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. D. T. Reyes, Liaison and Associates for petitioner-appellant. Office of the Solicitor General for plaintiff-appellee. 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 1 ofcommodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum — . . . is liable for loss of the things, even if it should be through a fortuitous event: (2) If he keeps it longer than the period stipulated . . . (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event; The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability. The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that — After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. . . . and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that — Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and residence of the executory administrator, guardian, or other legal representative of the deceased . . . . The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the defendant was the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule. As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court. ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur. Barrera, J., concurs in the result.

and therefore.00. the decretal portion of which reads: . Consequently. said accused received in trust from the offended party cash money amounting to P536.R. the Court holds. with intent of gain. represented by the Solicitor General. the said accused. beyond reasonable doubt. The accused is likewise ordered to reimburse the private complainant the sum of P526. and abuse of confidence. 1993. with a corresponding 40% commission to her if the goods are sold.: Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC). petitioner. 1988 and August. Carmen Liwanag. finding Liwanag guilty as charged. During the first two months. unlawfully and feloniously defraud one ISIDORA ROSALES. After trial on the merits.00. Rosales would give the money needed to buy the cigarettes while Liwanag and Tabligan would act as her agents. misapplied. 1997] CARMEN LIWANAG. to give her commission corresponding to 40% of the profits. Under their agreement. willfully. otherwise the money would be returned to Rosales. in an information which reads as follows: “That on or between the month of May 19. Alarmed by this development and believing that the amounts she advanced were being misappropriated.[G. Philippine Currency. Convinced of the feasibility of the venture. in case of insolvency. SO ORDERED. to wit: on the date and in the place aforementioned. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES. however. October 24. that the prosecution has established the guilt of the accused. Branch 93. AND TO PAY THE COSTS. but said accused. imposes upon the accused. with the express obligation involving the duty to act as complainant’s agent in purchasing local cigarettes (Philip Morris and Marlboro cigarettes). The dispositive portion of the decision reads thus: “WHEREFORE. 1991. The visits. misappropriated and converted the same to her personal use and benefit. 1988 in Quezon City. EIGHT (8) MONTHS AND TWENTY ONE (21) DAYS OF PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF PRISION MAYOR AS MAXIMUM. Quezon City. accused failed and refused and still fails and refuses to deliver and/or return the same to the damage and prejudice of the said ISIDORA ROSALES.00. despite repeated demands made upon her. Rosales filed a case of estafa against Liwanag.650. Rosales gave several cash advances to Liwanag and Tabligan amounting to P633. 114398.” The antecedent facts are as follows: Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of complainant Isidora Rosales (Rosales) and asked her to join them in the business of buying and selling cigarettes. and to return the aforesaid amount of offended party. without subsidiary imprisonment.650. in the aforementioned amount and in such other amount as may be awarded under the provision of the Civil Code. with unfaithfulness. the trial court rendered a decision dated January 9. to resell them to several stores. CONTRARY TO LAW. J. far from complying her aforesaid obligation. suddenly stopped.” Said decision was affirmed with modification by the Court of Appeals in a decision dated November 29. did then and there. in the following manner. THE HON. Rosales readily agreed. and once in possession thereof. No. Liwanag and Tabligan made periodic visits to Rosales to report on the progress of the transactions. respondents. vs. and all efforts by Rosales to obtain information regarding their business proved futile. DECISION ROMERO.650. Philippines and within the jurisdiction of this Honorable Court. an Indeterminate Penalty of SIX (6) YEARS.

” Liwanag advances the theory that the intention of the parties was to enter into a contract of partnership. . (SGD & Thumbedmarked) (sic) CARMEN LIWANAG 26 H. Kaliraya St. Estafa is a crime committed by a person who defrauds another causing him to suffer damages. Rosales the sum of FIVE HUNDRED TWENTY SIX THOUSAND AND SIX HUNDRED FIFTY PESOS (P526. as maximum.“WHEREFORE.00 or the said items on or before August 30. From the foregoing. as follows: (1) that the accused defrauded another by abuse of confidence or deceit. Baligad” The language of the receipt could not be any clearer. The receipt signed by Liwanag states thus: “May 19. 1988. and in the event the cigarettes cannot be sold. or of false pretenses of fraudulent acts. Rosales the said amount of P526. EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision mayor. as minimum.” Her motion for reconsideration having been denied in the resolution of March 16. SO ORDERED. for the purchase of cigarettes. by means of unfaithfulness or [4] abuse of confidence. 2. In the event the said cigarrets (sic) are not sold. the judgment appealed from is hereby affirmed with the correction of the nomenclature of the penalty which should be: SIX (6) YEARS. the elements of estafa are present. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA. 1994. and it is essential that there be a fiduciary relation between them either in the form of a trust. that is. the money must be returned to Rosales. and later divide the profits between them. It indicates that the money delivered to Liwanag was for a specific purpose. Liwanag filed the instant petition. Quezon City Signed in the presence of: (Sgd) Illegible (Sgd) Doming Z. She also argues that the transaction can also be interpreted as a simple loan. submitting the following assignment of errors: “1. we deem it more expedient to resolve the instant petition on its merits. the decision is AFFIRMED.650. commission or [6] administration. Isidora P. WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER AND COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF THE MONEY OF THE COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT CRIMINAL. with Rosales lending to her the amount stated on an installment [2] basis. 1988 Quezon City Received from Mrs. Isidora P. In all other respects. to FOURTEEN (14) YEARS and EIGHT (8) MONTHS of reclusion temporal. and (2) that damage or prejudice capable of pecuniary estimation is caused to the offended party or third [5] party. to purchase cigarrets (sic) (Philip & Marlboro) to be sold to customers. While factual findings of the Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF REASONABLE DOUBT BY APPLYING THE ‘EQUIPOISE RULE’. and [3] carry more weight when these affirm the factual findings of the trial court. the proceeds of the sale or the said products (shall) be returned to said Mrs.00) Philippine Currency. in view of the foregoing. wherein Rosales [1] would contribute the funds while she would buy and sell the cigarettes.650. The Court of Appeals correctly rejected these pretenses.

the borrower can dispose of it for whatever purpose he may deem proper. such partner is guilty of estafa. WHEREFORE. Narvasa. (Chairman). for the purchase of cigarettes. 315. JJ. [8] ownership over the same is transferred.Thus. . the appealed decision of the Court of Appeals dated November 29. SO ORDERED. Francisco. since in a contract of loan once the money is received by the debtor. 1993. on leave. it is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a single purpose. Neither can the transaction be considered a loan. Costs against petitioner.. however. and Panganiban. in view of the foregoing. Liwanag is liable for conversion under Art. even assuming that a contract of partnership was indeed entered into by and between the parties.. we have ruled that when money or property have been received by a partner for a specific purpose (such as that obtaining in the instant case) and he [7] later misappropriated it.J. is AFFIRMED. Since in this case there was no transfer of ownership of the money delivered. In the instant petition. Being the owner. and if this was not possible then to return the money to Rosales. namely. par. 1(b) of the Revised Penal Code. concur. C. Melo.

and ordered the publication. Del Rosario and Sabido for appellant Tiong-Chui Gion.22 10. bonds and accounts.88 and is set out in its written claim appearing in the record on appeal as follows: .48 Surety deposit 460.610. deed. at the expenses of the aforesaid bank.54 7. that the Mercantile Bank of China could not continue operating as such without running the risk of suffering losses and prejudice its depositors and customers. books of account. the following creditors. 156 Interest on checking a/c P7.. J. prohibited the officers and agents of the bank from interfering with said commissioner in the possession of the assets thereof. The claim of Gopoco Grocery (Gopoco) is for the sum of P4. and within the period of ninety days.: On petition of the Bank Commissioner who alleged to have found. Lawrence and Selph for appellees Pacific Coast Biscuit Co. approved all the acts theretofore executed by the commissioner. memorandum. DIAZ. the Court of First Instance of Manila declared the said bank in liquidation. A.20 IV.R. GOPOCO GROCERY (GOPOCO).M.95 4. vs.53 4.000.48 plus P460. Nos.624. Alvendia for appellees Chinese Grocers Asso. obligations or securities and its real and personal properties. as was in fact done. It described its claim as follows: Balance due on open account subject to check Interest on c/a P4. Gopoco Grocery. I. Marcelo Nubla for appellees Ang Cheng Lian et al.624. and that with the requisite approval of the corresponding authorities. The claim of Tiong Chui Gion is for the sum of P10.27. ET AL.44 8. et al. Sy Guan Huat and La Bella Tondeña.. presented their presented their claims: Tiong Chui Gion. Laurel. papers.932. et al.285. Tan Locko. its documents. oppositors-appellees. He alleged that he deposited said sum in the bank under liquidation on current account. and he describes it in turn as follows: Balance due on open account subject to check L759 Savings account No.G. he had taken charge of all the assets thereof. After these publications. bond.00 III. for the two consecutive weeks in two news-papers of general circulation in the City of Manila. L-43697 and L-442200 March 31.20. among others. of the order containing all these provisions. PACIFIC COAST BISCUIT CO.972. ET AL. vouchers. notes. 1938 In re Liquidation of the Mercantile Bank of China.927. claimants-appellants..932. Ross. is for the sum of P6. II. required its creditors and all those who had any claim against it. 156 (foreign) with Mercantile Bank of China L-1611 Amoy $15. Eusebio Orense and Carmelino G. The claim of Woo & Lo & Co. Woo & Lo & Co. Zarate for appellants Gopoco Grocery et al.. to present the same in writing before the commissioner within ninety days.00 Interest on said Savings Account No. after an investigation. The claim of Tan Locko is for the sum of P7.

the amount also of certain drafts accepted by it.285.20 1.77.912.378.90 or P2. the amount of a draft which he accepted.77.917. resolved the aforesaid six claims by recommending that the same be considered as an ordinary credit only. indebted in the sum of $565.80.84.90.232. 442200. (3) to approve the claim of Tan Locko but as an ordinary credit only (P7. and the commissioner and referee thus named. The lower court approved all the recommendations of The commissioner and referee as to claims of the six appellants as follows.972. in the sum of $2. The claim of Sy Guan Huat is for the sum of P6.464. because they were at the same time debtors of the bank.88. deducting therefrom his obligation amounting to $1. after deducting its obligation to the bank.27 which he deposited on current account. a deposit of P1.378.68.40 including interest and other expenses. (d) the claimant Woo & Lo & Co. but he expressly refused to authorize the payment of the interest by reason of impossibility upon the ground set out in the decision. 1932.84 or P6.334.59 2.48. (6) to approve the claim of la Bella Tondeña but also as an ordinary credit only (1.34 according to the referee). constitutes an ordinary credit only and not a preferred credit. after qualifying for the office and receiving the evidence presented to him. but it was.961. The evidence adduced and the very admissions of the said interested parties in fact show that (a) the claimant Tiong Chui Gion. also described as follows: Balance due on open account subject to check Interest on account P1910.669. but they owed the sum of $3.224.757.972. the lower court. but he owed $1.929. amounting to $3. (5) to approve the claim of Sy Guan Huat but only as an ordinary credit (P6.27) but only as an ordinary credit.464.60. finally. after deducting it obligation amounting to $565. while he was a creditor of the Mercantile Bank of China in the sum of P10.107. and. had a deposit of P6. R.95 according to the referee).912. No. plus interest thereon and the protest fees paid therefor.50 according to the referee). and not as a preferred credit as the interested parties wanted.79 To better resolve not only these claims but also the many others which were presented against the bank. The claim of La Bella Tondeña is for the sum of P1.37. (1) To approve the claim of Tiong Chui Gion (P10. to approve the claim of Woo & Lo & Co.334.80.232. . Tiong Chui Gion argues in his brief filed in case in G. in Turn.88.961.54 6.01 according to the referee). in turn. the amount of a draft which he also accepted. the amount of two drafts drawn upon and accepted by it.40 or P1.79. in turn. but it is indebted to it. (b) the claimant Gopoco Grocery (Gopoco) had a current account in the bank in the sum of P5. each of the interested parties appealed therefrom and thereafter filed their respective briefs.74. In holding that his deposit of P10.88 VI. but it was indebted in the sum of $3.20.107.37 6.387. after deducting his obligation amounting to $3. and (f) the claimant La Bella Tondeña had.34 8. the amount of certain drafts which it had accepted.44 according to the referee).37) or P6.285.392.232.912. but only as an ordinary credit (P6. that the lower court erred: 1.83 V.214.624. on July 15.27 in the Mercantile Bank of China. (e) the claimants Sy Guan Huat and Sy Kia had a deposit of P6.80 or P4. (c) the claimant Tan Locko had a deposit of P7.130.610. appointed Fulgencio Borromeo as commissioner and referee to receive the evidence which the interested parties may desire to present. minus the amount of the draft for P664.01 11.224. for two drafts accepted by them and already due. was also a debtor not only in the sum of P633. (2) to approve the claim of Gopoco Grocery (Gopoco) but also as an ordinary credit only (P5.80. Not agreeable to the decision of the lower court.79.76 but also in the sum of P664. minus its obligation amounting to $2.285.Balance due on open subject to check L-845 Interest on checking a/c P6.88 and the described it as follows: Balance due on open account subject to check L718 Interest on checking a/c P6.

In the fourth group he included the claims for drafts or securities to be collected from resident merchants and entities to be collected from resident merchants and entities which were pending collection on the date payments were suspended. 3. we believe it practical and proper to resolve said questions jointly in one decision. 43697. instead of holding that. 43697 being identical in nature. Before proceeding. however. by foreign banks and entities. Woo & Lo & Co. In holding that the amount of P633. and he considered of this class the claims of the appellants in these two cases. I. classifying the various claims presented against the bank. In the third group he included the claims checks or drafts issued by the bank under liquidation in payment or reimbursement of the drafts or goods remitted to it for collection. In the second group he included the claims for checks or drafts sold by the bank under liquidation and not paid by the agents or banks in whose favor they had been issued. In the first group he included all the claims for current account. which the claimant owes to the bank under liquidation. upon the distribution of the assets of the bank among its various creditors. No. the fact is that said deposits still exist. and not otherwise. whose payment they claim. In holding as preferred credits the drafts and checks issued by the bank under liquidation in payment of the drafts remitted to it for collection from merchants residing in the country. But it happens that they themselves admit that the bank owes them interest which should have been paid to them before it was declared in a state of liquidation. 44200 and by appellants in case G. notwithstanding the provisions of articles 1767 and 1768 and others of the aforesaid Code. then. or should they be considered ordinary credits only? The appellants contend that they are preferred credits only? The appellants contend that they are preferred credits because they are deposits in contemplation of law. citing the said commentator who maintains that. And they contend and argue that what they had in the bank should be considered as of this character.R. Bell & Co.77) from his aforesaid deposit. are preferred credits. and in not holding that the deposits on current account in said bank should enjoy preference over said drafts and checks. on the basis of said amount. and 4. Now. and as such should be returned with the corresponding interest thereon. placed under one group those partaking of the same nature. page 663). R. because the payment of interest only takes . by foreign entities or banks. 2. and what has been insinuated in the case of Rogers vs. Civil Code. In the fifth group he included the claims of certain depositors or creditors of the bank who were at the same time debtors thereof. In not holding that their claims constitute a preferred credit. The other five claimants.285. Gopoco Grocery Tan Locko. savings and fixed deposits. In not first deducting from their respective deposits in the bank under liquidation. be deducted from his current account deposit therein. there be turned over to him the balance together with the dividends or shares then corresponding to him. No. it is convenient to note that the commissioner and referee. should the appellants' deposits on current account in the bank now under liquidation be considered preferred credits. from which it is inferred that the socalled irregular deposits no longer exist.27. In holding that the drafts and checks issued by the bank under liquidation in payment of the drafts remitted to it by foreign entitles and banks for collection from the certain merchant residing in the country. 319). their respective obligation thereto.76 (should be P664. and In the sixth group he included the other claims different in nature from the of the aforesaid five claims. after deducting the aforesaid sum of P633. In denying their motion for a new trial base on the proposition that the appealed decision is not in accordance with law and is contrary to the evidence adduced at the trial. Smith. that is. R. that the lower court erred: 1. (10 Phil.77). in turn argue in the brief they jointly filed in case G. from resident merchants and entitles.. Sy Guan Huat and La Bella Tondeña.. amounting to P10.2. and in not holding that the deposits made by each of them enjoy preference over said drafts and checks. and 3. The questions raised by the appellant in case G. In support thereof they cite Manresa (11 Manresa. This fact undoubtedly destroys the character which they nullifies their contention that the same be considered as irregular deposits.76 (which should be understood as P664. the classification having resulted in six groups.

43697. (Articles 303 and 309. not because it so wishes. when and how should they be made. 4th ed. particularly as none of the appellants falls within the exceptions mentioned in section 58 of the Insolvency Law (Act No. 3154). 43682. the same is only just and according to law (art. 2003 and 3610 and section 9 of the Banking Law (Act No.387. and the balance only shall be allowed and paid. we hold. and the appellants' second and third assigned errors in case G. as amended by Acts Nos. But no set-off or counterclaim shall be allowed of a claim in its nature not provable against the estate: Provided. (Page 784. it is held that the deposits on current account of the appellants in the bank under liquidation. the date it was declared in a state of liquidation. Tan Tiong Tick. It has been said with much basis by Morse. R. this should be deemed made. (Arts. the balance due him on his deposit account. with respect to said bank and the appellants. entitled "In re Liquidation of Mercantile Bank of China. the question raised in the first and second assigned errors Tiong Chui Gion in case G. of course.44 of Tan Locko. p. No. 43697. 1931. and by virtue further of the authority granted to it by section 125 of the Corporation Law (Act No.224.place in the case of loans. in cases of such deposits. for example. claimant. II. we modify the appealed judgments by holding that the deposits claimed by the appellants. but precisely because of the authority deemed to have been granted to it by the appellants to enable them to collect the interest which they had been and they are now collecting. On the other hand. when and until what time should they be paid the same? The question of whether they are entitled to interest should be resolved in the same way that we resolved the case of the claimant Tan Tiong Tick in the said case. inasmuch as the appellants and the bank being reciprocally debtors and creditors.34 of Sy Guan Huat.27 of Tiong Chui Gion. the provisions of the Code of Commerce. R. What has so far been said resolves adversely the contention of the appellants.95 of Gopoco Grocery (Gopoco). G. And with respect to the question of set-off. 1931. without considering of course the provisions of article 1768 of the Civil Code. on December 4. that the lower court properly denied the motion for new trial of said appellants. as of the date when the Mercantile Bank of China was declared in a state of liquidation. and it is not amiss to repeat now. 43682).917. Civil Code).610. the bank has made use thereof in the ordinary course of its transactions as an institution engaged in the banking business. are respectively for the following amounts: P664. 44200. G. R. No. for then there was already a reciprocal concurrence of debts. reading: SEC. (Page 776. 1956). 1195. 1459). That no set-off on counterclaim shall be allowed in favor of any debtor to the insolvent of a claim purchased by or transferred to such debtor within thirty days immediately preceding the filing. considering that the appellants ask for the payment of interest? Are they by any chance entitled to interest? If they are.77 of Tiong Chui Gion. The circumstances in these two cases are certainly the same as those in the said case with reference to the said question. and declared by the lower court to be ordinary credits are for the following amounts: P10. The Mercantile Bank of China owes to each of the appellants the interest claimed by them.01 of Woo & Lo & Co. pages 776 and 784) that: The rules of law as to the right of set-off between the bank and its depositors are not different from those applicable to other parties. P6." It is proper that set-offs be made. and by the other appellants in theirs. 43682. that is. With respect to the fourth assigned error of the appellants in case G. No. Code of Commerce. P6961. 58. respectively. in view of the considerations set out in resolving the other assignments of errors. the customer may avail himself in set-off against his indebtedness to the bank of any indebtedness of the bank to himself. 361. In all cases of mutual debts and mutual credits between the parties.. P4. or after the filing of the petition by or against the insolvent. Wherefore. and not those of the Civil Code. vol..50 of La Bella Tondeña.) Where the bank itself stops payment and becomes insolvent. 8 Manresa. as. As to the third and first errors attributed to lower court by Tiong Chui Gion in his case. that the so-called current account and savings deposits have lost their character of deposits. have not created and could not create a juridical relation between them except that of creditors and debtor. R. corresponding to the year ending December 4.) We there said.. 1931. it should be stated that the question of set-off raised by them cannot be resolved a like question in the said case. 1. are applicable to cases of the nature of those at bar. P5.R. 1195 and 1196 of the Civil Code. with the right on their right on their part to collect interest. as we stated with respect to the claim of Tan Tiong Tick (In re Liquidation of Mercantile Bank of China. that their obligations to the bank under liquidation which should be set off against said deposits. G. properly so-called and are convertible into simple commercial loans because. in his work on Bank and Banking (6th ed. In view of the foregoing. No. No. they being the creditors and the bank the debtor.285. P7.669.) But if set-offs are proper in these cases. which have to do with parties who are both merchants. but not which the appellants claim should be earned by their deposits after said date and until the full amounts thereof are paid to them. the account between them shall be stated. and P1.60 of Gopoco Grocery . No.) III. plus their corresponding interest up to December 4. R. and one debt set off against the other.

P6.74 of Sy Huat. as of the date already indicated. P2.68 of Woo & Lo & Co. Villa-Real. Avanceña.. we affirm the aforesaid judgments. P6.. C.J. JJ. Abad Santos. that is.929.(Gopoco).80 of La Bella Todeña.80 of Tan Locko. without special pronouncement as to costs..214. 1931. December 4. So ordered. concur. In all other respects. . and P1. Imperial and Horrilleno.130.757. and we order that the set-offs in question be made in the manner stated in this decision.

BECC of the loss. This warning 4 notwithstanding. exclusive of interest and penalty charges. Manuelita's bag was snatched from her as she was shopping at the Greenbelt Mall in Makati. Two purchases were made.000. P607.70 covering the same (unauthorized) purchases. Manuelita again wrote BECC disclaiming responsibility for those charges. BECC held Luis liable for the amount of P3. The facts. 1990.R. the charges included amounts for purchases made on August 30. 1989 through Manuelita's lost card. of the Rules of Court. No.G.197. Manuelita stated that she "shall not be responsible 2 for any and all charges incurred [through the use of the lost card] after August 29. Luis protested this billing in his letter dated June 20. vs. 1989. . Pursuant to this stipulation. Manuelita received a billing statement dated October 20. BECC.05 and the other. 1989 which required her to immediately pay the total amount of P3. 61357. the cardholder agrees to immediately report its loss or theft in writing to BECC . in a letter dated July 13. The spouses were given credit cards with a credit limit of P10. 1989. In his reply dated July 18. In dispute is the validity of the stipulation embodied in the standard application form for credit cards furnished by private respondent. Metro Manila. QUISUMBING.-G. 1999 SPOUSES LUIS M. CV 1 No. BECC continued to bill the spouses for said purchases. . 1990.R. THE COURT OF APPEALS AND BPI EXPRESS CARD CORP. pointed out to Luis the following stipulation in their contract: In the event the card is lost or stolen. On August 29. ERMITAÑO. 1986 with his wife.. seeks to set aside the decision of the Court of Appeals in C. That same night she informed. as found by the trial court. Manuelita.70 incurred through the use of his wife's lost card. 47888 reversing the trial court's judgment in Civil Case No. as well as the resolution of the Court of Appeals denying petitioners' motion for reconsideration. They often exceeded this credit limit without protest from BECC. as extension cardholder. Petitioner Luis Ermitaño applied for a credit card from private respondent BPI Express Card Corp. 1989 stating that their cards had been renewed until March 1991.00. purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to 3 its member establishments. J This petition for review under Rule 45.350. 1990. However. they will sue BECC for damages. . by telephone. The stipulation makes the cardholder liable for purchases made through his lost or stolen credit card until (a) notice of such loss or theft has been given to private respondent and (b) the latter has communicated such loss or theft to its memberestablishments.50. one amounting to P2. ERMITAÑO and MANUELITA C. however. (BECC) on October 8. BECC sent them a notice dated December 29. She also surrendered Luis' credit card and requested for replacement cards. 1989. Among the items inside the bag was her BECC credit card. However. when Luis received his monthly billing statement from BECC dated September 20. Luis stressed that the contract BECC was referring to was a contract of adhesion and warned that if BECC insisted on charging him and his wife for the unauthorized purchases. are not disputed. Notwithstanding this. petitioners. In her letter. 127246 April 21.A. This was followed by a letter dated August 30. Despite the spouses' refusal to pay and the fact that they repeatedly exceeded their monthly credit limit. 1989. respondents. which were made after she had served BECC with notice of the loss of her card. BECC continued to include in the spouses' billing statements those purchases made through Manuelita's lost card.197. The call was received by BECC offices through a certain Gina Banzon.

"a highly educated man 8 . 1991. It also said that Luis. his outstanding balance exceeded his credit limit of P10. even for almost two years after the loss of Manuelita's card. The Court of Appeals stated that the spouses should be bound by the contract. despite the fact that BECC allowed the spouses previously to exceed their credit limit. whose terms must be construed strictly against BECC. Luis used his credit card to purchase gasoline at a Caltex station.00 as exemplary damages. judgment is hereby rendered in favor of the plaintiffs. and (2) Its act of unqualifiedly replacing the lost card and Luis' card which were both surrendered by the spouses. The latter. including the unauthorized charges.On April 10. Luis pointed out that notice of the lost card was given to BECC before the purchases were made. and IN VIEW OF THE ALL THE FOREGOING CONSIDERATIONS. and 4. Ermitaño and against defendant BPI Express Card Corporation: 1. petitioners sued BECC for damages. which states that liability for purchases made after a card is lost or stolen shall be for the account of the cardholder until after notice of the loss or theft has been given to BECC and after the latter has informed its member establishments. who should have been more cautious in (his) transactions. however. The trial court ruled that the latter portion of the condition in the parties' contract. BECC continued to send the spouses separate billing statements that included the unauthorized purchases. Ermitaño and Manuelita C. 2. Ordering said defendant to pay the plaintiffs the sum of P50. Court of Appeals wherein this Court ruled that contracts of adhesion are as binding as ordinary contracts. since he exceeded his credit limit. even after the spouses unequivocally denied liability for the unauthorized purchases. BECC wrote that it transferred the balance of his old credit card to his new one. Ordering the said defendant to pay the costs of suit. he could not avail of his credit privileges. Spouses Luis M. The petitioner in Serra was a CPA-lawyer. . SO ORDERED But. The trial court opined that the only purpose for the suspension of the spouses' credit privileges was to compel them to pay for the unauthorized purchases. Ordering said defencant to pay the plaintiffs the sum equivalent to twenty per cent (20%) of the amounts abovementioned as and for attorney's fees and expenses of litigation. . Consequently. Moreover. Once more. had "all the tools to drive a hard bargain had he wanted to. dishonored his card. It 7 cited the case of Serra v. with interest and penalty charges. is void for being contrary to public policy 5 and for being dependent upon the sole will of the debtor. stating that there was a waiver on the part of BECC in enforcing the spouses' liability. In reply to Luis' demand for an explanation. The trial court ruled in their favor. The trial court further noted that the suspension of the spouses' credit cards was based upon the "lame excuse" that the credit limit had been exceeded. BECC cancelled the spouses' credit cards and advised them to settle the account immediately or risk being sued for collection of said account. . Subsequently. the trial court observed that the contract between BECC and the Ermitaños was a contract of adhesion. even 6 though it was one of adhesion. on appeal this decision was reversed. .00 as moral damages. Moreover. the party that prepared it. Constrained. the credit limit was exceeded only after BECC added the unauthorized purchases to the liability of the spouses.00000. The dispositive portion of the trial court's decision reads: WHEREFORE. being a lawyer. 3. He was informed that his credit card had not been cancelled but.000. The Court of Appeals therefore disposed of the appeal as follows: . as indicated by the following circumstances: (1) Its failure to inform the spouses that the unauthorized charges on the lost card would be carried over to their replacement cards.000. Ordering the said defendant to pay the plaintiffs the sum of P100.

because unlike that case.70 with 3% interest per month and an additional 3% penalty equivalent to the amount due every month until full payment. In this case. the validity 14 thereof must be determined in light of the circumstances under which the stipulation is intended to apply. purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments. we note that the contract between the parties in this case is indeed a contract of adhesion. Having thus performed her part of the notification procedure. Manuelita. Such contracts 12 are not void in themselves. They are as binding as ordinary contracts. Parties who enter into such contracts are free to reject the stipulations entirely. and (2) BECC must notify its member establishments of such loss or theft. For the cardholder to be absolved from liability for unauthorized purchases made through his lost or stolen card. will not hesitate to rule out blind adherence to such contracts if they prove to be too one13 sided under the attendant facts and circumstances. (ii) Relying on the case of Serra v. At the outset. two steps must be followed: (1) the cardholder must give written notice to BECC. Maniquiz.THE FOREGOING CONSIDERED. which is to forthwith notify its member-establishments. then. the cardholder agrees to immediately report its loss or theft in citing to BECC . a clear contract of adhesion. and (iv) Holding that the onerous and unconscionable condition in the credit card application — that the cardholder continues to be liable for purchases made on lost or stolen credit cards not only after such notice has been given to appellant but also after the latter has communicated such loss/theft to its member establishments without any 10 specific time or period — is valid. hinges on the validity and fairness of the stipulation on notice required by private respondent in case of loss or theft of a BECC-issued credit card. in our view. Plaintiffs/appellees are hereby directed to pay the defendant/appellant the amount of P3.197. head of BECC's Collection 15 Department. have a responsibility to perform. Because of the peculiar nature of contracts of adhesion. naturally. in order to free the cardholder from any liability arising from the use of a lost or stolen card. the cardholder. This Court. in which they claim that the Court of Appeals gravely erred in: (i) Ruling that petitioners should be bound by the stipulations contained in the credit card application — a document wholly prepared by private respondent itself — taking into consideration the professional credentials of petitioner Luis M. . this recourse by petitioners. the contested decision is REVERSED. Both the cardholder and BECC. That she gave such notices to BECC is admitted by BECC in the letter sent to Luis by Roberto L. 9 Hence. it was reasonable for Manuelita — and Luis. The stipulation in question reads: In the event the card is lost or stolen. It is not unreasonable to assume that BECC would do this immediately. it may only do upon receipt of a notice from the cardholder. Court of Appeals. the following day. for that matter — to expect that BECC would perform its part of the procedure. The resolution of this petition. however. SO ORDERED. 229 SCRA 60. she sent a written notice of the loss to BECC. Ermitaño. (iii) Ruling that private respondent is not estopped by its subsequent acts after having been notified of the loss/theft of the credit card issued to petitioners. so-called because its terms 11 are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. She immediately notified BECC of the loss of her card on the same day it was lost and. . . thus. precisely to avoid any unauthorized charges. has complied with what was required of her under the contract with BECC. which. Without cost. petitioners have no chance at all to contest the stipulations appearing in the credit card application that was drafted entirely by private respondent.

R.1âwphi1. Thus.000 as attorney's fees and litigation expenses. and after notice by her concerning her card's loss was already given to BECC. according to BECC. Or.00. Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to relieve the former of any liability occasioned by the unauthorized use of his lost or stolen card. the decision of the Court of Appeals in CA-G. which still requires the cardholder to wait until the credit card company has notified all its member-establishments. From one perspective. or malevolent manner. is self-serving and obviously untenable. CV No. To require the cardholder to still pay for unauthorized purchases after he has given prompt notice of the loss or theft of his card to the credit card company would simply be unfair and unjust. however. we must delete the award of exemplary damages. On the matter of the damages petitioners are seeking. It could be BECC for its failure to immediately notify its members-establishments. The questioned stipulation in this case. the credit card company may for some reason fail to promptly notify its members through absolutely no fault of the cardholder.Clearly. it was not petitioners who made possible the commission of the wrong..000. what happened in this case was that BECC failed to notify promptly the establishment in which the unauthorized purchases were made with the use of Manuelita's lost card. fraudulent. who appear lacking in care or instruction by BECC in proper procedures. Pasig City in Civil Case No. as required by Article 2232 of the Civil Code. considering the circumstances of the parties to the case. This conclusion. The 17 Court cannot give its assent to such a stipulation which could clearly run against public policy. as in this case. puts the cardholder at the mercy of the credit card company which may delay indefinitely the notification of its members to minimize if not to eliminate the possibility of incurring any loss from unauthorized purchases. However.00 is hereby deleted. BECC is saying that the company. or otherwise insure itself against such risk. regarding signatures and the identification of card users at the point of actual purchase of goods or services. We likewise reduce the amount of moral damages to P50. For how else could an unauthorized person succeed to use Manuelita's lost card? The cardholder was no longer in control of the procedure after it has notified BECC of the card's loss or theft. Costs against private respondents. JJ.000. 61375 is REINSTATED. petitioners should be the ones to bear the loss since it was they who made possible the commission of a wrong. BECC states that. 47888 is hereby REVERSED and the decision of the Regional Trial Court. Bellosillo. unaware of the intricacies and risks of providing credit privileges to a large number of people. the one who made the wrong possible should bear the loss. prevents said member-establishments from observing verification procedures including ascertaining the genuine signature and proper identification of the purported purchaser using the credit card. concur. Mendoza and Buena. and the amount of moral damages is reduced to P50. BECC asserts that the period that elapsed from the time of the loss of the card to the time of its unauthorized use was too short such 16 that "it would be next to impossible for respondent to notify all its member-establishments regarding the fact of the loss. however. with the MODIFICATION that the award of exemplary damages in the amount of P50. and the member-establishments or the petitioners could be negligent. We note that BECC is not a neophyte financial institution." We take this to be an admission that negligence had occurred. even if there is no showing that Manuelita herself had signed for said purchases. It should have anticipated an occurrence such as the one in this case and devised effective ways and means to prevent it. In effect. Manuelita was being liable for those purchases. It was already BECC's responsibility to inform its member-establishments of the loss or theft of the card at the soonest possible time. "between two persons who are negligent. WHEREFORE. Puno. reckless.00.nêt SO ORDERED. .000. Nothing. oppressive. but private respondent is further ordered to pay P25. Branch 157. absent any clear showing that BECC acted in a wanton.

" (Emphasis supplied. JEPTI SOLAS).G.) A writing must be interpreted according to the legal meaning of its language (section 286. same should be given its full force and effect. and only when the wording of the written instrument appears to be contrary to the evident intention of the parties that such intention must prevail. Act No. His omission. indulge in any presumption as to such interest. What reason the parties may have therefor. to which the law attaches a definite warning as an in the instant case. MORAN.) There is nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their evident intent. now section 58. Jardenil en o antes del dia treintaiuno (31) de marzo de mil novecientos treintaicuarto (1934). clearly agreed to pay interest only up to the date of maturity. plaintiff-appellant. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated.º) de esta escritura. in our opinion controlled by the express stipulation of the parties.: This is an action for foreclosure of mortgage. L-47878 July 24. 1934. moneda filipina. vs. cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate. As the contract is silent as to whether after that date. HEFTI SOLAS (alias HEPTI SOLAS. a favor del Sr. plaintiff would have undoubtedly adduced evidence to establish it and asked that the deed be reformed accordingly. 1932 to March 31. Thus modified judgment is affirmed. (Article 1281. Hepti Solas cede y traspasa. with costs against appellant. . or until March 31. Defendant-appellee has. in the event of non-payment. 400 from November 8. Rule 123). Neither has either of the parties shown that. for if such mistake existed. con los intereses de dicha suma al tipo de doce por ciento (12%) anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de marzo de mil novecientos treintaicuatro (1934). we need not here seek to explore. entitled only to the stipulated interest of 12 per cent on the loan of P2.00). Jardenil. an extension of one year from the date of maturity within which to make payment. la parcela de terreno descrita en el parrafo primero (1. el Sr. Eleuterio J. When a party sues on a written contract and no attempt is made to show any vice therein. therefore. que el Sr.R. he shall be entitled to legal interest upon the principal and the accrued interest from April 1. On the contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage. Jose C. indicates that the true intention of the parties was that no interest should be paid during the period of grace. No. sus herederos y causahabientes. And it being a fact that extra judicial demands have been made which we may assume to have been so made on the expiration of the year of grace. that as the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties and that the deed has not been assailed on the ground of mutual mistake which would require its reformation. J. Hepti Solas se compromete a pagar al Sr.4000. we cannot in law. Paragraph 4 of the mortgage deed recites: Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS (P2. por la presente. por via de primera hipoteca. under the parcel-evidence rule. we would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. or up to the date payment is effected? This question is. 1934. 190. Civil Code. therefore. the deed of mortgage fails to express their agreement. Plaintiff is. until full payment. 1942 GIL JARDENIL. We hold therefore. 1935. otherwise. The only question raised in this appeal is: Is defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note. by mutual mistake. Gustilo for appellant. he cannot be allowed to lay any claim more than what its clear stipulations accord. the debtor would continue to pay interest. defendant-appellee. without making any mention of any interest which the mortgagor should pay during the additional period (see Exhibit B attached to the complaint). Robles for appellee.

but its payment is clearly implied from the nature of the transaction which is only a renewal of the obligation.. but this date was inserted merely because it was the date of maturity. Ozaeta and Bocobo.. C. it is stated in the mortgage contract that interest was to be paid up to March 31. . I come to the conclusion that interest at the rate of 12 per cent per annum should be paid up to the date of payment of the whole indebtedness is made. In my opinion. dissenting: Under the facts stated in the decision of the majority. the ruling of the majority is anomalous and at war with common practice and everyday business usage. JJ. concur. Payment of such interest is expressly stipulated. J. 1934.. Separate Opinions PARAS. True. The extension note is silent as regards interest.J.Yulo.

petitioner. 6 Santos and 7 Santos). 2367 (Exhibit 2 Santos. Santos. with the modification that appellee Overseas Bank of Manila is ordered to pay to the appellant Raul Santos the sum of P 700. OVERSEAS BANK OF MANILA and THE HON. No. 2308 and 2367 with 6 1/2 (sic) interest per annum from date of issue until fully paid. L-60907 June 28.R.00 with plaintiff bank. petitioner OBM challenges the decision of respondent court insofar as it holds OBM liable for 3 interest on the time deposit with it of Santos corresponding to the period of its closure by order of the Central Bank.: In these petitions for review on certiorari. respondents.000. 4 . In its assailed decision. the decretal portion of which states: WHEREFORE.G.R. also executed a Deed of Conformity to Loan Conditions (Exhibit G).R. INTEGRATED REALTY CORPORATION. No. SANTOS. narrated the antecedents of this case in this wise: The facts of this case are not seriously disputed by any of the parties. REGALADO. G. Exhibit E).000. SANTOS. Under date 9 February 1967 defendant IRC thru its President-defendant Raul L. 1989 OVERSEAS BANK OF MANILA. 1967 a Deed of Assignment (Exhibit C) of the two time deposits (Exhibits 1-Santos and 2 Santos. COURT OF APPEALS. vs. On the same date. the appealed decision is affirmed in all other respects. quoting from the decision of the lower court. and RAUL L. Santos (Exhibit K) and from defendant OBM (Exhibit L). or in the event that they be held liable thereunder. IRC and Raul L. defendant Raul L. Exhibit D). PNB). to revive and affirm that portion of the decision of the trial court ordering Overseas Bank of Manila (hereafter.R. petitioners. No. 60705). (Exhibit-10 OBM) and was issued a Certificate of Time Deposit No.R. the respondent Court of Appeals. Santos also made a time deposit with defendant OBM in the amount of P 200. did not pay plaintiff PNB. The defendant OBM after the due dates of the time deposit certificates. In G. 60907. J. Santos executed on August 11. in G. 1989 INTEGRATED REALTY CORPORATION and RAUL L. 60907) appeal from the decision of the Court of Appeals. Integrated Realty Corporation and Raul Santos (G. Defendant OBM gave its conformity to the assignment thru letter dated 11 August 1967 (Exhibit F). defendant IRC thru its President Raul L.00.00 due under the time deposit certificates Nos. with interest from the date of payment. To secure the said loan. PHILIPPINE NATIONAL BANK. vs. petitioners Integrated Realty Corporation (hereafter. Santos made a time deposit with defendant OBM in the amount of P 500. No. applied for a loan and/or credit line (Exhibit A) in the amount of P 700.000. OBM) to pay IRC and Santos 2 whatever amounts the latter will pay to PNB. Under date 6 February 1967 defendant Raul L. They are set forth in the decision of the trial court as follows: Under date 11 January 1967 defendant Raul L. Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates (Exhibits 5 Santos. Santos) seek the dismissal of the complaint filed by the Philippine National Bank (hereafter. Plaintiff demanded payment from defendants IRC and Raul L.000.R. also Exhibits D and E) in favor of plaintiff. 60705. Defendants IRC and Raul L. On the other hand. No. and Overseas Bank of 1 Manila (G. Santos. 2308 (Exhibit 1 Santos.00 (Exhibit 11 OBM and was issued certificate of Time Deposit No. COURT OF APPEALS.respondents. No. Santos (hereafter. L-60705 June 28.

The third-party complaint and cross-claim dismissed. Jr.00 as and for attorney's fees.00 as and for attorney's fees.On April 6. plus 1-1/ 2% additional interest effective February 28. Ramos and Sunico alleged that IRC and Santos have no cause of action against them because they received and signed the time deposit certificates as officers of OBM that the time deposits are recorded in the subsidiary ledgers of the bank and are 'civil liabilities of the defendant OBM On November 18. The defendants topay l0% of the amount of P 700. respectively (Exhibits M and I). Ramos. 5 . 2. The defendant Overseas Bank of Manila to pay the costs. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L.00 from the time of maturity of Id loan up to the time the said amount of P 700. It impleaded OBM as a defendant to compel it to redeem and pay to it Santos' time deposit certificates with interest.000. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. therefore.. 1976. 6. jointly and solidarily. As affirmative defenses.000.000.00 plus interest at the rate of 9% per annum from maturity dates of the two promissory notes on January 11 and February 6. 5. Santos to pay the plaintiff.00 with interest as well as attomey's fees. and that payment of the plaintiffs claim is prohibited. 1968. OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos 'does not appear in its books of account. ** PNB filed a complaint to collect from IRC and Santos the loan of P 700. and that they are not answerable for the insolvency of OBM They filed a counterclaim for damages against PNB and a cross-claim against OBM alleging that OBM acted fraudulently in refusing to pay the time deposit certificates to PNB resulting in the filing of the suit against them by PNB. Sunico. 1968. In its answer to the complaint. Whereupon. 1970.000. the total amount of P 700. judgment is hereby rendered. In their answer to the complaint. Santos the amount of P 10.00 is actually paid to the plaintiff. president of OBM and Rodolfo R. 3. exemplary and corrective damages. treasurer of said bank. that the time deposits ceased to earn interest from that date. 1969 (sic). Santos whatever amounts the latter will pay to the plaintiff with interest from date of payment. who allegedly received the time deposits of Santos and issued the certificates therefor. that it may not give preference to any depositor or creditor. attorney's fees. it alleged that by reason of its state of insolvency its operations have been suspended by the Central Bank since August 1. They also asked that OBM be ordered to pay them compensatory. acknowledging the certificates of time deposit that it issued to Santos. On January 30. and cost. OBM should pay them whatever amount they may be ordered by the court to pay PNB with interest. IRC and Santos alleged that PNB has no cause of action against them because their obligation to PNB was fully paid or extinguished upon the' irrevocable' assignment of the time deposit certificates. SO ORDERED. ordering: 1. The defendant Integrated Realty Corporation and Raul L. filed a third-party complaint against Emerito B. moral.000.000. plus exemplary and corrective damages. OBM filed an amended or supplemental answer to the complaint. 4. the lower court rendered judgment for the plaintiff. and admitting its failure to pay the same due to its distressed financial situation. the dispositive portion of which reads as foIlows WHEREFORE. 1968 and additional penalty interest of 1% per annum of the Id amount of P 700. IRC and Santos. and that. with leave of court. Answering the third-party complaint.

The first issue posed before us for resolution is whether the liability of IRC and Santos with PNB should be deemed to have been paid by virtue of the deed of assignment made by the former in favor of PNB.. was handed over by a debtor to his creditor..000. bound themselves jointly and severally in favor of the bank for the payment of the loan.] 240 L. Rizal for and in consideration of certain loans. Mandaluyong. petitioner Benito Lopez obtained a loan for P 20. In Lopez vs. of legal age. monies or properties 6 resulting from any agreements. We uphold respondent court on this score. 1. in favor of Philamgen. payable at a future day.. do hereby assign. [14 How. .. overdrafts and other credit accommodations granted or those that may hereafter be granted to me/us by the PHILIPPINE NATIONAL BANK. In upholding the finding therein of the Court of Appeals.. Vol.000. Philamgen caused the transfer of the shares of stocks to its name in order that it may sell the same and apply the proceeds thereof in payment of the loan to the bank. However. as principal. xxx xxx xxx It is also understood that the herein Assignor/s shall remain hable for any outstanding balance of his/their obligation if the Bank is unable to actually receive or collect the above assigned sums . Where a certificate of deposit in a bank. SANTOS. Inc. he executed a promissory note in favor of the bank and. RAUL L. (Philamgen). as surety. Ed. through separate petitions. hereto enclosed as Annex ' A'.00). I. 404. with a modification and the deletion of that portion of the judgment of the trial court ordering OBM to pay IRC and Santos whatever amounts they will pay to PNB with interest from the date of payment. Hicks. it was not payment. Philippine Currency. 5-B Banks and Banking.IRC Santos and OBM all appealed to the respondent Court of Appeals. (Downey 7 vs. the Court of Appeals ruled that Lopez was still liable to Philamgen because. Therein defendants-appellants. have assigned. On the same day. Court of appeals. he executed a surety bond in which he. and Philippine American General Insurance Co. its CONFORMITY issued on August 11. when no payment was still made by the principal debtor or surety. which reads: KNOW ALL MEN BY THESE PRESENTS.. with residence and postal address at 661 Richmond St. Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed to indemnify the company against any damages which the latter may sustain in consequence of having become a surety upon the bond. on March 16. in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS ONLY (P 700. Thereafter. the bank filed a complaint which compelled Philamgen to pay the bank. Philamgen was merely holding the stock as security for the payment of Lopez' obligation. p. have brought the said decision to this Court for review. 1967. xxx xxx xxx Respondent Court of Appeals did not consider the aforesaid assignment as payment. unless there was an express agreement on the part of the creditor to receive it as such.S. thus: The contention of IRC and Santos that the irrevocable assignment of the time deposit certificates to PNB constituted payment' of their obligation to the latter is not well taken. Philamgen filed an action to recover the amount of the loan against Lopez. We held that: 8 . 55 U. pending payment. transferred and conveyed and by these presents. was one of facts to be decided by the jury. et al. See also Michie. Filipino. The trial court therein held that the obligation of Lopez was deemed paid when his shares of stocks were transferred in the name of Philamgen. orders or decisions of the court or for any other cause whatsoever. As stated in limine. When Lopez' obligation matured without being settled. At the same time.00 from the Prudential Bank and Trust Company. On the same occasion. On appeal. 1982 respondent court promulgated its appealed decision. SANTOS and/or NORA S. 200). in addition. and the question whether there was or was not such an agreement. Lopez executed a deed of assignment of his shares of stock in the Baguio Military Institute. Inc. in favor of RAUL L. SANTOS. transfer and convey by way of security unto said PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates of Time Deposit issued by the OVERSEAS BANK OF MANILA.

000.000. 1959. Thus. Adverting again to the Court's pronouncements in Lopez. but if there was some other intention. There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. In the application for a credit line (Exhibit A). their contemporaneous and subsequent acts shall be principally considered. He likewise posted a surety bond to secure his full and faithful performance of his obligation under the promissory note with Philamgen as his surety. supra. why were the promissory notes made on August 16. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation. In declaring that the deed of assignment did not operate as payment of the loan so as to extinguish the obligations of IRC and Santos with PNB. xxx xxx xxx b. The promissory notes (Exhibits H and I) were executed on August 16. in the case at bar it would not have been necessary on the part of IRC and Santos to execute promissory notes in favor of PNB if the assignment of the time deposits of Santos was really intended as an absolute conveyance. If defendants IRC and Raul L. we quote therefrom: The character of the transaction between the parties is to be determined by their intention. Along the same vein. as found by the court a quo and the respondent court.000.. the deed of assignment in this case is actually a pledge.. if regarded by itself.00 from Prudential Bank. should be treated as a pledge if the debt continues in existence and is not discharged by the transfer. Lopez executed on the same day not only an indemnity agreement but also a stock assignment. (2) that the pledgor be the absolute owner of the thing pledged.00 for a period of one year and agreed at all times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it becoming a surety. New Civil Code).00. it must be construed as a pledge. We hold and rule that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the execution thereof. Lopez executed a promissory note for P 20. regardless of what language was used or what the form of the transfer was. (3) that the persons constituting the pledge have the free disposal of their property. that they . even though a transfer. and that accordingly. of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership. 1967 still executed by IRC and signed by Raul L. yield said conclusion that it is in fact a pledge. Santos as President? c. its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. in favor of said Bank. However. the use of the terms ordinarily importing conveyance. the existence of the indemnity agreement whereby Lopez had to pay a premium of P l. In return for the undertaking of Philamgen under the surety bond. even if sufficient on its face to make an absolute conveyance. to wit: a. The indemnity agreement and stock assignment must be considered together as related transactions because in order to judge the intention of the contracting parties.000. Santos. and in the absence thereof. There would have been no necessity for the execution of the indemnity agreement if the stock assignment was really intended as an absolute conveyance. the day Lopez obtained a loan of P 20. plus interest at the rate of ten (10%) per cent per annum. The facts and circumstances leading to the execution of the deed of assignment. (Article 1371.the time deposits were offered as collateral. in the absence of clear and unambiguous 10 language or other circumstances excluding an intent to pledge. considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the stock assignment indicates a complete discharge of the same obligation. appears to have been absolute. It is clear from the Deed of Assignment that it was only by way of security. It has been said that a transfer of property by the debtor to a creditor.00 or otherwise extinguished the same. 1967 had already paid their loan of P 700. It should be remembered that on June 2. the trial court advanced several valid bases. 1967.Notwithstanding the express terms of the 'Stock Assignment Separate from Certificate'. however. If it was intended to secure the payment of money. 9 For all intents and purposes. it is not a pledge. . is inconsistent with the theory of an absolute sale for and in consideration of the same undertaking of Philamgen. upon executing the Deed of Assignment on August 11.

We consider it of trivial consequence that the stoppage of the bank's operation by the Central Bank has been subsequently declared illegal by the Supreme Court. Court of Appeals and Tony D. There is nothing in the records to show that they raised this issue during the trial by presenting countervailing evidence. If such a situation cannot. as assignor. modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court. Whatever be the juridical significance of the subsequent action of the Supreme Court. 2. the bank had no alternative under the law than to obey the orders of the Central Bank. made an express undertaking that he would remain liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements. The further requirement that the thing pledged be placed in the possession of the creditor. that in the light of the considerations expounded in the above opinion. We cannot accept the holding of the respondent Court of Appeals that the above-cited decisions apply only where the bank is in a state of liquidation. should be. the unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon. orders or decisions of the court or for any other cause whatsoever. engage in international transactions. We hold it is a matter of simple equity that it be treated as such. as a matter of consistency. Under the foregoing circumstances and considerations. In the very case aforecited. We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB pursuant to the resolution of its Board which presumably was done in accordance with ordinary banking procedures. and so that unnecessary litigations be avoided from further clogging the dockets of the courts. the Central Bank. On the issue of whether OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business. be legally denominated as 'force majeure'. 13 11 that: It is a matter of common knowledge. the stubborn fact remained that the petitioner was totally crippled from then on from earning the income needed to meet its obligations to its depositors. We may add for the guidance of those who might be concerned. but they are likewise estopped from questioning the validity thereof for the first time in this petition. The Court further adjured that: Parenthetically. this inexorable fair and just conclusion. but not the veracity or validity thereof. as maintained by private respondent. And it can be said that all who deposit money in banks are aware of such a simple economic proposition petition. for before the Court's order. The term "for any cause whatsoever" is broad enough to include the situation involved in the present case. Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions. What was merely touched upon during the proceedings in the court below was the alleged lack of notice to them of the board resolution. applicable or followed in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure. 3. which We take judicial notice of. that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. 12 or of a third person by common agreement was complied with by the execution of the deed of assignment in favor of PNB. Conventional wisdom dictated. strictly speaking.be legally authorized for the purpose. Unless a bank can lend money. this issue was likewise raised and We resolved: . Tapia. the answer is in the negative. It must also be emphasized that Santos. Consequently. acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income. We have held in The Overseas Bank of Manila vs. it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority. the same formula that exempts petitioner from the payment of interest to its depositors during the whole period of factual stoppage of its operations by orders of the Central Bank.

Upon this point a distinction must be made between the interest which the deposits should earn from their existence until the bank ceased to operate. As to the first-class. for having incurred in delay in the performance of its obligation. 1263. et al. not a contract of deposit. Thus. Subsequently. not the actual cessation thereof. through Justice Imperial. respectively. this Court. in G. and this is the object of the second assignment of error. Tan Tiong Tick. The Court of Appeals considered this ruling inapplicable to the instant case. but the obligations consisting as they did in the payment of money. the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) were elected and installed and they took over the management and control of the 15 Overseas Bank. factually speaking. the financial situation of OBM had already caused mounting concern in the Central Bank. pursuant to Resolution No. unless the contracts are renewed. 65 Phil. the order of the Central Bank of August 13. However. it is the legal reason for cessation of operations. whereas here. While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing. It is Our considered view. from legal liquidation the factual cessation having been ordered by the Central Bank. claimant and appellant vs. when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11. we hold that the said interest should not be paid. When 18 respondent Santos invested his money in time deposits with OBM they entered into a contract of simple loan or mutuum. Moreover. These CB resolutions were eventually annulled and set aside by this Court on October 4. not different. 1968 and February 6. 1968. and that which they may earn from the time the bank's operations were stopped until the date of payment of the deposits. As to the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation. Our task is narrowed down to the resolution of the legal problem of whether or not. OBM should be held liable for damages. it was only on July 31. there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. In the case of Chinese Grocer's Association. American Apothecaries. It appears that as early as April. to invest the same in its business and other operations. in its effects. on August 2. In re Liquidation of the Mercantile Bank of China. 1968. vs. held the following: 4. stoppage of the operations of a bank by a legal order of liquidation may be equated with actual cessation of the bank's operation. No. It does not comprehend interest paid as damages. we hold that it should be paid because such interest has been earned in the ordinary course of the bank's businesses and before the latter has been declared in a state of liquidation. 1968 when OBM was excluded from clearing with the CB under Monetary Board Resolution No. American Apothecaries. 19 this applies only to interest for the use of money.R.. 1290 of the CB OBM's operations were 16 suspended. 1971 in the decision rendered in the herein cited case of Ramos. under Article 1108 of the Civil Code he has the right to recover damages resulting from the default of OBM and the measure of such damages is interest at the legal rate of six percent (6%) 14 . this Court held: As to the second assignment of error. This is true with respect to the stipulated interest. 1967. 43682. as contended by private respondent. The court held that the appellant is not entitled to charge interest on the amounts of his claims. In the light of the peculiar circumstances of this particular case. the bank being authorized by law to make use of the deposits with the limitation stated. claimants and appellees. new directors and officers drafted from the Central Bank (CB) itself. IRC and Santos claim that OBM should reimburse them for whatever amounts they may be adjudged to pay PNB by way of compensation for damages incurred. 1968 completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained and then nullified by this Supreme Court. 395. that it is utterly unfair to award private respondent his prayer for payment of interest on his deposit during the period that petitioner bank was not allowed by the Central Bank to operate. the said Apothecaries case had in fact in contemplation a valid order of liquidation of the bank concerned. that matters and is decisive insofar as his right to the continued payment of the interest on his deposit during the period of cessation is concerned. as far as private respondent is concerned. et al. OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired. it may be presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the Id claims. In other words. for purposes of the payment of the interest here in question. C. 1967. Lastly. after mature deliberation.. 17 Consequently. On December 5.Thus. precisely because. We disagree. pursuant to Articles 1170 and 2201 of the Civil Code. 4.

. the total amount of seven hundred thousand pesos (P 700. 3. JJ. Santos to pay Philippine National Bank. until the same are fully paid.. 1968. respectively. The measure of such damages. plus one and one-half percent (1-1/2%) additional interest per annum effective February 28. IRC and Santos are not without fault. is 20 recoverable from the date judicial or extra-judicial demand is made. SO ORDERED. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L.000. 1968. one and one-half percent (1-1/2%) additional interest and one percent (1%) penalty interest is an offshoot of their failure to pay under the terms of the two promissory notes executed in favor of PNB. except that no interest shall be paid during the entire period of actual cessation of operations by Overseas Bank of Manila. 1967 and February 6. therefore.00) as and for attorney's fees. 1968 and additional penalty interest of one percent (1%) per annum of the said amount of seven hundred thousand pesos (P 700. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L.00) is fully paid to Philippine National Bank. 5. There is.000. with interest thereon at the rate of nine percent (9%) per annum from the maturity dates of the two promissory notes on January 11 and February 6. thus incurring liability for all 24 damages reasonably attributable to the non-payment of said obligations. 2308 and 2367. WHEREFORE. 1968. except during the entire period of actual cessation of operations of said bank.00) from the time of maturity of said loan up to the time the said amount of seven hundred thousand pesos (P 700. judgment is hereby rendered. Padilla and Sarmiento. with interest thereon of six and one-half percent (6-1/2%) per annum from their dates of issue on January 11. Paras. 4.per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. shall be the payment of the interest agreed upon in the certificates of deposit Which is six and onehalf percent (6-1/2%). no privity of contract between OBM and PNB which will justify the imposition of the aforesaid interests upon OBM whose liability should be strictly confined to and within the provisions of the certificates of time deposit involved in this case. In fact. In fine. until fifth payment thereof. Santos six and one-half per cent (61/2%) interest in the concept of damages on the principal amounts of said certificates of time deposit from the date of extrajudicial demand by PNB on March 1.00) as and for attorney's fees. OBM is being required to pay such interest. plus legal interest of six percent (6%) on said interest from April 6. not as interest income stipulated in the certificates of time deposit. IRC and Santos did not dispute that objection of OBM Besides. as noted by respondent court. OBM was never a party to Id promissory notes. on March 1. Santos ten thousand pesos (P l0. (Chairperson).00) due under Time Deposit Certificates Nos.000.000. Santos to pay solidarily Philippine National Bank ten percent (10%) of the amount of seven hundred thousand pesos (P 700. 23 Such interest due or accrued shall further earn legal interest from the time of judicial demand. ordering: 1. 1967. after the 21 maturity of the certificates of time deposit. It must be noted that their liability to pay the various interests of nine percent (9%) on the principal obligation. The applicable rule is that legal interest.000. when OBM assigned as error that portion of the judgment of the court a quo requiring OBM to make the disputed reimbursement. 1968. there being no stipulation to the 22 contrary. Which latter mode of demand was made by PNB. respectively.000. in the nature of damages for non-compliance with an obligation to pay a sum of money. jointly and severally. but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. We reject the proposition of IRC and Santos that OBM should reimburse them the entire amount they may be adjudged to pay PNB. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Integrated Realty Corporation and Raul L. Santos the sum of seven hundred thousand pesos (P 700.00). Integrated Realty Corporation and Raul L. They likewise acted in bad faith when they refuse to comply with their obligations under the promissory notes. concur. 2. Melencio-Herrera.

COURT OF APPEALS and DR. the two agents and PNB.[G. 1994 said court issued an order clarifying that the rate is 12%. J. All the three courts.) The case at bench does not involve a loan. The judgment in Civil Case 4226-P became final and executory on November 26. Hence. shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.691. except 23 checks amounting to P98. Ibarrola sought clarification from the same RTC which promulgated the decision. PNB’s direct appeal to this court from that order was referred to the CA which affirmed the RTC order. be on [10] the amount finally adjudged. 1974 before the Regional Trial Court (RTC) an “action for a sum of money [2] and damages. PNB’s liability is based only on the RTC’s judgment where it was held solidarily liable with the other defendants due to its negligence when it “failed to assure [12] itself” if the Provincial Treasurer was “properly authorized” by Ibarrola to “make endorsements” of said checks. No.) PNB’s appeal to the Court of Appeals (CA) and later to the Supreme Court were denied and dismissed.691. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made. in any case. 1993." to wit: “When an obligation. 1996] PHILIPPINE NATIONAL BANK. For her failure to receive the full payment for the medicines. In its decision dated September 29. The rate of 12% interest referred to in Cir. In the case of Eastern Shipping Lines. respectively. or to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is adjudged.” (Italics supplied. When an obligation not constituting a loan or forbearance of money is breached then an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum in [8] [4] [5] . 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). not constituting a loan or forbearance of money. a business operated by private [1] respondent Ibarrola. 1169. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. Forbearance of money or judgment involving a loan or forbearance of money as it arose from a contract of sale whereby Ibarrola did not receive full payment for her merchandise. however. IBARROLA. RESOLUTION FRANCISCO. the legal rate of interest is [6] [7] 6% as provided by Article 2209 of the New Civil Code or 12% as provided by CB Circular 416 series of 1974. On August 4. Accordingly. did not specify whether the legal rate of interest referred to in the judgment is 6% or 12%. When an obligation arises “from a contract of purchase and sale and not from a contract of loan or mutuum. The checks were delivered to the seller’s agents who turned them over to Ibarrola. October 30. is breached. Lyndon Pharmaceuticals Laboratories.” (Italics ours.R. ERLINDA G. the Province of Isabela issued several checks drawn against its accounts with petitioner Philippine National Bank (PNB) in favor of the seller. the sheriff computed the interest mentioned in the judgment at the rate of 12% which PNB opposed insisting that the rate should only be 6%.” the applicable rate is “6% per annum as provided in [11] Article 2209 of the NCC and not the rate of 12% per annum as provided in (CB) Cir. The actual base for the computation of legal interest shall. vs.90. the trial court ordered all the defendants in said civil case. among which is: “(1) P98. 123643.respondents. v. petitioner. Ibarrola filed on November 6. this Court had provided a rule “of thumb for future [9] guidance. goods or credit does not fall within its coverage for such imposition is not within the ambit of the authority granted to the Central Bank.: As payments for the purchase of medicines. its Treasurer. No.90 with interest thereon at the legal rate from the date of the filing of the complaint until the entire amount is [3] fully paid. to “jointly and solidarily” pay Ibarrola several amounts. where the demand is established with reasonable certainty. Inc. CA. however. No interest. 1987.” Indeed. against theProvince of Isabela. and (2) whether such rate shall be computed from the filing of the complaint until fully paid? The issues are not new.” docketed as Civil Case 4226-P. At the execution stage. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance of any money. this petition for review under Rule 45 where two legal issues are raised: (1) whether in an action for damages. 416 applies only to: “*L+oan or forbearance of money. except the treasurer who died in the meantime. 416. which the agents appropriated after negotiating them with PNB. an interest on the amount of damages awarded may be imposed at thediscretion of the court at the rate of 6% per annum.

the proper rate of interest referred to in the judgment under execution is only 6%. 1993 until fully satisfied.90) can be established with reasonable certainty. The actual base for the computation of this 12% interest after the judgment in this damage suit became final shall be the amount adjudged (P98. therefore .. the monetary judgment in favor of private respondent does not involve a loan [13] or forbearance of money.. and Panganiban. computed from the time the judgment became final and executory on November 26. Davide. . Melo. concur. the interest rate shall be 12% p. However. and to be computed from the time the judgment became final and executory until fully satisfied..691. ACCORDINGLY. should be imposed. (Chairman). This interest according to Eastern Shipping shall be computed from the time of the filing of the complaint considering that the amount adjudged (P98.90). is [14] deemed to be equivalent to a forbearance of credit. Narvasa.691. 2209 of the Civil Code. The rate of interest shall be 6% p.a. Said amount being merely the uncollected balance of the purchase price covered by the 23 checks encashed and appropriated by Ibarrola’s agents. the appealed decision is REVERSED.a.accordance with Art. C. computed from the time of the filing of the complaint until its full payment before finality of judgment. Thereafter.” Thus. SO ORDERED. JJ.J. Jr.) Applying the aforequoted rule. the "interim period from the finality of judgment awarding a monetary claim and until payment thereof. hence the proper imposable rate of interest is six (6%) per cent.” (Italics ours. if the amount adjudged remains unpaid. in accordance with the pronouncement in Eastern Shipping the rate of 12% p.a. once the judgment becomes final and executory. Indeed.

However. in its answer. Canada. the lower court rendered the aforesaid decision. petitioner was unable to pay Cordero his said time deposit together with the interest. raised as special defense the finding by the Monetary Board of its state of insolvency. Certain supervening events. reiterating the same defenses raised in its answer. 1967. To enforce payment.: Again. 1982 THE OVERSEAS BANK OF MANILA.R.G. the undersigned acting for and in behalf of my brother Vicente R. Act 337. xerox copy 1 . forbidding its directors and officers from making any payment out of its funds after the bank had become insolvent. private respondent opened a one-year time deposit with petitioner bank in the amount of P80. plus interest thereon at 6% per annum until fully paid. which affirmed the decision of the lower court. Petitioner. respondents.000. Hence. this petition for review on certiorari. ordering the Superintendent of Banks to take over the assets of petitioner for purposes of liquidation. Said Manifestation is in the nature of a quitclaim.00 representing the latter's time deposit with petitioner. petitioner filed on November 29. addressed to the Commercial Bank of Manila (Combank). The first of these supervening events is the letter of Julian Cordero. Dissatisfied. The second is a Manifestation by the same Julian Cordero dated July 3. 1981.000. and the Resolution of August 13. Cordero who resides in Canada and by virtue of a Special Power of Attorney issued by Vicente Romero. acknowledging receipt of the sum of P73. it appears that respondent Cordero had received from the Philippine Deposit Insurance Company the amount of P10. Cordero instituted an action in the Court of First Instance of Manila. successor of petitioner Overseas Bank of Manila. it effectively barred or abated the action of respondent for even if judgment be ultimately rendered in favor of Cordero. 1968 with interest at the rate of 6% per annum. In due time. Petitioner contended that although the Resolution of August 13. petitioner. due to its distressed financial condition. 1968 of the same Board. In this letter dated February 13. 1981. satisfaction thereof would not be possible in view of the restriction imposed by the Monetary Board. and costs. It cited the Resolution of August 1. the lower court denied the motion and proceeded with the trial on the merits. L-33582 March 30. prohibiting petitioner from issuing manager's and cashier's checks and the provisions of Section 85 of Rep. This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila. vs.840. 1968 of the Monetary Board which authorized petitioner's board of directors to suspend all its operations. After pre-trial. otherwise known as the General Banking Act. J. pertinent portions of which We quote: I.000. however. On July 20. petitioner appealed to the Court of Appeals. Finding the same unmeritorious. a motion to dismiss. We are confronted with another case involving the Overseas Bank of Manila. No.00 to mature on July 20. 1968. holding petitioner bank liable to respondent Vicente Cordero in the amount of P80. 1968 was then pending review before the Supreme Court.00. Petitioner stands firm on its contentions that the suit filed by respondent Cordero for recovery of his time deposit is barred or abated by the state of insolvency of petitioner as found by the Monetary Board of the Central Bank of the Philippines. ESCOLIN. VICENTE CORDERO and COURT OF APPEALS. copy of which was furnished this Court. It was further claimed that a judgment in favor of respondent would create a preference in favor of a particular creditor to the prejudice of other creditors and/or depositors of petitioner bank. The issues raised in this petition are quite novel. have rendered these issues moot and academic. and that the judgment rendered in favor of respondent would in effect create a preference in his favor to the prejudice of other creditors of the bank.00. brother and attorney-in-fact of respondent Vicente Cordero. filed by one of its depositors. our Consul General in Vancouver.

.00) with our full satisfaction. It does not mean waiving the interest it should earn while the bank is closed and also the attorney's fees as decided by the lower court. 1981) applies only to third party claims. We find the answer to be in the negative.00) with our full satisfaction. the bank had no alternative under the law than to obey the orders of the Central Bank. it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. to which was attached the special power of attorney executed by respondent Vicente Cordero: 3. It is very clear. Court of Appeals is explicit and categorical. However. it is able to generate funds to cover the payment of such interest. for before the Court's order. this Court noted the absence of the alleged special power of attorney executed by private respondent in favor of Julian Cordero. suit and other damages. ..attached. acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities. that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation. Julian Cordero submitted the following explanatory Comment. 1981 a Comment confirming and ratifying the same.. When directed to produce the same. per Justice Barredo. counsel for Combank filed on August 12. We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73. And concluding. upon further examination.00) representing the principal and interest as computed by the Commercial Bank of Manila. the stubborn fact remained that the petitioner was totally crippled from then on from earning the income needed to meet its obligations to its depositors. We quote: It is a matter of common knowledge which we take judicial notice of.. the only remaining issue to be determined is whether respondent is entitled to (1) interest on his time deposit during the period that petitioner was closed and (2) to attorney's fees. with the principal claim of respondent having been satisfied.840. in the recent case of Overseas Bank of Manila vs. We consider it of trivial consequence that the stoppage of the bank's operations by the Central Bank has been subsequently declared illegal by the Supreme Court. and We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73. do hereby manifest to this honorable court that we have decided to waive all and any damages that may be awarded to the above-mentioned case and we hereby also agree to accept the amount of Seventy Three Thousand Eight Hundred Forty Pesos (P73. particularly the portions which state: We also agree to hold free and harmless the Commercial Bank any third party or any suit that may arise against this agreement of payment. We hold it is a matter of simple equity that it be treated as such. the Central Bank. If such a situation cannot. this Court stated: Parenthetically. Unless a bank can lend money. . engage in international transactions. We also agree to hold free and harmless the Commercial Bank of Manila against any claim by any third party or any suit that may arise against this agreement of payment.. Whatever be the juridical significance of the subsequent action of the Supreme Court. from which it can derive income.840. the same formula that exempts petitioner from the payment of interest to its depositors during 2 . I did not waive the attorney's fees because it belongs to our attorney and interest because it belongs to us and we are entitled to it.. Thus. The pronouncement made by this Court. We may add for the guidance of those who might be concerned and so that unnecessary litigations may be avoided from further clogging the dockets of the courts that in the light of the consideration expounded in the above opinion. it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority. When asked to comment on this Manifestation..840. Consequently. This manifestation (referring to the Manifestation of July 3. strictly speaking be legally denominated as "force majeure" as maintained by private respondent.

this case is hereby dismissed. De Castro and Ericta. he is now barred from contesting the same.. Jr. J. . No costs.. The trial court found that herein petitioner's refusal to pay was not due to 3 a wilful and dishonest refusal to comply with its obligation but to restrictions imposed by the Central Bank. Since respondent did not appeal from this decision. Barredo (Chairman). should be. WHEREFORE. as a matter of consistency.the whole period of factual stoppage of its operations by orders of the Central Bank. modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court. applicable or followed in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure. Abad Santos. Aquino. SO ORDERED. Concepcion. Neither can respondent Cordero recover attorney's fees. It appearing that the amount of the latter's time deposit had been fully paid.. is on leave. JJ. that portion of the lower court's decision ordering petitioner to pay interest on Cordero's time deposit is set aside. concur.

also executed a Real Estate Mortgage and Promissory Note. the said increase to take effect on March 19.R. . That thereafter. . was actually given to (petitioner) Gilda Florendo. . . 1985.. . before her resignation. but Plaintiff just as vehemently maintained that the said increase is unlawful and unjustifiable. . Branch XXII against respondent bank. . which assails the Decision promulgated on June 19. . 1996 SPOUSES MARIANO and GILDA FLORENDO. That the details of the increase are embodied in (Landbank's) ManCom Resolution No. 1 1991 by respondent Court of Appeals in CA-G. . . 8. Gaviola. 24956. That (Petitioner) Gilda Florendo (was) an employee of (Respondent Bank) from May 17. Both parties. Enclosed with the letter are a copy of the PF Memo Circular . That. through the latter's authorized representative. Series of 1985). 3. .. . . . 1985. upholding the validity and enforceability of the escalation by private respondent Land Bank of the Philippines of the applicable interest rate on the housing loan taken out by petitioner-spouses. . . 1983. submitted the case for 2 decision on the basis of said stipulation and memoranda. 5. together with the Housing Loan Agreement.00. However. . That (petitioners) protested the increase in a letter dated June 11. . 101771 December 17. petitioners. . and a Statement of Account as of May 31.. 1985 to which (respondent bank) replied through a letter dated July 1. . PANGANIBAN. A. J. Enclosed with the letter is a Memorandum dated June 26. . 4. 1985. That on March 19. payable within 25 years from (respondent bank's) Provident Fund on July 20. No. That (respondent bank) first informed (petitioners) of the said increase in a letter dated June 7. 9. F. . 1985.. COURT OF APPEALS and LAND BANK OF THE PHILIPPINES.:p May a bank unilaterally raise the interest rate on a housing loan granted an employee. 7. .. she applied for a housing loan of P148. and in a PF (Provident Fund) Memorandum Circular (No. The stipulation reads in part: 1.G. 85-08 dated March 19. (respondent bank) kept on demanding that (petitioner) pay the increased interest or the new monthly installments based on the increased interest rate. 1976 until August 16. CV No. . That the loan . Jr. That (petitioners) and (respondent bank). 1984 when she voluntarily resigned. . . . through the latter's duly authorized representative. 85-08.000. after entering into a joint stipulation of facts. Because of (respondent bank's) repeated demands. 1985 of (respondent bank's) legal counsel. (petitioners) were forced to file the instant suit for Injunction and Damages. (petitioners) and (respondent bank). executed the Housing Loan Agreement. vs. . . . . . respondents. .. The Antecedent Facts Petitioners filed an action for Injunction with Damages docketed as Civil Case No. in her capacity as employee of (respondent bank). 2. 6. .R.B. 1985. by reason of the voluntary resignation of the borrower? Such is the query raised in the petition for review on certiorari now before us. 1985.. (respondent bank) increased the interest rate on (petitioner's) loan from 9% per annum to 17%. 86-38146 before the Regional Trial Court of Manila.

Disregarding (respondent bank's) repeated demand for increased interest and monthly installment. (petitioners) are presently up-to-date in the payments of their obligations under the original contracts (Housing Loan Agreement. 1985. to such an increase/decrease in accordance with prevailing rules. during the life of this contract. Section I-F of Article VI of the Housing Loan Agreement. c. inter alia. despite (respondent bank's) demands that (petitioners) pay the increased interest or increased monthly installments. together with PF (Provident Fund) Memorandum Circular No. . 85-08.064.72. 85-08. . The respondent Court subsequently affirmed with modification the decision of the trial court. shall be subject. which provides that. arguing that. . the range of rates varied depending upon the number of years service rendered by the employees concerned. xxx xxx xxx The clauses or provisions in the Housing Loan Agreement and the Real Estate Mortgage referred to above as the basis for the escalation are: a. The trial court ruled in favor of respondent bank. Such an agreement is a contractual one and the spouses are bound by it. Among the salient provisions of the mortgage is paragraph (f) which provides that the interest rate shall be subject. xxx xxx xxx Petitioners promptly appealed. and ManCom (Management Committee) Resolution No. holding that: 6 4 3 .10. Escalation clauses have been ruled to be valid stipulations in .. more particularly the monthly payment of the original stipulated installment of P1. upon the finality of this judgment. they (petitioners) have faithfully paid and discharged their loan obligations. The rates were made applicable to those who had previously resigned from the bank as well as those who would be resigning in the future. judgment is hereby rendered denying the instant suit for injunction and declaring that the rate of interest on the loan agreement in question shall be 17% per annum and the monthly amortization on said loan properly raised to P2.248. the increased rate of interest is onerous and was imposed unilaterally. regulations and circulars of the Central Bank of the Philippines as the Provident Fund Board of Trustees of the Mortgagee may prescribe for its debtors and subject to the condition that the increase/decrease shall only take effect on the date of effectivity of said increase/decrease and shall only apply to the remaining balance of the loan. Paragraph (f) of the Real Estate Mortgage which states: The rate of interest charged on the obligation secured by this mortgage. during the term of the loan. Promissory Note and Real Estate Mortgage) with (respondent bank). Respondent bank likewise appealed and contested the propriety of having the increased interest rate apply only upon the finality of the judgment and not from March 19. In other words. which escalated the interest rates on outstanding housing loans of bank employees who voluntarily "secede" (resign) from the Bank. without the consent of the borrower-spouses. . just the same. the borrower shall — f) Comply with all the rules and regulations of the program imposed by the LENDER and to comply with all the rules and regulations that the Central Bank of the Philippines has imposed or will impose in connection with the financing programs for bank officers and employees in the form of fringe benefits. to such increases/decreases as may be allowed under the prevailing rules and/or circulars of the Central Bank and as the Provident Fund of the Bank may prescribe for its borrowers.75 a month. That. the spouses agreed to the escalation of the interest rate on their original loan. b. for as long as the loan or any portion thereof or any sum that may be due and payable under the said loan agreement remains outstanding. and held that the bank was vested with authority to increase the interest rate (and the corresponding monthly amortizations) pursuant to said escalation provisions in the housing loan agreement and the mortgage 5 contract. The dispositive portion of the said decision reads: WHEREFORE.

regulations and circulars of the Central Bank of the Philippines as the Provident Fund Board of Trustees of the 9 Mortgagee (respondent bank) may prescribe for its debtors ." any vagueness in their provisions should be interpreted in favor of petitioners. 2. . . the petitioners had recourse to this Court. The Issues Petitioners ascribe to respondent Court "a grave and patent error" in not nullifying the respondent bank's unilateral increase of the interest rate and monthly amortizations of the loan — 1. . . . the Court reiterated the rule that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. the parties were and are bound by the said stipulation that "(t)he rate of interest charged on the obligation secured by this mortgage . . (simply because of) a bare and unqualified stipulation that the interest rate may be increased. to such an increase/decrease in accordance with prevailing rules. As for the stipulation in the mortgage deed. One of the conditions for the validity of an escalation clause such as the one which refers to an increase rate is that the contract should also contain a proviso for a decrease when circumstances so warrant it. . . . good customs.. . . Spouses Salazar. during the life of this contract. .contracts in order to maintain fiscal stability and to retain the value of money in long term contracts (Insular Bank of Asia and America vs. Spouses Epifania Salazar and Ricardo Salazar. and therefore." Contrary to petitioners' allegation. paragraph (f) of the mortgage contract is clearly and indubitably an escalation provision. on the ground that the increase violates Section 7-A of the Usury Law. public order and public policy. 1985. 3. In IBAA vs. 159 SCRA 133). . . the dispositive part of the decision is MODIFIED in the sense that the interest of 17% on the balance of the loan of the spouses shall be computed starting July 1. and does not include interest rates per se. They insist that the bank's authority to escalate interest rates has not been shown to be "crystal-clear as a matter of fact" and established beyond doubt. . there is no vagueness in the aforequoted proviso. The contracts being "contracts of adhesion. However. shall be subject. . this Court in essence ruled that in general there is nothing inherently 11 wrong with escalation clauses. even their own arguments (below) indicate that this provision is quite clear to them. 10 . Navarro. We note that Section 1-F of Article VI of the HLA cannot be read as an escalation clause as it does not make any reference to increases or decreases in the interest rate on loans. Paragraph (f) referred to above contains such provision. . Dissatisfied. A contract is binding on the parties no matter that a provision thereof later proves onerous and which on hindsight. on the ground that the increase and the contractual provision that (respondent bank) relies upon for the 8 increase are contrary to morals. The key issue may be simply presented as follows: Did the respondent bank have a valid and legal basis to impose an increased interest rate on the petitioners' housing loan? The Court's Ruling Basis for Increased Interest Rate Petitioners argue that the HLA provision covers only administrative and other matters. and disposed as follows: 7 WHEREFORE. 4. they claim that it is vague because it does not state if the "prevailing" CB rules and regulations referred to therein are those prevailing at the time of the execution of these contracts or at the time of the increase or decrease of the interest rate. In Banco Filipino Savings & Mortgage Bank vs. a party feels he should not have agreed to in the first place. since Article VI of the agreement deals with insurance on and upkeep of the mortgaged property. on the ground that the increase has no basis in the contracts between the parties.

regulation or circular. 1983. petitioners' contention that the escalation clause is violative of the said law is bereft of any merit. the bank had relied upon a Central Bank circular as authority to up its rates. the Usury Law has been rendered ineffective. this Court disallowed the increases in interest rate imposed by the petitioner-bank therein. Court of Appeals. 16 As this Court held in PNB: In order that obligations arising from contracts may have the force of law between the parties. that said bank relied merely on its own Board Resolution (No. as the Provident Fund Board .a. Herrera. which is the very bedrock of and the raison d'etre specified in said ManCom Resolution." The Banco Filipino and PNB doctrines are applicable four-square in this case. In Banco Filipino. 905. there must be mutuality between the parties based on their essential equality. any proposed increased rate will never become effective. CB Circular No. this Court. 40-79-84. as far as the parties were concerned. CB Circ. PNB Circular No. On the other hand. among others. Court of Appeals. respondent bank was fully aware that it could have imposed an interest rate higher than 9% per annum rate for the housing loans of its employees. They additionally contend that the escalation is violative of Section 7-A of the Usury Law (Act No. 116 became effective on January 29. disallowed the bank from increasing the interest rate on the subject loan from 12% to 17% despite an escalation clause in the loan agreement authorizing the bank to "correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan". on the ground. If the intention were otherwise. which were neither laws nor resolutions of the Monetary Board. 1973. As a matter of fact. 706 was issued December 1. as amended. ManCom Resolution No. Justice Ameurfina M. 40-129-84. although it has the effect of law. 2655. is not a law. 504 was issued February 6. petitioners have put forth a telling argument that there is in fact no Central Bank rule. unless a CB issuance is passed authorizing an increase (or decrease) in the rate on such employee loans and the Provident Fund Board of Trustees acts accordingly. In the case at bar. it will not be amiss to point out that the unilateral determination and imposition of increased interest rates by the herein respondent bank is obviously violative of the principle of mutuality of contractsordained in Article 1308 of the Civil Code. regulation or other issuance which would have triggered an application of the escalation clause as to her factual situation. 1979. PD No. was promulgated in 1982. 416 was issued on July 29. the said escalation clause further provides that the increased interest rate "shall only take effect on the date of effectivity of (the) increase/decrease" authorized by the CB rule. Thus. In said case. In the subject loan. 1974. and that escalation upon the will of the respondent bank is contrary to 12 the principle of mutuality of contracts. the loan was perfected on July 20. . . In the case at bar. In PNB vs. per Philippine National Bank vs. Thus. 85-08 authorized a rate increase for resigned employees. cannot be used as basis for the escalation in lieu of CB issuances. which could have been used to trigger an application of the escalation clause were considered barred or waived. lifting any interest rate ceiling prescribed under or pursuant to the Usury Law. The Court ruled that CB Circular No. A contract containing a condition which makes 14 13 . We have already mentioned (and now reiterate our holding in several 15 cases ) that by virtue of CB Circular 905. all other onerous factors. as amended) which requires a law or MB act fixing an increased maximum rate of interest. . and thus it may be said that these regulations had been taken into consideration by the contracting parties when they first entered into their loan contract. may prescribe. speaking through Mme. 681). What is actually central to the disposition of this case is not really the validity of the escalation clause but theretroactive enforcement of the ManCom Resolution as against petitioner-employee. they — especially respondent bank — should have included such factors in their loan agreement. 85-08. such as employee resignations. but an administrative regulation. CB Circ. In light of the CB issuances in force at that time. 1976. 494. which is neither a rule nor a resolution of the Monetary Board. and PNB Circular No. Without such CB issuance. but it did not.Application of the Escalation to Petitioners Petitioners however insist that while ManCom Resolution No. the respondent bank knowingly agreed that the interest rate on petitioners' loan shall remain at 9% p. regulations and circulars of the Central Bank . since paragraph (f) of the mortgage contract very categorically specifies that any interest rate increase be in accordance with "prevailing rules. it could not apply as to petitioner-employee because nowhere in the loan agreement or mortgage contract is it provided that petitionerwife's resignation will be a ground for the adjustment of interest rates. These and other relevant CB issuances had already come into existence prior to the perfection of the housing loan agreement and mortgage contract. CB Circ. .

95 Phil 85)... It would have invested the loan agreement with the character of a contract of adhesion. that license would have been null and void for being violative of the principle of mutuality essential in contracts. is void (Garcia vs. the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs.. The interest rate on the subject housing loan remains at nine (9) percent per annum and the monthly amortization at P1. and thus the escalation provision could not be legally applied and enforced as against herein petitioners. petitioners were "on an equal footing" with respondent bank as far as the subject loan contract was concerned. The Court hereby REVERSES and SETS ASIDE the challenged Decision of the Court of Appeals. And it would be totally unfair to now impose said condition. JJ. Davide. even assuming that the .J. SO ORDERED. The fact is it did not. Narvasa. Jr. Law Union & Rock Insurance Co. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. where she had no voice at all in its preparation and application. C. which according to respondent bank is the "sweetest deal" anyone could obtain and is an act of 1 generosity considering that in 1985 lending rates in the banking industry were peaking well over 30% p. To allay fears that respondent bank will inordinately be prejudiced by being stuck with this "sweetheart loan" at patently concessionary interest rates. Rita Legarda. Let it be clear that this Court understands respondent bank's position that the concessional interest rate was really intended as a means to remunerate its employees and thus an escalation due to resignation would have been a valid stipulation.. However. But no such stipulation was in fact made. the petition is hereby GRANTED.its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties.72. Inc.. . It goes without saying that such escalation ground can be included in future contracts — not to agreements already validly entered into. that does not hold true when it comes to the determination and imposition of escalated rates of interest as unilaterally provided in the ManCom Resolution. 7 we need only point out that the bank had the option to impose in its loan contracts the condition that resignation of an employee-borrower would be a ground for escalation. 21 SCRA 555). concur. WHEREFORE. Hence. Melo and Francisco. . where the parties do not bargain on equal footing. . it must live with such omission. 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. and therefore.. The respondent bank tried to sidestep this difficulty by averring that petitioner Gilda Florendo as a former bank employee was very knowledgeable concerning respondent bank's lending rates and procedures. not to mention that it would violate the principle of mutuality of consent in contracts. That may have been true insofar as entering into the original loan agreement and mortgage contract was concerned.a. Hence.248.

On the same day. Failing to get back the passbook. 138569. denied signing the withdrawal slip. Teller No. Mercedes Macaraya (“Macaraya”). 2003] THE CONSOLIDATED BANK and TRUST CORPORATION. No. L.C.C.C.R. Teller No. September 11. Diaz (“Diaz”). DIAZ and COMPANY.C.C. Emmanuel Alvarez. 6 informed him that “somebody got the passbook. J. Calapre was then standing beside Macaraya. Macaraya also gave Calapre the Solidbank passbook. DECISION CARPIO. 6 the deposit slip and check. CPA’s (“L. [1] The Facts Solidbank is a domestic banking corporation organized and existing under Philippine laws. Diaz through its cashier. absolving petitioner Consolidated Bank and Trust Corporation. Diaz learned of the unauthorized withdrawal the day before. Private respondent L. vs.C.000 drawn on Philippine [4] Banking Corporation (“PBC”).” Since the transaction took time and Calapre had to make another deposit for L. Diaz opened a savings account with Solidbank. he left the passbook with Solidbank. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Diaz with Allied Bank. Diaz could open a new account. L. Diaz.000. petitioner. together with Calapre. Teller No. When Macaraya asked Teller No. When [3] Calapre returned to Solidbank to retrieve the passbook. Diaz and reported the incident to Macaraya. respondents.: The Case Before us is a petition for review of the Decision of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 [2] May 1999. Macaraya went back to her office and reported the matter to the Personnel Manager of L. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. On 14 August 1991. namely Diaz and Rustico L. S/A 20016872-6. The signatories.C. Calapre went to Solidbank and presented to Teller No. Teller No. 15 August 1991. Sometime in March 1976. filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. This PBC check of L. however. Diaz”). of any liability. The teller stamped the words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK HEAD OFFICE” on the duplicate copy of the deposit slip. The withdrawal slip for the P300. expenses of litigation and cost of suit. Diaz and Company. Diaz through its Chief Executive Officer. A certain Noel Tamayo received the P300. Diaz.000 from its savings account.C. COURT OF APPEALS and L. . Macaraya instructed the messenger of L. Diaz was a check that it had “long closed. It was also on the same day that L. CPA’s. Diaz formally wrote Solidbank to make the same request.C.000 bore the signatures of the authorized signatories of L. called up Solidbank to stop [5] any transaction using the same passbook until L.C. designated as Savings Account No. When Macaraya asked for the passbook. Luis C. Diaz. 6 the two deposit slips and the passbook.C. Branch 8. Ismael Calapre (“Calapre”). The questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages.C. The assailed decision reversed the Decision of the Regional Trial Court of Manila. Macaraya. 6 stamped the deposit slips with the words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK HEAD OFFICE. of P300. attorney’s fees. is a professional partnership engaged in the practice of accounting. went to Solidbank and presented to Teller No.” PBC subsequently dishonored the check because of insufficient funds and because the signature in the check differed from PBC’s specimen signature.000.C. Calapre then went to Allied Bank.C. to deposit the money with Solidbank. Teller No. L. Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200. now known as Solidbank Corporation (“Solidbank”). 14 August 1991. 6 answered that someone shorter than Calapre got the passbook. 6 if Calapre got the passbook. Murillo.” Calapre went back to L. The following day. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90.[G.

Diaz. Diaz. the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. judgment is hereby rendered DISMISSING the complaint. Another person driving a car must accompany the bearer so that he would not walk from Solidbank to the office in making the withdrawal.C.C. L. the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint.C. Emerano Ilagan (“Ilagan”) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. Diaz disregarded these precautions in its past withdrawal. The trial court admonished L. The trial court ruled that the passbook presented during the [11] questioned transaction was “now out of the lock and key and presumptively ready for a business transaction. The appellate court. The specimen signatures of these persons were in the signature cards.” At the time of the withdrawal. After trial.C. Diaz.C. Branch 8. (2) the presentation of a signed withdrawal receipt by an unauthorized person.C.C. L. The bearer must also have a letter authorizing him to withdraw the same amount.000 after the dismissal of the criminal case against Ilagan. The teller stamped the withdrawal slip with the words “Saving Teller No.C. Diaz to recover P300. however. The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L. On 16 July 1991. Diaz withdrew P82. On 25 August 1992. and (3) the possession by an unauthorized person of a PBC check “long closed” by L.C.C. Diaz through its counsel demanded from Solidbank the return of its money.C.554 without any separate letter of authorization or any communication with Solidbank that the money be converted into a manager’s check. he also presented a withdrawal slip with the signatures of the authorized signatories of L. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila. Diaz’s negligence: (1) the possession of the passbook by a person other than the depositor L. 5.C. The trial court held that L. The trial court concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300.C. Diaz’s contention that Solidbank did not follow the precautionary procedures observed by the two parties whenever L.000. L. Diaz for not offering in evidence the National Bureau of Investigation (“NBI”) report on the authenticity of the signatures on the withdrawal slip for P300. Solidbank refused. Diaz to prove that the signatures on the withdrawal slip were forged. Manuel verified the signatures on the withdrawal slip. [8] [7] [6] The Ruling of the Trial Court In absolving Solidbank. . L. L. On 11 May 1999. a certain Noel Tamayo was not only in possession of the passbook. The letter must request Solidbank to allow the withdrawal and convert the amount to a manager’s check.C.C.” When another person presents the passbook for withdrawal prior to Solidbank’s receipt of the notice of loss of the passbook. The withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. which check was deposited on the day of the fraudulent withdrawal.C. The dispositive portion of the decision of the trial court reads: IN VIEW OF THE FOREGOING. Diaz withdrew significant amounts from its account.In an Information dated 5 September 1991. modified its decision by deleting the award of exemplary damages and attorney’s fees.000 from the savings account of L. Three facts establish L.” Solidbank did not have any participation in the custody and care of the passbook. the Court of Appeals issued its Decision reversing the decision of the trial court. the trial court applied the rules on savings account written on the passbook.C. The trial court debunked L.C. On 27 October 1998.000 was not the direct and proximate cause of the loss. Diaz charged its messenger. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992. Diaz. that person is considered as the owner of the passbook.000. On 24 August 1992. The trial court pointed out that the burden of proof now shifted to L. L. Another provision of the rules on savings account states that the depositor must keep the passbook “under lock and [10] key.” The teller then passed on the withdrawal slip to Genere Manuel (“Manuel”) for authentication.C. The trial court believed that L. Diaz did not offer this evidence because it is derogatory to its action. The trial court believed that Solidbank’s act of allowing the withdrawal of P300. Diaz claimed that a letter must accompany withdrawals of more thanP20. The rules state that “possession of this book shall raise the presumption of ownership and any payment or payments made by the bank upon the [9] production of the said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally. The trial court pointed out that L. Diaz then appealed to the Court of Appeals. Diaz’s negligence caused the unauthorized withdrawal.

Such fault or negligence. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE. The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. the award of exemplary damages was not justified. The appellate court ruled that while L.C.C. there being fault or negligence. Diaz. and P20. Had the teller called up L. [12] The Ruling of the Court of Appeals The Court of Appeals ruled that Solidbank’s negligence was the proximate cause of the unauthorized withdrawal of P300.00 as attorney’s fees and expenses of litigation as well as the cost of suit. With costs against plaintiff.C. the sum of P20. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300.000. the award of attorney’s fees was also disallowed pursuant to Article 2208 of the Civil Code. The Court of Appeals found Solidbank remiss in its duty. (b) fault or negligence of the defendant. The teller did not even verify the identity of the impostor who made the withdrawal. Diaz. with interest thereon at the rate of 12% per annum from the date of filing of the complaint until paid. who was not presented by Solidbank during trial. Thus. The appellate court stated that the teller.000. Diaz.00 as exemplary damages.00) as attorney’s fees. is obliged to pay for the damage done. Solidbank could not escape liability because of the doctrine of “last clear chance.C. and (c) the connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff. is called a quasi-delict and is governed by the provisions of this chapter. Consequently. Diaz to verify the withdrawal.000. [13] 2.The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos (P30. Since Solidbank was guilty of simple negligence only. SO ORDERED. or some other person for whose acts he must respond.000 allowed the withdrawal without making the necessary inquiry. to wit: Article 2176. 1. if there is no pre-existing contractual relation between the parties.” Solidbank could have averted the injury suffered by L.000. the appellate court ruled that exemplary damages could be granted if the defendant acted with gross negligence. . the decision appealed from is hereby REVERSED and a new one entered. and Ordering the dismissal of defendant-appellee’s counterclaim in the amount of P30. SO ORDERED. violating its fiduciary relationship with L.000. The appellate court held that the three elements of a quasi-delict are present in this case.000 from the savings account of L. Solidbank would have known that the withdrawal was unauthorized.00).00 as attorney’s fees. The appellate court reached this conclusion after applying the provision of the Civil Code on quasi-delict. should have called up the depositor because the money to be withdrawn was a significant amount. Invoking Article 2231 of the Civil Code.C. Whoever by act or omission causes damage to another. the appellate court affirmed its decision but modified the award of [14] damages. namely: (a) damages suffered by the plaintiff. Diaz had it called up L. Banks are obligated to treat the accounts of their depositors with meticulous care. always having in mind the fiduciary nature of their relationship with their clients. the appellate court found Solidbank liable for its negligence in the selection and supervision of its employees. The business and functions of banks are affected with public interest. The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300. Acting on the motion for reconsideration of Solidbank. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller.C. premises considered. The expenses of litigation and cost of suit were also not imposed on Solidbank. The appellate court deleted the award of exemplary damages and attorney’s fees.

THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE. a recognition of the contractual relationship between Solidbank and L. NOTWITHSTANDING ITS FINDING THAT PETITIONER BANK’S NEGLIGENCE WAS [16] ONLY CONTRIBUTORY. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANK’S TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENT’S PASSBOOK WAS DULY PRESENTED.C. AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS. NOR IS THERE ANY BANKING LAW. IV. [15] Hence. The Ruling of the Court The petition is partly meritorious. WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT. SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing contractual relationship between the parties. our decision dated October 27. The Issues Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds: I. the latter being a depositor of the former. Article 1980 of the Civil Code expressly provides that “x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. On the other hand.C. II.000. We hold that Solidbank is liable for breach of contract due to negligence. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OFP300. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. expenses of litigation and cost of suit.000. Solidbank’s Fiduciary Duty under the Law The rulings of the trial court and the Court of Appeals conflict on the application of the law. Diaz. The bank is the [17] . THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300. The trial court pinned the liability on L. the Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately negligent. or culpa contractual. AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN. III. Diaz based on the provisions of the rules on savings account. foregoing considered. this petition.” There is a debtor-creditor relationship between the bank and its depositor.00 TO RESPONDENT’S MESSENGER EMERANO ILAGAN.The dispositive portion of the Resolution reads as follows: WHEREFORE. SO ORDERED.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN. 1998 is affirmed with modification by deleting the award of exemplary damages and attorney’s fees.

which took effect on 13 June 2000. facilitating unauthorized withdrawals by that person. 8791 (“RA [18] 8791”). Likewise. L. If the tellers give the passbook to the wrong person. they would be clothing that person presumptive ownership of the passbook. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves.” For breach of the savings deposit agreement due to negligence. Diaz. the bank is liable to its depositor. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre.C. the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement. introduced in 2000. if possible. Failure by the bank to pay the depositor is failure [24] to pay a simple loan.000 from L. and in insuring its return to the party authorized to receive the same.” When the passbook is in the possession of Solidbank’s tellers during withdrawals. jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. Diaz’s savings account. in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. The tellers know. and absent such stipulation then the diligence of a good father [22] of a family. there is a presumption that the defendant was at fault or negligent. or should know. However. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook. Section 2 of RA 8791 prescribes the statutory diligence required from banks – that banks must observe “high standards of integrity and performance” in servicing their depositors. a situation that Congress certainly did not intend in enacting Section 2 of RA 8791. Court of Appeals. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L. always having in mind the fiduciary nature of [21] their relationship. Solidbank and Teller No. then the interest spread or income belongs to the depositors. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. Solidbank’s rules on savings account require that the “deposit book should be carefully guarded by the depositor and kept under lock and key.” This new provision in the general banking law. In contrast. holding that “the bank is under obligation to treat the accounts of its depositors with meticulous care.C. is a statutory [20] affirmation of Supreme Court decisions. Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. Section 2 of Republic Act No. the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook. Diaz. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. once the plaintiff proves a breach of contract. and not a breach of trust. If depositors are cestui que trust of banks. In culpa contractual.C. Calapre left the passbook with Solidbank because the “transaction took time” and he had to go to Allied Bank for another transaction. whether express or implied. The law imposes on banks high standards in view of the fiduciary nature of banking. beyond those required of non-bank debtors under a similar contract of simple loan. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.” 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. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks.debtor and the depositor is the creditor. In the present case. Solidbank’s Breach of its Contractual Obligation Article 1172 of the Civil Code provides that “responsibility arising from negligence in the performance of every kind of obligation is demandable.C. or culpa contractual. Although RA 8791 took effect almost nine years after the [23] unauthorized withdrawal of the P300. declares that the State recognizes the “fiduciary nature of banking that requires high [19] standards of integrity and performance. The burden was on Solidbank to prove that there was no negligence on its part or its employees. The burden is on the defendant to prove that he was not at fault or negligent. starting with the 1990 case of Simex International v. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract. For failing to return the passbook to Calapre. that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. 8791. the authorized representative of L. . The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan.

Diaz’s negligence in not securing its passbook under lock and key was the proximate cause that allowed the impostor to withdraw the P300.C.000 by the impostor who took possession of the passbook. the loss of P300. policy and precedent. Diaz. We do not subscribe to the appellate court’s theory that the proximate cause of the unauthorized withdrawal was the teller’s failure to call up L. the impostor deposited with Teller No.Solidbank failed to discharge its burden. Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. For the appellate court.C.C. Even the agreement between Solidbank and L.C. Solidbank did not present to the trial court Teller No.” it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person. the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. in natural and continuous sequence. Solidbank failed to present the teller who had the duty to return to Calapre the passbook. There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. The record does not indicate that Teller No. After successfully withdrawing this large sum of money. Had the passbook not fallen into the hands of the impostor. There is no arrangement between Solidbank and L. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be suspicious of the transaction. Solidbank did not have the duty to call up L. Ilagan then hired a taxicab in the amount of P1. 6. L. Solidbank was in possession of the passbook while it was processing the deposit. The bank must not only exercise “high standards of integrity and performance.C. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook.C.000 which he deposited in favor of L. if there is such a procedure. 6 that gave the impostor presumptive ownership of the passbook. Thus. Teller No. After completion of the transaction. Solidbank claims that since Ilagan was also a messenger of L.C. accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Diaz. common sense. Diaz to verify the withdrawal. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. L. The trial court believed that L. Diaz. 6 verified the identity of the person who retrieved the passbook. unlike in culpa aquiliana. the proximate cause of the unauthorized withdrawal was Solidbank’s negligence in not returning the passbook to Calapre. [26] produces the injury and without which the result would not have occurred. he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Diaz pertaining to measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L. 6 implemented this procedure in the present case. L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. the proximate cause was the teller’s negligence in processing the withdrawal without first verifying with L. We do not agree with either court. Under Solidbank’s rules on savings account.000 would not have happened. Diaz.000. Prior to the withdrawal of P300. Diaz and Company. Solidbank continues to foist the defense that Ilagan made the withdrawal. the authorized representative of L. Proximate Cause of the Unauthorized Withdrawal Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal.C.000 PBC check. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano Ilagan: xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90.C. Solidbank had the contractual obligation to return the passbook only to Calapre. Proximate cause is that cause which. Solidbank’s failure to return the passbook to Calapre made possible the withdrawal of the P300. Proximate cause is determined by the facts of each [27] case upon mixed considerations of logic. Diaz to this effect. Diaz to confirm the withdrawal. The defense of exercising the required diligence in the selection and supervision of employees is not a complete [25] defense in culpa contractual. It was the negligent act of Solidbank’s Teller No.C. and thus failed to prove that this teller exercised the “high standards of integrity and performance” required of Solidbank’s employees. Diaz failed to do so. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. unbroken by any efficient intervening cause. and that Teller No. which later bounced.C. 6 the P90. mere possession of the passbook raises the presumption of ownership.000.C. The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money.000 to transport him (Ilagan) to his home province at .

C. the one who had the last [29] clear opportunity to avoid the loss but failed to do so.Bauan.) L. We do not apply the doctrine of last clear chance to the present case. In this case. who had the [30] last fair chance to prevent the impending harm by the exercise of due diligence.C. WHEREFORE. The tellers who processed the deposit of the P90. Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the [32] plaintiff but does not exculpate the defendant from his breach of contract. where the Court held the depositor guilty of contributory negligence. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor.C. according to the circumstances. Batangas. concur. Azcuna. Jr. (Chairman). the liability of Solidbank should be reduced. (Emphasis supplied. or if the plaintiff was guilty of contributory negligence. we allocated the damages between the depositor and the bank on a 40-60 ratio. L. Petitioner Solidbank Corporation shall pay private respondent L. then the courts may reduce the award of damages.000 were not presented during trial to substantiate Solidbank’s claim that Ilagan deposited the check and made the questioned withdrawal. the entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and the passbook. the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant. Solidbank must pay the other 60% of the actual damages. Vitug.000 check and the withdrawal of the P300. We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300. Stated differently.000.” This means that if the defendant exercised the proper diligence in the selection and supervision of its employee. and Ynares-Santiago. or where it is impossible to determine whose fault or negligence caused the loss. Moreover.. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip. SO ORDERED.C. we hold that L. In Philippine Bank of Commerce v. Diaz must shoulder 40% of the actual damages awarded by the appellate court. The remaining 40% of the actual damages shall be borne by private respondent L. [33] .. on official leave. Diaz and Company. JJ. Proportionate costs. This is a case of culpa contractual. Davide. Doctrine of Last Clear Chance The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other.000 was a certain Noel Tamayo. The Court is not a trier of facts. where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss. Mitigated Damages Under Article 1172. Diaz refutes Solidbank’s contention by pointing out that the person who withdrew the P300. is chargeable with the loss. Solidbank is liable for breach of contract due to negligence in the performance of its contractual obligation to L. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse [28] racing. Thus. Diaz. the decision of the Court of Appeals is AFFIRMED with MODIFICATION. would exonerate the defendant from [31] liability. “liability (for culpa contractual) may be regulated by the courts. C. Diaz and Company. Ilagan was apprehended and meekly admitted his guilt. J..C.C. CPA’s. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. Applying the same ruling to this case. Court of Appeals..J. CPA’s only 60% of the actual damages awarded by the Court of Appeals.

Reyes. vs. should a judgment debtor pay the judgment creditor. REFORMINA and HEIRS OF FRANCISCO REFORMINA. Incorporated to pay jointly and severally the following persons: (a) . the considered view here that by legal interest is meant six (6%) percent as provided for by Article 2209 of the Civil Code. Hereunder are the pertinent antecedents: On June 7. No. 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. of the then Court of First Instance of Cebu-Branch XI..000. they now come before Us through the instant petition praying for the setting aside of the said Resolution and for a declaration that the judgment in their favor should bear legal interest at the rate of twelve (12%) percent per annum pursuant to Central Bank Circular No. as Judge of the Court of First Instance. by way of legal interest. J.is the issue raised by the REFORMINAS (herein petitioners) in this Petition for Review on certiorari of the Resolution of the Hon.). CEBU CITY. Marcelo Fernan & Associates for respondent Michael. judgment was rendered by the Court of First instance of Cebu in Civil Case No. issued in Civil Case No. The dispositive portion of the assailed Resolution reads as follows— In light (sic) of the foregoing. 1 Petitioners' motion for the reconsideration of the questioned Resolution having been denied. 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. SHELL REFINING COMPANY (PHILS.000. xxx xxx xxx (g) Plaintiffs Pacita F. Santayana. Pineda. petitioners. Let a writ of execution be issued. respondent Judge Valeriano P.00 as of 2 . Tomol.R. fishing gear and equipment minus P80. THE HONORABLE VALERIANO P. TOMOL.084. respondents.000. INC. an action for Recovery of Damages for injury to Person and Loss of Property. 1974. Branch XI. SO ORDERED. Reformina and Francisco Reformina the sum of P131. 1972. Inc. Reynaldo A.00 which is the value of the boat F B Pacita Ill together with its accessories. INCORPORATED. L-59096 October 11. R-11279.. 1985 PACITA F. R-11279. Tayao and Picaso Law Office for respondent Shell.. and MICHAEL. 416 dated July 29.00 which is the value of the insurance recovered and the amount of P10. CUEVAS. Jr.: How much.G. the dispositive portion of which reads— WHEREFORE.. JR. Mateo Canonoy for petitioners.

1980. pursuant to and by authority of Article 2209 of the New Civil Code in relation to Articles 2210 and 2211 thereof.June 4. 2655 to twelve (12%) percent per annum. In support of their stand.00 with costs against defendants and third party plaintiffs. 116.00 with legal interests from the filing of the complaint until paid as compensatory and moral damages and P41. goods or credits. petitioners claim that the "legal interest" should be at the rate of twelve (12%) percent per annum. xxx xxx xxx Except as modified above. has prescribed that the rate of interest for the loan or forbearance of any money. because it is covered by the phrase 2nd the rate allowed in judgments in the absence of express contract as to such rate of interest . The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money. the trial court's judgment was modified to reads as follows— WHEREFORE. 416 which provides — By virtue of the authority granted to it under Section 1 of Act 2655. the case was remanded to the lower court for execution and this is where the controversy started. the judgment appealed from is modified such that defendants-appellants Shell Refining Co. Central Bank of the Philippines Circular No. Upon the other hand. 1622 dated July 29.).. (Phils. 3 The said decision having become final on October 24. goods. Consequently. That such changes shall not be made oftener than once every twelve months.000. SO ORDERED. in the absence of express contract as to such rate of interest. Appellants Shell and Michael and third party defendant Anita L. (Italics supplied) Acting pursuant to this grant of authority. 416 which took effect on July 29. This Circular shall take effect immediately.. In the computation of the "legal interest" decreed in the judgment sought to be executed. Abellanosa shall shoulder their respective costs. private respondents insist that said legal interest should be at the rate of six (6%) percent per annum only. otherwise known as the Usury Law. In the exercise of the authority herein granted. The amendment from which said authority emanated reads as follows— Section 1-a. invoking in support of their aforesaid submission. Central Bank Circular No.00 compensation for the value of the lost boat with legal interest from the filing of the complaint until fully paid to Pacita F.. The liability of the two defendants for an the awards is solidary. and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided. or credits and the rate allowed in judgments. On appeal to the then Court of Appeals. 2655. " in the aforequoted circular. Incorporated are hereby ordered to pay . The two (2) defendants. The petition is devoid of merit. as amended. and Michael. 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5.D. otherwise known as the "Usury Law" the Monetary Board in its Resolution No. No.000. . its dismissal is in order. the rest of the judgment appealed from is affirmed. shall be twelve (12%) per cent per annum. Inc. the Monetary Board may prescribe higher maximum rates for consumer loans or renewals thereof as well as such loans made by pawnshops. The defendants-appellants shall pay costs in favor of the plaintiffs.appellants are also directed to pay P100. (Italics supplied) includes the judgment sought to be executed in this case.000. finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. 1974 was issued and promulgated by the Monetary Board pursuant to the authority granted to the Central Bank by P. Reformina and the heirs of Francisco Reformina. 416. the Monetary Board increased the rate of legal interest from that of six (6%) percent per annum originally allowed under Section I of Act No. 1974. petitioners contend that Central Bank Circular No. which amended Act No..

concur. 2655. If the obligation consists in the payment of a sum of money. the indemnity for damages. De la Fuente. 416 applicable to any case other than those specifically provided for by the Usury Law will make the same of doubtful constitutionality since the Monetary Board will be exercising legislative functions which was beyond the intendment of P. 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. shall be the payment of interest agreed upon. In the absence of a clear contrary intention. with separate opinion of Justice Plana.D. Law to allow for more flexible interest rate ceilings that would be more responsive to the requirements of changing economic conditions. and in the absence of stipulation. Separate Opinions PLANA. IN VIEW OF THE FOREGOING CONSIDERATIONS. That function is vested solely with the legislative authority. No. words and phrases in statutes should not be 4 interpreted in isolation from one another. J. and (3) rate allowed in judgments. Makasiar. a decisive element in the achievement of the declared objective of accelerating the growth of the national economy. The above provision remains untouched despite the grant of authority to the Central Bank by Act No. Gutierrez. Jr. The judgments spoken of and referred to are Judgments in litigations involving loans or forbearance of any 'money. To make Central Bank Circular No. 2209. the law applicable to the said case is Article 2209 of the New Civil Code which reads— Art. J. 116. WHEREAS. together with other monetary and credit policy instruments. It is axiomatic in legal hermeneutics that statutes should be construed as a whole and not as a series of disconnected articles and phrases. Abad Santos. JJ. the interest rate.. among other factors. 2655 deals with interest on (1) loans. The contention is devoid of merit. or credits. Any other kind of monetary judgment which has nothing to do with. there being no stipulation to the contrary... Coming to the case at bar. The Monetary Board may not tread on forbidden grounds. A word or phrase in a statute is always used in association with other words or phrases 5 and its meaning may thus be modified or restricted by the latter. performs a vital role in mobilizing domestic savings and attracting capital resources into preferred areas of investments.. Jr. Another formidable argument against the tenability of petitioners' stand are the whereases of PD No. Petitioners maintain that it covers all kinds of monetary judgment. Aquino. and the debtor incurs in delay. goods or credits. Escolin. SO ORDERED. CJ. the legal interest which is six percent per annum. as amended.. Melencio-Herrera. concurs in the result. Concepcion.. concurring and dissenting: . much less forbearances of any money. Alampay and Patajo. 116 which brought about the grant of authority to the Central Bank and which reads thus— WHEREAS. WHEREAS. the same is hereby DISMISSED with costs against petitioners. and finding the instant petition to be without merit. Relova. As correctly argued by the private respondents. the monetary authorities have recognized the need to amend the present Usury. The issue now is—what kind of judgment is referred to under the said law. It cannot rewrite other laws. the availability of adequate capital resources is. goods. nor involving loans or forbearance of any money.It will be noted that Act No. (2) forbearances 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.

the role of Section 1 is to fix the specific rate of interest or legal interest (6%) to be charged.. the interest rate shall be 6% per annum or "such rate as may be prescribed by the Monetary Board of the Central Bank . and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided. as envisaged in Section 1 of the Usury Law. the Monetary Board may prescribe higher maximumrates for consumer loans or renewals thereof as well as such loans made by pawnshops. which is not the subject of contractual stipulations and therefore cannot logically be made subject to interest (ceiling). it was assumed that the Central Bank w as llegally authorized to issue the said Circular. Court of Appeals. goods or credits. Sec. 1-a covers. it is unnecessary to make a distinction between judgments in litigations involving loans and judgments in litigations that have nothing to do with loans. and (b) a litigation that has ended in a final judgment for the payment of money. 1. 1 do not believe the Central Bank authority here in question is premised on Section 1-a of Act No. which renders the delegation void. . Teehankee. finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. in accordance with the authority hereby granted. In Viloria vs. So viewed. the ceiling prescribed by the Central Bank operating merely to restrict the parties' freedom to stipulate. 5. the provision presupposes that the parties to the loan agreement are free to fix the interest rate. The cited section reads: Sec. It merely grants the power to prescribe the maximum interest rate. 1-a cannot include a provision on interest to be allowed in judgments. That such changes shall not be made oftener than once every twelve months. 2655 (Usury Law). I conclude that the Central Bank authority to change the legal rate of interest allowed in judgments is constitutionally defective. 1-a. in the absence of express contract as to such rate of interest. goods or credits. By purpose and operative effect. where the parties agreed on the payment of interest but failed to fix the rate thereof. The authority to change the legal interest that has been delegated to the Central Bank under the quoted Section 1 is absolute and unqualified. The determination of what the applicable interest rate shall be. shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted. 1 of the Usury Law is different from Sec. Note that Central Bank Circular 416 itself invokes as the basis for its issuance Sec. it is imperative to enact a law either increasing the legal interest to a realistic level or supplying the deficiencies of the Usury Law which render the delegation of power therein constitutionally defective. is completely left to the judgment of the Central Bank.. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money. To my aknowledge. goods. 1974 increased the rate of interest allowed in judgments from 6% to 12% per annum. (Italics supplied This section envisages two situations: (a) a loan or forbearance of money. tha validity of CB Circular 416 had not been challenged in this Court. there is a total abdication of legislative power. In either case. 2. 1-a. this vice also affects its authority to change the legal interest of 6% per annum as to loans and forbearance of money." But neither in the said section nor in any other section of the law is there a guideline or limitation imposed on the Central Bank. The above law does not empower the Central Bank to fix the specific rate of interest to be charged for loans. goods or credit. Sec. 3. It also impliedly delegates to the Central Bank the power to modify the said interest rate. and incidentally. which is all that Sec. of the Usury Law.. Under the view taken above..1. or credits and therate allowed in judgments. If this conclusion be correct..before the instant case. rather than Sec. In the exercise of the authority herein granted. Central Bank Circular 416 dated July 29. 6. In short. 123 SCRA 259. In other Words. concur. as inserted by Presidential Decree 116. The only issue there raisedwas whether the increase in interest rate could be given retrospective operation. The rate of interest for the loan or forbearance of any money. Thus. J. 1-a. leaving it to the contracting parties to determine within the allowable limit what precisely the interest rate will be. Section 1." 4. It is true that Section 1 says that the rate of interest shall be 6 % per annum or "such rate as may be prescribed by the Monetary Board of the Central Bank . as distinguished from interest rate ceiling.

G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent.

VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 8586, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said: Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following: The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's preTrial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order. Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "TurnOver Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open". and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2. P3,000.00 as attorney's fees, and 3. Costs. B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. SO ORDERED. (p. 207, Record). Dissatisfied, defendant's recourse to US. The appeal is devoid of merit. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.) The Court of Appeals thus affirmed in toto the judgment of the court a quo. In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when — I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION; II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. The petition is, in part, granted. In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is 1 not observed but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus:

00 which is the value of the boat F B Pacita III together with its accessories.000.." (Emphasis supplied) The case of Reformina vs. Such interest normally is allowable from the date of demand. inter alia.20. is. such responsibility also devolves upon the CARRIER. L-6998. Manila Railroad Co. the amount of P1. of course. 1969 up to the time they are actually paid or already the total sum of P370. 1956. is inevitable regardless of whether there are others solidarily liable with it. which. however. imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier." And as was held by 4 this Court in Rivera vs. Reformina and Francisco Reformina the sum of P131.447. But then upon the provisions of Article 2213 of the Civil Code. this Court ruled: Interest upon an obligation which calls for the payment of money. Agustinos. "unliquidated and not known until definitely ascertained.00 as of 5 . Lichauco v. decided on 15 May 1969. Inc. the award of legal interest. A factual finding of both the court a quo and the appellate court. Inc. was for "Recovery of Damages for Injury to Person and Loss of Property. vs. February 29.51 was agreed upon. is the legal rate. the lower court decreed: WHEREFORE. 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.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6. Inc. Manila Port 2 3 Service. Prince Line. We do not. 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.. 253 [1960]). Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co. Accordingly. Guzman. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors.00 which is the value of the insurance recovered and the amount of P10. The appellants then assailed. or vice-versa. we take note.The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. The instant petition has been brought solely by Eastern Shipping Lines.447. Perez. interest "should be from the date of the decision. absent a stipulation. the sole petitioner in this case. except when the demand can be established with reasonable certainty. assessed and determined by the courts after proof (Montilla c.947. if the suit were for damages. 302). 38 Phil." then. 107 Phil. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. to be held liable in this particular case. the liability imposed on Eastern Shipping Lines. is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F. involved a suit for recovery of money arising out of short deliveries and pilferage of goods.084. 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. fishing gear and equipment minus P80.000. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. in any event.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. Tomol. 447. In the stipulation of facts later entered into by the parties.Corporacion de P." After trial. et al. interest "cannot be recovered upon unliquidated claims or damages. was neither established in its totality nor definitely ascertained. In sustaining the appellants. 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. 25 Phil. 19 SCRA 5 [1967]. This demand. in lieu of proof. judicial or extrajudicial..P. being the carrier and not having been able to rebut the presumption of fault. nor that attendant facts in a given case may not vary the rule..000. rendered on 11 October 1985. v. The trial court opted for judicial demand as the starting point.. In this case.

Court of Appeals. 8 Relying on the Reformina v. Monetary Board in its Resolution No. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72. 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5.00 with costs against defendants and third party plaintiffs. the case.000. This Circular shall take effect immediately. the indemnity for damages. i. The above rule was reiterated in Philippine Rabbit Bus Lines. the legal interest which is six percent per annum. This Court ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money. goods. the "defendant United Construction Co. twelve (12%) per 9 7 6 . Inc. was decided. been applied. 1723. Tomol case. the law applicable to the said case is Article 2209 of the New Civil Code which reads — Art. (Emphasis found in the text) — should have.68 with interest at the legal rate from November 29. p. The case was for damages occasioned by an injury to person and loss of property. the petitioners contended that Central Bank Circular No. 1968. as amended. ordered. . 2209.000. — If the obligation consists in the payment of a sum of money.00) Pesos as and for attorney's fees. inter alia. . the case was remanded to the lower court for execution. the total sum being payable upon the finality of this decision.000. providing thus — By virtue of the authority granted to it under Section 1 of Act 2655. the date of the filing of the complaint until full payment . 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. Civil Code. . thus: WHEREFORE. Any other kind of monetary judgment which has nothing to do with. nor involving loans or forbearance of any money. As correctly argued by the private respondents. there being no stipulation to the contrary. promulgated on 28 July 1986. .June 4.000. has prescribed that the rate of interest for the loan. Upon failure to pay on such finality. goods or credits. much less forbearances of any money. In Nakpil and Sons vs. (Emphasis supplied. Supra. When the appellate court's decision became final. in the absence of express contract as to such rate of interest. . shall be twelve (12%) percent per annum. (one of the petitioners) .335. 1622 dated July 29. the Court of Appeals sustained the trial court's decision. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5. When taken to this Court for review. . or credits and the rate allowed in judgments. 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. shall be the payment of interest agreed upon." Save from the modification of the amount granted by the lower court.) On appeal to the Court of Appeals.. . v. to pay the plaintiff. or forbearance of any money. upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art.500. the trial court. the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case. xxx xxx xxx Coming to the case at bar. and in the absence of stipulation. 416. Inc. 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.. on 03 October 1986. 1974. the sum of P989. instead. .e.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. in an action for the recovery of damages arising from the collapse of a building.00 with legal interest thereon from the filing of the complaint until fully paid. In their petition for review on certiorari. Cruz. and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. goods or credits. from the filing of the complaint until fully paid. we deem it reasonable to render a decision imposing. as We do hereby impose. and the debtor incurs in delay.. . this Court modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof.

00) Pesos as moral damages. from the filing of the complaint until paid. are ordered to pay. 416] does not apply to actions based on a breach of employment contract like the case at bar. the Court had another occasion to rule on the matter. respectively. in applying the 6% legal interest per annum under the Civil Code. however.. . For having been illegally dismissed. 139 SCRA 260 [1985]). Cruz." The Court ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and. dated 27 February 1985. It will be noted that in the cases already adverted to. (Emphasis supplied.000. there is neither a loan or a forbearance. . except defendant-appellant Merton Munn. and its resolution. After conducting a hearing on the complaints for eminent domain.000. for 12 moral damages by the trial court. the amounts stated in the dispositive portion of the decision. and an entry of judgment was made. they are not applicable to the instant case. later sustained by the IAC. P2. plus costs of suit. of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court. in its resolution of 15 April 1988. that will cause the imposition of the interest. the rate of interest is imposed on the total sum. Intermediate Appellate Court was a petition for review on certiorari from the decision. Ascribing grave abuse of discretion on the part of the trial judge." Again. vs.400. dated 29 April 1985. goods or credit. . jointly and severally. until fully paid. involved the expropriation of certain parcels of land. Clearly.) The petition for review to this Court was denied. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). as part of the judgment for damages. including the sum of P1. with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied. and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money. Jr. This Court said: .. except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31. this Court. to be inconceivably large. (Emphasis supplied) A motion for reconsideration was filed by United Construction. Angas. (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. In a decision of 09 November 1988. 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. (2) forbearance of any money. it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 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. held the award. the latter held: WHEREFORE. the petitioner was awarded by the trial court moral and exemplary damages without. decided on 08 May 1992.e. 1972 is affirmed in all respects. to P240. restoring the amount of damages awarded by the trial court.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment. (Philippine Rabbit Bus Lines Inc. (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. When the decision was appealed to the Court of Appeals. with six (6%) percent interest thereon computed from the finality of this decision until paid. in other words.) The subsequent case of American Express International. 15 the Court declared: 14 13 11 . Said circular [Central Bank Circular No.000. but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. 143 SCRA 160-161 [1986].cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. providing any legal interest thereon. "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100.000. 416 . contending that "the interest of twelve (12%) per cent per 10 annum imposed on the total amount of the monetary award was in contravention of law.000. It is delay in the payment of such final judgment.00 in concept of compensatory damages. a petition for certiorari assailed the said order. goods or credits. . . It is true that in the instant case. Quite recently. however. The records were thereupon transmitted to the trial court.000. 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 . with the modification that defendants-appellants. while recognizing the right of the private respondent to recover damages.00. . . Ruiz which arose from a breach of employment contract. . v.00 and P100. Reformina v. is applicable only in the following: (1) loans.00 as moral damages and P400. . Tomol.. National Power Corporation vs. i. The Court thus set aside the decision of the appellate court and rendered a new one. Inc.

Florendo v. by way of clarification and reconciliation. that in these cases. however. . The "second group". as well as to judgments involving such loan or forbearance of money.Intermediate Appellate Court (1988). The provisions under Title XVIII on "Damages" of the Civil Code govern in determining 20 the measure of recoverable damages. did not alter the pronounced rule on the application of the 6% or 12% interest per annum. Observe. assessed and determined by the courts after proof. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo. goods or credits but expropriation of certain parcels of land for a public purpose. and it consists in the payment of a sum of money. 'unliquidated and not known until definitely ascertained. goods or credits. Ruiz (1989) and National Power Corporation v. too. as well as the accrual thereof. shall be adjudged on 26 unliquidated claims or damages except when or until the demand can be established with reasonable certainty. .. as follows: 1. The "first group" would consist of the cases of Reformina v.explaining that "if the suit were for damages. quasi-contracts. When an obligation. 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. it may not be unwise. the 19 contravenor can be held liable for damages. goods or credits. When an obligation. depending on whether or not the amount involved is a loan or forbearance. i. 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 common time frame in the computation of the 6% interest per annum has been applied. on the one hand. II. the payment of which is without stipulation regarding interest. No interest. Therefore.e. an interest on the amount of damages awarded 24 25 may be imposed at the discretion of the court at the rate of 6% per annum. not constituting a loan or forbearance of money. however. Nonetheless. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. Tomol (1985). 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. Cruz(1986). and American Express International v. on the other hand. interest 'should be from the date of the decision.. Furthermore. Unlike.' then. In the "second group" would be Malayan Insurance Company v. the rate of interest shall be 12% per annum to be computed 23 from default. (T)he transaction involved is clearly not a loan or forbearance of money. The ostensible discord is not difficult to explain. to suggest the following rules of thumb for future guidance. guided by the rule that the courts are vested with discretion. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. In the "first group". When the obligation is breached. 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. Angas (1992). . Art. the "second group" varied on the commencement of the running of the legal interest. i.. 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. contracts. The factual circumstances may have called for different applications. and the interest adjudged by the trial court is in the nature of indemnity for damages. regardless of its source.e. or one of indemnity for damage. 2. 2209 of the Civil Code shall apply." 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. where the demand is established with reasonable certainty. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 1169. Philippine Rabbit Bus Lines v. the 21 interest due should be that which may have been stipulated in writing. the rate of interest. and not by way of earnings from loans. It is easily discernible in these cases that there has been a consistent holding that the Central Bank 16 Circular imposing the 12% interest per annum applies only to loans or forbearance of money.Manila Port Service (1969).. the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of 18 17 . Concededly. from the time the complaint is filed until the adjudged amount is fully paid. on the award of interest. a loan or forbearance of money.e. IAC. there have been seeming variances in the above holdings. i. With regard particularly to an award of interest in the concept of actual and compensatory damages. depending on the equities of each case. In the absence of stipulation. is imposed. introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid. delicts or quasi-delicts is breached. I.e. the interest due shall itself earn legal interest 22 from the time it is judicially demanded.. i.'" American Express International v. Court of Appeals (1988). Nakpil and Sons v. law. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made. etc. is breached. Accordingly.

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

involving an action for sum of money. private respondent. 1996. the dispositive portion of which reads: “THE FOREGOING CONSIDERED.: For the Court’s resolution is the petition for review of the decision of the Court of Appeals in CA-G. (b) the Court of Appeals erred in not finding that petitioner is only liable for the amount P23. Time and again it has been ruled that the jurisdiction of this Court in cases brought to it from the Court of Appeals is limited to the review and revision of errors of law allegedly committed by the appellate court. avers that his principal obligation only amounts to P23. twenty-five percent (25%) as attorney’s fees. the trial court rendered a decision in favor of private respondent.00.R. The petition should be denied.600. CV 39731 entitled [1] “Almario Go Manuel v.[G. in making its findings. The subject matter of the action involved a check dated June 30. surmises or conjectures. petitioner. and the entire obligation to earn interest at six (6%) percent per annum from the filing of the [4] complaint. (3) when the finding is grounded entirely on speculations. would justify a different conclusion. if properly considered. Felix Villanueva and his wife Melchora. On July 27. The check supposedly represented payment of loans previously obtained by petitioner from private respondent as capital for the former’s mining and fertilizer business.00.600. vs. 1992. admits of the following exceptions: (1) when the inference made is manifestly mistaken.R.” [3] Apparently aggrieved. went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee. The check when duly represented for payment was dishonored due to insufficiency of funds. as its findings of fact are deemed conclusive. A demand was made upon petitioner to make good the check but he failed to do so. however. (2) when there is a grave abuse of discretion. respondents. COURT OF APPEALS and ALMARIO GO MANUEL. we consider petitioner to have failed to raise issues which would constitute sufficient ground to warrant the reversal of the findings of the trial and appellate courts. Judgment is hereby rendered in favor of the plaintiff and against co-defendant Felix Villanueva. 1998] FELIX VILLANUEVA. 127997 August 7.00. No. (8) when the findings of fact are conclusions without citation of specific evidence on which they are based. (5) when the findings are conflicting. Petitioner now comes before this Court basically alleging the same issues raised before the Court of Appeals as follows: (a) the Court of Appeals erred in not ruling that the five (5%) and ten (10%) percent interest imposed is not enforceable due to absence of such stipulation in writing. 1991 in the amount of P167. The rule. Private respondent then filed a criminal complaint for violation [2] of Batas Pambansa Bilang 22 before the Cebu City Prosecutor’s Office and the subject civil complaint for sum of money. Felix Villanueva” dated January 30. on the other hand. (4) when the judgment of the Court of Appeals is based on misapprehension of facts. In 1991.00 issued by petitioner in favor of private respondent. . J. absurd or impossible. directing the latter to pay the former P167. Petitioner. (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which. (7) when the findings of the Court of Appeals are contrary to those of the trial court.600. Branch 8 against petitioner. SO ORDERED. this Court is not duty-bound to analyze and weigh all over again the evidence already considered in the proceedings [6] below.420.420. The Court of Appeals dismissed the petition and affirmed the decision of the trial court subject to the modification that petitioner was directed to additionally pay private respondent attorney’s fees and litigation expenses in the amount of ten (10%) percent of P167. Petitioner prayed for the reversal of the trial court’s decision and contended that his principal obligation is only P23.00. DECISION ROMERO. As such. (6) when the Court of Appeals. while private respondent sought interest of ten percent (10%) of the principal obligation. and (c) the Court of Appeals erred in not declaring that the Central Bank and Monetary Board has no power or authority [5] to repeal the usury law. both parties appealed the decision to the Court of Appeals. Almario Go Manuel filed a civil action for sum of money with damages before the Regional Trial Court of Cebu City. the dismissal of this case with respect to co-defendant Melchora Villanueva. as well as moral and exemplary damages. After a review of the case at bar. and finally with costs against the husband.00. and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are [7] contradicted by the evidence on record.420.

i. (Chairman). whether the case falls under paragraph 1 or paragraph 2. When an obligation. concur. contracts. After this decision becomes final and executory. this interim period being deemed to be by then an equivalent to a forbearance of credit. JJ..600.e. Kapunan. Court of Appeals laid down the following guidelines: “I. 2. When an obligation. Narvasa C. Inc. shall be 12% per annum from such finality until its satisfaction. if the total obligation is not satisfied it shall further earn legal interest at the rate of 12% per annum computed from the finality of the decision until payment thereof. regardless of its source. When the judgment of the court awarding a sum of money becomes final and executory. the rate of legal interest. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.” Applying the foregoing rules. the contravenor can be held liable for damages. in the case of Eastern Shipping Lines. With regard particularly to an award of interest in the concept of actual and compensatory damages. [8] . and Purisima. CV 39731 dated January 30. quasi-contracts. x x x. the rate of interest shall be 12% per annum to be computed from default. the rate of TWELVE PERCENT (12%) per annum shall be additionally imposed on the total obligation until payment thereof is satisfied. On the other hand. the rate of interest. 3.. Furthermore. The provisions under Title XVII on “Damages” of the Civil Code govern in determining the measure of recoverable damages. the decision of the Court of Appeals in CA-G. SO ORDERED. is imposed. v. and it consists in the payment of a sum of money. the same should earn legal interest at the rate of 12% per annum computed from the time the complaint was filed until the finality of this decision.00 is a loan. above. as follows: 1. law. delicts or quasi-delicts is breached.R. No costs. since the principal obligation in the amount of P167. the interest due is that which may have been stipulated in writing. premises considered. In the absence of stipulation. 1996 is hereby AFFIRMED with the MODIFICATION that the rate of legal interest to be paid is TWELVE PERCENT (12%) per annum of the amount due computed from the time the complaint was filed until the finality of this decision.As regards the matter of legal interest. J. a loan or forbearance of money. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. this Court. i. not constituting a loan or forbearance of money. the interim period being deemed to be a forbearance of credit.. i. When the obligation is breached. as well as the accrual thereof. II. the interest due shall itself earn legal interest from the time it is judicially demanded.e. is breached. WHEREFORE.e.

such amount to bear interest at the rate of 1% per month until paid. 1979. 1977. On January 23. which loan bears an interest of 14% per annum and is payable on May 21.00. defendant George King Tim Pua.000. and was granted. in his personal capacity applied for. as found by the trial court and adopted by the Court of Appeals. applied for. as well as an additional sum equivalent to 10% of the total amount due as and for attorney's fees in addition to expenses and costs of suit.. On May 6. for which he executed three separate promissory notes (Exhibits 1-C to 1-E).000.000. by the plaintiff bank three (3) separate loans in the amounts of P220. for which defendant George King Tim Pua executed a promissory note (Exhibit A) on behalf of defendant corporation.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the Decision of the Court of Appeals in CAG. and was granted. 1979. On February 21.00. compounded monthly.. in his personal capacity. obtained a loan of P300.. which loan bears an interest of 13. J. with defendants George King Tim Pua and Pua Ke Seng as co-makers. payable on August 29. for which he executed a promissory note (Exhibit 1-B) for the same amount. 1977.R. 1979.000. by the plaintiff bank a loan for the sum of P400.R.00 for which he executed a promissory note (Exhibit 1) for the same amount. with defendants George King Tim Pua and Pua Ke Seng as co-makers.00. 00922. 1979.00. defendant George King Tim Pua.000.G. defendant George and George Trade Inc. through defendant George King Tim Pua. On April 19. QUIASON. I The factual antecedents. by plaintiff bank a loan for the sum of P500. . CV No. 1977. petitioner. On August 2. On April 29. another loan of P200. The three promissory notes (Exhibits A. No.000.00 from the plaintiff. once more secured a loan for P150. through defendant George King Tim Pua. defendant George King Tim Pua. for which defendant George King Tim Pua executed a promissory note (Exhibit B) on behalf of defendant corporation.000. INC. 1977. 1995 THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK). B and C) covering loans in the corporate account of defendant George and George Trade Inc. defendant George and George Trade Inc.. Under the two promissory notes (Exhibits B and C).000. for which defendant George King Tim Pua executed a promissory note (Exhibit C) on behalf of defendant corporation.00 from the plaintiff bank. the defendants further bound themselves to pay a penalty at the rate of 3% per annum on the amount due until fully paid. and was granted. defendant George King Tim Pua. GEORGE KING TIM PUA and PUA KE SENG. applied for.23% per annum and is payable on June 22. gain secured a loan from the plaintiff for the sum of P400. payable on August 22. GEORGE AND GEORGE TRADE. which loan bears an interest of 14% per annum and is payable on September 17. in his personal capacity.000. 1977. respondents. 1979. with defendants George King Tim Pua and Pua Ke Seng as co-makers. 1979. in his personal capacity. for which he executed a promissory note (Exhibit 1-A) for the same amount. are as follows: On April 22.00 and P65. THE HONORABLE COURT OF APPEALS. provides (sic) also that in case of default of payment. the defendants agree to pay interest at an increased rate of 14% per annum on the amount due. until fully paid. 91494 July 14. P450. 1979. payable on May 23. vs. and was granted. 1977.00. payable on September 5. through defendant George King Tim Pua. applied for. 1977. defendant George and George Trade Inc.

with interest thereon at the legal rate from March 28.00.00 attorney's fees and the costs of this suit (Rollo. Intermediate Appellate Court. viz: Loan I — 22-Apr-77 Payable August 22.772. 174). the Court of Appeals reversed the decision of the trial court. he assigned unto the latter the proceeds of a fire insurance policy issued by the Kerr Insurance Company in the amount of P2. 14). the issue in this petition is whether private respondents are indebted to petitioners in the amount of P288. 53-55). judgment is hereby rendered ordering defendants George and George Trade.000. p.80 of the loans. In their Answer with Special and Affirmative Defenses and Counterclaim. 1980 an action (Civil Case No. including attorney's fees equivalent to 10% of the amount recoverable. decreeing as follows: WHEREFORE. 1977 — 500.00 The proceeds of the insurance policy were subsequently paid to the plaintiff which applied the same to the personal account of defendant George King Tim Pua.469. For lack of merit. One of the exceptions is when the findings of fact of the Court of Appeals are contrary to those of the trial court (Massive Construction. George King Tim Pua and Pua Ke Seng. There are. finding for petitioner.80. 1979 until said amount is fully paid. until the same is fully paid. he obtained from petitioner on different dates six separate loans with different due dates.469.22 as of September 7. and attorney's fees in the sum of P25. Inc. In the instant case.42. there remained of the insurance proceeds the amount of P383. No amicable settlement having been reached between the parties. and plaintiff-appellee Consolidated Bank and Trust Corporation (Solidbank) is instead ordered to pay appellant George King Tim Pua the amount of P466. pp. The dispositive portion of the decision reads: PREMISES CONSIDERED.182. 1979. private respondents claimed that the loans had been extinguished by way of payment through the assignment by respondent George King Tim Pua of the fire insurance proceeds and that it was in fact petitioner which owed them by reason of its failure to return to the latter the balance of said insurance proceeds. v. 223 SCRA 1 [1993]).000.80 as held by the then Court of First Instance of Manila or whether said private respondents are entitled to reimbursement from petitioner in the amount of P466. Petitioner instituted on April 7. exceptions to the rule. According to petitioner bank. which amounted to P671. Failing to secure a reconsideration of said decision. with legal interest thereon per annum from September 8. 1980.469. petitioner is now before the Court on a petition for review oncertiorari. It then proceeded to apply said amount to the unpaid loans of respondent George and George Trade.485.00 . to pay plaintiff. On appeal by private respondents. the decision appealed from herein is REVERSED. Inc. For his personal account. the trial court rendered judgment. The Consolidated Bank and Trust Corporation (Solidbank) the sum of P228. 130915) against private respondents before the then Court of First Instance of Manila for the recovery of the unpaid balances on the three promissory notes. with costs of suit. Inc. Inc.908. thus leaving a balance of P288. As a general rule.39. jointly and severally. The records show that respondent George King Tim Pua had two sets of accounts with petitioner bank: his personal account and his account for George and George Trade. this Court may review the findings of fact of the Court of Appeals and may scrutinize the evidence on record. trial ensued. the findings of the Court of Appeals upon factual questions are conclusive and ought not to be disturbed.39 as decreed by the Court of Appeals? The issues raised are factual.182. On November 4. the findings of fact of the Court of Appeals are contrary to the findings of the trial court.000. after it had deducted from the insurance proceeds the entirety of respondent George King Tim Pua's personal account. the counterclaim filed by the defendants is dismissed (Rollo. plus P10. The personal account of defendant George King Tim Pua was fully satisfied through the remittances of the fire insurance proceeds (Rollo. 1982. Simply stated. Under such circumstance.In order to secure the payment of defendant George King Tim Pua's obligation with the plaintiff. p. however..302.

1979 TOTAL PAYMENTS P P 230.00 ————— 735. respondent Pua Ke Seng. 1978. An additional sum equivalent to 10% of the total amount due.485.00 =========== Based on the foregoing figures. The maturity dates of the loans were extended up to either December 1 or December 5.00 ============ The first loan bore an annual interest of 13.000. thus: — 200. in case of failure on the part of respondent George King Tim Pua to pay on maturity. obtained the following loans: Loan A Loan B Loan C — — — TOTAL 23-Jan-79 Payable June 22.00 was to be imposed in case of failure to pay on due date as attorney's fees.00 — 300. 1979 19-Apr-79 Payable May 21.000.000.00 2.035.00 —————— 650. 1978 October 28. 1978 November 28. 17.00 400000.000. 1978 June 8. was to be imposed as and for attorney's fees.000. 1979.000. Interest were paid on the loans up to their date of maturity. Under the account of George and George Trade.00 . 1977 TOTAL — — — — — — — 400. which was to be compounded monthly. he further undertook to pay an additional sum equivalent to 10% of the total amount due but in no case less than P200.985.000.000.00 ============ All of these loans bore a 14% rate of interest. Inc.23%.00 —————— 3. the accounts of respondents George King Tim Pua and George and George Trade. Inc.387. together with his co-maker.000. 1979 8/2/79 Payable Sept.Loan II Loan III Loan IV — 29-Apr-77 Payable August 29.00 220.00. 1977 and all interests were paid up to March 5. until fully paid.00 as attorney's fees.000. In which case. 1979 September 6. 1977 — 5/6/77 Payable September 5.000. 1977 — (a) 2/21/1977 (b) (c) Payable on May 3.383. 1979 P — 150. compounded monthly.000.00 525.00 149.000.. with petitioner Bank should stand as of September 6. respondent George King Tim Pua.00 2. An additional amount equivalent to 10% of the total amount but not less than P200. The second and third loans bore an interest rate of 14% per annum and carried a penalty of 3% per annum on the amount due in case of failure to pay on the date of maturity. but not less than P200. which was to be increased to 14% in case of failure to pay on due date.00 65.000.00 450.00 100. The records further show that payments were made as follows: September 12.

1978 Add: Interest March 6.666. 28.46 —————— Total P 537. 1978 Add: Interest. 14%.46 Loan III (Promissory Note No. March 6 to Sept.00 14% interest.34 —————— Total P 476.587.219. as of June 8. 1979 Loan I P 70.00 —————— Balance.219.212.00 —————— Balance. June 8. 1978 37.116.GEORGE KING TIM PUA Loan I (Promissory Note No.079.77 Add: Interest November 29.000. 1978 to June 8.12 Loan II (Promissory Note No.000. 1978 100.000. compounded monthly 5. 1978 to June 8.35 —————— Total P 70. 1979 525.00 14% Interest. October 28.712. 1979 76.904. 28. 1979. 1978 14%.46 Less: Payment. 55991) — P 400.09 Add: Interest October 29 to Nov. September 12. 1978 P 65.000. 1978 230. 1978 14%.77 Less: Payment November 28.46 Add: Interest September 13 to Oct.587.500.666.12 Loan II 476.492.000.219.09 Less: Payment. 1978 149.00 ——————— Balance. June 8.079. 55828) — P 400. 1978 P 163.587. 55658) — P 500.68 —————— Total P 165.34 LOANS I and II.000. 1978 P 307.116.00 . 12. compounded monthly 1. compounded monthly Interest paid up to March 5.00 —————— Balance. compounded monthly 4.63 —————— Total P 312. compounded monthly Interest paid up to March 5. October 28. November 28.34 P 546. 1979 P 21.46 Less: Payment September 12.962.

208. compounded monthly Interest paid up to June 22. 1978 Add: Interest March 8.17 LOANS II. 1978 to Sept.00 ——————— BALANCE OF INSURANCE PROCEEDS P 963. 790591) — P 300.00 14% Interest.831.691. 1979 170. 6. 792805) — P 200. 6. INC Loan A (Promissory Note No.967. 1979 to Sept. 1979 8.634.000.691. 1979 Loan II P 21.14% Interest. 6. compounded monthly Interest paid up to March 7.17 ——————— Total P 905.60 Loan IV (Promissory Note No.000. III and IV.60 ——————— Total P 492.634.000. 6.517.000.07 ——————— Total P 210.000.00 (Promissory Note No.46 Loan III 492. 1979 to Sept.383.00 (Promissory Note No. 1979 92.419.29 .276. 1979 Add: Interest from May 22. 1979 Add: Interest from June 23.00 14% Interest per annum Interest paid up to May 21. 1979 2.216.216. 1978 Add: Interest March 8.77 GEORGE AND GEORGE TRADE.216.039. 54221) — P 220.60 Loan IV 905.17 P 1. compounded monthly Interest paid up to March 7.485. as of Sept.14 Loan B (Promissory Note No. 1979 8.63 Balance of Insurance Proceeds after payment of Loan A P 655.000.00 P 735. 54222) — 450.63 ——————— Total P 308. September 6.00 14% Interest.634.22 Penalty of 3% per annum 1. 1978 to Sept.23 Less: Payment. 54223) — 65. 6.666.

be said of the payment being insisted upon by petitioner of the attorney's fees stipulated in all the promissory notes. although the penalty may be reduced by the courts if it is iniquitous or unconscionable (Equitable Banking Corporation v. A stipulation regarding the payment of attorney's fees is neither illegal nor immoral and is enforceable as the law between the parties as long as such stipulation does not contravene law. by stipulation. Section 7 of the same Circular. Intermediate Appellate Court. As stated in the promissory notes. being only 3% per annum of the unpaid balance of the principal of said Loan B.000.50% on loans over P1. 191 SCRA 28 [1990]).000. 794730) — P 150.00 with a maturity of 730 days or less at the rate of 2% per annum. etc. Ltd. v. 504 to collect such charges on loans over P500.000. The payment of penalty is sanctioned by law. These conditions are not obtaining in the case at bench. Visayan Packing Corporation. 1.000. The same cannot. 3765 otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of borrowing an integral part of every loan contract.00.616. we ruled that the parties may. therefore." In other words.000. 169 SCRA 226 [1989]. as amended. Intermediate Appellate Court. good morals. 22 SCRA 359 (1968). 17.000.236. petitioner is entitled to collect from respondent George King Tim Pua the attorney's fees agreed upon only in case it was compelled to litigate with third persons or to incur expenses to protect its interest (China Airlines.00 14% Interest per annum Interest paid up to Sept. good customs. charge private respondents such handling charges. should they fail to pay the principal loan on the date of maturity.00 ——————— Amount Refundable to Respondent George King Tim Pua P 3. is considered reasonable and proper.000.00. 32 SCRA 293 [1970]). public order or public policy (Social Security Commission v. Liwanag. Almeda.000. The charging of compounded interest has been held as proper as long as the payment thereof has been agreed upon by the parties. Reparations Commission v. As to handling charges.000. The penalty actually imposed.620. whichever is lower.Balance of Insurance Proceeds after payment of Loan B P 445. banks are authorized under Central Bank Circular No. however. compounded monthly. respondent George King Tim Pua agreed to pay attorney's fees only "in addition to expenses and costs of suit.236. provides that all banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of Republic Act No. Petitioner bank cannot. 1979 Balance of Insurance Proceeds after payment of all loans P 295. however.75% on loans over P500. Songcuan v.85 Loan C (Promissory Note No. 168 SCRA 474 [1988]. Inc. on the principal or the outstanding balance thereof. private respondents agreed to the payment of 14% interest per annum.00 but not over P1. Neither has it been shown by competent proof that petitioner had to engage the services of a lawyer or incur expenses in collecting the fire insurance proceeds from Kerr and Company. The promissory notes signed by private respondents do not contain any stipulation on the payment of handling charges. The payment of penalty was provided for under the terms and conditions of the promissory notes for Loans B and C of George and George Trade. consisting of 10% of the total amount due and payable. capitalize the interest due and unpaid. There was no need for petitioner to litigate to protect its interest inasmuch as private respondents had fully paid their obligations months before it filed the complaint for recovery of sum of money. The "Tentative Computation" to which respondent George King Tim Pua allegedly affixed his initials to the item "Attorney's Fees. 193 SCRA 531 [1991]). Philippine National Bank.85 ============ The 14% interest rate charged by petitioner was within the limits set by Section 3 of the Usury Law. which as added principal shall earn new interest.00 but not over 2. In Mambulao Lumber Company v. 10%" cannot be taken as amending the stipulation contained in the promissory notes on the payment of attorney's . 1. In the instant case.85 Less: Trust Receipts Obligations 291.

65). WHEREFORE. the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the Philippines demands factual.000.00 as attorney's fees to private respondents was reasonable and justified as they were compelled to litigate and incur expenses to protect their interest.616. SO ORDERED. . The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case. As to the award of attorney's fees being an exception rather than the rule. concur. 176 SCRA 539 [1989]). 188 SCRA 170 [1990]). the same shall be disallowed. it is necessary for the court to make findings of fact and law that would bring the case within the exception and justify the grant of the award (Refractories Corporation of the Philippines v. the Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the amount which petitioner is ordered to reimburse respondent George King Tim Pua is reduced to THREE THOUSAND SIX HUNDRED SIXTEEN & 65/100 PESOS (P3. Davide. legal and equitable justification. Intermediate Appellate Court. If it is stated only in the dispositive portion of the decision..fees. In this case. The award of P10. 1979 until said amount is fully paid. v. JJ. without which the award is a conclusion without a premise and improperly left to speculation and conjecture. Padilla. However. with legal interest thereon from September 8. The failure of said Tentative Computation to express the true intent and agreement of the parties thereto was put in issue in the Amended Answer with Special and Affirmative Defenses and Counterclaim filed by private respondents before the trial court. Inc.. The corresponding testimony of respondent George King Tim Pua that he did not understand the import of this item in the Tentative Computation remains unrebutted. No pronouncement as to costs. Intermediate Appellate Court. Bellosillo and Kapunan. It becomes a violation of the proscription against the imposition of a penalty on the right to litigate (Universal Shipping Lines. the Court of Appeals strictly followed the above-stated standard set by this Court. Jr. The reason for the award must be stated in the text of the court's decision.

000. in the absence of evidence justifying the impositions of a higher rate? This is a petition for review on certiorari for the purpose of assailing the decision of Honorable Judge Fernando V..00.00) in six (6) monthly installments plus [2] 23% interest per annum. 1993. Pay the sum of P65.00.00 as of September 1983. respondents.000.: Questions of law which are the first impression are sought to be resolved in this case: Should the rate of interest on a loan or forbearance of money. as stipulated in a contract. TL/74/1296/83 3) PN No. BRANCH 61. the principal balance remaining on the notes stood at: 1) PN No. Respondent bound himself to pay the sum of One Hundred Thousand Pesos (P100. Gorospe of the Regional Trial Court of Makati.000. which found private respondent Eusebio liable to petitioner for a sum of money. On March 30. another Promissory Note No. judgment is hereby rendered in favor of plaintiff and as against defendant Eusebio who is hereby ordered to: 1. On all the abovementioned notes. TL/74/748/83 2) PN No. (SBTC) in the total amount of One Hundred Thousand Pesos (P100.00).000. TL/74/1991/83 P16. MAGTANGGOL EUSEBIO and LEILA VENTURA. the dispositive portion which reads: “WHEREFORE. Respondent agreed to pay this note in six (6) monthly installments plus interest at the rate of 23% per annum. petitioner.00 as of August 1983 P65.R. JR. and plaintiff’s claim having been duly proven. and to .333.[G.00 as of August 1983. plus interest of 12% per annum starting 27 September 1983. No. plus interest of 12% per annum starting 31 August 1983. DECISION HERMOSISIMA. 905 which prescribes that the rate of interest thereof shall continue to be 12% per annum? Do the Courts have the discretion to arbitrarily override stipulated interest rates of promissory notes and stipulated interest rates of promissory notes and thereby impose a 12% interest on the loans.00) payable in six monthly [1] installments with a stipulated interest of 23% per annum up to the fifth installments. plus interest of 12% per annum starting 28 August 1983. TL74/1491/83 was executed on August 31. until fully paid. prevail over Section 2 of Central Bank Circular No. respondent Eusebio again executed Promissory note No TL/74/1296/83 in favor of petitioner SBTC. 2. 4.333. 1983. goods or credits. 1983 in the amount of Sixty Five Thousand [3] Pesos (P65. On July 28. a collectible case was filed in court [5] by petitioner SBTC. Pay the sum of P16. The undisputed facts are as follows: On April 27. 3. 1996] SECURITY BANK AND TRUST COMPANY.665. private respondent Magtanggol Eusebio executed Promissory Note No. Interest was lowered by the court a quo from 23% per annum as agreed upon by the parties to 12% per annum. P83. Upon the failure and refusal of respondent Eusebio to pay the aforestated balance payable. until fully paid.665. until fully paid. premises above-considered. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as and by way of attorney’s fees. dated March 30. 113926. TL/74/178/83 in favor of petitioner Security Bank and Trust Co. Finally. the court a quo rendered a judgment in favor of petitioner SBTC. far in excess of the ceiling prescribed under or pursuant to the Usury Law. Branch 61.00. J. private respondents Leila Ventura had signed as co-maker. October 23.000. Pay the sum of P83. REGIONAL TRIAL COURT OF MAKATI. [4] Upon maturity which fell on the different dates below. vs. 1993. 1983.

as amended. Consequently. including deposits and deposit [10] substitutes. “In the exercise of the authority herein granted. Section 1-a of Act No. or loans of financial intermediaries. it appears that indeed the agreed rate of interest as stipulated on the three (3) [8] promissory notes is 23% per annum.5. particularly Sections 1 and 2 which state: “Sec. finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. Hence. Court of Appeals [11] that: “P. 1684 and C. goods or credits and the rate allowed in judgments. this circular did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity.” This court has ruled in the case of Philippine National Bank v. The sole issue to be settled in this petition is whether or not the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not against the Usury Law. that may be charged or collected by any person. Contrary to the claim of respondent court. is liable jointly and severally with defendant Eusebio without a need for demand upon her. a motion for partial reconsideration was filed by petitioner SBTC contending that: (1) (2) notes. the interest rate agreed upon by the parties during the signing of the promissory notes was 23% per annum. Circular No. The applicable provision of law is the Central Bank Circular No. The rate of interest for the loan or forbearance of any money. No. shall continue to be twelve per cent (12%) per annum. shall not be subject to any ceiling prescribed under or pursuant to the Usury Law.B. 1982. on a loan or forbearance of any money. goods or credits. 905 no more than allow contracting parties to stipulate freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or forbearance of money. 1-a The Monetary Board is hereby authorized to prescribed the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money.D. this petition. 1. as amended. whether natural or judicial. the interests awarded should be compounded quarterly from due date as provided in three (3) promissory (3) defendant Leila Ventura should likewise be held liable to pay the balance on the promissory notes since she has [7] signed as co-maker and as such. therefore. the Monetary Board may prescribed higher maximum rates for loans of low priority. upward or downward. Sec. in the absence of express contract as to such rate of interest. and holding defendant Leila Ventura jointly and severally liable with co-defendant Eusebio. 2655. the interest previously stipulated. From the examination of the records. 2. they can agree to adjust. Pay the cost of this suit. 1684 empowering them to prescribe the maximum rates of interest for loans and certain forbearances. fees and other charges. That changes in such rates or rates may be effected gradually on scheduled dates announced in advance. regardless of maturity and whether secured or unsecured. were already covered by CB Circular No. The rate of interest. We find merit in this petition. including commissions.D. 1993. In fine. premiums.” On August 6. The Monetary Board is also authorized to prescribed different maximum rate or rates for different types of borrowings.” CB Circular 905 was issued by the Central Bank’s Monetary Board pursuant to P. such as consumer loans or renewals thereof as well as such loans made by pawnshops. is hereby amended to read as follows: “SEC.” All the promissory notes were signed in 1983 and. [6] SO ORDERED. goods or credits. an Order was issued by the court a quo denying the motion to grant the rates of interest beyond 12% per annum. to wit: ‘SECTION 1. . 905 which took effect [9] on December 22. goods or credits. and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided. 905.

In fact. interpretation being called for only when such literal application is impossible. As we have held in the case of Quijano v. Padilla (Chairman). It must see to it that its mandate is obeyed. and in the absence [13] thereof. IN VIEW OF THE FOREGOING.Basic is the rule of statutory construction that when the law is clear and unambiguous. public order. stipulations therein are binding between them. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal. Furthermore. Respondent Eusebio. The promissory notes were signed by both parties voluntarily. We find no valid reason for the respondent court a quo to impose a 12% rate of interest on the principal balance owing to petitioner by respondent in the presence of a valid stipulation. terms and conditions as they may deem convenient. Bellosillo. Where a requirement or condition is made in explicit and unambiguous terms. This Court had steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms. SO ORDERED. or public policy. the decision of the respondent court a quo. did not question any of the stipulations therein. clauses. morals. is hereby AFFIRMED with the MODIFICATION that the rate of interest that should be imposed be 23% per annum. only in the absence of a stipulation can the court impose the 12% rate of interest. Article 1306 of the New Civil code provides that contracting parties may establish such stipulations. Development Bank of the Philippines: “xxx We cannot see any room for interpretation or construction in the clear and unambiguous language of the above-quoted provision of law. In a loan or forbearance of money. concur. . provided they are not contrary to law. the interest due should be that stipulated in writing. no discretion is left to the judiciary. Hence. the rate shall be 12% per annum. Significantly. in the Comment file by respondent Eusebio to this court. JJ. likewise. good customs.. respondent did not question that rate. he chose not to question the decision and instead expressed his desire to negotiate with the petitioner bank [14] for “terms within which to settle his obligation”. Vitug. and Kapunan. Therefore. No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application. the court is left with no alternative but [12] to apply the same according to its clear language.” The rate of interest was agreed upon by the parties freely.

1985. or on July 11. JR. The facts of the case. GONZALES. as found by the Court of Appeals in its decision. 1986. On June 11. Servando and Leticia with the latter's husband. 1998] LETICIA Y.R. which was filed on May 29.00.00. Veronica gave only the amount of P47. at 6% interest per month. the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiff: the sum ofP500.000. Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R.[G.000. the borrowers failed to pay the indebtedness.00.000. only the sum of P275. On July 23. who issued a special power of attorney in favor of Leticia Medel. maturing on January 19.00. after a month. doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES".00 [4] [5] . Dr. vs. Servando and Medel failed to pay the third loan on maturity. SO ORDERED.000. the dispositive portion of which decision reads as follows: "WHEREFORE. 1998. plus 5. We now resolve to give due course to the petition and decide the case.. under Rule 45 of the Revised Rules of Court.000.000. Rafael Medel.000. as she retained P3.000. and its resolution denying reconsideration. as advance interest for one month at 6% per month. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300.000. Servado and Leticia executed a promissory note for P50. out of the proceeds of the loan. 131622. COURT OF APPEALS. to the borrowers.: The case before the Court is a petition for review on certiorari. November 27. "The award to the plaintiff of P50. 1986 "Maturity Date August 23.000. 1986. J.000. On November 19. Like the previous loans. consolidated all their previous unpaid loans totaling P440. as the appeal is limited to questions of law. RAFAEL MEDEL and SERVANDO FRANCO. GONZALES and DANILO G. until the entire amount is fully paid. bringing their indebtedness to a total of P500.00. authorizing her to execute the mortgage. Servando and Leticia secured from Veronica still another loan in the amount of P300. payable on January 7. reading as follows: "Baliwag.000. Servando and Leticia obtained from Veronica another loan in the amount of P90." [3] The Court required the respondents to comment on the petition. which was filed on April 3. SPOUSES VERONICA R. MEDEL DR. Bulacan July 23. And so is the imposition of costs against the defendants. payable in two months. 1986. 1985. and the petitioners to [6] reply thereto. 1986. 1986. The executed a promissory note. However. No.00. seeking to set [1] [2] aside the decision of the Court of Appeals. respondents. was given to them out of the proceeds of the loan. 1998.00. 1986. DECISION PARDO. which are considered binding and conclusive on the parties herein.000. 1986.00. in the amount of P50. who was engaged in the money lending business under the name "Gonzales Credit Enterprises". payable in two months.00 as attorney's fees is affirmed. 1986.00. 1986 "P500. Gonzales (hereafter Veronica). maturing in one month.00. to evidence the loan.00.00.000. and sought from Veronica another loan in the amount of P60. On maturity of the two promissory notes. They executed a promissory note to evidence the loan. secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay. are as follows: On November 7. petitioners. payable on August 23.5% per month interest and 2% service charge per annum effective July 23.000. They received only P84.00. plus 1% per month of the total amount due and demandable as penalty charges effective August 23.

the trial court rendered judgment.00. Jr. "2. reserving rights against each and all indorsers and all parties to this note. that the loan was secured by a real estate mortgage executed in favor of the plaintiffs. the dispositive portion of which reads as follows: "WHEREFORE." On maturity of the loan. filed with the Regional Trial Court of Bulacan. defendant Servando alleged that he did not obtain any loan from the plaintiffs. Gonzales. until the entire amount is paid in full.000. Medel to plaintiffs. "Demand and notice of dishonor waived. judgment is hereby rendered. 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 penaltycharges in the form of liquidated damages until fully paid. In their separate answer filed on April 10. and actually received the amount and benefited therefrom. that it was defendants Leticia and Dr. 1990. I/WE jointly and severally promise to pay to the order of VERONICA R. evidenced by the above-quoted promissory note. Gonzales. After due trial. Holder may accept partial payments and grant renewals of this note or extension of payments. "IN CASE OF JUDICIAL Execution of this obligation. jointly and severally. of Baliwag Bulacan. of the total amount due and demandable.00. the debtors waive all his/their rights under the provisions of Section 12. Filipino. 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 obligation. and penalty charge of 1% per month. 1985 and 1% per month as penalty. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES.."FOR VALUE RECEIVED.1990. and that he (Servando Franco) signed the promissory note only as a witness. Veronica R. jointly and severally the amount of P84.00) Philippine Currency with interest thereon at the rate of 5.. due to extraordinary inflation or deflation. FIVE HUNDRED THOUSAND . In his answer to the complaint filed with the trial court on April 5. who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan.000. illegal and excessive.. 1990. of the Revised Rules of Court. that the stipulation for attorney's fees of 25% ofthe amount due is unconscionable. at Malolos.5% per month with additional service charge of 2% per annum. joined by her husband Danilo G. plus interests and penalties. without deductions asAttorney's Fee whether actually incurred or not. the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". or any other cause or reason. Rule 39. Ordering the defendants Servando Franco and Leticia Medel. or any part of it. the trial court applied "the provision of the New [Civil] Code" that the [7] "legal rate of interest for loan or forbearance of money... of legal age.000. that the interest rate is excessive at 5. a complaint for collection of the full amount of the loan including interests and other charges.000. 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. premises considered. the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved.. and if there be any change in the value thereof. defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay.." Accordingly. and that substantial payments made were applied to interest. on December 9. exclusive of costs and judicial or extra judicial expenses. WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines.. the sum of PESOS . the borrowers failed to pay the indebtedness of P500. Gonzales. goods or credit is 12% per annum. penalties and other charges.5 PER CENT per month plus 2% service chargeper annum from date hereof until fully paid according to the amortization schedule contained herein. . Batangas. married to Danilo G.... and ruled that although the Usury Law had been repealed. On February 20.00 with 12% interest per annum and 1% per cent per month as penalty from November 19. (Underscoring supplied) "Payment will be made in full at the maturity date. (Underscoring supplied) "I. Branch 16. Ordering the defendants Servando Franco and Leticia Y. "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 peso. (P500. to pay plaintiffs the amount of P47. "Should I/WE fail to pay any amortization or portion hereof when due. Hence.000.00 plus 12% interest per annum from November 7. as follows: "1. and the further sum of TWENTY FIVE PER CENT (25%) thereon in full.1985 until the whole amount is fully paid. 1991. Rafael Medel who borrowed from the plaintiffs the sum of P500.. Bulacan.

the issue revolves on the validity of the interest rate stipulated upon. the Court reiterated the ruling that "by virtue of CB Circular 905. In Security Bank and Trust Company vs.000. 905 of the Central Bank. Ordering the defendants to pay plaintiffs.00 as attorney's fees is affirmed. The Court of Appeals sustained the plaintiffs-appellants' contention. However. plus 5.000. Basically. Interest can now be charged as lender and borrower may agree upon. The stipulation is [21] void.00.000.5% per month on the P500. the amount of P285. "With costs against the defendants. or 66% per annum.5% per month on the loan in the sum of P500. the Usury Law has been rendered ineffective". applies only in the absence of a stipulation on interest rate. We find the petition meritorious. whether intended as an indemnity or a penalty if they are iniquitous [22] or unconscionable. the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum ofP500. The courts shall reduce equitably liquidated damages." Indeed. [16] [13] . the Court of Appeals denied the motion." In the recent case of Florendo vs. 1986. if not against the law. both plaintiffs and defendants appealed to the Court of Appeals. contrary to morals ("contra bonos mores"). Thus. as amended by P. plaintiffs-appellants argued that the promissory note. "The award to the plaintiffs of P50. It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. In other words. And so is the imposition of costs against the defendants. the Court of Appeals promulgated it decision reversing that of the Regional Trial Court. 1982. hence. 1986. but not when the parties agreed thereon. adopted on December 22.D. 1997. 905. No."3. the amount of P50. the lender and borrower could agree on any [9] interest that may be charged on the loan". until the entire amount is fully paid. pursuant to its powers under P. disposing as follows: "WHEREFORE. jointly and severally. 13 iniquitous. defendants interposed the present recourse via petition for review on certiorari." Nevertheless. is the law that governs the parties.D. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity. In their appeal. has expressly removed the interest ceilings prescribed [14] [15] by the Usury Law and that the Usury Law is now "legally inexistent". 116. is the Usury Law still effective. "Usury [19] has been legally non-existent in our jurisdiction. By resolution dated [12] November 25. "4." [11] On April 15. which consolidated all the unpaid loans of the defendants.000. Regional Trial Court of Makati. 1684? We agree with petitioners that the stipulated rate of interest at 5. 1982.00 as attorney's fees. plus 1% per month of the total amount due and demandable as penalty charges effective August 24. 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 [10] paid' was allowed by law". Court of [18] Appeals . Branch 61 the Court held that CB Circular No. 905. jointly and severally. the question presented is whether or not the stipulated rate of interest at 5. that plaintiffs extended to the defendants is usurious. "5.00.000. or has it been repealed by Central Bank Circular No." [8] In due time. unconscionable and exorbitant. 1997. on March 21. 1986. we find the interest at 5.5% per month interest and 2% service charge per annum effective July 23. defendants-appellants filed a motion for reconsideration of the said decision. Ordering the defendants to pay the plaintiffs. "SO OREDERED. we have held that "a [17] Central Bank Circular can not repeal a law. we can not consider the rate "usurious" because this Court has consistently held that Circulr No.5% per month. adopted on December 22.00 loan is excessive. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money. goods or credit at 12% per annum. and.000. Hence.00 plus 12% interest per annum and 1% per month as penalty from July 11. 1997. They further argued that Circular No. All counterclaims are hereby dismissed. stipulated upon by the parties in the promissory note [20] iniquitous or unconscionable. No. until the whole amount is fully paid. Only a law can repeal another law. Accordingly.

J. Rather. the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21. we agree with the trial court that. involving the same parties. Branch 16. (Chairman). interest at 12% per annum. 1991. JJ.Consequently. the Court of Appeals erred in upholding the stipulation of the parties. 1997. we render judgment REVIVING and AFFIRMING the decision dated December 9. C. of the Regional Trial Court of Bulacan. WHEREFORE. and Purisima. No pronouncement as to costs in this instance SO ORDERED. concur. 134-M-90. under the circumstances.. and its resolution dated November 25. Romero. . Bulacan. and an additional 1% a month penalty charge as liquidated damages may be more reasonable. Malolos. Kapunan. in Civil Case No. Instead. Narvasa. 1997.

petitioner. Consequently. However.60 payable in sixty (60) consecutive and equal monthly installments of P216.666. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed.999. 129763 for the price of P12.60 from BARRETTO at a discounted value of P6. BARRETTO would acquire P12.The mechanics of the proposed “IPP” transaction was (1) First.000. AUTOWORLD SALES CORPORATION.999. September 21. J. On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed “IPP” [3] [4] transaction. AUTOWORLD's request for loan was denied.[G. thus entitling the latter to reimbursement of excess [1] interest payments amounting to P2.586.60 worth of receivables from AUTOWORLD. On 9 February 1981 the parties signed three (3) contracts to implement the “IPP” transaction: (1) Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD.60 purchase price directly to FNCB. But sometime thereafter. respondents. president of AUTOWORLD. The lawyers of FNCB then drafted the contracts needed and furnished Anthony Que with copies thereof. informed Anthony Que that although it could not grant direct loans it could extend funds to AUTOWORLD by purchasing any of its outstanding receivables at a discount. private respondent Pio Barretto Realty Corporation (BARRETTO). and PIO BARRETTO REALTY DEVELOPMENT CORPORATION.00 subject to the condition that such amount would be “flowed back” to AUTOWORLD.666. DECISION BELLOSILLO. title and interest to all the money and other receivables due from AUTOWORLD under the Contract to Sell.999.980. would in turn.999.999. Petitioner Investors Finance Corporation. then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation).999. Manila.999. No. also held the same position at its affiliate corporation.: INVESTORS FINANCE CORPORATION seeks a review of the Decision of the Court of Appeals which ruled that the financing firm had entered into a usurious loan transaction with Autoworld Sales Corporation. .035. Sometime in August 1980 Anthony Que. (2) FNCB would then purchase the receivables worth P12. (3) BARRETTO. (2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights. 2000] INVESTORS FINANCE CORPORATION. in behalf of AUTOWORLD. Anthony Que. vs. is a financing company doing business with private respondent Autoworld Sales Corporation (AUTOWORLD) since 1975.60 payable in sixty (60) equal monthly installments of P216. Leoncio Araullo. since the Usury Law imposed an interest rate ceiling at that time. consequently. covered by TCT No. 128990. together with the improvements thereon. BARRETTO would mortgage the property subject of the sale to FNCB.66.999.999. Mr. to secure the payment of the receivables under the Deed of Assignment. execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of [2] the P12. FNCB informed Anthony Que that it was not engaged in direct lending. and (4) Lastly. Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12. FNCB’s Assistant Vice President. situated in San Miguel. applied for a direct loan with FNCB. subject to the condition that the assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the event that the payor (AUTOWORLD) defaulted in the payment of its obligations.44.66.999.R.

despite its objections. AUTOWORLD began paying the installments.000.586.026. AUTOWORLD reluctantly paid FNCB P10.00 as excess payment for the second transaction.000. the existence of a usurious interest rate had no bearing on the P3.00 as damages and P100.082. it was ordered to pay FNCB P50. Thereafter. After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB. FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. On 27 December 1982 FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD [11] upon payment of the amounts demanded. On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latter’s computation of its outstanding [10] balances. it overpaid P2.165.00 as exemplary damages and P100.035. which expressly provided that FNCB as assignee had a right of recourse against BARRETTO as assignor in case AUTOWORLD defaulted in its [15] payments.000.44 as excess interest payments over the 12% ceiling rate. FNCB should refund the amounts of P2.000. FNCB also prayed for P2.604.00) and three (3) monthly installments of P93. which FNCB could legally engage in as a financing company.480.00 payable in sixty (60) consecutive monthly installments of P93.00 on the second transaction (loan worth P3. The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court of Makati to annul the Contract to Sell. the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981.551. where P6.784.035. The Court of Appeals modified the decision of the trial court and concluded that the “IPP” transaction.000. It prayed forP1. On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount [13] of P3.00 as attorney’s fees.035. With regard to the second transaction. BARRETTO countered that it could not be held liable for AUTOWORLD's alleged default in its payments since the Deed of Assignment. the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction.000.00 as attorney’s fees. On the other hand. or purchase of receivables at a discount. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2. Thus.586. On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3.021.242. The appellate . It then requested FNCB to provide a computation of the remaining balances.586.736.000.44 to settle the first transaction and P418.00 as moral damages andP500. comprising of the three (3) contracts perfected on 9 February 1981.24 was the amount to settle the first transaction while P3. as co-makers.000.408. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan.666.00 for attorney's [17] fees.600.(3) Real Estate Mortgage whereby BARRETTO. was merely a scheme employed by the parties to disguise a usurious loan. the appellate court ruled that at the time it was executed the ceiling [18] rates imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest.262. was simulated and perfected only to facilitate a [16] usurious loan.66 on the first transaction (“IPP” worth P6.44 as excess payment for the first transaction and P418.000. then signed a promissory note in favor of FNCB [7] worth P5.000.000. AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled. It likewise prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982. to FNCB. However. as assignor.84.980. together with the Contract to Sell and the Real Estate Mortgage. AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No.78.000.408. AUTOWORLD also asked for P500.54 was [9] the amount to settle the second transaction.000. [8] AUTOWORLD mortgaged a parcel of land located in Sampaloc. mortgaged the property subject of the Contract to Sell to FNCB as security [5] for payment of its obligation under the Deed of Assignment.00 as attorney’s fees.026.00 with an effective [6] interest rate of 28% per annum. FNCB sent AUTOWORLD its computation requiring it to pay a total amount of P10.736. 871 dated 21 July 1981 had effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days. On 18 January 1985 FNCB filed a Third-Party Complaint against BARRETTO based on the Deed of Assignment. AUTOWORLD and BARRETTO. after paying nineteen (19) monthly installments of P216. In December 1982. with regard to the second transaction. Instead.00 to settle [14] the second transaction.000. To secure the promissory note. On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the discounting of receivables.262.78 [12] through its UCPB account.00).00. Manila. According to AUTOWORLD. In its complaint.000.

legal review .980. which was implemented through the three (3) contracts of 9 February 1981.00. Inc. However. P638.700. We stress at the outset that this petition concerns itself only with the first transaction involving the alleged "IPP" worth P6. we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed. P3. inclusive of P2. The pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were executed to implement a legitimate Installment Paper Purchase (“IPP”) transaction or merely to conceal a usurious loan.00 loan.sold units) 8.60 .999. Also. Inc. petitioner actively participated in the sale to ensure that the appraised lot would serve as adequate collateral for the usurious loan it gave to AUTOWORLD. thus Gentlemen: This serves to inform you of the various application of the proceeds (P6. Hence. 5. 1981 inclusive of P2.884. Payable to Pio Barreto Dev.108. 40150 . on Feb 16. P6.20 .Paid to Agcaoili and Associates of Feb. P100. If it were true that petitioner was never privy to theContract to Sell. And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply the proceeds worthP6. petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO.Whether the Contract to Sell was fictitious or not would have no effect on its right to claim the receivables of BARRETTO from AUTOWORLD since the two contracts were entirely separate and distinct from each other. petitioner insists that the 9 February 1981 transaction was a legitimate “IPP” transaction where it only bought the receivables of BARRETTO from AUTOWORLD amounting to P12. hence the parties were free to fix any interest rate. 1981 for full payment of DB transaction (Account No. per instruction of petitioner in its letter to BARRETTO dated 17 November 1980 the whole purchase price of the receivables was to [24] be "flowed back" to AUTOWORLD.40 . 3. then why was it interested in appraising the lot six (6) months prior to the sale? And why did petitioner’s own lawyers prepare the Contract to Sell? Obviously.Paid to FNCB Finance on Feb. which involves the P3.000.000. the law will not permit a usurious loan to hide itself behind a legal form.00 .601.87 .Payment to FNCB Finance for the partial payment of DB transaction (Account No. registration and transfer of ownership.000.Balance after application. Curiously however. Second. it merely purchased receivables at a discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981.court deleted the award of P50. 20.999.000.81: 1.Total [21] [20] .00 .sold units) 9.500.60 at a discounted price of P6.93 .980. petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved which [22] were executed on the same day.00 SC for Manager’s Check.” The following circumstances show that such scheme was indeed employed: First.00.980. “However. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury.937. As to the second transaction. petitioner was the one who procured the services of the Asian Appraisal Company to [23] determine the fair market value of the land to be sold way back in September of 1980 or six (6) months prior to the sale.00 . 1981. As far as it was concerned.980. P983.000. P122. to becloud the crime of usury.Payment for the title search fee conducted by Agcaoili and Associates.000.00 . P1.646. this petition of FNCB. the courts only need to rely on the face of written contracts to determine the intention of the parties. P111.Payment for legal and professional fee (Agcaoili and Associates) 7. however ingenious. Generally.00) of your real estate transaction per your authorization/letter dated 2. P2. 06156) 4 P3.00 . If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to [19] violate the Usury Law.10.00 SC for Manager’s Check for the preparation of documents.00 as attorney's fees in favor of FNCB explaining that the filing of the complaint against FNCB was exercised in good faith. the courts should and will permit no scheme.Payment for the appraisal fee conducted by the Asian Appraisal Company. 2.Paid to Paramount Finance Corp.179. 16.818. 406149 . 6.640.980.000.000.Payment to FNCB Finance for the partial payment of DB transaction (Account No.00.

as seller. effectively admitted that it only employed discounting of receivables due to the ceiling rates imposed by the Usury Law.00 should be “flowed back” to AUTOWORLD.468. in the operating cost of finance company is extremely different from a bank and we cannot survive. when there has been no intention on the part of said purchaser to evade the provisions of the Act and said purchase was not a part of the original usurious transaction.980. it is a discounting business. Item Nos.” In that letter.000. It would not have been obliged to follow the"Application of Proceeds" stated in petitioner’s letter.00 was really a usurious loan extended to AUTOWORLD. Senior Vice President of petitioner. And as previously mentioned. because as you know the cost. one of the required documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6. Q: You mean never have you extended direct loan? A: We did at a certain period of time and then we stopped. usurious or otherwise.000. that is our business. x x x x [30] Thus. It is not to generate more income. petitioner imposed a 28% [28] effective interest rate on the loan. Very truly yours. Thus.980. Q: And so. Q: After the ceiling was removed. We are therefore of the impression that had there been no interest rate ceilings in 1981. the only way you could generate more income for your company would be to encourage discounting of receivables? A: That was our business. in its 17 November 1980 letter to BARRETTO. therefore.000. This time however.980. FNCB. it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%. BARRETTO had to yield P4. the promissory note [29] evidencing the second transaction glaringly bore the 28% interest rate on its face. Third. instead. Any remaining amount after the application of the proceeds would then be surrendered to AUTOWORLD in compliance with the letter of 17 November 1980. would have received the whole purchase price. extended direct loan.47 of the P6.000. petitioner itself designated the proceeds of the "IPP" transaction as a [27] “loan.000.000. 7 of the Usury Law which states Provided.V.000. sir. none went to BARRETTO. Araullo. Asst Vice-President [25] It can be seen that out of the nine (9) items of appropriation stated above.00 to AUTOWORLD. please do not hesitate to call on the undersigned. ceiling on interest was removed. then BARRETTO. in compliance with the aforesaid letter.058.00 to petitioner to [26] settle some of AUTOWORLD's previous debts to it. Q: Shall we say that the reason why you did not extend direct loan was because you did not want to be confined on the ceiling on interest under Usury Law? A: Probably yes. after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3. although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables. Gregorio Anonas.980. L. Fourth. and free to dispose of such proceeds in any manner it wanted. That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper. you again.980. for valuable consideration before maturity. In any case . The foregoing circumstances confirm that the P6.8 had to be returned to petitioner. the circumstances cited prove that the P6.00 would be released to BARRETTO only upon submission of the documents it required. correct? A: Yes. and this normally has been the case.Should you need any clarification on the matter. And no longer having a need to cloak the exorbitant interest rate. we go to discounting business because we transferred to direct loan. If it were a genuine “IPP” transaction then petitioner would not have designated the money to be released as “loan proceeds” and BARRETTO would have been the end recipient of such proceeds with no obligation to turn them over to AUTOWORLD. 2 . petitioner would not have resorted to the fictitious “IPP” transaction.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner. petitioner stated that the “loan proceeds” amounting to P6. Had petitioner entered into a legitimate purchase of receivables. finally. with no more ceiling rates to hinder it. Petitioner anchors its defense on Sec. Thus he testified Q: And is it not a fact further that FNCB Finance at the time could not or would not want to extend direct loan because of a ceiling fixed by the Usury Law on interest? A: We haven’t at that time giving direct loan.

the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers.217.784. we held When the right of action to recover interest paid upon a usurious contract is established.00. This is not [32] denied by the appellee. commission. Art. AUTOWORLD paid a total of P3. premiums.000.545. adopting the computation of AUTOWORLD in its plaintiff-appellant’s brief. it erred in awarding only the interest paid in excess of the 12% [35] ceiling. appellant may [33] [34] recover P2.666.24 to settle it. intended to circumvent the laws on usury shall be void. in any case of litigation. the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and. For the 23-month period of the existence of the loan covering the [37] period February 1981 to January 1982. Indeed.78 in interests. we do not agree with the amount of reimbursement awarded to AUTOWORLD.400. Hence.66 amounting to a total of P4.78 for a debt of P6.921. However.980. the law would not hesitate to annul such contracts. the wholeP200. 921. In the instant case. the same as costs are awarded. The Court of Appeals.000. the debtor was never in delay. As a matter of fact. Buenviaje herein cited will not apply to petitioner and it will not be entitled to legal interest on the amount of the principal loan. In this case however.605.116. That is the reason why legal interest was counted only from the time the creditor filed his complaint for the recovery of a debt.78. AUTOWORLD obtained a loan of P6. it paid nineteen (19) consecutive installments ofP216. the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. under any cloak or device whatever.00. the case of Sanchez v.217. Computed at 12% the effective interest should have been P1.88 upon petitioner’s insistent demand.921. Otherwise.000. the attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usurious loan. a reasonable attorney’s fee should be allowed as a matter of course.however. may recover the whole interest.980.551.00. 6. Thus. In a loan of P1. to be taken or received. Having declared the transaction between the parties as void.000. and the imposition upon the usurer of the obligation to pay attorney’s fee will serve at once as an encouragement to the oppressed and as a wholesome deterrent to the taking of usurious interests.44. penalties and surcharges paid or delivered with costs and attorney’s fees in such sum as may be allowed by the court in an action against a person or corporation who took or received them if such action is brought within two years after such payment or delivery (emphasis ours).00 would be considered usurious interest.586.54. We are not unaware of Sanchez v. The borrower may recover in accordance with the laws on usury. for any such loan or renewal thereof or forbearance. In the case at bar.217. AUTOWORLD should have only paid a total of P1. it paid the aggregate amount of P10. Although the Court has discretion to fix the amount of attorney's fees. shall have paid or delivered a higher rate or greater sum or value than is hereinbefore allowed. not just the portion [36] thereof in excess of the interest allowed by law. 6 of the Usury Law. Buenviaje where the Court allowed the usurer to recover legal interest on the principal amount loaned.But such interest arose from the debtor’s delay in paying the principal from the time of the creditor’s demand.035. These contracts should therefore be declared void. 1957 of the Civil Code provides Contracts and stipulations.217. AUTOWORLD is entitled to recover the whole usurious interest amounting to P3. [40] in Delgado v.666. if the borrower pays P200.217. Valgona. Any person or corporation who. Thus. All in all. But even the law has anticipated the potential abuse of such transactions to conceal usurious loans.00 and the whole usurious interest of P3.00.980. also the costs and such attorney’s fees as may be allowed by the court. It would recognize legitimate purchase of negotiable mercantile paper.00 in interests. AUTOWORLD paid the principal of P6. the creditor can always recover the principal debt.400.78 in interests from appellant. [39] [31] . In usurious loans. Thus.00 with interest at 20% per annum or P200. The purpose of the law is to encourage persons who have suffered from contracts of this character to come into court and vindicate their rights. whether usurious or otherwise. Applying the 12% interest ceiling [38] rate mandated by the Usury Law. AUTOWORLD is also entitled to reasonable attorney’s fees and costs SEC.921. Hence. ruled According to plaintiff-appellant. Thereafter. defendant-appellee was able to collect P3. Indeed. and further paid a balance of P6. Thus. it has no discretion to deny it altogether. While we do not dispute the appellate court’s finding that the first transaction was a usurious loan. we are now tasked to determine how much reimbursement AUTOWORLD is entitled to. representing overpayment arising from usurious interest rate charged by appellee.00 per year. Under Sec.901. only if the purchaser had no intention of evading the provisions of the Usury Law and that the purchase was not a part of the original usurious transaction. the law itself made a qualification.

and De Leon. Quisumbing. Jr. WHEREFORE. for the mere invocation of the pari delictorule would allow the usurer to reap the benefits of his unlawful act. the President of AUTOWORLD.Quite obviously. [41] although we find hisactions extremely reprehensible. As a seasoned businessman he must have been aware of the consequences of his business dealings. Anthony Que. Mendoza. we must abide by the principle laid down in Go Chioco v. subject to the MODIFICATION that petitioner Investors Finance Corporation is ordered to pay private respondent Autoworld Sales Corporation the amount of P3. Buena. actively and knowingly participated in the execution of the usurious loan transaction. Martinez where we held that the pari delicto rule does not apply to usury cases which entitle the borrower to recover the whole interest paid.. otherwise. ..00 as attorney's fees and the costs. the avowed policy of discouraging usurious transactions would not be served. as well asP50. JJ.921.217. SO ORDERED.78 representing the entire usurious interest it paid on the 9 February 1981 loan. the assailed Decision of the Court of Appeals dated 24 May 1996 declaring the 9 February 1981 transaction as a usurious loan is AFFIRMED.000. But. concur.

and registered in the name of petitioner. Remaining balance as of the maturity date shall earn an interest at the rate of ten percent a month. It was executed on 20 March 1995.R. RUIZ. petitioner. the loans were consolidated under one (1) promissory note dated March 22. 56621 dated 25 August 2000.000. compounded monthly. No. in case this note is not paid according to the terms and conditions set forth. CORAZON RUIZ.000. COURT OF APPEALS and CONSUELO TORRES. I. in the following amounts: P100. which [6] reads as follows: “P750. and to start on April 1995 and to mature on April 1996.00.00 was secured by a real estate mortgage on a 240-square meter lot in New Haven Village. 146942. It is finally agreed that the principal and surety in solidum. the principal and surety in solidum shall reimburse the expenses of the plaintiff. Quezon City.R.: On appeal is the decision of the Court of Appeals in CA-G. In computing the interest and surcharge. She obtained loans from private respondent Consuelo Torres on different occasions. RT-96686.) Corazon Ruiz Principal __________________ Surety” [4] [1] The consolidated loan of P750.000. covered by Transfer Certificate of Title (TCT) No.[G. 1995 PROMISSORY NOTE For value received. April 22. CV No. payable every _____ of the month. and same is referred to a lawyer for collection. vs. DECISION PUNO.000. The facts of the case are as follows: Petitioner Corazon G. . denying petitioner’s Motion for Reconsideration. to earn an interest at the rate of three per cent (3%) a month. Prior to their maturity. jointly and severally promise to pay to the order of CONSUELO P. for thirteen months.000. RT-96686.00) Philippine Currency. [5] and P150. as principal and ROGELIO RUIZ as surety in solidum.000. shall pay attorney’s fees at the rate of twenty-five percent (25%) of the entire amount to be collected. The mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. P200.00 Quezon City.00.000. setting aside the [2] decision of the trial court dated 19 May 1997 and lifting the permanent injunction on the foreclosure sale of the subject lot [3] covered by TCT No. 2003] CORAZON G.00. P300.00. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750. If the amount due is not paid on date due. [7] Novaliches. for every month default. In the event of an amicable settlement. 1995. shall be collected. a fraction of the month shall be considered one full month. as well as its subsequent Resolution dated 26 January 2001. March 22. subject to renewal. J. a SURCHARGE of ONE PERCENT of the principal loan. (Sgd. [8] or two (2) days before the execution of the subject promissory note. Ruiz is engaged in the business of buying and selling jewelry. respondents.

00 Attorney’s Fees …………… 15.000.” the Special Power of [22] Attorney was never presented in court during the trial.00. covered by separate promissory notes. Nevertheless.000. 1995.000. Acting Clerk of Court and Ex-Officio Sheriff Perlita V. As the notice of the foreclosure sale has already been published.000.392. or a [24] total of P885. private [16] respondent demanded payment not only of the P750. 1997. plus interest. The trial court also recognized the expenses borne by private respondent with regard the foreclosure sale and attorney’s fees. it ordered the Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject property.000.00 Publication Fees………………. as follows: Principal Loan ……………. petitioner obtained three (3) more loans from private respondent.00 loan.00.000.000. it held that petitioner still has an obligation to pay the private respondent. The public auction was scheduled on October 8. in the amount [10] [11] of P100. It held that the real estate mortgage is unenforceable because of the lack of the participation and signature of petitioner’s husband. [27] .000. as well as the interest payment for April 1996. 135..000..00. After March 1996. but also of the P300. The computed amount of P706.000. Thus.00.307.000.000.00 loan.15. Ele. On September 5. it ordered the petitioner to reimburse private respondent the [26] amount of P15.000. 1996.Thereafter.00.000.307. petitioner filed a complaint with the RTC of Quezon City docketed as Civil Case No. in the amount of P100. and interest of ten percent (10%) a month.00 with legal interest from date of receipt of decision until payment of total amount of P1. P 750. (2) promissory note dated May 23. and on 29 October 1996. Bernas issued a Notice of Sheriff’s Sale of subject lot.000.000.00 were secured byP571. Acal and Supervising Sheriff Silverio P.000. Petitioner was thus ordered to pay the amount ofP750. Private respondent was further barred from imposing on petitioner the obligation to pay the surcharge of one percent (1%) per month from March 1996 onwards.000.00. the trial court took into account petitioner’s proposal to pay her other obligations to private [25] respondent in the amount of P392. 1995 promissory note. the trial court computed petitioner’s obligation to private respondent. 1996. private respondent sought the extra-judicial foreclosure of the aforementioned real estate mortgage. Aside from the foregoing.00 plus three percent (3%) interest per month.00. From April 1995 to March 1996. Due to petitioner’s failure to pay the principal loan of P750.00 was based on the aggregate loan of P750.00 Interest……………………….00 plus attorney’s fees of the same amount. petitioner paid the stipulated 3% monthly interest on the P750.000. and it made permanent the writ of preliminary injunction.00 has been made. The trial court further held that the promissory note in question is a unilateral contract of adhesion drafted by private respondent.00 representing the amount of jewelry [19] pledged in favor of private respondent. issued a writ [21] of preliminary injunction.00 [20] [13] TOTAL…………………… P1. under the following promissory notes: (1) [9] promissory note dated 21 April 1995. It struck down the contract as repugnant to public policy because it was imposed by a dominant bargaining party [23] (private respondent) on a weaker party (petitioner). one (1) day before the scheduled auction sale. plus legal interest from date of [receipt of] the decision until the total amount of P885.00 is paid. It noted that although the subject real estate mortgage stated that petitioner was “attorney-in-fact for herself and her husband. covered by the March 22. These combined loans [12] of P300.00.000. petitioner was unable to make interest payments as she had difficulties collecting from her [15] clients in her jewelry business. [18] 1996.00.000.000. with a prayer for the issuance of a Temporary Restraining Order to enjoin the sheriff from proceeding with the foreclosure sale and to fix her indebtedness to private respondent to P706.00. and (3) promissory note dated December 21. In its Decision dated May 19.000. 1995. plus the other loans of P300.000. Deputy Sheriff In-Charge Rolando G.000. compounded monthly from September 1996 to January 1997. Q-96-29024. When petitioner failed to [17] pay. amounting [14] toP270. in the amount of P100.00 Other Loans………………….000.00 loan. The trial court granted the prayer for the issuance of a Temporary Restraining Order.000. minus P571.00 worth of jewelry pledged by petitioner to private respondent. On October 7.

The appellate court also granted attorney’s fees in the amount ofP50. she may encumber the lot without the consent of her [28] husband. (2) Whether the real property covered by the subject deed of mortgage dated March 20. It held that the legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of [32] the entire amount due. 1995 IS A PARAPHERNAL PROPERTY OF THE PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER OR NOT THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER RAISED. iniquitous. . [37] the conditions of the contract on the 4 x 6 inches passenger ticket are in fine print. The appellate court set aside the decision of the trial court. Court of Appeals. unconscionable. Inc. because the only participation of the other party is the signing of his signature or his [35] ‘adhesion’ thereto. there are certain contracts almost all the provisions of which have been drafted only by one party. . contracts of sale of lots on the installment plan fall into this category. NOR DISCUSSED AND ARGUED BEFORE THE TRIAL COURT. petitioner assigns the following errors: (1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PROMISSORY NOTE OF P750.000. . I We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet Lines. following the ruling in [33] the case of Medel v.000. it is drafted only by one party. Consequently. (2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF MORTGAGE OF MARCH 20. It ruled that the real estate mortgage is valid despite the non-participation of petitioner’s husband in its execution because the land on which it was constituted is paraphernal property of petitioner-wife. and (3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid. Insurance contracts. it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested counters. and not the stipulated 25% of the amount due. bills of lading. ” In said case of Sweet Lines. Such contracts are called contracts of adhesion. . for conditions that may be printed thereon. discussed the nature of a contract of adhesion as follows: [34] [29] this Court “. Now. so printed. “ . usually a corporation. more often than not during rush hours.00 IS NOT A CONTRACT OF ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A READY-MADE CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OF RESPONDENT AND AGAINST PETITIONER. as in this case. without compounding. The pertinent issues to be resolved are: (1) Whether the promissory note of P750. Teves. 1995.” .00. . Private respondent appealed to the Court of Appeals. and that the only permissible rate of surcharge is 1% per month. Thus we held: “ .00 is a contract of adhesion. . before this Court. who [36] cannot change the same and who are thus made to adhere hereto on the ‘take it or leave it’ basis . (3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIAL COURT’S COMPUTATION OF THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT. 1995 is paraphernal property of petitioner. . usually the corporation. vs.Private respondent’s motion for reconsideration was denied in an Order dated July 21. much less charge them with having consented to the [38] conditions. especially if there are a number of such conditions in fine print. 1995 and December 1. and is sought to be accepted or adhered to by the other party .000. . the appellate court declared as invalid the 10% compounded monthly interest and the 10% surcharge per [30] month stipulated in the promissory notes dated May 23. . Nonetheless. and so too the 1% compounded monthly [31] interest stipulated in the promissory note dated 21 April 1995. It allowed its foreclosure since the loan it secured was not paid. . for being excessive. and contrary to morals. 1997.

As held by [41] [42] this Court in Lee. married to Rogelio Ruiz. never claimed that she was forced to sign the subject note. The fact that petitioner and private respondent had entered into not only one but several loan transactions shows that petitioner was not in any way compelled to accept the terms allegedly imposed by [40] private respondent. III We now resolve the issue of whether the rates of interests and surcharges on the obligation of petitioner to private respondent are legal. (2) P100.000. she ought to understand all the conditions set forth in the subject promissory note. Since there is no showing as to when the property in question was acquired. Furthermore. 1995 matured on April 21. in her complaint dated October 7. on the basis alone of the certificate of title. 1995. 1995. No such proof was offered nor presented in the case at bar. (2) 10% compounded monthly interest on the remaining balance at maturity date. Ruiz. the fact that the title is in the name [45] of the wife alone is determinative of its nature as paraphernal. 1995 promissory note for P750. married to Rogelio Ruiz” is not proof that such property was acquired during the marriage. three other promissory notes of different dates and amounts were executed by petitioner in favor of private respondent. et al.000. it must first be established that the property was in fact acquired during the marriage. dated April 21. Hence.00. In the case at bar. Aside from the March 22. the promissory note in question did not contain any fine print provision which could not have been examined by the petitioner.woman. and the other party who was then a passenger had no say in its preparation. i. et al. and that she is married to [46] Rogelio Ruiz.e. from the signing of the note until its maturity date. petitioner. and thus. registration of the property in the name of “Corazon G. 1996.00 promissory note dated March 22. Court of Appeals. The passengers have no opportunity to [39] examine and consider the terms and conditions of the contract prior to the purchase of their tickets. 1995 matured on August 21. of legal age. proof of acquisition during the marriage is a conditionsine qua non for the [44] operation of the presumption in favor of conjugal ownership.00. Filipinos. Ruiz. 1995 plaintiff was required by the defendant Torres to execute a promissory note consolidating her unpaid principal loan and interests which said defendant computed to be in the sum of P750. Petitioner had all the time to go over and study the stipulations embodied in the promissory note. 1995 matured on November 23.. vs. The four (4) unpaid promissory notes executed by petitioner in favor of private respondent are in the following amounts and maturity dates: (1) P750. with a little variance in the terms of interests and surcharges. The property subject of the mortgage is registered in the name of “Corazon G. the natural presumption is that one does not sign a document without first informing himself of its contents and consequences.000. .000.We further stressed in the said case that the questioned ‘Condition No.000. is presumed to be conjugal. The P750. Acquisition of title and registration thereof are two [43] different acts.” To be required is certainly different from being compelled. In other words. (3) P100. II We also affirm the ruling of the appellate court that the real property covered by the subject deed of mortgage is paraphernal property. 1996 filed with the trial court.00. She could have rejected the conditions made by private respondent. 1995 has the following provisions: (1) 3% monthly interest. belonging exclusively to said spouse. dated March 22.” Thus. 1996. Paragraph five of her complaint states: “That on or about March 22. The only import of the title is that Corazon is the owner of said property.000. This presumption acquires greater force in the case at bar where not only one but several documents were executed at different times by petitioner in favor of private respondent. The presumption under Article 116 of the Family Code that properties acquired during the marriage are presumed to be conjugal cannot apply in the instant case. These promissory notes contain similar terms and conditions. title is registered in the name of Corazon alone because the phrase “married to Rogelio Ruiz” is merely descriptive of the civil status of Corazon and should not be construed to mean that her husband is also a registered owner. Thus. 14’ was prepared solely by one party which was the corporation. and (4) P100. Moreover. As an experienced business. and registered only after her marriage to Rogelio Ruiz. . The property could have been acquired by Corazon while she was still single. 1995 matured on March 1.00.000. of legal age.. dated May 23. . it cannot be presumed that said property was acquired during the marriage and that it is conjugal property. it is presumed that a person takes ordinary care of his concerns. the same having been registered in her name alone.00.00 . dated December 21. Before such presumption can apply.

Also. The P100. While it is true that this Court invalidated a much higher interest rate of 66% per annum [55] [56] [57] in Medel and 72% in Solangon it has sustained the validity of a much lower interest rate of 21% in Bautista and 24% [58] inGarcia.000.326. The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages [61] caused by the breach.. Court of Appeals. the 10% surcharge per month stipulated in the promissory notes dated May 23. still stipulated interest rates are illegal if they are unconscionable. (3) 1% compounded monthly surcharge on the principal loan for every month of default. This Court [51] invalidated a stipulated 5. We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases. An interest of 12% per annum is deemed fair and reasonable. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. and (4) 10% attorney’s fees. However. [62] nevertheless. it is expressly recognized by law. we reduced the interest rate to 12% per annum.000. and in Garcia vs. 1995. 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 [53] [54] assets. We affirm the ruling of the appellate court.5% per month or 66% per annum interest on a P500. The two (2) other P100.00 loan in Medel and a 6% per month or 72% [52] per annum interest on aP60. unconscionable and exorbitant. 1983. and the recent case of Spouses Solangon vs. In the instant case.43 loan. Court of Appeals.649. Garcia vs. On the other hand. and the 1% compounded monthly interest stipulated in the promissory note dated April 21. 1995 have the following provisions: (1) 3% monthly interest. We also uphold the award of the appellate court of attorney’s fees. Salazar. P750.00.000. 905. (3) 10% surcharge on the principal loan for every month of default. public order or public policy. we equitably reduce the 3% per month or 36% per annum interest present in all four (4) promissory notes to 1% per month or 12% per annum interest. the only permissible rate of surcharge is 1% per month. from the signing of the note until its maturity date. from the signing of the note until its maturity date. 1995 has the following provisions: (1) 3% monthly interest. 1995 and December 1. In sum.00 promissory note dated April 21. in Bautista vs. to a fixed amount of P50. good customs.. and (4) 10% attorney’s fees. Although the courts may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals. The legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due. In both cases. 1995 promissory note) and 10% (in the other three promissory notes) of the entire amount due. 1982.000.(3) 1% surcharge on the principal loan for every month of default. a stipulated penalty. Bautista vs. s. 2227 of the New Civil Code. It is on the basis of these cases that we reduce the 36% per annum interest to 12%. 1995 ………………………………………. effective on January 1. and parties to a loan agreement have been given wide latitude to agree on any interest rate.00 promissory notes dated May 23.250. the amount of which having been reasonably reduced from the stipulated 25% (in the March 22. without compounding. and is separate [59] and distinct from interest payment.00 loan in Solangon for being excessive.000. (2) 10% compounded monthly interest on the remaining balance at maturity date. 1995 was properly reduced by the appellate court. may be equitably reduced if it is iniquitous or unconscionable. We held that while the Usury Law has been suspended by Central Bank Circular No. petitioner shall pay private respondent the following: 1. sustained the agreement of the parties to a 24% per annum interest on an P8. 1995 and December 1. and (4) 25% attorney’s fees. 1995. It is an accessory [60] undertaking to assume greater liability on the part of an obligor in case of breach of an obligation.. iniquitous. 1995 and December 1. The foregoing rates of interests and surcharges are in accord with Medel vs. striking down as invalid the 10% compounded monthly interest.00 loan. Pilar Development Corporation.000. Principal of loan under promissory note dated March 22. the 10% surcharge per month stipulated in the promissory notes dated May 23.00 [47] . Pilar Development Corp. The 1% surcharge on the principal loan for every month of default is valid. this Court upheld the validity of a 21% per annum interest on a P142. Court of [48] [49] [50] Appeals. (2) 10% monthly interest on the remaining balance at maturity date. Also referred to as a penalty clause.

1995 until fully paid 1% surcharge per month on principal from December 1995 until fully paid 4.P 50. less P270. b. P100.a..000. 1995 until fully paid 1% surcharge per month on principal from April 1996 until fully paid 5.. 1995 …………………………………………. IN VIEW WHEREOF. Panganiban. 1% interest per month on principal from April 21. SO ORDERED.000. and Carpio-Morales.00 Hence. b. 1995 …. 1% interest per month on principal from May 23. 1995 until fully paid 1% surcharge per month on principal from September 1995 until fully paid 3.. Sandoval-Gutierrez. P100. the foreclosure proceedings may now proceed.00 a.. b. Corona. JJ.000.00 a.00 paid by petitioner as interest from April 1995 to March 1996 1% surcharge per month on principal from May 1996 until fully paid b. 1995 until fully paid. 2.. the appealed Decision of the Court of Appeals is AFFIRMED.00 a.………………………………….. concur. 1% interest per month on principal from December 1. Principal of loan under promissory note dated May 23. P100.000. Principal of loan under promissory note dated December 1. subject to the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per annum. since the mortgage is valid and the loan it secures remains unpaid. Principal of loan under promissory note dated April 21. 1995 . Attorney’s fees…………………………………………. . 1% interest per month on principal from March 22.………………………………….……….000.

PEOPLE OF THE PHILIPPINES. Finding the interest rates so burdensome.G. 2000) where the Supreme Court deleted these penalty of imprisonment.] 298 SCRA 656) and the Rosa Lim vs.R. No. 130038. the same were dishonored for the reason that the account against which the same was drawn was already closed. November 16.000. According to her.: This Petition for Review seeks to set aside the Court of Appeals' 10 October 2003 Decision convicting petitioner Theresa Macalalag (Macalalag) of Violation of Batas Pambansa Blg.837. C-889835 and No. however.00 with interest at the legal rate from the time of the filing of the informations until the amount is fully paid. Hence. disposing of the case as follows: WHEREFORE. she made a total payment of P355. particularly on 30 July 1995 and 16 October 1995. and its 13 May 2004 Resolution denying her Motion for Reconsideration. petitioner.98 but claimed that the same amount was applied to the payment of the interest. including the payment ofP199. in favor of Estrella. each in the amount of P100. J.000. PREMISES CONSIDERED.98. Macalalag entered a plea of "not guilty. judgment is hereby rendered declaring the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged. which affirmed the RTC and the MTCC decisions with modification to 1 . 76368. As she is criminally liable. Pursuant however to Eduardo Vaca vs.00 for each of the two (2) checks and subsidiary imprisonment in case of insolvency or failure to pay said fine. People x x x case (G. the MTCC of Bacolod City rendered its Decision. Court of Appeals case (G. Macalalag admitted her indebtedness and the issuance of the two PNB checks.00 as liquidated damages and attorney's fees in the total sum of P40. 889836) on 30 June 1996. The factual and procedural antecedents of this case are as follows: On two separate occasions. 1998[. Estrella admitted the payment of P199." On trial. Petitioner Macalalag appealed with the Regional Trial Court (RTC) of Bacolod City. September 18.837.00.00. On 16 April 1996 and 1 May 1996. respondent. As security for the payment of the aforesaid loans. No. petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella). On 5 February 2001. 76367 and No. Macalalag consistently paid the interests starting 30 August 1995. vs. Estrella sent a notice of dishonor and demand to make good the said checks to Macalalag. 22. each bearing an interest of 10% per month. 22 before the Municipal Trial Court in Cities (MTCC) of Bacolod City. which affirmed in toto the MTCC Decision.00 as stipulated by the parties the moment she breaches the terms and conditions thereof.000. she further obligated herself to pay for the two (2) loans the total sum of P100. 2006 THERESA MACALALAG. but the latter failed to do so.000. when Estrella presented said checks for payment with the drawee bank. DECISION CHICO-NAZARIO. each in the amount of P100. Under the two Acknowledgment/Affirmation Receipts.R.837. docketed as Criminal Cases No. stated that she already made payments over and above the value of the said checks. Macalalag requested Estrella for a reduction of the same to which the latter agreed. Macalalag issued two Philippine National Bank (PNB) Checks (Check No. When arraigned. 131714.00 within two months from the date of its execution plus 6% interest per month for each loan. However. 164358 December 20.000. the penalty therefore imposable is a fine of P100. She.R.000. Petitioner Macalalag appealed anew with the Court of Appeals.000. less whatever amount was thus 2 far paid and validly deducted from the principal sum originally claimed. she is likewise ordered to pay as civil indemnity the total amount of P200. No. Estrella filed two criminal complaints for Violation of Batas Pambansa Blg.98 made during the pendency of the cases. Macalalag executed Acknowledgment/Affirmation Receipts promising to pay Estrella the face value of the loans in the total amount of P200.

98.the effect that. PREMISES CONSIDERED. and in Garcia vs. Branch 3. November 16. The stipulated interest of 10% per month. which the court could equitably reduce.R.837.00 loan. 22 and computed her civil liability as follows: Thus. Pilar Development Corp. The Court of Appeals was correct in applying Medel to the case at bar. Pursuant however to Eduardo Vaca vs. Accordingly. Pilar Development Corporation. No.R. People of the Philippines case (G. in all criminal prosecutions. and the recent case of Spouses Solangon vs. effective on January 1. foregoing premises considered. applying the Medel doctrine. this Court upheld the validity of a 21% per annum interest on a P142. the Court of Appeals reversed the RTC ruling 4 which held that Medel v. September 18. and even the reduced rate of 6% per month. 2000) where the Supreme Court deleted the penalty of imprisonment. is hereby MODIFIED to read as follows: "WHEREFORE.5% per month or 66% per annum interest on a P500. therefore. We now proceed to the determination of whether Macalalag had already paid her obligations to Estrella. the stipulated rate of interest at 5. It is on the basis of these cases that we reduce the 36% per annum interest to 12%." In acquitting petitioner Macalalag of one count of violation of Batas Pambansa Blg. and cannot be applied in criminal cases for violation of Batas Pambansa Blg. In both cases. as affirmed by the Regional Trial Court of Bacolod City. unconscionable and exorbitant. In fact. 22 is 6 7 deemed to include the corresponding civil action. Following this principle.000. and parties to a loan agreement have been given wide latitude to agree on any interest rate. Branch 43. s. . in Bautista vs. 22. 1998[. the 3 amount credited to the accused after paying the first loan. 22. No. Garcia vs. iniquitous. 905.649.000. As she is criminally liable. 1983.00 loan in Solangon for being excessive.5% per month is iniquitous or unconscionable. The criminal action for violation of Batas Pambansa Blg. 1982. Furthermore.43 loan.. no reservation to file such civil action shall be allowed. judgment is hereby rendered declaring the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged. the penalty therefore imposable is a fine of P100. she is likewise ordered to pay civil indemnity in the amount of P100. In Medel. Court of Appeals. Applying Medel. This Court invalidated a stipulated 5. Such cases were synthesized by 8 then Associate Justice (now Chief Justice) Reynato Puno in Ruiz v. sustained the agreement of the parties to a 24% per annum interest on an P8.000.250. Court of Appeals. Verily then. the Court of Appeals convicted petitioner Macalalag of one count of Batas Pambansa Blg. are higher than the interest rates declared unconscionable in Medel and in several other cases with allegations of unconscionable interests. We held that while the Usury Law has been suspended by Central Bank Circular No.00 with interest at the legal rate from the time of the filing of the information until the amount is fully paid. less P195. accused was convicted only of one (1) count of Violation of Batas Pambansa Blg. corresponding to the issuance of the second check. 22. While it is true that this Court invalidated a much higher interest rate of 66% per annum in Medel and 72% in Solangon it has sustained the validity of a much lower interest rate of 21% in Bautista and 24% in Garcia.00 for the second check and subsidiary imprisonment in case of insolvency or failure to pay said fine.] 298 SCRA 659) and the Rosa Lim vs. among other things. The decretal portion of the Court of Appeals Decision reads: WHEREFORE. we reduced the interest rate to 12% per annum. Salazar. any doubt should be resolved in favor of the accused and strictly against the State. 2001 Decision of the Municipal Trial Court in Cities of Bacolod City.326. we held that. Court of Appeals. the issue of whether the Medel case should be applied in favor of Macalalag should be resolved in her favor. the petition is PARTLY GRANTED. the dispositive portion of the February 9. still stipulated interest rates are illegal if they are unconscionable. Court of Appeals case (G.00 loan in Medel and a 6% per month or 72% per annum interest on a P60. whether the interest is unconscionable or not can be determined in the instant case. the interest rate imposed by Estrella on the loans of Macalalag should be reduced to 12% per annum only plus 1% a month penalty charge as liquidated damages on each loan. Court of Appeals : The foregoing rates of interests and surcharges are in accord with Medel vs. An interest of 12% per annum is deemed fair and reasonable. while the Usury Law is now legally inexistent.000. 130038. 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. We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases. Bautista vs. Court of Appeals is not applicable as it applies only in civil cases where the validity of the interest rate is in 5 issue. On the other hand. 131714. to be applied to the second loan.

amount to be credited to petitioner to be applied to pay the second loan. Macalalag failed to make good the said check. were demandable only on June 16.000.837. 1998.total amount paid by petitioner to private complainant (P199.837.00 face value of the loan plus interests at P21.000. Macalalag should be meted the penalty of fine amounting to P100. payment by the accused of the amount of the check prior to its presentation for payment would certainly serve the same purpose.00 loan from Estrella on July 30. Macalalag should pay the civil indemnity in the total amount of P100. or issuer that at the time of the issue he does not have sufficient funds in.00) LESS: P160.00 was paid starting August 30.00 . 22 insofar as the first check is concerned since the same was already paid prior to its presentment for payment. 1996. respectively.00 and P39. without any valid cause.000. there is no doubt that Macalalag is liable under B. In the instant case. or credit with.5 + P100. present. 1996 while the amount of P199. 22. .00) (See 275-276.00. 328 SCRA 447). 22 if the complainant was actually told by the drawer that 10 he has no sufficient funds in a bank.000. would be P111. The P156. 1995 until June 15. However. are. In the Acknowledgment/Affirmation Receipts. Using the above formula (P100.98 which amount should be credited to her. Blg. 1995 and the check that was issued for the payment of the said loan was also dishonored on July 1.P.00 x 1% x 11 + P100. 1995. viz: a) the making.98 (P199. The second loan of P100.000.000. it has been established that Macalalag made a total payment of P355.837. when the checks were dishonored. the checks were issued as security for a loan.98 plus P156.000.98 was paid to complainant sometime in 1997 considering that the acknowledgment receipt was dated January 5. 22. with respect to the second check. Records). vs.837. the two (2) loans of P100.000.00 x 1% x 8.00 only corresponding to the face value of the second check with subsidiary imprisonment in case of insolvency.] drawer. 1996.000.P.000. ordered the bank to stop payment (Sycip. 22 was not intended to shelter or favor nor encourage users of the banking system to enrich themselves 11 through the manipulation and circumvention of the noble purpose and objectives of the law.837.00. Blg. Macalalag admitted having issued the said check and that said check.00 already paid by Macalalag to Estrella could very well be applied to the face value of the first loan which fell due on June 16. 1996. or dishonor for the same reason had not the drawer. In accordance with the Vaca vs. Macalalag could no longer be held liable for violation of B. drawing or issuance of any check to apply to account or for value.000.000. Thus. Court of Appeals (294 SCRA 656) case. Thus. Batas Pambansa Blg. b) the knowledge of the maker[. Jr. Blg.000. Thus.00 each. Hence. including the 1% interest rate per month on the two (2) loans or a total of 2% per month. Macalalag's total obligation to Estrella was P219. and. Macalalag's obligation would only be P108.837.500. This amount represents the balance after full payment of the first loan computed as follows: P355.000.There is no dispute that Macalalag obtained the first P100. Where.00.000. In view of the foregoing. or a total of P200. when presented for payment for payment with the drawee bank bounced for the reason "account closed".00) . Such manipulation is manifest when payees of checks issued as security for loans present such checks for payment even after the payment of such loans.00 was obtained on October 16. All the elements of violation of B.00 with interest at the legal rate from the time of the filing of the Information until fully satisfied less the amount of P195. the total amount of P156. the time the check representing the said amount was dishonored (P100.000.500.000. 9 P195.98 and P156.P.00. as in the case at bar. 1996 and July 1.98 We have repeatedly held that there is no violation of Batas Pambansa Blg. the drawee bank for the payment of the check in full upon its presentment.98 . Court of Appeals. the penalty imposed on Macalalag by the trial court should be modified.000. Despite notice of dishonor.00). The said amount multiplied by 1% interest per month until July 1. 1996.to fully pay the first loan (P100. Likewise. c) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit. Macalalag promised to pay Estrella the principal loans within two (2) months after the execution of said documents.00).000. therefore.837.

WHEREFORE. petitioner Macalalag failed to pay the full face value of the second check issued. what will be left is P56. No costs. not the nonpayment of an obligation. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit. Consequently. The petition must fail. considering that she had already paid P156. the Petition is DENIED. It is well to note that the gravamen of Batas Pambansa Blg. Petitioner Macalalag claims that: (1) the payment of the accounts before the checks became due and demandable and/or before the 12 same are presented for payment would exempt the petitioner from Violation of Batas Pambansa Blg. The accused makes. affirming the conviction of petitioner Theresa Macalalag of one count of Violation of Batas Pambansa Blg. or it would have been dishonored 21 for the same reason had not the drawer. Only a full payment of the face value of the second check at the time of its presentment or during the five-day grace period could have exonerated her from criminal liability. Said subsequent payments can only affect her civil. Neither could petitioner Macalalag's subsequent payment of P199.00 at the time the subject checks were presented for payment. Despite notice of dishonor. The accused knows at the time of the issuance that he or she does not have sufficient funds in. (2) the redeemable value 13 of the check is limited only to its face value and does not include interest. claims that she should not be convicted of even one count of Violation of Batas Pambansa Blg.000. 18 15 . – the making. Petitioner Macalalag claims that. ordered the bank to stop payment. which provides: SEC. SO ORDERED.000.000. not criminal. As stated above. are AFFIRMED. and the accused will be convicted for violation thereof as long as the following elements are proven: 1.00. Petitioner Macalalag herself declares that before the institution of the two cases against her. A contrary interpretation would defeat the purpose of Batas Pambansa Blg. All these elements have been conclusively proven in Court. 22 is the issuance of a check. 22. the second element by the prima facie evidence established by Section 2 of Batas Pambansa Blg. 22. 2. draws or issues any check to apply to account or for value. 22.00. and 3.00 should be applied for redemption of the first check and the remaining amount of P56. the amount of P100. 2. petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. C-889835). that of 16 safeguarding the interest of the banking system and the legitimate public checking account user. and (3) partial redemption of the check will exempt the 14 accused from criminal liability for Violation of Batas Pambansa Blg. 22. The 19 law has made the act of issuing a bum check a malum prohibitum. or credit with.837. when Estrella presented the checks for payment. when presented within ninety (90) days from the date of the check. 22. Applying this amount to the first check (No. the same were dishonored on the ground that they were drawn against a closed account. the lack of criminal intent on the part of the 20 accused is irrelevant. without any valid reason. however. 22.98 during the pendency of the cases against her before the MTCC result in freeing her from criminal liability because the same had already attached after the check was dishonored. Even if we agree with petitioner Macalalag that the interests on her loans should not be imputed to the face value of the checks she issued. drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank.00 should be treated as partial redemption of the second check.000. liability.Petitioner Macalalag. A subsequent payment by the accused would not obliterate the 17 criminal liability theretofore already incurred. 22. an amount insufficient to cover her obligation with respect to the second check. the drawee bank for the payment of the check in full upon its presentment. as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check.000. she has made a total payment of P156. or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. Petitioner Macalalag posits that said partial redemption exempts her from criminal liability because it was made before the check was presented for payment. The Court of Appeals Decision dated 10 October 2003 and Resolution dated 13 May 2004. Evidence of knowledge of insufficient funds. shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon.

Q-97-32130 dated 3 January 27. 62352 dated November 5.: This petition for review on certiorari assails the Decision of the Court of Appeals (CA) in CA G.000. JJ. G. as well as the Resolution dated June 28. and that petitioners’ refusal to settle the same entitles the respondents to foreclose the real estate mortgage. inclusive of the 18% interest compounded monthly. (3) P500. 1997. plus interest until fully paid.00. Quezon City covered by TCT No. 2005 denying the motion for reconsideration thereof. RT-43723 (188321). petitioners admitted their loan obligations but argued that only the original loan of P1. 1999. The facts of the case are as follows: Petitioners. defendants*’+ counterclaim is dismissed.000.250. 1992. (4) 6 P200. the Court renders judgment on the Complaint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of P6. and (5) P250. They alleged that petitioners’ loans were secured by the real estate mortgage.019. 1999. No. respondents filed a complaint for foreclosure of mortgage with the RTC of Quezon City. J.R. Branch 105 in Civil Case No. and costs of suit.R.000. SPOUSES RENATO CUYCO and FILIPINA CUYCO.00 from respondents. (2) P150. 1997. Petitioners made payments amounting to P291.00 as attorney’s fees.00 on May 30.00 on September 5. spouses 4 Renato and Filipina Cuyco. On January 27. their indebtedness amounted to P6. CUYCO and FELICIANO U. obtained a loan in the amount of P1. Sr.700. 1993. CUYCO.Ynares-Santiago. on September 8 10. 2006 SPOUSES ADELINA S.000.000. petitioners obtained additional loans from the respondents in the aggregate amount of P1. They also contended that the RTC erred in ordering the foreclosure of the real estate mortgage to satisfy the total . which was docketed as Civil Case No. spouses Adelina and Feliciano Cuyco.332. retired as of 7 December 2006. Respondents.. 168736 April 19. 13 12 11 9 10 7 1 Petitioners appealed to the CA reiterating their previous claim that only the amount of P1. Petitioners. and in case of default of such payment and upon proper motion. and secured by a Real Estate Mortgage over a parcel 5 of land with improvements thereon situated in Cubao.000.00 was secured by the real estate 14 mortgage. broken down as follows: (1) P150. SO ORDERED.00.000.241. In their answer. Q-97-32130.000. 1992. Panganiban.00 on July 1. (Working Chairman) Austria-Martinez and Callejo. 1992. within a period of one hundred and twenty (120) days from the entry of judgment. 2 2003 which modified the Decision of the Regional Trial Court (RTC) of Quezon City.00 on January 13.500.84. CV No. Petitioners filed a motion to dismiss on the ground that the complaint states no cause of action which was denied by the RTC for lack of merit.00 on October 29. the dispositive portion of which reads: WHEREFORE. payable within one year at 18% interest per annum.000. in the light of the foregoing. the property shall be ordered sold at public auction to satisfy the judgment.. Thus.967. Subsequently. that as of August 31. the RTC rendered judgment in favor of the respondents.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be compounded monthly. CJ. 1992. Further. vs.500. DECISION YNARES-SANTIAGO. but failed to settle their outstanding loan obligations.000.500.14. P25. concur.

the appellate tribunal held that the parties never intended the same to be secured by the real estate mortgage. On November 5. Interest due shall earn legal interest from the time it is judicially demanded. Branch 105.000. the instant appeal is PARTIALLY GRANTED. as of January 10. The dispositive portion of the Decision reads: WHEREFORE. the costs of suit.019. the legal interest at the rate of 12% per annum on the stipulated interest of 18% per annum. the property. We are not persuaded. and in case of default of such payment and upon motion.. P200.e.indebtedness of P6. the instant petition for review on the sole issue: WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12% PER ANNUM ON THE STIPULATED INTEREST OF 17 18% PER ANNUM. the Court renders judgment on the Complaint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amount of P2. v. It reads: Art. 1993 in the amounts of P150. in the light of the foregoing.00 obtained on July 1. the lower courts correctly applied Article 2212 of the Civil Code as the basis for the imposition of the legal interest on the stipulated interest due.00 and P500. the same has no legal basis." SO ORDERED.000. Thus.000.00 and P250. plus the stipulated interest at the rate of 18% per annum accruing thereon until fully paid.1avvphil. The assailed decision of the Regional Trial Court of Quezon City.84. 2. The foregoing provision has been incorporated in the comprehensive summary of existing rules on the computation of legal interest 20 enunciated by the Court in Eastern Shipping Lines. 2212. When an obligation is breached.Furthermore. the interest due shall itself earn legal interest from the time it is judicially demanded. subject of the real estate mortgage contract. 1999. respectively. ordered to pay the plaintiffs the following: 1. the interest due should be that which may have been stipulated in writing.500.00. Inc. i. It held that by express intention of the parties.00 loan and the subsequent loans of P150. October 29.000.00. thus. within a period of one hundred and twenty days from the entry of judgment.000.] representing the total outstanding principal loan of the said defendants. Q-97-32130 is hereby MODIFIED to read: "WHEREFORE. Court of Appeals. 1992.532.00 as and for attorney’s fees. Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest of 18% per annum computed from the filing of the complaint until fully paid was not provided in the real estate mortgage contract. 1992.92[. 2003. it is also settled that an existing law enters into and forms part of a valid contract 19 without the need for the parties expressly making reference to it. although the obligation may be silent upon this point. and in imposing legal interest of 12% per annum 15 on the stipulated interest of 18% from the filing of the case until fully paid. and 3. COMPUTED FROM THE FILING OF THE COMPLAINT UNTIL FULL PAID. respectively. a loan or forbearance of money.000. shall be ordered sold at public auction in satisfaction of the mortgage debts.000. the sum of P25.149. the rate of interest shall be 12% per 18 . While a contract is the law between the parties. The Court of Appeals also found that the trial court properly imposed 12% legal interest on the stipulated interest from the date of filing of the complaint. 1992 and September 5. the CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estate mortgage. As regards the loans obtained on May 31.net Defendants are further. 16 Hence. in Civil Case No. the real estate mortgage secured the original P1. and it consists in the payment of a sum of money. In the absence of stipulation. computed from the filing of the complaint until fully paid. 1992 and January 13.113. plus interest until fully paid. to wit: 1.

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. the application of which needs no further proof from the parties. as long as unpaid.00 obtained on July 1.000. however. 1997) x 12% x no. this Court held that the total amount due on the contracts of loan may be easily determined by the trial court through a simple mathematical computation based on the formula specified above. (2) P150. Clearly. 1992. the appellate court in deciding the case shall consider only the assigned errors. Mathematics is an exact science. of years from due date until finality of judgment Interest on interest = Interest computed as of the filing of the complaint (September 10. the evidence shows that petitioners obtained several loans from the respondent. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169. also earns legal interest of 12% per annum. 2. petitioners alleged that their petition only raised the sole issue of interest on the interest due. When an obligation. this interim period being deemed to be by then an equivalent to a forbearance of credit. Such interest is not due to 21 stipulation but due to the mandate of the law as embodied in Article 2212 of the Civil Code. 1992. Accordingly. 24 . As regards what loans were secured by the real estate mortgage. above. In their Reply. respondents contended that all five additional loans were intended by the parties to be secured by the real estate mortgage. Certainly. and (3) 25 P500. of years until finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid. where the demand is established with reasonable certainty. From such date of finality. some of which as held by the CA were secured by real estate mortgage and earned an interest of 18% per annum.annum to be computed from default. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. In Rizal Commercial Banking Corporation v. v. whether the case falls under paragraph 1 or paragraph 2. is breached. respondents waived their privilege to bring matters for the Court’s review that do not deal with the sole issue raised. in any case. it is equally settled that the Court is clothed with ample authority to review matters not assigned as errors in an appeal. the computed interest from the filing of the complaint on September 10. however.e. 3. The actual base for the computation of legal interest shall. the total 22 amount due shall earn interest of 12% per annum until satisfied.partial payments made Interest = principal x 18 % per annum x no. respondents demanded payment from the petitioners by filing an action for foreclosure of the real estate mortgage. 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). Inc. computed from the date of the filing of the complaint on September 10. i. be on the amount finally adjudged.000. No interest. Upon default thereof. the CA erred in ruling that only two of the five additional loans were secured by the real estate mortgage when the documents evidencing said loans would show at least three loans were secured by the real estate mortgage. Alfa RTW Manufacturing Corporation. 1992. (Emphasis supplied) In the case at bar. if it finds that their consideration is 26 necessary to arrive at a just disposition of the case. which interest.00 obtained on May 31. namely: (1) P150. we derive the 23 following formula for the RTC’s guidance: TOTAL AMOUNT DUE = [principal + interest + interest on interest] . shall be 12% per annum from such finality until its satisfaction. Court of Appeals.000. In accordance with the rules laid down in Eastern Shipping Lines. Applying the rules in the computation of interest. the case falls under the rule stated in paragraph 1. Thus. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. thus. not constituting a loan or forbearance of money. Procedurally. 1997 until finality of the Court’s Decision.. by not filing their own petition for review. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made. the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% per annum. 1997 would no longer be true upon the finality of this Court’s decision. the rate of legal interest.00 obtained on September 5.

nothing in the records remotely suggests that the mortgagor (defendants-appellants). RT-43723 (188321) Q. thereby saving time. we rule that the trial court did err in declaring said loans to be secured 30 by the real estate mortgage contract." A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents.00 loan obtained on 25 November 1991. 31 27 . a mortgage liability is usually limited to the amount mentioned in the contract. C) because under Article 2125 of the Civil Code.Moreover.000. The CA modified the RTC decision holding that: However. the mortgage is nevertheless binding between the parties. It is extremely difficult for the court to perceive that the plaintiffs required the defendants to execute a mortgage on the first loan and thereafter fail to do so on the succeeding loans.00 July 1/92 as additional loan against mortgaged property TCT No. the P150.00. (SGD) Adelina S. travel.000.00.000.000." also known as a "dragnet clause. et cetera. in the amount of P250. B) was not amended and thereafter annotated at the back of the title (Exh. the specific amount mentioned in the real estate mortgage contract no longer controls. obtained on 29 October 1992.000.000. in the amount of P150. the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. However.000. thus: There is. as supplemented. This stipulation is valid and binding 32 between the parties and is known in American Jurisprudence as the "blanket mortgage clause.00. The RTC held that all the additional loans were secured by the real estate mortgage.000. if the instrument of mortgage is not recorded. as in this case. The acknowledgment receipts read: "July 1.000. With respect to the other subsequent loans of the defendants-appellants in the amount of P150. loan closing costs. an independent 28 evaluation of facts may be done by it when the findings of facts are conflicting. By express intention of the mortgagors (defendants-appellants) the real estate mortgage contract.00 loan obtained on 01 July 1992.C. on 01 July 1992. & Mrs. in the amount of P500. likewise. 05/92 "Received from Mr. in the amount of P200. obtained on 31 May 1992. Cuyco the amount of P500. Consequently. Cuyco" "Sept. costs of extra legal services. All these loans are subject to stipulated interest of 18% per annum provided in the real estate mortgage contract. The mortgagors’ (defendants-appellants) intention to secure a larger amount than that stated in the real estate mortgage contract was unmistakable in the acknowledgment receipts they issued on the said loans. and the P500. therefore. as an exception to the rule that findings of facts of the CA are conclusive and binding on the Court. intended the said loans to be secured by the real estate mortgage contract. the real estate mortgage contract was supplemented by the express intention of the mortgagors (defendants-appellants) to secure the subsequent loans they obtained from the mortgagees (plaintiffs-appellees). [1]992 "Received from Mr. secures the P1. obtained on 13 January 1993. As a general rule. Cuyco" In such case. Cuyco PCIB Ck # 498243 in the amount of P150. (SGD) Adelina S. Renato Q. a preponderance of evidence to show that the parties agreed that the additional loans would be against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh. and on 05 September 1992.00 (five hundred thousand) PCIB Ck # 468657 as additional loan from mortgage property TCT RT-43723.00.500. 33 recording fees.000. Such contrary behavior is 29 unlikely. and.00. R.00 loan obtained on 05 September 1992.

000. a mortgage affecting land. A mortgage in legal form is not constituted by a private document. that should the MORTGAGOR duly pay or cause to be paid unto the MORTGAGEE or his heirs and assigns.000. even if such mortgage be accompanied 35 with delivery of possession of the mortgage property. 1992 to be secured by the same real estate mortgage. including interest and other charges as approved by the court. it must be executed in a public document. and rendered of no force and effect. besides being recorded. payment only of the principal and the stipulated interest of 18% per annum is sufficient as the mortgage document does not contain a stipulation that the legal interest on the stipulated interest due. Besides. these future debts must be sufficiently described in the mortgage contract. the following realty together with all the improvements thereon and situated at Cubao.500.00) Philippine Currency. and acknowledged as his free act and deed before a notary public. Quezon City. what applies is the general rule above stated. the realty cannot be bound by such additional loans. with interest at the rate of eighteen percent (18%) per annum. Philippine Currency. Lastly. P150. An obligation is not secured by a mortgage unless it comes fairly within the terms of the 34 mortgage contract. cannot be considered as it is not susceptible of inscription in the property registry.000.00 obtained on July 1.While a real estate mortgage may exceptionally secure future loans or advancements. together with the agreed interest thereon.500. among other things. The pertinent provisions of the November 26. it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation. and P500. within the agreed term of one year on a monthly basis then this MORTGAGE shall be discharged. 37 attorney’s fees.00. otherwise it shall subsist and be subject to foreclosure in the manner and form provided by law. the CA held that to discharge the real estate mortgage.00 obtained on September 5. receipt whereof is hereby acknowledged and confessed. although denominating the agreement as one of mortgage. That for and in consideration of said indebtedness.00). Thus. in the presence of two witnesses. In order to constitute a legal mortgage. Judgment on foreclosure for payment or sale. 496. is not deemed to be sufficient in law nor may it be effective to encumber or bind the land unless made substantially in the form therein prescribed.000. 1992. payable within a period of one year. 1992. We do not agree. 1991 real estate mortgage reads: That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE THOUSAND PESOS (sic) (1. Rule 68 of the Rules of Court provides: SEC. the MORTGAGOR does hereby convey and deliver by way of MORTGAGE unto said MORTGAGEE. which may be recovered by the respondents in an ordinary action for collection of sums of money. — If upon the trial in such action the court shall find the facts set forth in the complaint to be true. A mortgage constituted by means of a private document obviously does not comply with such legal 36 requirements. and costs. 2. by express provisions of Section 127 of Act No. Even if the parties intended the additional loans of P150. (Emphasis added) . Failing to do so. and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment. and that in default of such payment the property shall be sold at public auction to satisfy the judgment.00 obtained on May 30. What the parties could have done in order to bind the realty for the additional loans was to execute a new real estate mortgage or to amend the old mortgage conformably with the form prescribed by the law. and costs of suit must be paid first before the same may be discharged. as shown in the acknowledgement receipts. that the document be signed by the mortgagor executing the same. it is not sufficient in law to bind the realty for it was not made substantially in the form prescribed by law. the latter’s heirs and assigns. It is required. whether registered under said Act or not registered at all. It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the mortgaged realty shall also secure future loans and advancements. the said indebtedness of ONE MILLION FIVE HUNDRED THOUSAND PESOS (1. and described as follows: xxxx PROVIDED HOWEVER. Section 2. A provision in a private document.

(3) the reasonable attorney’s fees of P25. WHEREFORE. as computed by the RTC in accordance with the formula specified above. to discharge the real estate mortgage. 2003.500. (3) the reasonable amount of P25. the property shall be sold at public auction to satisfy the judgment.000. that is. and in case of default of such payment the property shall be sold at public auction to satisfy the judgment. Should the petitioners default in the payment thereof. which modified the Decision of the Regional Trial Court of Quezon City. the stipulated interest of 18%. as computed in accordance with the formula indicated above. and (4) the costs of suit. Q-97-32130.00 and (4) the costs of suit.R. other charges and costs approved by the court. in view of the foregoing.00. petitioners must pay the respondents (1) the total amount due. Branch 105. 62352 dated November 5.000. CV No. the Decision of the Court of Appeals in CA G. within the period specified by the Rules. is AFFIRMED with the MODIFICATIONS that petitioners are ordered to pay the respondents (1) the total amount due.Indeed. . the interest on the stipulated interest due of 12% computed from the filing of the complaint until finality of the decision less partial payments made. SO ORDERED.000. Thus. in Civil Case No. the above provision of the Rules of Court provides that the mortgaged property may be charged not only for the mortgage debt or obligation but also for the interest. within a period of not less than 90 days nor more than 120 days from the entry of judgment. (2) the legal interest of 12% per annum on the total amount due from such finality until fully paid. the principal loan of P1.00 as attorney’s fees. (2) the 12% legal interest on the total amount due from finality until fully satisfied.

as follows: Statement Date 10/27/2002 11/27/2002 12/31/2002 1/27/2003 2/27/2003 3/27/2003 Previous Balance 94.41 86.752.07 4.. CHICO-NAZARIO. Petitioner. Petitioner Macalinao made some purchases through the use of the said credit card and defaulted in paying for said purchases. 2006 Resolution denying petitioner’s motion for reconsideration.. 2006 Decision of the Court of Appeals (CA) and its November 21. G.72 Finance Charges 3.465.ILEANA DR.351. Respondent. MACALINAO.62 3. one of the credit card facilities of respondent [3] Bank of the Philippine Islands (BPI).177. JR. 2009 x-----------------------------------------------------------------------------------------x DECISION VELASCO.versus - BANK OF THE PHILIPPINEISLANDS..234.456.518.02 119. She subsequently received a letter dated January 5. No. VELASCO.752.885.616.05 618. The Facts Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard.93 298. JJ.061.R.58 129. JR. YNARES-SANTIAGO.: The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the June [1] [2] 30.41 3.23 990.00) Penalty Interest 559.61 2.02 119.351.28 124. Promulgated: September 17. 175490 Present: . demanding payment of the amount of one hundred forty-one thousand five hundred eighteen pesos and thirty-four centavos (PhP 141. J.843.000) 30.05 Balance Due 98.80 (18.891.263. NACHURA.13 Purchases (Payments) (15. J.308.806. .28 124.234. and PERALTA.13 115.000.263. 2004 from respondent BPI.34).72 0 259.90 .99 2.037.70 98. Chairperson.58 129.41 86.

00) 8. Venue of all civil suits to enforce this Agreement or any other suit directly or indirectly arising from the relationship between the parties as established herein.51 3.050. and those with accounts unpaid after ninety (90) days from said original billing/statement date shall automatically be cancel (sic). In case of default in his obligation as provided herein.862. respondent BPI filed with the Metropolitan Trial Court (MeTC) of Makati City a complaint for a sum of money against her and her husband.045.435.10 118. which the Cardholder expressly waives.56 (10.28 3. .20 1.78 Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard. However. without prejudice to BCC’s right to suspend or cancel any card anytime and for whatever reason. PROVIDED that if there occurs any change on the prevailing market rates. (b) service fee for every dishonored check issued by the cardholder in payment of his account without prejudice. and such payment due date may be changed to an earlier date if the Cardholder’s account is considered overdue and/or with balances in excess of the approved credit limit. The charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month for BPI Express Credit.375.23 141. Macalinao and [5] Danilo SJ.65 128. notwithstanding the absence or lack of proof of service of the SOA of the Cardholder.00) 644.362. 84462 entitled Bank of the Philippine Islands vs. A CARD with outstanding balance unpaid after thirty (30) days from original billing statement date shall automatically be suspended.65 128. This was raffled to Branch 66 of the MeTC and was docketed as Civil Case No.174. if the payment of the account is enforced though court action.518.50 (7. and (c) a final fee equivalent to 25% of the unpaid balance. exclusive of litigation expenses and judicial cost. Particularly: 8.) For failure of petitioner Macalinao to settle her obligations.540.09 4.608.07 1.540. PAYMENT OF CHARGES – BCC shall furnish the Cardholder a monthly Statement of Account (SOA) and the Cardholder agrees that all charges made through the use of the CARD shall be paid by the Cardholder as stated in the SOA on or before the last day for payment.26 402. Cardholder shall surrender his/her card to BCC and in addition to the interest and penalty charges aforementioned .000. the latter shall pay any and all charges made through the use of the CARD within thirty (30) days from date or dates thereof. or to such other date as may be deemed proper by the CARD issuer with notice to the Cardholder on the same monthly SOA. BCC shall have the option to adjust the rate of interest and/or penalty fee due on the outstanding obligation with prior notice to the cardholder. (Emphasis supplied.435. shall be in the process of courts of the City of Makati or in other courts at the [4] option of BCC. BPI Gold Mastercard and an additional penalty fee equivalent to another 3% of the amount due for every month or a fraction of a month’s delay. negligence or breach thereof. Spouses Ileana Dr.177.90 119.95 323.34 154.565. the last day for the payment automatically becomes the last working day prior to said payment date.491.57 608. Failure of the Cardholder to pay the charges made through the CARD within the payment period as stated in the SOA or within thirty (30) days from actual date or dates of purchase whichever occur earlier.599.743.000.49 123. pay the following liquidated damages and/or fees (a) a collection fee of 25% of the amount due if the account is referred to a collection agency or attorney. whether arising from crimes.009. which is twenty (20) days from the date of the said SOA.71 3. Danilo SJ.10 4.571. however.375.44 113.10 118.833.44 113.49 123.4/27/2003 5/27/2003 6/29/2003 7/27/2003 8/27/2003 9/28/2003 10/28/2003 11/28/2003 12/28/2003 1/27/2004 115.32 3. and to charge additional service fees as may be deemed necessary in order to maintain its service to the Cardholder. the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month. If the last day fall on a Saturday.435.34 8.71 4. Macalinao. Macalinao.607. The Cardholder hereby authorizes BCC to correspondingly increase the rate of such interest [in] the event of changes in the prevailing market rates.833.565. to BCC’s right of considering Cardholder’s account.56 134. Sunday or a holiday. shall render him in default without the necessity of demand from BCC.16 119.

In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorney’s fees, and of the [6] cost of suit.

After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband, they failed to file [7] their Answer. Thus, respondent BPI moved that judgment be rendered in accordance with Section 6 of the Rule on Summary [8] [9] Procedure. This was granted in an Order dated June 16, 2004. Thereafter, respondent BPI submitted its documentary [10] evidence.

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month, to wit:

WHEREFORE, finding merit in the allegations of the complaint supported by documentary evidence, judgment is hereby rendered in favor of the plaintiff, Bank of the Philippine Islands and against defendantspouses Ileana DR Macalinao and Danilo SJ Macalinao by ordering the latter to pay the former jointly and severally the following:

1. The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100 (P141,518.34) plus interest and penalty charges of 2% per month from January 05, 2004 until fully paid; 2. P10,000.00 as and by way of attorney’s fees; and 3. Cost of suit. SO ORDERED.
[11]

Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their recourse docketed as Civil Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in toto the decision of the MeTC and held:

In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a recomputation at the reduced rate of 2% per month. Note that the total amount sought by the plaintiff-appellee was P154,608.75 exclusive of finance charge of 3.25% per month and late payment charge of 6% per month. WHEREFORE, the appealed decision is hereby affirmed in toto. No pronouncement as to costs. SO ORDERED.
[12]

Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R. SP No. 92031. The CA affirmed with modification the Decision of the RTC:

WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total amount due and interest rate. Accordingly, petitioners are jointly and severally ordered to pay respondent Bank of the Philippine Islands the following: 1. The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and Seventy Centavos plus interest and penalty charges of 3% per month from January 5, 2004 until fully paid;

2. 3.

P10,000.00 as and by way of attorney’s fees; and Cost of Suit.
[13]

SO ORDERED.

Although sued jointly with her husband, petitioner Macalinao was the only one who filed the petition before the CA since [14] her husband already passed away on October 18, 2005.

In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied in the demand letter of respondent BPI) is clearly not the result of the re-computation at the reduced interest rate as previous higher interest rates were already incorporated in the said amount. Thus, the said amount should not be made as basis in computing the total obligation of petitioner Macalinao. Further, the CA also emphasized that respondent BPI should not compound the interest in the instant case absent a stipulation to that effect. The CA also held, however, that the MeTC erred in modifying the amount of interest rate from 3% monthly to only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general public. It explained that contracts of adhesion are not invalid per se and are not entirely prohibited.

Petitioner Macalinao’s motion for reconsideration was denied by the CA in its Resolution dated November 21, 2006. Hence, petitioner Macalinao is now before this Court with the following assigned errors:

I.

THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE STIPULATED RATE OF INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.

II.

THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO 3%, CONTRARY TO THE TENOR OF ITS OWN DECISION.

III.

THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FOR FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONER’S OBLIGATION, OR IN THE ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT PROOF OF THE CORRECT AMOUNT THEREOF.

Our Ruling

The petition is partly meritorious.

The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month or 24% Per Annum

In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25% per month or 111% per annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was thus reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate of interest and penalty charge and increased them to 3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, which governs the transaction between petitioner Macalinao and respondent BPI.

In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month imposed by the CA is [15] iniquitous as the same translates to 36% per annum or thrice the legal rate of interest. On the other hand, respondent BPI asserts that said interest rate and penalty charge are reasonable as the same are based on the Terms and Conditions Governing the [16] Issuance and Use of the BPI Credit Card.

We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.

Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of [17] 36% per annum as excessive and unconscionable. We held in Chua vs. Timan:

The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably reduced to 1% per month or 12%per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets. (Emphasis supplied.)

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce [18] the interest rate as reason and equity demand.

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of [19] each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as [20] indicated in her Billing Statements. Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed iniquitous and unconscionable.

Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

70 as basis for the re-computation of the interest considering that this was the first amount which appeared on the Statement of Account of petitioner Macalinao.101.000) 30.152.53 821. 2002 Statement of Account. the summons and a copy of the complaint were served upon petitioner Macalinao and her husband on May 4.355.70.56 112. or on motion of the plaintiff.843.355.44 1.53 821. if there are two or more defendants.50 110.995. motu proprio.152. For this reason.152.50 92. a dismissal of the case would cause great injustice to respondent BPI. Based on the records. Significantly.58 112. Effect of failure to answer.50 92.44 798.50 110.101. this allegedly necessitates a reexamination of the evidence presented by the parties.843. the CA correctly used the beginning balance of PhP 94.70 94.843.53 835.50 (15. was not the amount of the principal obligation. emphasis supplied. 2004.) Considering the foregoing rule.152.15 10/27/2002 11/27/2002 12/31/2002 1/27/2003 2/27/2003 3/27/2003 4/27/2003 5/27/2003 6/29/2003 94.152. however. Consequently. a decision was rendered by the MeTC on the basis of the evidence submitted by respondent BPI.58 81.101.56 85.843.152.70 110. petitioner Macalinao further contends that the dismissal of the case or its remand to the lower court would be a more appropriate disposition of the case.70 79.308. petitioner Macalinao herself admitted the existence of her obligation to respondent BPI. barring a showing that the factual findings complained of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion.53 921. respondent BPI [21] moved that judgment be rendered accordingly.000. Similarly.440.795.00) 8.00 948. Furthermore.50 94. respondent BPI should not be made to suffer for petitioner Macalinao’s failure to file an answer and concomitantly. as can be gathered from the evidence on record.53 921.56 93.995. Significantly. Much Less a Remand of the Same for Further Reception of Evidence Petitioner Macalinao claims that the basis of the re-computation of the CA. This is without prejudice to the applicability of Section 3(c).152.70 stated on the October 27.53 1.50 92.152.56 93.843. this Court finds the following computation more appropriate: Statement Date Previous Balance Purchases (Payments) Balance Interest (1%) Penalty Charge (1%) 948.185.152.152.70 110.152.50 92.There Is No Basis for the Dismissal of the Case. In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning balance of PhP 94.843.50 83. that is. This is in consonance with Sec.15 Total Amount Due for the Month 96.843.70 79.53 1. — Should the defendant fail to answer the complaint within the period above provided. to allow the latter to submit additional evidence by dismissing or remanding the case for further reception of evidence.44 1. 6 of the Revised Rule on Summary Procedure. the amount of PhP 94. which states: Sec. the court.56 83.80 (18. There is no other amount on which the re-computation could be based.101.44 798. albeit with reservation as to the principal amount. shall render judgment as may be warranted by the facts alleged in the complaint and limited to what is prayed for therein: Provided.843.53 1. Such contention is untenable. Thus.56 112.50 110.362.50 82.355.53 921.53 1.740. Rule 10 of the Rules of Court. 6. that the court may in its discretion reduce the amount of damages and attorney’s fees claimed for being excessive or otherwise unconscionable. Thus.101. for this Court is not expected or required to examine or contrast [22] the evidence submitted by the parties.000. they failed to file their Answer despite such service.50 82.53 921.152.30 . (As amended by the 1997 Rules of Civil Procedure. a remand of the case for further reception of evidence would unduly prolong the proceedings of the instant case and render inutile the proceedings conducted before the lower courts.00) (10. Nevertheless. Thus.53 835.515. such findings must stand.101.50 110.

(2) PhP 10. The CA Decision dated June 30.185.185.515.00 83.30 85.515.185.309.15 835.000. 2006 in CA-G.15 835.00 83.00 83.515.R.00) 7/27/2003 8/27/2003 9/28/2003 10/28/2003 11/28/2003 12/28/2003 1/27/2004 TOTAL 83.52)plus interest and penalty charges of 2% per month from January 5.15 835.15 835.15 835.15 835. SP No.15 835.00 83.397.30 112.515.00 83.185.15 835.309.30 85. .30 85.15 835.00 83.00 83.00 835.52 WHEREFORE.00 83.515. Accordingly. and (3) Cost of suit. petitioner Macalinao is ordered to pay respondent BPI the following: (1) The amount of one hundred twelve thousand three hundred nine pesos and fifty-two centavos (PhP 112.00 83.(7.30 85.515.185. and penalty charge.515.00 83.00 83.00 83.30 85.515.515.00 83.515.30 85.000 as and by way of attorney’s fees.15 14.00 83.515.26 835. 92031 is hereby MODIFIED with respect to the total amount due.515. interest rate. 2004 until fully paid.15 14.515.185.397. SO ORDERED.26 85.15 835. the petition is PARTLY GRANTED.15 835.185.515.15 835.515.

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