its custody. said to be in bad order. "Release" and Philbanking check.95. the appellate court said: Defendants filed their respective answers.. On January 8 and 14. On January 7. J. Record). I. is no longer its liability (p. Inc. Whether or not the shipment sustained losses/damages.032. plaintiff was compelled to pay the consignee P19. L). N. 1982. 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. not having negligent or at fault for the shipment was already in damage and bad order condition when received by it.) There were. Here. . portion of the same was already in bad order (p. Plaintiff contended that due to the losses/damage sustained by said drum. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody. D). Exh. 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service. 85-86. but nonetheless. Record). if determinable). K.

it is stated that when the shipment was "landed on vessel" to dock of Pier # 15. In the latter notes. 3-Eastern) states that on December 12. the "TurnOver Survey of Bad Order Cargoes" (Exhs. Ordering defendants to pay plaintiff. Defendant Eastern Shipping's own exhibit. 34. The report went on to state that when the drums reached the consignee. jointly and severally: .3. B and C). it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern). Under Art." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7. 1982. therefore. p. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief.. and thus held: WHEREFORE. 38). 1981. 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. with its "Additional Survey Notes". p. one drum was found opened without seal. it was observed that "one (1) fiber drum (was) in damaged condition. G). 1737 of the New Civil Code. as to the second issue. Records. The two drums were shipped in good order and condition. This becomes evident when the Marine Cargo Survey Report (Exh. 86427. are considered. until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1981 one drum was found "open". it excepted to one drum in bad order. covered by the vessel's Agent's Bad Order Tally Sheet No. Allied's pre-Trial Brief. South Harbor. Net unrecovered spillages was 15 kgs. adopting plaintiff's Records. 1738. one drum was found with adulterated/faked contents. arrastre operator (Metro Port) and broker (Allied Brokerage). that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Inc. It is obvious. cello bag partly torn but contents intact. As to the first issue. 1981 the shipment was delivered to defendant Metro Port Service. But when on December 12. PREMISES CONSIDERED. NCC). judgment is hereby rendered: A. Manila on December 12. there can be no doubt that the shipment sustained losses/damages. Correspondingly. as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs.

in part.000. pursuant to Section 6. 87-89. The amount of P19. shall be to the extent of the actual invoice value of each package. with the present legal interest of 12% per annum from October 1.00 each.00 as attorney's fees. In this petition. as subrogee for the amount it paid to the consignee. The appeal is devoid of merit. and therefore they are liable to the appellee. Eastern Shipping Lines. 1982.) The Court of Appeals thus affirmed in toto the judgment of the court a quo. crate box or container in no case to exceed P5. while the liability of defendant Metro Port Service. We find that the conclusion drawn therefrom is correct. (p. granted. the common carrier. defendant's recourse to US. the date of filing of this complaints. Rollo. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. The petition is. attributes error and grave abuse of discretion on the part of the appellate court when — I. 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. (pp. 207. . SO ORDERED. and 3. Record). 2. Dissatisfied. II. PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. Costs.01 of the Management Contract). B. until fully paid (the liability of defendant Eastern Shipping. 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. Inc. Inc.000. P3. shall not exceed US$500 per case or the CIF value of the loss.032. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants. whichever is lesser.95..1. Inc. After a careful scrutiny of the evidence on record.

and received by. The instant petition has been brought solely by Eastern Shipping Lines. exceptional cases when such presumption of fault is not observed but these cases. in holding the carrier and the arrastre operator liable in solidum. When the goods shipped either are lost or arrive in damaged condition. Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co. being the carrier and not having been able to rebut the presumption of fault. 131 SCRA 365). 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.. We do not. Kui Bai vs. are exclusive.. 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. nor that attendant facts in a given case may not vary the rule. is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). the sole petitioner in this case. et al. 2 decided 3 on 15 May 1969. 253 [1960]). 139 SCRA 87. In Fireman's Fund Insurance vs. been passed upon by the Court. Civil Code. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has. There are.. to be held liable in this particular case. and there need not be an express finding of negligence to hold it liable (Art. Inc.In this decision. Court of Appeals. 863). we have begun by saying that the questions raised by petitioner carrier are not all that novel. Metro Port Service vs. we take note. in any event. the carrier for transportation until delivered to. of course.. 19 SCRA 5 [1967]. 1735. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. 161 SCRA 646. which. or until the lapse of a reasonable time for their acceptance by. too. A factual finding of both the court a quo and the appellate court. Inc. vs. is inevitable regardless of whether there are others solidarily liable with it. Manila Railroad Co. v. Court of Appeals. we have explained. not one of which can be applied to this case.. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. involved a suit for recovery of money arising out of short . such responsibility also devolves upon the CARRIER. the person entitled to receive them (Arts. 1736-1738. imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier. Indeed. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors. 52 Phil. enumerated in Article 1734 1 of the Civil Code. Dollar Steamship Lines. Manila Port Service. Accordingly. Ganzon vs. Prince Line. Metro Port Services (182 SCRA 455). Civil Code. Inc. Court of Appeals. a presumption arises against the carrier of its failure to observe that diligence. we do have a fairly good number of previous decisions this Court can merely tack to. Philippine National Railways vs. is.thus: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. the liability imposed on Eastern Shipping Lines. 107 Phil. or viceversa. of course.

1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5. 302). 1969 up to the time they are actually paid or already the total sum of P370.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6. 1956.947. assessed and determined by the courts after proof (Montilla c. Agustinos. February 29. The appellants then assailed. however. was for "Recovery of Damages for Injury to Person and Loss of Property. is the legal rate. the case was remanded to the lower court for execution. Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F." then.51 was agreed upon. 447.000. except when the demand can be established with reasonable certainty. Tomol. 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. interest "cannot be recovered upon unliquidated claims or damages. was neither established in its totality nor definitely ascertained. if the suit were for damages. 25 Phil. In the stipulation of facts later entered into by the parties. Such interest normally is allowable from the date of demand. judicial or extrajudicial.000.000. In sustaining the appellants. But then upon the provisions of Article 2213 of the Civil Code." (Emphasis supplied) The case of Reformina vs. in lieu of proof. 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. This demand." After trial. The trial court opted for judicial demand as the starting point. fishing gear and equipment minus P80. inter alia.084. "unliquidated and not known until definitely ascertained. Guzman. the award of legal interest.447. (Emphasis supplied. In this case.) On appeal to the Court of Appeals. 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. the lower court decreed: WHEREFORE. Lichauco v.000. interest "should be from the date of the decision. Reformina and Francisco Reformina the sum of P131.00 which is the value of the insurance recovered and the amount of P10. 5 rendered on 11 October 1985.Corporacion de P. When the appellate court's decision became final.deliveries and pilferage of goods. absent a stipulation.20.00 as of June 4. the amount of P1." And as was held by this Court in Rivera vs. this Court ruled: Interest upon an obligation which calls for the payment of money. Perez. 38 Phil.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof.447. 4 L-6998. and this was when the trial court issued its .P.00 with costs against defendants and third party plaintiffs. 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 P3.00 which is the value of the boat F B Pacita III together with its accessories.

. from the filing of the complaint until fully paid. Cruz. the case. . (Emphasis found in the text) — should have. as amended. Tomol case. goods. In Nakpil and Sons vs. and in the absence of stipulation. Inc. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72. instead. 9 the trial court. (one of the petitioners) . . v.335. Relying on the Reformina v. 2209. inter alia. the legal interest which is six percent per annum. there being no stipulation to the contrary. The case was for damages occasioned by an injury to person and loss of property. 1968. This Circular shall take effect immediately.68 with interest at the legal rate from November 29. . the date of the filing of the complaint until full payment ." Save from the modification of the amount granted by the lower court. 1974. thus: . The above rule was reiterated in Philippine Rabbit Bus Lines. 416. This Court 6 ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money. 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. been applied. goods or credits. . 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. the indemnity for damages. . in the absence of express contract as to such rate of interest. When taken to this Court for review.. goods or credits. shall be twelve (12%) percent per annum.assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code.500.. . the sum of P989. the "defendant United Construction Co. to pay the plaintiff. on 03 October 1986. Inc. i. . in an action for the recovery of damages arising from the collapse of a building. or forbearance of any money. was decided. 1622 dated July 29. xxx xxx xxx Coming to the case at bar. providing thus — By virtue of the authority granted to it under Section 1 of Act 2655. shall be the payment of interest agreed upon. . this Court 8modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof. or credits and the rate allowed in judgments. ordered. the Court of Appeals sustained the trial court's decision.00 with legal interest thereon from the filing of the complaint until fully paid. Any other kind of monetary judgment which has nothing to do with. In their petition for review on certiorari. Court of Appeals. has prescribed that the rate of interest for the loan. — If the obligation consists in the payment of a sum of money. the law applicable to the said case is Article 2209 of the New Civil Code which reads — Art. and the debtor incurs in delay. much less forbearances of any money. the petitioners contended that Central Bank Circular No. 7 promulgated on 28 July 1986. .e. As correctly argued by the private respondents. Monetary Board in its Resolution No.

It will be noted that in the cases already adverted to. "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100.000. (2) forbearance of any money. plus costs of suit. the rate of interest is imposed on the total sum. (Emphasis supplied. The Court 12 thus set aside the decision of the appellate court and rendered a new one. In a decision of 09 November 1988. held the award. It is delay in the payment of such final judgment. Reformina v.00 and P100. with . Tomol.000.) The subsequent case of American Express International. for moral damages by the trial court. in other words. i. this Court. 1723. it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. however. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5. dated 29 April 1985. Upon failure to pay on such finality.00 as moral damages and P400.000. respectively.00) Pesos as moral damages. 416 . but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. vs.000. . and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money.. the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case.000.000. and its resolution. . as We do hereby impose. from the filing of the complaint until paid. Supra.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment. we deem it reasonable to render a decision imposing. v. 139 SCRA 260 [1985]). P2.000. Jr. the total sum being payable upon the finality of this decision. 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. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta).00) Pesos as and for attorney's fees. 143 SCRA 160-161 [1986].WHEREFORE. (Philippine Rabbit Bus Lines Inc.e.. in its resolution of 15 April 1988. as part of the judgment for damages.. p.000. to P240. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision. that will cause the imposition of the interest. Cruz. Inc. It is true that in the instant case.000. to be inconceivably large. upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. goods or credit.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. while recognizing the right of the private respondent to recover damages. they are not applicable to the instant case. is applicable only in the following: (1) loans. (Emphasis supplied) A motion for reconsideration was filed by United Construction. goods or credits. dated 27 February 1985.00. there is neither a loan or a forbearance. twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Civil Code. Clearly. later sustained by the IAC. of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court. restoring the amount of damages awarded by the trial court.

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 . . (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. Art. 14decided on 08 May 1992. . etc. 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 an entry of judgment was made.400. . Concededly. the petitioner was awarded by the trial court moral and exemplary damages without. Quite recently. . . For having been illegally dismissed. the Court had another occasion to rule on the matter. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the . Said circular [Central Bank Circular No. with the modification that defendants-appellants. 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. The records were thereupon transmitted to the trial court. a petition for certiorari assailed the said order. . there have been seeming variances in the above holdings. the latter held: WHEREFORE. 1972 is affirmed in all respects. in applying the 6% legal interest per annum under the Civil Code. Therefore. except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31. however.) The petition for review to this Court was denied. including the sum of P1. This Court said: . the payment of which is without stipulation regarding interest. until fully paid. Ruiz 13 which arose from a breach of employment contract. and not by way of earnings from loans. . except defendant-appellant Merton Munn. (T)he transaction involved is clearly not a loan or forbearance of money. are ordered to pay.00 in concept of compensatory damages. goods or credits but expropriation of certain parcels of land for a public purpose. 2209 of the Civil Code shall apply. 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. with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied. providing any legal interest thereon." Again. When the decision was appealed to the Court of Appeals. the Court 15 declared: . Angas. and the interest adjudged by the trial court is in the nature of indemnity for damages. After conducting a hearing on the complaints for eminent domain. . jointly and severally. Ascribing grave abuse of discretion on the part of the trial judge. . involved the expropriation of certain parcels of land. 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. (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. National Power Corporation vs.six (6%) percent interest thereon computed from the finality of this decision until paid. 416] does not apply to actions based on a breach of employment contract like the case at bar. . the amounts stated in the dispositive portion of the decision.

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. The "first group" would consist of the cases of Reformina v. Florendo v. 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. a loan or forbearance of money.Intermediate Appellate Court (1988). introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid.. to suggest the following rules of thumb for future guidance. the contravenor can be held liable for damages. interest 'should be from the date of the decision. contracts. law. IAC. depending on the equities of each case.. Nakpil and Sons v. The factual circumstances may have called for different applications.. The "second group". 21 Furthermore. guided by the rule that the courts are vested with discretion. that in these cases. a common time frame in the computation of the 6% interest per annum has been applied. i. Tomol (1985). however. by way of clarification and reconciliation. on the other hand.'" American Express International v. regardless of its source. did not alter the pronounced rule on the application of the 6% or 12% interest per annum. Philippine Rabbit Bus Lines v. on the one hand. The ostensible discord is not difficult to explain. from the time the complaint is filed until the adjudged amount is fully paid. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo. Unlike. Observe. quasi-contracts. it may not be unwise. 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. I. With regard particularly to an award of interest in the concept of actual and compensatory damages. 22 In the absence of stipulation. In the "second group" would be Malayan Insurance Company v. When an obligation. as well as to judgments involving such loan or forbearance of money.e.explaining that "if the suit were for damages. 20 II. i. 'unliquidated and not known until definitely ascertained. assessed and determined by the courts after proof. 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. the rate of interest shall be 12% per . and it consists in the payment of a sum of money. and American Express International v. the "second group" varied on the commencement of the running of the legal interest. When the obligation is breached. the interest due shall itself earn legal interest from the time it is judicially demanded. as follows: 1. goods or credits.e. too.Manila Port Service (1969). i. the interest due should be that which may have been stipulated in writing.e. 17depending on whether or not the amount involved is a loan or forbearance. Cruz(1986)." 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. Angas (1992). Court of Appeals (1988). the rate of interest. on the award of interest. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.' then.corresponding rulings rendered by the court. Ruiz (1989) and National Power Corporation v. delicts or quasi-delicts 18 is breached. goods or credits. or one of indemnity for damage. Nonetheless. is imposed. as well as the accrual thereof.

dated 03 February 1988.: Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court assailing the Decision[1] of the Court of Appeals (CA) dated November 27. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 148196 September 30. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made. shall be 12% per annum from such finality until its satisfaction. 1995 of the Regional Trial Court. 25 No interest. this interim period being deemed to be by then an equivalent to a forbearance of credit.annum to be computed from default. 3.. be on the amount finally adjudged. shall be imposed on such amount upon finality of this decision until the payment thereof. The actual base for the computation of legal interest shall. J. A TWELVE PERCENT (12%) interest. however. Manila (Manila RTC). which affirmed with modification the Decision dated August 11.R. petitioner vs. where the demand is established with reasonable certainty. is breached. SO ORDERED. 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. of the court a quo. 26 Accordingly. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. When the judgment of the court awarding a sum of money becomes final and executory. shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 53962. and the CA Resolution dated May 3. The factual background of the case is as follows: . 2. EDGARDO BUENAVENTURA. respondent. 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. MYRNA LIZARDO and YOLANDA TICA. EDGARDO BUENAVENTURA. i. Branch 25. MYRNA LIZARDO and YOLANDA TICA.e. No.R. BPI FAMILY BANK. CV No. respondents. AUSTRIA-MARTINEZ. 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). whether the case falls under paragraph 1 or paragraph 2. 2000 in CA-G. in lieu of SIX PERCENT (6%). 1169. When an obligation. above. in any case. 2005 BPI FAMILY BANK. the petition is partly GRANTED. petitioners vs. 2001. which denied the parties‘ separate motions for reconsideration. not constituting a loan or forbearance of money. the rate of legal interest. G. WHEREFORE.

328. 1990. 129004 received by Buenaventura. Edgardo Buenaventura. Vice-President of BPI-FB on the ground that the source of fund was illegal or unauthorized. on September 3. it was debited. instead of debiting the said amount against their Current Account. jointly issued by Eladio Teves and Joseph Teves. all officers of the International Baptist Church and International Baptist Academy in Malabon. filed a complaint for ―Reinstatement of Current Account/Release of Money plus Damages‖ against BPI Family Bank (BPI-FB) before the Manila RTC.On May 23.50. without their knowledge and consent.[5] Buenaventura. (Tevesteco). Metro Manila.328. upon presentment for payment. et al. but BPI-FB refused. 1990. Myrna Lizardo and Yolanda Tica (Buenaventura.[6] On October 10.‖ in spite of the balance in the Current Account of P490.).000.171. the funds in the said Tevesteco account allegedly consisted mainly of funds in the amount of P80. ruling that there can be no res judicata between the two cases since the parties are different and the causes of action are not the same. the check was subsequently cleared and the amount was credited to their Current Account. they drew a check in the amount of P10. On June 20. leaving a balance of P490. was dishonored for the reason ―account closed. it has the right to consider the Current Account of Buenaventura. 1989 in the amount of P500. 1989. 1989 before the Regional Trial Court (RTC). docketed as Civil Case No. Makati[4] and Buenaventura is one of the defendants therein.50 and pursuant to normal banking procedure the check was honored and debited from their Current Account. BPI-FB filed its answer alleging that: the check received by Buenaventura. they accepted from Amado Franco BPI-FB Check No. Coronacion. such transfer of funds was effected on the basis of an Authority to Debit bearing the signatures of certain officers of FMIC.. 1989.50. 1989. Edsa.270. on September 9. on September 4. 90-53154.00 transferred to it from another account belonging to the First Metro Investment Corporation (FMIC). Inc.60.[7] On December 10. et al. they thereafter learned from BPI-FB that their Current Account had been frozen upon instruction of Severino P. 807-065314-0 with the BPI-FB Branch at Bonifacio Market. opposed the motion to dismiss on the ground that there is no identity of parties. they drew a check for P91. Caloocan City and deposited the check as initial deposit. 1989.00. one of which is the BPI-FB Check No. Branch 146. rights asserted and reliefs prayed between the two cases. 08-95332-5 with the same branch.[2] They alleged that: on August 30. BPI-FB found that the signatures in the Authority to Debit were forged. they demanded the reinstatement of the account. alleging that there is a pending case for recovery of sum of money arising from the BPI-FB Check No. against their Savings Account No. 1990.000. which is funded from . from Amado Franco was drawn by Eladio Teves and Joseph Teves against the Current Account of the Tevesteco Arrastre Stevedoring Co. 129004 dated August 29. however. the Manila RTC denied the motion to dismiss. upon its investigation. before this. 1990.189.[3] they opened Current Account No. et al. Tevesteco had already issued several checks against its Current Account. BPI-FB filed a motion to dismiss on the ground of litis pendentia. they drew another check in the amount of P46. et al. 129004 dated August 29. from Amado Franco. et al. after a series of indorsements..000.00 which.

1995. 4. et al.000. it is the right of the BPI-FB.328. BPI-FB‘s unilateral action of freezing the Current Account amounted to an unlawful confiscation of their property without due process. the Manila RTC rendered its decision.[8] Following trial on the merits. holding that BPI-FB did not act in accordance with law. as closed and to refuse any further withdrawal from the same. It alleged that: the case should have been dismissed for lack of cause of action because it is the International Baptist Academy which is the owner of the funds deposited with BPI-FB and therefore the real party-in-interest. their rights to the sum embodied in the said check should have been respected. On November 27. BPI-FB appealed to the CA. et al.[9] Dissatisfied. on August 11. FMIC has instituted another civil action. 129004. The dispositive portion of the RTC decision reads as follows: WHEREFORE. SO ORDERED. 129004.BPI-FB Check No. 2000. finding that: BPI-FB had no right to unilaterally freeze the deposits of Buenaventura. because the latter were interested only in the reinstatement of their Current Account. the CA affirmed the decision of the Manila RTC. et al.000. 807-065-313-0 which was unlawfully frozen by the bank and finally debited against said account with legal rate of interest from date of closure. To pay the sum of P200.000.00 as exemplary damages to serve as an example and lesson to serve as a deterrent for similar action which the bank may take against its depositors in the future.00 as moral damages. assuming that the forgery claim of FMIC is untrue and incorrect. not Buenaventura.00 transferred from the former‘s account to Tevesteco‘s account.00 as attorney‘s fees. To pay the amount of P200.000. BPI-FB. 3. presently pending appeal.000.[10] It ruled that the relationship between the bank and . is entitled to damages. the provisions of the Negotiable Instruments Law should not have been applied by the RTC to support its position that Buenaventura. the RTC should not have ordered the payment of the balance of the Current Account of Buenaventura. To pay the plaintiff the sum of P490. against BPI-FB and several other defendants for the recovery of the P80. et al.. et al. although the account is in the name of Buenaventura.. as holders in good faith and for value of the BPI-FB Check No. 2. since the latter had no participation in any fraud that may have attended the prior fund transfers from FMIC to Tevesteco. et al. in view of the foregoing judgment is rendered in favor of the plaintiff and against the defendant bank and the latter is ordered as follows: 1. as a matter of protecting its interests. and to disallow any withdrawals therefrom as a measure to protect its interest. are the owners of the funds in their Current Account. to freeze their account or to hold it in suspense and not to allow any withdrawals therefrom in the meantime that the issue of forgery remains unsettled.50 representing the balance of the plaintiff‘s deposit under Account No. To pay the sum of P50. BPI-FB is entitled to freeze the account of Buenaventura.

holding that BPI-FB‘s actuations were established to have caused Buenaventura.000.50 plus interest directly to Buenaventura. provided only that there are funds available in the latter‘s deposit. since the reinstatement of the Current Account would mean the same thing as the payment of the balance. reckless.00 for lack of showing that BPI-FB was not animated by any wanton. have no cause of action since the International Baptist Academy is the real party-in-interest. the present two consolidated petitions for review on certiorari. et al. the International Baptist Church or International Baptist Academy in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. oppressive or malevolent intent. et al. which was frozen and closed by BPI-FB. BPI-FB ascribes six errors upon the CA. et al. Furthermore.. BPIFB reiterated its argument that the International Baptist Academy is the real party-in-interest.000. et al. The CA also found unmeritorious BPI-FB‘s claim that Buenaventura.000.the depositor is that of debtor and creditor and.[13] Hence. sought reconsideration of the deletion of the award of exemplary damages. Buenaventura.R No. to wit: I. then the former are the parties-in-interest in the reopening of the said account.000. It held that since it is undisputed that it is the Current Account of Buenaventura. In G. et al.328. et al. [11] On the other hand. et al. et al. It further declared that BPI-FB is not justified in freezing the amounts deposited by Buenaventura. for such other reliefs as may be just and equitable under the attendant circumstances. the CA sustained the award of moral damages and attorney‘s fees. besides suffering mental anguish.[12] On May 3. 148196. wounded feelings.. et al. It found no error in the Manila RTC‘s order that BPI-FB pay the amount of P490. for suspicion of being ―illegal‖ or ―unauthorized‖ as a result of the claimed fraud perpetuated against FMIC because: (a) it has not been sufficiently shown that the funds in the account of Buenaventura. 2001. Buenaventura. serious anxiety. The Honorable Court of Appeals committed a reversible error in holding that the respondents are the real parties-in-interest in this case contrary to the admissions of respondents themselves that it is the International Baptist . fraudulent. and (b) there is no clear proof of any involvement of Buenaventura. to incur the distrust of their Baptist brethren. as such. et al. the CA held that the RTC‘s disposition falls under the general prayer of Buenaventura. would necessarily have the right to withdraw their deposit if and when they see it fit. It also assailed the findings and conclusions of the CA. were derived exclusively from the alleged P80. Both parties filed separate motions for reconsideration.000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted exclusively of the said P80.00 debited from FMIC‘s account. and moral shock but found no basis for the award of exemplary damages of P200. With regard to award of damages. the CA denied both motions for reconsideration. et al. BPI-FB could not lawfully refuse to make payments on the checks drawn and issued by Buenaventura.

et al. The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing respondent‘s complaint for lack of cause of action.000.Academy who is the owner of the funds in question and hence it is and out to be the real party in interest in this case. based on a misapprehension of facts that BPI-FB is entitled to freeze respondents‘ account and to disallow any withdrawal therefrom as a measure to protect its interest. VI. BPI-FB maintains that the complaint should have been dismissed for lack of cause of action because Buenaventura et al. based on a misapprehension of facts. et al. IV. The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding the position of BPI-FB on the freezing of respondents‘ current account when it held that there was no clear proof of any involvement by the respondents with the alleged irregularities attending the fund transfer from FMIC to Tevesteco. . Assuming the forgery claim of FMIC is true and correct. II. The Honorable Court of Appeals committed a reversible error in holding. V. the amount transferred from FMIC‘s account to Tevesteco‘s account is the money of BPI-FB under the principle that a bank is deemed to have disbursed its own funds. The Honorable Court of Appeals committed a reversible error in NOT holding.000.00 unlawfully transferred from the funds of FMIC.[14] Anent the first and second grounds. On the third ground. Concerning the fourth ground. admit that the International Baptist Academy is the owner of the funds in question and therefore the real partyin-interest to prosecute the action. that there is nothing wrong with the Lower Court‘s order directing BPI-FB to pay to respondents directly the balance of their account plus interest although their prayer in their complaint was only to reinstate their current account. it has a better right over such property than a mere transferee no matter how innocent the latter may be. in holding.00 debited from FMIC‘s account and the funds in deposit with BPI-FB under the name of Buenaventura. that it has not been sufficiently shown that the funds in deposit with BPI-FB under the name of the respondents were derived exclusively from the alleged 80 million pesos unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted exclusively of the said 80 million pesos debited from FMIC‘s account. in effect. were derived exclusively from the P80. BPI-FB submits that ample proof was presented by it that the deposit under the name of Tevesteco consisted exclusively of the P80. It submits that as an original owner who is restored in possession of stolen property. BPI-FB asserts that it has the right to consider the account of Buenaventura. as frozen and to refuse any withdrawals from the same because of the forgery claim of FMIC.000.000. The Honorable Court of Appeals committed a grave abuse of discretion. III.

an interest in issue and to be affected by the decree. to wit: The Honorable Court of Appeals has decided the case in a way not in accord with law and applicable jurisprudence in the deletion of the award of exemplary damages granted by the court a quo. Under Section 2.With regard to the fifth ground. Moreover. including Amado Franco and Buenaventura. et al. like refraining from issuing any check. BPI-FB declared itself the owner of the money which the depositors have placed in its care. freezing and later closing the depositors‘ account. or a mere incidental interest. their account without prior notification. all before due notice and without first giving the latter the opportunity to properly present their side or at least sufficient time to direct their course of action. It submits that Buenaventura. having in mind the fiduciary nature of their relationship. that the freezing of the account was triggered by the forgery claim of FMIC and the unauthorized fund transfer to Tevesteco based on the principle that a bank is deemed to have disbursed its own funds. or the party entitled to the avails of the suit. as an entity engaged in business affected with public interest.[17] To qualify a person . No. however. Branch 146. In G.R. et al. BPI-FB concedes that there is no clear proof of any involvement by Buenaventura. et al.[16] One having no right or interest to protect cannot invoke the jurisdiction of the court as a party plaintiff in an action. et al. Buenaventura. before RTC. et al. to eventually save themselves from any embarrassment and/or possible criminal prosecution for estafa or violation of Batas Pambansa Blg. deliberately did this to sidestep the other pending case filed against the suspected perpetrators of the fraud. et al. It insists. We rule in favor of Buenaventura. where the authority for such disbursement is a forgery and null and void. It had the right to set up its ownership of the money as against that of Buenaventura. to treat the accounts of its depositors with meticulous care. in the alleged irregularities attending the fund transfer from FMIC to Tevesteco. BPI-FB points out that Buenaventura. 148259. As to the sixth ground. oppressive and malevolent manner in freezing. as distinguished from mere interest in the question involved. Rule 3 of the Rules of Civil Procedure. and not its depositors. as if to compound its reckless conduct. a real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit. 22. They insist that BPI-FB failed in its obligation. originally prayed in the alternative for the reinstatement of their Current Account or for payment of the balance remaining in said account but they subsequently chose to delete that portion praying for the payment of the balance of their account.[15] They submit that BPI-FB acted in a wanton. and to refuse to return the same to them. reckless. anchor their petition on a sole ground. and subsequently closing. "Interest" within the meaning of the rule means material interest. Makati. It is elementary that it is only in the name of a real party-in-interest that a civil suit may be prosecuted.

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

The assailed Decision dated November 27.‖ And this general prayer is broad enough ―to justify extension of a remedy different from or together with the specific remedy sought. The complaint does contain a general prayer ―for such other relief as may be just and equitable in the premises.00 since exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. No.R.R. No.000.[25] As to the prayer of Buenaventura.‖[24] Indeed. the bank should guard against injury attributable to negligence or bad faith on its part. even if the party awarded did not pray for it in his pleadings. 2001 of the Court of Appeals in CA-G. were not privies to any transaction involving FMIC. absent any showing that there was something amiss about Franco‘s acquisition or possession of the check. There is no merit to the claim that the CA erred in affirming the RTC‘s order directing BPI-FB to pay the balance of their account plus interest although the prayer was only to reinstate their Current Account.R. the Court reminds BPI-FB that the banking sector must at all times maintain a high level of meticulousness. the award should be in a reduced amount of P50. et al. a court may grant relief to a party.000.[28] The award of exemplary damages is proper as a warning to BPI-FB and all concerned not to recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors. it makes a sworn profession of diligence and meticulousness in giving irreproachable service. 2000 and Resolution dated May 3.[23] Thus. the Court finds that the CA erred in deleting the award of exemplary damages. 148259 is GRANTED. CV No. which affirmed with modification .000. thus.[26] The business of a bank is affected with public interest. et al. WHEREFORE. the petition in G.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the said P80. The law allows the grant of exemplary damages to set an example for the public good. Buenaventura. et al. They thus had no obligation to ascertain from Franco what the nature of the latter‘s title to the checks was.000. were allegedly derived exclusively from the alleged P80.[30] This fiduciary relationship means that the bank‘s obligation to observe ―high standards of integrity and performance‖ is deemed written into every deposit agreement between a bank and its depositor.00 debited from FMIC‘s account is immaterial. for exemplary damages.participation on their part in the forgery. These circumstances cannot be used against a party not privy to the forgery. the fact that the funds in deposit with BPI-FB under the name of Buenaventura. always having in mind the fiduciary nature of its relationship with its depositors. et al. 53962.000. BPI-FB fails to point any circumstance which should have put Buenaventura. Tevesteco or Franco. on inquiry as to the why and wherefore of the possession of the check by Amado Franco. which was payable to bearer. if any. They cannot be guilty of gross neglect amounting to legal absence of good faith. or the nature of his possession. Failure to comply with this standard shall render a bank liable to its depositors for damages.[27] For this reason. However.[29] In summation. 148196 is DENIED and the petition in G.

Costs against BPI Family Bank.99) from respondent‘s Citibank-Geneva accounts to petitioner Citibank in Manila. MODESTA R. exemplary damages in the amount of Two Hundred Fifty Thousand Pesos (P250.000.00). plus the stipulated interest of Fourteen and a half percent (14. the amount of P50. N. Petitioner Citibank is ORDEREDto return to respondent the principal amounts of the said PNs.632. 90-53154. respectively. 23356 and 23357 are DECLARED subsisting and outstanding.000. 1995 in Civil Case No. Respondent.000.00 as exemplary damages. the instant Petition is PARTLY GRANTED. No. from the respective dates of their maturity to 5 September 1979. which. as follows – 1.A. J. SABENIANO. 3.5%) per annum. is DECLARED illegal. Petitioners. are hereby AFFIRMED with the MODIFICATION that BPI Family Bank is directed to pay Buenaventura. 51930. dated August 11. (Formerly First National City Bank) and INVESTORS’ FINANCE CORPORATION.000. G. No. dated 20 November 2002.00). 2007 CITIBANK. or its equivalent in Philippine currency using the exchange rate at the time of payment. beginning 26 October 1979. The assailed Decision of the Court of Appeals in CA-G. 2.the Decision rendered by the Regional Trial Court. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred Thousand Pesos (P300.R. is hereby AFFIRMED WITH MODIFICATION.34) and Two Hundred Three Thousand One Hundred Fifty Pesos (P203. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-Nine Cents (US$149. SO ORDERED. doing business under the name and style of FNCB Finance. amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318. as already modified by its Resolution.00). and attorney‘s fees in the amount of Two Hundred Thousand Pesos (P200.150. 156132 February 6. null and void. Petitioner Citibank is ORDERED to refund to respondent the said amount. and 4.: On 16 October 2006. PNs No.00).897. beginning 17 March 1977. the dispositive portion of which reads – IN VIEW OF THE FOREGOING. vs. and the application of the same against respondent‘s outstanding loans with the latter. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans. et al. was computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty- . Branch 25.R. this Court promulgated its Decision1 in the above-entitled case. Manila. dated 26 March 2002. CHICO-NAZARIO. plus the stipulated interest for each of the fiduciary placements and current accounts involved.

docketed as Civil Case No. the RTC rendered a Decision4 on 24 August 1995. respondent Modesta R. She likewise denied that she was duly informed of the off-setting or compensation thereof made by petitioner Citibank using her deposits and money market placements with petitioners.069. from 5 September 1979 until payment thereof. Sum of Money and Damages" against petitioners.78) P 0.916. among which were her savings account with the local branch of petitioner Citibank (Citibank-Manila3 ).000.58 Less: Proceeds from respondent‘s money market placements with petitioner FNCB Finance (principal and interest as of 5 September 1979) (1.A. Subsequent thereto. however. respondent sought to recover her deposits and money market placements.156.14) (1. After trial proper. and dollar accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva).Seven Pesos and Forty Centavos (P1. inclusive of interest. petitioner Citibank used respondent‘s deposits and money market placements to off-set and liquidate her outstanding obligations. These outstanding loans shall continue to earn interest. which lasted for a decade. while. denied having any outstanding loans with petitioner Citibank. respondent failed to pay her outstanding loans. the dispositive portion of which reads – WHEREFORE. as determined by this Court in its Decision. Despite repeated demands by petitioner Citibank. before the Regional Trial Court (RTC) of Makati City. and FNCB Finance2 filed their Motion for Partial Reconsideration of the foregoing Decision on 6 November 2006. all of which had become due and demandable by May 1979. incurred at Citibank-Manila. as follows – Respondent‘s outstanding obligation (principal and interest as of 26 October 1979) P 2.66) Deposits in respondent‘s bank accounts with petitioner Citibank Proceeds of respondent‘s money market placements and dollar accounts with Citibank-Geneva (peso equivalent as of 26 October 1979) Balance of respondent‘s obligation (31. the principal amounts aggregating to P1.00. At the same time. Respondent instituted a complaint for "Accounting. Sabeniano filed an Urgent Motion to Clarify and/or Confirm Decision with Notice of Judgment on 20 October 2006.40).079. Respondent was a client of petitioners. at the rates stipulated in the corresponding PNs. respondent had outstanding loans with petitioner Citibank. may be summarized as follows.102. Thus.920. petitioners Citibank. She had several deposits and market placements with petitioners.847.940. The facts of the case.022. decision is hereby rendered as follows: . money market placements with petitioner FNCB Finance.00 Respondent. N.944. Hence. in view of all the foregoing. 11336.

50% interest p.R.a.632.069.40 in the account of Ms. in the amount of US$149. premises considered. compounded yearly. Sabeniano is hereby declared as without legal and factual basis.00 with 17% interest p.. 22528) issued on 17 March 1977. Switzerland. 3. the appellate court promulgated its Decision.50 interest p. in accordance with the terms and conditions agreed upon by the contending parties as evidenced by the certificates of investments..000. .847.40 as of 5 September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said amount. from 31 October 1979 until fully paid. issued on 02 June 1977. to wit: (i) Citibank NNPN Serial No. P203.150.99.897. (3) Dismissing all other claims and counterclaims interposed by the parties against each other.a.632. As defendants-appellants failed to account the following plaintiff-appellant‘s money market placements. as follows: 1. (ii) Citibank NNPN Serial No. the former is hereby ordered to return the same. docketed as CA-G.a. and ordering the said defendant [petitioner Citibank] to refund the said amount to the plaintiff with legal interest at the rate of twelve percent (12%) per annum. the assailed 24 August 1995 Decision of the court a quo is hereby AFFIRMED with MODIFICATION.(1) Declaring as illegal. compounded yearly. null and void the setoff effected by the defendant Bank [petitioner Citibank] of plaintiff‘s [respondent Sabeniano] dollar deposit with Citibank. there shall be no interest and penalty charges from the time the illegal setoff was effected on 31 October 1979. P500. to wit – Wherefore. 51930. On 26 March 2002. in the amount of US$149. Declaring as illegal. All the parties appealed the afore-mentioned RTC Decision to the Court of Appeals. 2. from 31 October 1979 until fully paid. the set-off of P1. P318. 05757 (Cancels and Supersedes NNPN No.00 with 14. 22526) issued on 17 March 1977. 04952). (2) Declaring the plaintiff [respondent Sabeniano] indebted to the defendant Bank [petitioner Citibank] in the amount of P1. Costs against the defendant Bank.069. Switzerland.847. savings account and current accounts.99. (iii) FNCB NNPN Serial No. or its peso equivalent at the time of payment. 023356 (Cancels and Supersedes NNPN No. As defendant-appellant Citibank failed to establish by competent evidence the alleged indebtedness of plaintiff-appellant. and ordering defendant-appellant Citibank to refund the said amount to the plaintiff-appellant with legal interest at the rate of twelve percent (12%) per annum. null and void the set-off effected by the defendant-appellant Bank of the plaintiff-appellant‘s dollar deposit with Citibank..34 with 14. or its peso equivalent at the time of payment. however. CV No.5 ruling entirely in favor of respondent. 23357 (Cancels and Supersedes NNPN No.

petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. this Court promulgated on 16 October 2006 its Decision.000. Acting on petitioners‘ Motion for Partial Reconsideration.net Among the numerous grounds raised by petitioners in their Motion for Partial Reconsideration. petitioner Citibank had no authority to demand the remittance of respondent‘s dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. (v) The Two Million (P2. thus – WHEREFORE. dated 20 November 2002. It cannot effect legal compensation under Article 1278 of the Civil Code since. modifying its earlier Decision.000. FIVE HUNDRED THOUSAND PESOS (P500. petitioners filed the instant Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court. Ordering defendants-appellants to jointly and severally pay the plaintiff-appellant the sum of FIVE HUNDRED THOUSAND PESOS (P500. 05758 (Cancels and Supersedes NNPN No. the instant Motion for Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3 of the assailed Decision’s dispositive portion is hereby ordered DELETED. Since the Court of Appeals Decision. The challenged 26 March 2002 Decision of the Court is AFFIRMED with MODIFICATION.6 dated 20 November 2002.000. Sabeniano with the Ayala Investment & Development Corporation (AIDC) with legal interest at the rate of twelve percent (12%) per annum compounded yearly. respondent was the creditor and Citibank-Geneva is the debtor.00) money market placements of Ms. from 30 September 1976 until fully paid. 4. . dated 16 October 2006. as modified by the Resolution of the same court.000. As for the dollar accounts. petitioner Citibank was the creditor and respondent was the debtor. the Court of Appeals issued a Resolution. 04962).00) as attorney‘s fees.000. this Court shall address and discuss herein only particular points that had not been considered or discussed in its Decision. and as for the outstanding loans.1awphi1. dated 26 March 2002. issued on 02 June 1977. was still principally in favor of respondent. and ONE HUNDRED THOUSAND PESOS (P100. premises considered. P500. now subject of petitioners‘ Motion for Partial Reconsideration.00 with 17% interest per annum. After giving due course to the instant Petition.000.(iv) FNCB NNPN Serial No. this Court remains unconvinced that it should modify or reverse in any way its disposition of the case in its earlier Decision. The parties in these transactions were evidently not the principal creditor of each other.00) as exemplary damages.00) by way of moral damages. Even in consideration of these points though. disallowing the off-setting or compensation of the balance of respondent‘s outstanding loans using her dollar deposits in Citibank-Geneva – Without the Declaration of Pledge. As to the off-setting or compensation of respondent’s outstanding loan balance with her dollar deposits in Citibank-Geneva Petitioners‘ take exception to the following findings made by this Court in its Decision.

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

That a foreign bank may avail itself of only one (1) mode of entry: Provided. Transacting Business in the Philippines. however. . 5.11 and authorized to establish branches within or outside the Philippines. lays down the policies and regulations specifically concerning the establishment and operation of local branches of foreign banks. – The entry of foreign banks in the Philippines through the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act. A bank and its branches and offices shall be treated as one unit. 75. Modes of Entry.The Monetary Board may authorize foreign banks to operate in the Philippine banking system through any of the following modes of entry: (i) by acquiring. further. Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with existing laws. Head Office Guarantee. Republic Act No." xxxx SEC. that the said provision applies to a universal9 or commercial bank. xxxx SEC. and all references to the Philippine branches of foreign banks shall be held to refer to such units. or (iii) by establishing branches with full banking authority: Provided. all such branches shall be treated as one (1) unit for the purpose of this Act. . otherwise known as the "Offshore Banking System Decree. . 2. It should be pointed out. 72. Local Branches of Foreign Banks.The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches. It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states that the bank and its branches shall be treated as one unit. That a foreign bank or a Philippine corporation may own up to a sixty percent (60%) of the voting stock of only one (1) domestic bank or new banking subsidiary. – In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank. – In case of a foreign bank which has more than one (1) branch in the Philippines. Head Office Guarantee.A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office. Sec. SEC. the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. (ii) by investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines. purchasing or owning up to sixty percent (60%) of the voting stock of an existing bank.10 duly established and organized as a Philippine corporation in accordance with Section 8 of the same statute. Relevant provisions of the said statute read – Sec. 1034. The conduct of offshore banking business in the Philippines shall be governed by the provisions of Presidential Decree No. otherwise known as the Foreign Banks Liberalization Law. 7721. 74.

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

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

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

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

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

the value of the currency at the time of the establishment of the obligation shall be the basis of payment. dollar. Economics.supra. p." It is well-settled that Article 1250 of the Civil Code becomes applicable only when there is extraordinary inflation or deflation of the currency. By May of the same year. In early 1921. 1975. dollar. "The Money Balloon". cited in "Economics. to address the alleged inequitable consequences resulting from the extreme and extraordinary devaluation of the Philippine currency that occurred in the course of the Asian crisis of 1997. There is inflation when there is an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level. An Introduction [Third Edition]). unless there is an agreement to the contrary. As far as the Declaration of Pledge is concerned. As reported. Women were paid several times a day so that they could rush out and exchange their money for something of value before what little purchasing power was left dissolved in their hands. Inflation has been defined as the sharp increase of money or credit or both without a corresponding increase in business transaction. A postage stamp cost millions of marks and a loaf of bread. Germany experienced a case of hyperinflation. then every day. An example of extraordinary inflation. New York: Simon and Schuster. NAWASA.19 In Singson v.presentation of the original document.S. and takes into consideration the presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced. Thus: "More recently. thus – We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency. petitioners beseech this Court to adjust the nominal values of respondent‘s dollar accounts and/or her overdue peso loans by using the values of the currencies stipulated at the time the obligations were established in 1979.) . who would rush to unload the nearly worthless paper. in the 1920s. Villegas & Victor R.2 to the U. then every hour.20 this Court already provided a discourse as to what constitutes as extraordinary inflation or deflation of currency. the value of the German mark was 4. 3rd ed. Inc. petitioners failed to submit any new evidence or argument that was not already considered by this Court when it rendered its Decision. An Introduction" by Villegas & Abola. so that by October 1923. Petitioners base their request on Article 1250 of the Civil Code which reads. is that which happened to the deutschmark in 1920.2 trillion to the U.S. Abola. and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. as cited by the Court in Filipino Pipe and Foundry Corporation vs. Some workers tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives. "prices were going up every week. And as prices went up rapidly.. dollar!" (Bernardo M. "In case an extraordinary inflation or deflation of the currency stipulated should supervene." (Sidney Rutberg. it had stumbled to 62 to the U. billions. it had reached 4. As to the value of the dollar deposits in Citibank-Geneva ordered refunded to respondent In case petitioners are still ordered to refund to respondent the amount of her dollar accounts with Citibank-Geneva. 19. Caltex (Philippines).S.

1976.when. the Court acknowledged that the voluminous records and statistics submitted by plaintiff-appellant proved that there has been a decline in the purchasing power of the Philippine peso. 1975. "Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past three to four decades.34% in 1984. we adopt with approval the following observations of the Court of Appeals on petitioner's evidence. Such circumstance must be proven by competent evidence. Court of Appeals. Court of Appeals.34%. the Philippines experienced a single-digit inflation in ten (10) years (i. 1967. this Court has held that the effects of extraordinary inflation are not to be applied without an official declaration thereof by competent authorities. the price index of goods and services had risen during the intervening period. Like the Serra and Huibonhoa cases. especially the NEDA certification of inflation rates based on consumer price index: xxx (a) from the period 1966 to 1986. in Huibonhoa vs. the instant case also raises as basis for the application of Article 1250 the Philippine economic crisis in the early 1980s --. petitioners presented no proof as to how much. 1982. we are hard put to treat this as an "extraordinary inflation" within the meaning and intent of Article 1250. 1968. rather. the average of those rates was only 20. and it cannot be merely assumed. Moreover. in the Filipino Pipe case. the official inflation rate never exceeded 100% in any single year. Although by petitioner's evidence there was a decided decline in the purchasing power of the Philippine peso throughout this period.. 1970. for that matter. 1974. Thus. 1973. 1969. (d) in other years (i. 1972. In Serra vs. it is also significant to note that the BSP did not . The burden of proving that there had been extraordinary inflation or deflation of the currency is upon the party that alleges it. 1984 and 1989) when the Philippines experienced double-digit inflation rates. the Court dismissed plaintiff-appellant's unsubstantiated allegation that the Aquino assassination in 1983 caused building and construction costs to double during the period July 1983 to February 1984. (c) over a twenty one (21) year period. or. but this downward fall cannot be considered "extraordinary" but was simply a universal trend that has not spared our country. 1981. (b) the highest official inflation rate recorded was in 1984 which reached only 50.e. While the said figure was based on the statistics of the Bangko Sentral ng Pilipinas (BSP). such cannot be considered as extraordinary. based on petitioner's evidence. it is a normal erosion of the value of the Philippine peso which is a characteristic of most currencies. 1978. The party alleging it must lay down the factual basis for the application of Article 1250..The supervening of extraordinary inflation is never assumed. 1980. 1968. the inflation rate rose to 50. Rather. Unfortunate as this trend may be.21 All the information petitioners provided was the drop of the U. In this case. it is certainly distinct from the phenomenon contemplated by Article 1250. (e) while there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986.88%. Similarly. 1971. to merit the adjustment of the rentals in the lease contract dated July 16. the entire time frame of 1968 to 1983. for instance. the Court again did not consider the decline in the peso's purchasing power from 1983 to 1985 to be so great as to result in an extraordinary inflation. We hold that there is no legal or factual basis to support petitioner's allegation of the existence of extraordinary inflation during this period. 1983 and 1986). dollar-Philippine peso exchange rate by 17 points from June 1997 to January 1998. 1979.S. 1966.e. 1977.

22 Neither can this Court. as modified. The existence of extraordinary inflation must be officially proclaimed by competent authorities. respondent‘s dollar accounts are unlawfully in the possession of and are being used by petitioner Citibank for its business transactions. in her Motion. plus the stipulated interest for each of the fiduciary placements and current accounts involved. and even possibly forged. it is incontrovertible that Article 1250 of the Civil Code is based on equitable considerations. this Court‘s Decision modified that of the appellate court‘s by making its own determination of . is of the mistaken notion that the Court of Appeals Decision. and will only be presently withdrawn by respondent. Declaration of Pledge. However. respondent‘s dollar accounts with Citibank-Geneva must be deemed to be subsisting and continuously deposited with petitioner Citibank all this while. is only to the extent that it recognizes that petitioners had liabilities to the respondent. Among the maxims of equity are (1) he who seeks equity must do equity.S. It should be recalled that the Philippines likewise experienced economic crisis in the 1980s.632. Furthermore. The damage caused to respondent of the deprivation of her dollar accounts for more than two decades is unquestionably relatively more extensive and devastating. hence.99 taken from her Citibank-Geneva accounts. Taking these into consideration. This Court clarifies that its affirmation of the Decision of the Court of Appeals. or its equivalent in Philippine currency using the exchange rate at the time of payment. respondent‘s businesses failed and her properties were foreclosed because she was denied access to her funds when she needed them most. would be implemented or executed together with this Court‘s Decision. as compared to whatever damage petitioner Citibank. In the meantime. As to respondent’s Motion to Clarify and/or Confirm Decision with Notice of Judgment Respondent. by merely taking judicial notice of the Asian currency crisis in 1997. $149. beginning 26 October 1979. dated 20 November 2002. already declare that there had been extraordinary inflation. may have suffered for respondent‘s non-payment of her loans. yet this Court did not find that extraordinary inflation took place during the said period so as to warrant the application of Article 1250 of the Civil Code. 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. and the only competent authority so far recognized by this Court to make such an official proclamation is the BSP. It must also be remembered that petitioner Citibank had already considered respondent‘s loans paid or liquidated by 26 October 1979 after it had fully effected compensation thereof using respondents deposits and money market placements. an international banking corporation with undoubtedly substantial capital. The delay in the recovery24 by respondent of her dollar accounts with Citibank-Geneva was due to the unlawful act of petitioner Citibank in using the same to liquidate respondent‘s loans. cannot invoke Article 1250 of the Civil Code because it does not come to court with clean hands. All this time. Therefore.categorically declare that the same constitute as an extraordinary inflation. as modified by the Resolution of the same court. dated 26 March 2002.23 Petitioner Citibank. Petitioner Citibank even attempted to justify the off-setting or compensation of respondent‘s loans using her dollar accounts with Citibank-Geneva by the presentation of a highly suspicious and irregular. petitioner Citibank should refund to respondent the U.

DAEZ. SESE. No. ASUNCION. ROCIO A. Inc. dated 16 October 2006. the parties need only refer to the dispositive portion of this Court‘s Decision. petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7. (Este del Sol) simultaneously with the Loan Agreement dated January 31.. for to do so will be a culpable violation of the right of the other parties to due process.25 This Court cannot arbitrarily disregard the reglementary period and declare a judgment final and executory upon the mere motion of one party. VALENTIN S. and FELIPE B. (FMIC) and respondent Este del Sol Mountain Reserve. ALEXANDER G. JR. petitioners‘ Motion for Partial Reconsideration of this Court‘s Decision. 1978. vs.the specific liabilities of the petitioners to respondent and the amounts thereof. the Court of Appeals found and declared that the fees provided for in the Underwriting and Consultancy Agreements executed by and between petitioner First Metro Investment Corp. 141811 November 15. Montalban. 2001 FIRST METRO INVESTMENT CORPORATION.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated November 8. DE LEON. MANUEL Q.R. Rizal. A judgment becomes final and executory by operation of law and. respondents. 1999 in CA-G. CV No. dated 16 October 2006. as well as by recognizing that respondent also had liabilities to petitioner Citibank and the amount thereof. there is no merit in respondent‘s Motion for this Court to already declare its Decision. LADORES.. J. petitioner.00) to finance the construction and development of the Este del Sol Mountain Reserve. Thus. JR. the finality of the judgment becomes a fact upon the lapse of the reglementary period without an appeal or a motion for new trial or reconsideration being filed. VICENTE M.. MA. DE VEGA. As the last point. JR.500. ESTE DEL SOL MOUNTAIN RESERVE. The facts of the case are as follows: It appears that on January 31. 1994 in Civil Case No. should it already become final and executory.4 . Branch 159 dated June 2. INC. G. Essentially. without any further modifications. 53328 reversing the Decision3 of the Regional Trial Court of Pasig City. are both DENIED for lack of merit. SO ORDERED. IN VIEW OF THE FOREGOING. DE VERA.R. final and executory. SALIENTES. for purposes of execution. 1978 were mere subterfuges to camouflage the usurious interest charged by petitioner FMIC. 39224. and respondent‘s Motion for this Court to declare the same Decision already final and executory..385. a sports/resort complex project located at Barrio Puray. dated 16 October 2006. ALBERTO * M. accordingly.

Interest on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance.6 In accordance with the terms of the Loan Agreement. respondent Este del Sol executed several documents7 as security for payment.000) common shares of respondent Este del Sol's capital stock for a one-time underwriting fee of Two Hundred Thousand Pesos (P200. Ma.000.00) each.500.330.Under the terms of the Loan Agreement. Asuncion. Jr. and Felipe B.000. to guarantee the payment of all the obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five Hundred Thousand Pesos (P7. among them.00) per annum for a period of four (4) consecutive years.028. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332. and (b) individual Continuing Suretyship agreements by corespondents Valentin S. a Consultancy Agreement was also executed on January 31. Alexander G. Vicente M. plus attorney's fees equivalent to twenty-five (25%) percent of the sum sought to be recovered.000.5 In case of default.00) as consultancy fee for a period of four (4) years.000. equipment.00) per annum for a period of four (4) consecutive years. 1978. an Underwriting Agreement on January 31. respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200. the proceeds of the loan were to be released on staggered basis. all dated February 2. (a) a Real Estate Mortgage dated January 31. in accordance to the Underwriting Agreement.10 The said amounts of fees were deemed paid by respondent Este del Sol to petitioner FMIC which deducted the same from the first release of the loan. Alberto M. The loan was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization. Ladores. fees.8 Respondent Este del Sol also executed. and [c] Two Hundred Thousand Pesos (P200. inclusive of all improvements. provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties.00) as the underwriting fee of petitioner FMIC in connection with the public offering of the common shares of stock of respondent Este del Sol. Sese. among others. an acceleration clause was. Manuel Q. 1978 over two (2) parcels of land being utilized as the site of its development project with an area of approximately One Million Twenty-Eight Thousand and Twenty-Nine (1. 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One Hundred Twenty Thousand (120. Rocio A.000. as well as all the machineries. as provided for by the Loan Agreement.029) square meters and particularly described in TCT Nos.9 In three (3) letters all dated February 22.. which in no case shall be less than Twenty Thousand Pesos (P20. 1978. [b] One Million Three Hundred Thirty Thousand Pesos (P1.000. 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general consultancy services.00) if the services of a lawyer were hired.00). Salientes.500. 1978 petitioner billed respondent Este del Sol for the amounts of [a] Two Hundred Thousand Pesos (P200. the Underwriting Agreement provided that for supervising the public offering of the shares. . De Vera. N-24332 and N-24356 of the Register of Deeds of Rizal. Daez. Jr.000. De Vega. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement. furnishings and furnitures existing thereon. expenses or charges thereon until the unpaid balance is fully paid. In addition to the underwriting fee.00) as supervision fee for the year beginning February.

despite individual demands sent to each of them. 1980. 1980.714.630. the payment of the alleged deficiency balance.Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization. The total amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3.00).879.297.11 to wit: STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE.200. INC.630.49 1.a.666. that is.00). 1980 AMOUNT P7. petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23.75).02 (ii) of Loan Agreement Past due interest under Section 6.98) per the petitioner's Statement of Account dated June 23.863. it appeared to have incurred a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos (P12.188.73) plus interest thereon at twenty-one (21%) . for the publication fee for the publication of the Sheriff's Notice of Sale.679.727.02 (iii) of loan Agreement: @ 19% p.999.00). AS OF JUNE 23.a.631.42 @ 16% p.46 1.14 petitioner instituted on November 11.10 4.679.096.631. and for Attorney's fees. thereby leaving a balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6.000.000.98 Accordingly.13 Failing to secure from the individual respondents. due as of June 23.326. Fifteen Thousand Pesos (P15.811. Three Million One Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3.42 327. Four Thousand Nine Hundred Sixty-Four Pesos (P4.168.369.630.000.863. for Sheriff's fees for conducting the foreclosure proceedings.04 8. 1980 PARTICULARS Total amount due as of 11-22-78 per revised amortization schedule dated 1-3-78 Interest on P7.75) was deducted therefrom. from 11-30-79 to 6-23-80 (206 days) Other charges — publication of extra judicial foreclosure of REM made on 5-23-80 & 6-6-80 Total Amount Due and Collectible as of June 23. from 11-22-78 to 2-22-79 (92 days) Balance One time penalty of 20% of the entire unpaid obligations under Section 6. 1980 the instant collection suit15 against the respondents to collect the alleged deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6.12At the public auction.25) was applied to interests and penalty charges and partly against the principal.345.964. from 2-22-79 to 11-30-79 (281 days) @ 21% p.481.93 1.a. petitioner FMIC was the highest bidder of the mortgaged properties for Nine Million Pesos (P9.73) on the principal amount of the loan as of June 23. as sureties of the loan of respondent Este del Sol by virtue of their continuing surety agreements.00 P12.964.665. 1980. The remaining balance of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and TwentyFive Centavos (P5.297. 1980.999.

297. Defendants' counterclaims are dismissed.500." and declared that in lieu thereof.476. plus the amount equivalent to 25% of the total amount due. On November 8. the appellate court reversed the challenged decision of the trial court. the respondents sought the dismissal of the case and set up several special and affirmative defenses.00 1. former Senior Manager and Assistant Vice-President of FMIC. the dispositive portion of which reads: WHEREFORE. The appellate court found and declared that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este del Sol.759.00 P9. and Valentin S.000. the trial court rendered its decision in favor of petitioner FMIC. liquidated damages and attorney's fees were "excessive. the appellate court dismissed the complaint as against the individual respondents sureties and ordered petitioner FMIC to pay or reimburse respondent Este del Sol the amount of Nine Hundred Seventy-One Thousand Pesos (P971. based on the following computation:17 A: DUE TO THE [PETITIONER] Principal of Loan Add: 20% one-time Penalty Attorney's fees Less: Proceeds of foreclosure Sale P7. as attorney's fees. an Account Manager of its Account Management Group. Thus.000.863. Finding the decision of the trial court unacceptable. and Dennis Aragon. testified for the respondents.. for lack of merit.00 .382. ordering defendants jointly and severally to pay to plaintiff the amount of P6.00 900. the stipulated one time twenty (20%) percent penalty on the amount due and ten (10%) percent of the amount due as attorney's fees would be reasonable and suffice to compensate petitioner FMIC for those items.73 plus 21% interest per annum. co-respondents Vicente M. Daez. Jr. from June 24. unconscionable and revolting to the conscience. In their Answer. 1980 until fully paid. and Perfecto Doroja. its former Senior Vice-President. After the trial.16 The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela.500.percent per annum from June 24. and that the stipulated penalties.000. Jr. respondents interposed an appeal to the Court of Appeals. On the other hand. Felipe Neri. iniquitous. foremost of which is that the Underwriting and Consultancy Agreements executed simultaneously with and as integral parts of the Loan Agreement and which provided for the payment of Underwriting. plus costs of suit. judgment is hereby rendered in favor of plaintiff and against defendants. 1980. until the entire amount is fully paid. its Vice-President for Marketing. as well as documentary evidence. De Vera. and twenty-five (25%) percent thereof as and for attorney's fees and costs.00) representing the difference between what is due to the petitioner and what is due to respondent Este del Sol. 1999. Consultancy and Supervision fees were in reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage the usurious interest being charged by petitioner FMIC.

However. SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO .00 less P759. Petitioner moved for reconsideration of the appellate court's adverse decision.000.000. therefore.000. 34-35 OF THE ASSAILED DECISION.000. AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF THE UNDERWRITING AND CONSULTANCY AGREEMENTS.00 P759.000.00). EVEN GRANTING JUST FOR THE SAKE OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED PENALTIES.730.00 200.730. Hence. INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii] THE UNDERWRITING. the instant petition anchored on the following assigned errors:19 THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT: a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT FROM THE LOAN AGREEMENT. e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS DUE TO EACH PARTY AFTER THE FORECLOSURE SALE". 2000 of the appellate court.000. AND INSTEAD. d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO PETITIONER. obliged to return to the appellant Este del Sol the difference of P971.00 Deficiency B.00 1.000.9.000.00 The appellee is.000. c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S WITNESSES ON THE SERVICES PERFORMED BY PETITIONER. this was denied in a Resolution18 dated February 9.00 or (P1.330.000. LIQUIDATED DAMAGES AND ATTORNEY'S FEES AS SUPPOSEDLY "EXCESSIVE. DUE TO [RESPONDENT ESTE DEL SOL] Return of usurious interest in the form of: Underwriting fee Supervision fee Consultancy fee Total amount due Este P 200.00 P1. b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE "MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED" BY THE PETITIONER. THEY SHOULD BE CONSIDERED AS A SINGLE CONTRACT. AS SHOWN IN PP.

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

330.000.500.330.00).382.730. on the same occasion of the first partial release of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos (P2.31that such Underwriting Agreement is "part and parcel of the Loan Agreement. 1978 stipulated for the execution and delivery of an underwriting agreement29 and specifically mentioned that such underwriting agreement is a condition precedent30 for petitioner FMIC to extend the loan to respondent Este del Sol."32 c) Respondent Este del Sol was billed by petitioner on February 28. the entire obligation does not become void because of an agreement for usurious interest. Supervision and Constantly fees were conducted and apparently paid.40 aside from the fact that there was no need for a Consultancy Agreement. 1957. 1978 One Million Three Hundred Thirty Thousand Pesos (P1. 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lender's services which are of little value or which are not in fact to be rendered.35 that is. the unpaid principal debt still stands and remains valid but the stipulation as to .500. since respondent Este del Sol's officers appeared to be more competent to be consultants in the development of the projected sports/resort complex. Supervision and Consultancy fees in the amounts of Two Hundred Thousand Pesos (P200. The Underwriting and Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31. The borrower may recover in accordance with the laws on usury.38 Besides.37 e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of respondent Este del Sol and much less to supervise such a syndicate.000. Article 1957 of the New Civil Code clearly provides that: Art. indicating and as admitted by petitioner FMIC's employees. such as in the instant case. Underwriting and Consultancy Agreements are separate and independent transactions.42 In this connection.b) The Loan Agreement dated January 31.00) as part of the amount loaned to respondent Este del Sol.000. reverting back to petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand Pesos (P1. In usurious loans. intended to circumvent the laws against usury shall be void.39 f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement. thus failing to comply with its obligation under the Underwriting Agreement. under any cloak or device whatever.36 It is from this first partial release of the loan that the said corresponding bills for Underwriting.000.00). thus. respectively. Contracts and stipulations. were billed by petitioner to respondent Este del Sol on February 22.00)33 as consultancy fee despite the clear provision in the Consultancy Agreement that the said agreement is for Three Hundred ThirtyTwo Thousand Five Hundred Pesos (P332.00).00) per annum for four (4) years and that only the first year consultancy fee shall be due upon signing of the said consultancy agreement.41 All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC that the Loan. 1978. and one Million Three Hundred Thirty Thousand Pesos (P1.34 d) The Underwriting. there was really no need for an Underwriting Agreement since respondent Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold through its marketing arm.

the penalty may also be reduced by the courts if it is iniquitous or unconscionable. there is no merit to petitioner FMIC's contention that the appellate court erred in awarding an amount allegedly not asked nor prayed for by respondents. Thus. especially so because there is no clear showing that the appellee hired the services of counsel to effect the foreclosure. whether intended as an indemnity or a penalty. Art. Civil Code)."46 Articles 1229 and 2227 of the New Civil Code provide that: Art.the usurious interest is void.188. which is the cause of the contract (Article 1350. With respect to the debtor. And true enough. the nullity of the stipulation on the usurious interest does not affect the lender's right to receive back the principal amount of the loan. is not illegal. courts are empowered to reduce the amount of attorney's fees if the same is "iniquitous or unconscionable. Whether the exact amount of the relief was not expressly prayed for is of no moment for the reason that the relief . Liquidated damages. 2227. Nonetheless. being separable.45 This Court agrees with the factual findings and conclusion of the appellate court. or public order. hence. since the payment is deemed to have been made under restraint. consequently. excessive. shall be equitably reduced if they are iniquitous or unconscionable. 1980. since it is the only one that is illegal. we hold that 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorney's fees would suffice to compensate the appellee. So long as such stipulation does not contravene any law.43 The reason for this rule was adequately explained in the case of Angel Jose Warehousing Co. Lastly.. the debt is to be considered without stipulation as to the interest. In the case at bar. Accordingly. it is binding upon the parties.630. the prestation of the debtor to pay the principal debt. liquidated damages and attorney's fees. is manifestly exorbitant and unconscionable. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor.75) for the stipulated attorney's fees equivalent to twenty-five (25%) percent of the alleged amount due. Even if there has been no performance. morals. we agree with the appellate court that a reduction of the attorney's fees to ten (10%) percent is appropriate and reasonable under the facts and circumstances of this case. Attorney's fees as provided in penal clauses are in the nature of liquidated damages. as of the date of the auction sale on June 23. 1229. ESTE folded up when the appellee extrajudicially foreclosed on its (ESTE's) development project and literally closed its offices as both the appellee and ESTE were at the time holding office in the same building. it engaged counsel only when it was seeking the recovery of the alleged deficiency. Chelda Enterprises44 where this Court held: In simple loan with stipulation of usurious interest. rather than voluntarily. v. the latter only should be deemed void. The illegality lies only as to the prestation to pay the stipulated interest. Accordingly. iniquitous and unconscionable and revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. Inc. the amount paid as interest under a usurious agreement is recoverable by him. the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (93. to wit: We find the stipulated penalties.

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