G.R. No. 148753, July 30, 2004 ] Others: EDSA Lighting, Roxas Blvd.
Painting
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC.
(NSBCI) AND SPOUSES EDUARDO R. DEE AND ARCELITA
M. DEE, PETITIONERS, VS. PHILIPPINE NATIONAL BANK,
RESPONDENT.
DECISION
PANGANIBAN, J.:
Courts have the authority to strike down or to modify provisions
in promissory notes that grant the lenders unrestrained power
to increase interest rates, penalties and other charges at the
latter's sole discretion and without giving prior notice to and
securing the consent of the borrowers. This unilateral authority
is anathema to the mutuality of contracts and enable lenders to
take undue advantage of borrowers. Although the Usury Law
has been effectively repealed, courts may still reduce
iniquitous or unconscionable rates charged for the use of
money. Furthermore, excessive interests, penalties and other
charges not revealed in disclosure statements issued by
banks, even if stipulated in the promissory notes, cannot be
given effect under the Truth in Lending Act.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules
of Court, seeking to nullify the June 20, 2001 Decision[2] of the
Court of Appeals[3] (CA) in CA-GR CV No. 55231. The decretal
portion of the assailed Decision reads as follows:
"WHEREFORE, the decision of the Regional Trial Court of
Dagupan City, Branch 40 dated December 28, 1995
is REVERSED and SET ASIDE. The foreclosure proceedings
of the mortgaged properties of defendants-appellees[4] and the
February 26, 1992 auction sale are declared legal and valid
and said defendants-appellees are ordered to pay plaintiff-
appellant PNB,[5] jointly and severally[,] the amount of
deficiency that will be computed by the trial court based on the
original penalty of 6% per annum as explicitly stated in the loan
documents and to pay attorney's fees in an amount equivalent
to x x x 1% of the total amount due and the costs of suit and
expenses of litigation."[6]
The Facts
The facts are narrated by the CA as follows:
"On February 11, 1989, Board Resolution No. 05, Series of
1989 was approved by [Petitioner] NSBCI [1)] authorizing the
company to x x x apply for or secure a commercial loan with
the PNB in an aggregate amount of P8.0M, under such terms
agreed by the Bank and the NSBCI, using or mortgaging the
real estate properties registered in the name of its President
and Chairman of the Board [Petitioner] Eduardo R. Dee as
collateral; [and] 2) authorizing [petitioner-spouses] to secure
the loan and to sign any [and all] documents which may be
required by [Respondent] PNB[,] and that [petitioner-spouses]
shall act as sureties or co-obligors who shall be jointly and
severally liable with [Petitioner] NSBCI for the payment of any
[and all] obligations.
"On August 15, 1989, Resolution No. 77 was approved by
granting the request of [Respondent] PNB thru its Board
NSBCI for an P8 Million loan broken down into a revolving
credit line of P7.7M and an unadvised line of P0.3M for
additional operating and working capital[7] to mobilize its
various construction projects, namely:
'1
MWSS Watermain;
)
2) NEA-Liberty farm;
3) Olongapo City Pag-Asa Public Market;
Renovation of COA-NCR Buildings 1, 2 and
4)
9;
Dupels, Inc., Extensive prawn farm
5)
development project;
6) Banawe Hotel Phase II;
Clark Air Base -- Barracks and Buildings;
7)
and
8)
NEA Sapang Palay and Angeles City.'
"The loan of [Petitioner] NSBCI was secured by a first
mortgage on the following: a) three (3) parcels of residential
land located at Mangaldan, Pangasinan with total land area of
1,214 square meters[,] including improvements thereon and
registered under TCT Nos. 128449, 126071, and 126072 of the
Registry of Deeds of Pangasinan; b) six (6) parcels of
residential land situated at San Fabian, Pangasinan with total
area of 1,767 square meters[,] including improvements thereon
and covered by TCT Nos. 144006, 144005, 120458, 120890,
144161[,] and 121127 of the Registry of Deeds of Pangasinan;
and c) a residential lot and improvements thereon located at
Mangaldan, Pangasinan with an area of 4,437 square meters
and covered by TCT No. 140378 of the Registry of Deeds of
Pangasinan.
"The loan was further secured by the joint and several
signatures of [Petitioners] Eduardo Dee and Arcelita Marquez
Dee, who signed as accommodation-mortgagors since all the
collaterals were owned by them and registered in their names.
"Moreover [Petitioner] NSBCI executed the following
documents, viz: a) promissory note dated June 29, 1989 in the
amount of P5,000,000.00 with due date on October 27, 1989;
[b)] promissory note dated September 1, 1989 in the amount
of P2,700,000.00 with due date on December 30, 1989; and c)
promissory note dated September 6, 1989 in the amount
of P300,000.00 with maturity date on January 4, 1990.
"In addition, [petitioner] corporation also signed the Credit
Agreement dated August 31, 1989 relating to the 'revolving
credit line' of P7.7 Million x x x and the Credit Agreement dated
September 5, 1989 to support the 'unadvised line'
of P300,000.00.
"On August 31, 1989, [petitioner-spouses] executed a 'Joint
and Solidary Agreement' (JSA) in favor of [Respondent] PNB
'unconditionally and irrevocably binding themselves to be
jointly and severally liable with the borrower for the payment of
all sums due and payable to the Bank under the Credit
Document.'
"Later on, [Petitioner] NSBCI failed to comply with its
obligations under the promissory notes.
"On June 18, 1991, [Petitioner] Eduardo R. Dee on behalf of
[Petitioner] NSBCI sent a letter to the Branch Manager of the
PNB Dagupan Branch requesting for a 90-day extension for
the payment of interests and restructuring of its loan for
another term.
"Subsequently, NSBCI tendered payment to [Respondent]
PNB [of] three (3) checks aggregating P1,000,000.00, namely
1) check no. 316004 dated August 8, 1991 in the amount
of P200,000.00; 2) check no. 03499997 dated August 8, 1991
in the amount of P650,000.00; and 3) check no. 03499998
dated August 15, 1991 in the amount of P150,000.00.[8]
"In a meeting held on August 12, 1991, [Respondent] PNB's
representative[,] Mr. Rolly Cruzabra, was informed by
[Petitioner] Eduardo Dee of his intention to remit to
[Respondent] PNB post-dated checks covering interests,
penalties and part of the loan principals of his due account.
"On August 22, 1991, [Respondent] bank's Crispin Carcamo
wrote [Petitioner] Eduardo Dee[,] informing him that [Petitioner]
NSBCI's proposal [was] acceptable[,] provided the total
payment should be P4,128,968.29 that [would] cover the
amount of P1,019,231.33 as principal, P3,056,058.03 as
interests and penalties[,] and P53,678.93 for insurance[,] with
the issuance of post-dated checks to be dated not later than
November 29, 1991.
"On September 6, 1991, [Petitioner] Eduardo Dee wrote the
PNB Branch Manager reiterating his proposals for the
settlement of [Petitioner] NSBCI's past due loan account
amounting to P7,019,231.33.
"[Petitioner] Eduardo Dee later tendered four (4) post-dated
Interbank checks aggregating P1,111,306.67 in favor of
[Respondent] PNB, viz:
'Check No. Date Amount
03500087 Sept. 29, 1991 P277,826.70
03500088 Oct. 29, 1991 P277,826.70
03500089 Nov. 29, 1991 P277,826.70
03500090 Dec. 20, 1991 P277,826.57'
"Upon presentment[,] however, x x x check nos. 03500087 and
03500088 dated September 29 and October 29, 1991 were
dishonored by the drawee bank and returned due [to] a 'stop
payment' order from [petitioners].
"On November 12, 1991, PNB's Mr. Carcamo wrote [Petitioner]
Eduardo Dee informing him that unless the dishonored checks
[were] made good, said PNB branch 'shall recall its
recommendation to the Head Office for the restructuring of the
loan account and refer the matter to its legal counsel for legal
action.['] [Petitioners] did not heed [respondent's] warning and
as a result[,] the PNB Dagupan Branch sent demand letters to
[Petitioner] NSBCI at its office address at 1611 ERDC Building,
E. Rodriguez Sr. Avenue, Quezon City[,] asking it to settle its
past due loan account.
"[Petitioners] nevertheless failed to pay their loan obligations
within the [timeframe] given them and as a result,
[Respondent] PNB filed with the Provincial Sheriff of
Pangasinan at Lingayen a Petition for Sale under Act 3135, as
amended[,] and Presidential Decree No. 385 dated January
30, 1992.
"The notice of extra-judicial sale of the mortgaged properties
relating to said PNB's [P]etition for [S]ale was published in the
February 8, 15 and 22, 1992 issues of the Weekly Guardian,
allegedly a newspaper of general circulation in the Province of
Pangasinan, including the cities of Dagupan and San Carlos.
In addition[,] copies of the notice were posted in three (3)
public places[,] and copies thereof furnished [Petitioner] NSBCI
at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon
City, [and at] 555 Shaw Blvd., Mandaluyong[, Metro Manila;]
and [Petitioner] Sps. Eduardo and Arcelita Dee at 213 Wilson
St., San Juan, Metro Manila.
"On February 26, 1992, the Provincial Deputy Sheriff
Cresencio F. Ferrer of Lingayen, Pangasinan foreclosed the
real estate mortgage and sold at public auction the mortgaged
properties of [petitioner-spouses,] with [Respondent] PNB
being declared the highest bidder for the amount
of P10,334,000.00.
"On March 2, 1992, copies of the Sheriff's Certificate of Sale
were sent by registered mail to [petitioner] corporation's
address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue,
Quezon City and [petitioner-spouses'] address at 213 Wilson
St., San Juan, Metro Manila.
"On April 6, 1992, the PNB Dagupan Branch Manager sent a
letter to [petitioners] at their address at 1611 [ERDC Building,]
E. Rodriguez Sr. Avenue, Quezon City[,] informing them that
the properties securing their loan account [had] been sold at
public auction, that the Sheriff's Certificate of Sale had been
registered with the Registry of Deeds of Pangasinan on March
13, 1992[,] and that a period of one (1) year therefrom [was]
granted to them within which to redeem their properties.
"[Petitioners] failed to redeem their properties within the one-
year redemption period[,] and so [Respondent] PNB executed
a [D]eed of [A]bsolute [S]ale consolidating title to the properties
in its name. TCT Nos. 189935 to 189944 were later issued to
[Petitioner] PNB by the Registry of Deeds of Pangasinan.
"On August 4, 1992, [Respondent] PNB informed [Petitioner]
NSBCI that the proceeds of the sale conducted on February
26, 1992 were not sufficient to cover its total claim amounting
to P12,506,476.43[,] and thus demanded from the latter the
deficiency of P2,172,476.43 plus interest and other charges[,]
until the amount [was] fully paid.
"[Petitioners] refused to pay the above deficiency claim which
compelled [Respondent] PNB to institute the instant
[C]omplaint for the collection of its deficiency claim.
"Finding that the PNB debt relief package automatically
[granted] to [Petitioner] NSBCI the benefits under the program,
the court a quo ruled in favor of [petitioners] in its Decision
dated December 28, 1995, the fallo of which reads:
'In view of the foregoing, the Court believes and so holds that
the [respondent] has no cause of action against the
[petitioners].
'WHEREFORE, the case is hereby DISMISSED, without
costs.'"[9]
On appeal, respondent assailed the trial court's Decision
dismissing its deficiency claim on the mortgage debt. It also
challenged the ruling of the lower court that Petitioner NSBCI's
loan account was bloated, and that the inadequacy of the bid
price was sufficient to set aside the auction sale.
Ruling of the Court of Appeals
Reversing the trial court, the CA held that Petitioner NSBCI did
not avail itself of respondent's debt relief package (DRP) or
take steps to comply with the conditions for qualifying under
the program. The appellate court also ruled that entitlement to
the program was not a matter of right, because such
entitlement was still subject to the approval of higher bank
authorities, based on their assessment of the borrower's
repayment capability and satisfaction of other requirements.
As to the misapplication of loan payments, the CA held that the
subsidiary ledgers of NSBCI's loan accounts with respondent
reflected all the loan proceeds as well as the partial payments
that had been applied either to the principal or to the interests,
penalties and other charges. Having been made in the ordinary
and usual course of the banking business of respondent, its
entries were presumed accurate, regular and fair under
Section 5(q) of Rule 131 of the Rules of Court. Petitioners
failed to rebut this presumption.
The increases in the interest rates on NSBCI's loan were also
held to be authorized by law and the Monetary Board and --
like the increases in penalty rates -- voluntarily and freely
agreed upon by the parties in the Credit Agreements they
executed. Thus, these increases were binding upon
petitioners.
However, after considering that two to three of Petitioner
NSBCI's projects covered by the loan were affected by the
economic slowdown in the areas near the military bases in the
cities of Angeles and Olongapo, the appellate court annulled
and deleted the adjustment in penalty from 6 percent to 36
percent per annum. Not only did respondent fail to
demonstrate the existence of market forces and economic
conditions that would justify such increases; it could also have
treated petitioners' request for restructuring as a request for
availment of the DRP. Consequently, the original penalty rate
of 6 percent per annum was used to compute the deficiency
claim.
The auction sale could not be set aside on the basis of the
inadequacy of the auction price, because in sales made at
public auction, the owner is given the right to redeem the
mortgaged properties; the lower the bid price, the easier it is to
effect redemption or to sell such right. The bid price
of P10,334,000.00 vis-à-vis respondent's claim
of P12,506,476.43 was found to be neither shocking nor
unconscionable.
The attorney's fees were also reduced by the appellate court
from 10 percent to 1 percent of the total indebtedness. First,
there was no extreme difficulty in an extrajudicial foreclosure of
a real estate mortgage, as this proceeding was merely
administrative in nature and did not involve a court litigation
contesting the proceedings prior to the auction sale. Second,
the attorney's fees were exclusive of all stipulated costs and
fees. Third, such fees were in the nature of liquidated damages
that did not inure to respondent's salaried counsel.
Respondent was also declared to have the unquestioned right
to foreclose the Real Estate Mortgage. It was allowed to
recover any deficiency in the mortgage account not realized in
the foreclosure sale, since petitioner-spouses had agreed to be
solidarily liable for all sums due and payable to respondent.
Finally, the appellate court concluded that the extrajudicial
foreclosure proceedings and auction sale were valid for the
following reasons: (1) personal notice to the mortgagors,
although unnecessary, was actually made; (2) the notice of
extrajudicial sale was duly published and posted; (3) the
extrajudicial sale was conducted through the deputy sheriff,
under the direction of the clerk of court who was concurrently
the ex-oficio provincial sheriff and acting as agent of
respondent; (4) the sale was conducted within the province
where the mortgaged properties were located; and (5) such
sale was not shown to have been attended by fraud.
Hence this Petition.[10]
Issues
Petitioners submit the following issues for our consideration:
"I
Whether or not the Honorable Court of Appeals correctly ruled
that petitioners did not avail of PNB's debt relief package and
were not entitled thereto as a matter of right.
"II
Whether or not petitioners have adduced sufficient and
convincing evidence to overthrow the presumption of regularity
and correctness of the PNB entries in the subsidiary ledgers of
the loan accounts of petitioners.
"III
Whether or not the Honorable Court of Appeals seriously erred
in not holding that the Respondent PNB bloated the loan
account of petitioner corporation by imposing interests,
penalties and attorney's fees without legal, valid and equitable
justification.
"IV
Whether or not the auction price at which the mortgaged
properties was sold was disproportionate to their actual fair
mortgage value.
"V
Whether or not Respondent PNB is not entitled to recover the
deficiency in the mortgage account not realized in the
foreclosure sale, considering that:
A. Petitioners are merely guarantors of the mortgage
debt of petitioner corporation which has a separate
personality from the [petitioner-spouses].
B.
C. The joint and solidary agreement executed by
[petitioner- spouses] are contracts of adhesion not
binding on them;
D.
E. The NSBCI Board Resolution is not valid and binding
on [petitioner-spouses] because they were compelled
to execute the said Resolution[;] otherwise[,]
Respondent PNB would not grant petitioner
corporation the loan;
F.
G. The Respondent PNB had already in its possession
the properties of the [petitioner-spouses] which
served as a collateral to the loan obligation of
petitioner corporation[,] and to still allow Respondent
PNB to recover the deficiency claim amounting to a
very substantial amount of P2.1 million would
constitute unjust enrichment on the part of
Respondent PNB.
"VI
Whether or not the extrajudicial foreclosure proceedings and
auction sale, including all subsequent proceedings[,] are null
and void for non-compliance with jurisdictional and other
mandatory requirements; whether or not the petition for
extrajudicial foreclosure of mortgage was filed prematurely;
and whether or not the finding of fraud by the trial court is
amply supported by the evidence on record."[11]
The foregoing may be summed up into two main issues: first,
whether the loan accounts are bloated; and second, whether
the extrajudicial foreclosure and subsequent claim for
deficiency are valid and proper.
The Court's Ruling
The Petition is partly meritorious.
First Main Issue:
Bloated Loan Accounts
At the outset, it must be stressed that only questions of
law[12] may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court. As a rule, questions of fact
cannot be the subject of this mode of appeal,[13] for "[t]he
Supreme Court is not a trier of facts."[14] As exceptions to this
rule, however, factual findings of the CA may be reviewed on
appeal[15] when, inter alia, the factual inferences are manifestly
mistaken;[16] the judgment is based on a misapprehension of
facts;[17] or the CA manifestly overlooked certain relevant and
undisputed facts that, if properly considered, would justify a
different legal conclusion.[18] In the present case, these
exceptions exist in various instances, thus prompting us to take
cognizance of factual issues and to decide upon them in the
interest of justice and in the exercise of our sound discretion.[19]
Indeed, Petitioner NSBCI's loan accounts with respondent
appear to be bloated with some iniquitous imposition of
interests, penalties, other charges and attorney's fees. To
demonstrate this point, the Court shall take up one by one the
promissory notes, the credit agreements and the disclosure
statements.
Increases in Interest Baseless
Promissory Notes. In each drawdown, the Promissory Notes
specified the interest rate to be charged: 19.5 percent in the
first, and 21.5 percent in the second and again in the third.
However, a uniform clause therein permitted respondent to
increase the rate "within the limits allowed by law at any time
depending on whatever policy it may adopt in the future x x
x,"[20] without even giving prior notice to petitioners. The Court
holds that petitioners' accessory duty to pay interest[21] did not
give respondent unrestrained freedom to charge any rate other
than that which was agreed upon. No interest shall be due,
unless expressly stipulated in writing.[22] It would be the zenith
of farcicality to specify and agree upon rates that could be
subsequently upgraded at whim by only one party to the
agreement.
The "unilateral determination and imposition"[23] of increased
rates is "violative of the principle of mutuality of contracts
ordained in Article 1308[24] of the Civil Code."[25] One-sided
impositions do not have the force of law between the parties,
because such impositions are not based on the parties'
essential equality.
Although escalation clauses[26] are valid in maintaining fiscal
stability and retaining the value of money on long-term
contracts,[27] giving respondent an unbridled right to adjust the
interest independently and upwardly would completely take
away from petitioners the "right to assent to an important
modification in their agreement"[28] and would also negate the
element of mutuality in their contracts. The clause cited earlier
made the fulfillment of the contracts "dependent exclusively
upon the uncontrolled will"[29] of respondent and was therefore
void. Besides, the pro forma promissory notes have the
character of a contract d'adhésion,[30] "where the parties do not
bargain on equal footing, the weaker party's [the debtor's]
participation being reduced to the alternative 'to take it or leave
it.'"[31]
"While the Usury Law[32] ceiling on interest rates was lifted by
[Central Bank] Circular No. 905,[33] 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."[34] In fact, we have declared
nearly ten years ago that neither this Circular nor PD 1684,
which further amended the Usury Law, "authorized either party
to unilaterally raise the interest rate without the other's
consent."[35]
Moreover, a similar case eight years ago pointed out to the
same respondent (PNB) that borrowing signified a capital
transfusion from lending institutions to businesses and
industries and was done for the purpose of stimulating their
growth; yet respondent's continued "unilateral and lopsided
policy"[36] of increasing interest rates "without the prior
assent"[37] of the borrower not only defeats this purpose, but
also deviates from this pronouncement. Although such
increases are not usurious, since the "Usury Law is now legally
inexistent"[38] -- the interest ranging from 26 percent to 35
percent in the statements of account[39] -- "must be equitably
reduced for being iniquitous, unconscionable and
exorbitant."[40] Rates found to be iniquitous or unconscionable
are void, as if it there were no express contract thereon.
[41]
 Above all, it is undoubtedly against public policy to charge
excessively for the use of money.[42]
It cannot be argued that assent to the increases can be implied
either from the June 18, 1991 request of petitioners for loan
restructuring or from their lack of response to the statements of
account sent by respondent. Such request does not indicate
any agreement to an interest increase; there can be no implied
waiver of a right when there is no clear, unequivocal and
decisive act showing such purpose.[43] Besides, the statements
were not letters of information sent to secure their conformity;
and even if we were to presume these as an offer, there was
no acceptance. No one receiving a proposal to modify a loan
contract, especially interest -- a vital component -- is "obliged
to answer the proposal."[44]
Furthermore, respondent did not follow the stipulation in the
Promissory Notes providing for the automatic conversion of the
portion that remained unpaid after 730 days -- or two years
from date of original release --into a medium-term loan, subject
to the applicable interest rate to be applied from the dates of
original release.[45]
In the first,[46] second[47] and third[48] Promissory Notes, the
amount that remained unpaid as of October 27, 1989,
December 1989 and January 4, 1990 -- their respective due
dates -- should have been automatically converted by
respondent into medium-term loans on June 30, 1991,
September 2, 1991, and September 7, 1991, respectively. And
on this unpaid amount should have been imposed the same
interest rate charged by respondent on other medium-term
loans; and the rate applied from June 29, 1989, September 1,
1989 and September 6, 1989 -- their respective original
release --until paid. But these steps were not taken. Aside from
sending demand letters, respondent did not at all exercise its
option to enforce collection as of these Notes' due dates.
Neither did it renew or extend the account.
In these three Promissory Notes, evidently, no complaint for
collection was filed with the courts. It was not until January 30,
1992 that a Petition for Sale of the mortgaged properties was
filed -- with the provincial sheriff, instead.[49] Moreover,
respondent did not supply the interest rate to be charged on
medium-term loans granted by automatic conversion. Because
of this deficiency, we shall use the legal rate of 12 percent per
annum on loans and forbearance of money, as provided for by
CB Circular 416.[50]
Credit Agreements. Aside from the promissory notes, another
main document involved in the principal obligation is the set of
credit agreements executed and their annexes.
The first Credit Agreement[51] dated June 19, 1989 -- although
offered and admitted in evidence, and even referred to in the
first Promissory Note -- cannot be given weight.
First, it was not signed by respondent through its branch
manager.[52] Apparently it was surreptitiously acknowledged
before respondent's counsel, who unflinchingly declared that it
had been signed by the parties on every page, although
respondent's signature does not appear thereon.[53]
Second, it was objected to by petitioners,[54] contrary to the trial
court's findings.[55] However, it was not the Agreement, but the
revolving credit line[56] of P5,000,000, that expired one year
from the Agreement's date of implementation.[57]
Third, there was no attached annex that contained the General
Conditions.[58] Even the Acknowledgment did not allude to its
existence.[59] Thus, no terms or conditions could be added to
the Agreement other than those already stated therein.
Since the first Credit Agreement cannot be given weight, the
interest rate on the first availment pegged at 3 percent over
and above respondent's prime rate[60] on the date of such
availment[61] has no bearing at all on the loan. After the first
Note's due date, the rate of 19 percent agreed upon should
continue to be applied on the availment, until its automatic
conversion to a medium-term loan.
The second Credit Agreement[62] dated August 31, 1989,
provided for interest -- respondent's prime rate, plus the
applicable spread[63] in effect as of the date of each availment,
[64]
 on a revolving credit line of P7,700,000[65] -- but did not state
any provision on its increase or decrease.[66] Consequently,
petitioners could not be made to bear interest more than such
prime rate plus spread. The Court gives weight to this second
Credit Agreement for the following reasons.
First, this document submitted by respondent was admitted by
petitioners.[67] Again, contrary to their assertion, it was not the
Agreement -- but the credit line -- that expired one year from
the Agreement's date of implementation.[68] Thus, the terms
and conditions continued to apply, even if drawdowns could no
longer be made.
Second, there was no 7-page annex[69] offered in evidence that
contained the General Conditions,[70] notwithstanding the
Acknowledgment of its existence by respondent's counsel.
Thus, no terms or conditions could be appended to the
Agreement other than those specified therein.
Third, the 12-page General Conditions[71] offered and admitted
in evidence had no probative value. There was no reference to
it in the Acknowledgment of the Agreement; neither was
respondent's signature on any of the pages thereof. Thus, the
General Conditions' stipulations on interest adjustment,
[72]
 whether on a fixed or a floating scheme, had no effect
whatsoever on the Agreement. Contrary to the trial court's
findings,[73] the General Condition were correctly objected to by
petitioners.[74] The rate of 21.5 percent agreed upon in the
second Note thus continued to apply to the second availment,
until its automatic conversion into a medium-term loan.
The third Credit Agreement[75] dated September 5, 1989,
provided for the same rate of interest as that in the second
Agreement. This rate was to be applied to availments of an
unadvised line of P300,000. Since there was no mention in the
third Agreement, either, of any stipulation on increases or
decreases[76] in interest, there would be no basis for imposing
amounts higher than the prime rate plus spread. Again, the
21.5 percent rate agreed upon would continue to apply to the
third availment indicated in the third Note, until such amount
was automatically converted into a medium-term loan.
The Court also finds that, first, although this document was
admitted by petitioners,[77] it was the credit line that expired one
year from the implementation of the Agreement.[78] The terms
and conditions therein continued to apply, even if availments
could no longer be drawn after expiry.
Second, there was again no 7-page annex[79] offered that
contained the General Conditions,[80] regardless of the
Acknowledgment by the same respondent's counsel affirming
its existence. Thus, the terms and conditions in this Agreement
relating to interest cannot be expanded beyond that which was
already laid down by the parties.
Disclosure Statements. In the present case, the Disclosure
Statements[81] furnished by respondent set forth the same
interest rates as those respectively indicated in the Promissory
Notes. Although no method of computation was provided
showing how such rates were arrived at, we will nevertheless
take up the Statements seriatim in order to determine the
applicable rates clearly.
As to the first Disclosure Statement on Loan/Credit
Transaction[82] dated June 13, 1989, we hold that the 19.5
percent effective interest rate per annum[83] would indeed apply
to the first availment or drawdown evidenced by the first
Promissory Note. Not only was this Statement issued prior to
the consummation of such availment or drawdown, but the rate
shown therein can also be considered equivalent to 3 percent
over and above respondent's prime rate in effect. Besides,
respondent mentioned no other rate that it considered to be the
prime rate chargeable to petitioners. Even if we disregarded
the related Credit Agreement, we assume that this private
transaction between the parties was fair and regular,[84] and
that the ordinary course of business was followed.[85]
As to the second Disclosure Statement on Loan/Credit
Transaction[86] dated September 2, 1989, we hold that the 21.5
percent effective interest rate per annum[87] would definitely
apply to the second availment or drawdown evidenced by the
second Promissory Note. Incidentally, this Statement was
issued only after the consummation of its related availment or
drawdown, yet such rate can be deemed equivalent to the
prime rate plus spread, as stipulated in the corresponding
Credit Agreement. Again, we presume that this private
transaction was fair and regular, and that the ordinary course
of business was followed. That the related Promissory Note
was pre-signed would also bolster petitioners' claim although,
under cross-examination Efren Pozon -- Assistant Department
Manager I[88] of PNB, Dagupan Branch -- testified that the
Disclosure Statements were the basis for preparing the Notes.
[89]
As to the third Disclosure Statement on Loan/Credit
Transaction[90] dated September 6, 1989, we hold that the
same 21.5 percent effective interest rate per annum[91] would
apply to the third availment or drawdown evidenced by the
third Promissory Note. This Statement was made available to
petitioner-spouses, only after the related Credit Agreement had
been executed, but simultaneously with the consummation of
the Statement's related availment or drawdown. Nonetheless,
the rate herein should still be regarded as equivalent to the
prime rate plus spread, under the similar presumption that this
private transaction was fair and regular and that the ordinary
course of business was followed.
In sum, the three disclosure statements, as well as the two
credit agreements considered by this Court, did not provide for
any increase in the specified interest rates. Thus, none would
now be permitted. When cross-examined, Julia Ang-Lopez,
Finance Account Analyst II of PNB, Dagupan Branch, even
testified that the bases for computing such rates were those
sent by the head office from time to time, and not those
indicated in the notes or disclosure statements.[92]
In addition to the preceding discussion, it is then useless to
belabor the point that the increase in rates violates the
impairment[93] clause of the Constitution,[94] because the sole
purpose of this provision is to safeguard the integrity of valid
contractual agreements against unwarranted interference by
the State[95] in the form of laws. Private individuals' intrusions
on interest rates is governed by statutory enactments like the
Civil Code.
Penalty, or Increases
Thereof, Unjustified
No penalty charges or increases thereof appear either in the
Disclosure Statements[96] or in any of the clauses in the second
and the third Credit Agreements[97] earlier discussed. While a
standard penalty charge of 6 percent per annum has been
imposed on the amounts stated in all three Promissory Notes
still remaining unpaid or unrenewed when they fell due,[98] there
is no stipulation therein that would justify any increase in that
charges. The effect, therefore, when the borrower is not clearly
informed of the Disclosure Statements -- prior to the
consummation of the availment or drawdown -- is that the
lender will have no right to collect upon such charge[99] or
increases thereof, even if stipulated in the Notes. The time is
now ripe to give teeth to the often ignored forty-one-year old
"Truth in Lending Act"[100] and thus transform it from a snivelling
paper tiger to a growling financial watchdog of hapless
borrowers.
Besides, we have earlier said that the Notes are contracts of
adhesion; although not invalid per se, any apparent ambiguity
in the loan contracts -- taken as a whole -- shall be strictly
construed against respondent who caused it.[101] Worse, in the
statements of account, the penalty rate has again been
unilaterally increased by respondent to 36 percent without
petitioners' consent. As a result of its move, such liquidated
damages intended as a penalty shall be equitably reduced by
the Court to zilch[102] for being iniquitous or unconscionable.[103]
Although the first Disclosure Statement was furnished
Petitioner NSBCI prior to the execution of the transaction, it is
not a contract that can be modified by the related Promissory
Note, but a mere statement in writing that reflects the true and
effective cost of loans from respondent. Novation can never be
presumed,[104] and the animus novandi "must appear by
express agreement of the parties, or by their acts that are too
clear and unequivocal to be mistaken."[105] To allow novation
will surely flout the "policy of the State to protect its citizens
from a lack of awareness of the true cost of credit."[106]
With greater reason should such penalty charges be indicated
in the second and third Disclosure Statements, yet none can
be found therein. While the charges are issued after the
respective availment or drawdown, the disclosure statements
are given simultaneously therewith. Obviously, novation still
does not apply.
Other Charges Unwarranted
In like manner, the other charges imposed by respondent are
not warranted. No particular values or rates of service charge
are indicated in the Promissory Notes or Credit Agreements,
and no total value or even the breakdown figures of such non-
finance charge are specified in the Disclosure Statements.
Moreover, the provision in the Mortgage that requires the
payment of insurance and other charges is neither made part
of nor reflected in such Notes, Agreements, or Statements.[107]
Attorney's Fees Equitably Reduced
We affirm the equitable reduction in attorney's fees.[108] These
are not an integral part of the cost of borrowing, but arise only
when collecting upon the Notes becomes necessary. The
purpose of these fees is not to give respondent a larger
compensation for the loan than the law already allows, but to
protect it against any future loss or damage by being
compelled to retain counsel in-house or not -- to institute
judicial proceedings for the collection of its credit.[109] Courts
have has the power[110] to determine their
reasonableness[111] based on quantum meruit[112] and to
reduce[113] the amount thereof if excessive.[114]
In addition, the disqualification argument in the Affidavit of
Publication raised by petitioners no longer holds water,
inasmuch as Act 496[115] has repealed the Spanish Notarial
Law.[116] In the same vein, their engagement of their counsel in
another capacity concurrent with the practice of law is not
prohibited, so long as the roles being assumed by such
counsel is made clear to the client.[117] The only reason for this
clarification requirement is that certain ethical considerations
operative in one profession may not be so in the other.[118]
Debt Relief Package
Not Availed Of
We also affirm the CA's disquisition on the debt relief package
(DRP).
Respondent's Circular is not an outright grant of assistance or
extension of payment,[119] but a mere offer subject to specific
terms and conditions.
Petitioner NSBCI failed to establish satisfactorily that it had
been seriously and directly affected by the economic slowdown
in the peripheral areas of the then US military bases. Its
allegations, devoid of any verification, cannot lead to a
supportable conclusion. In fact, for short-term loans, there is
still a need to conduct a thorough review of the borrower's
repayment possibilities.[120]
Neither has Petitioner NSBCI shown enough margin of equity,
[121]
 based on the latest loan value of hard collaterals,[122] to be
eligible for the package. Additional accommodations on an
unsecured basis may be granted only when regular payment
amortizations have been established, or when the merits of the interest rates of 19.5 percent and 21.5 percent on the
credit application would so justify.[123] respective availments -- subject to the 12 percent legal rate
revision upon automatic conversion into medium-term loans --
The branch manager's recommendation to restructure or plus 1 percent attorney's fees, without additional charges on
extend a total outstanding loan not exceeding P8,000,000 is penalty, insurance or any increases thereof.
not final, but subject to the approval of respondent's Branches
Department Credit Committee, chaired by its executive vice- Accordingly, the excessive interest rates in the Statements of
president.[124] Aside from being further conditioned on other Account sent to petitioners are reduced to 19.5 percent and
pertinent policies of respondent,[125] such approval nevertheless 21.5 percent, as stipulated in the Promissory Notes; upon loan
needs to be reported to its Board of Directors for confirmation. conversion, these rates are further reduced to the legal rate of
[126]
 In fact, under the General Banking Law of 2000,[127] banks 12 percent. Payments made by petitioners are pro-rated, the
shall grant loans and other credit accommodations only in charges on penalty and insurance eliminated, and the resulting
amounts and for periods of time essential to the effective total unpaid principal and interest of P6,582,077.70 as of the
completion of operations to be financed, "consistent with safe date of public auction is then subjected to 1 percent attorney's
and sound banking practices."[128] The Monetary Board -- then fees. The total outstanding obligation is compared to the bid
and now -- still prescribes, by regulation, the conditions and price. On the basis of these rates and the comparison made,
limitations under which banks may grant extensions or the deficiency claim receivable amounting to P2,172,476.43 in
renewals of their loans and other credit accommodations.[129] fact vanishes. Instead, there is an overpayment by more
than P3 million, as shown in the following Schedules:
Entries in Subsidiary Ledgers
Regular and Correct SCHEDULE 1: PN
5,000,00
(1) drawdown P
Contrary to petitioners' assertions, the subsidiary ledgers of 0.00
amount on 6/29/89
respondent properly reflected all entries pertaining to Petitioner Less: Interest
NSBCI's loan accounts. In accordance with the Generally deducted in
Accepted Accounting Principles (GAAP) for the Banking 305,165.
advance (per
Industry,[130] all interests accrued or earned on such loans, 00
6/13/89 Disclosure
except those that were restructured and non-accruing,[131] have Statement)
been periodically taken into income.[132] Without a doubt, the Net 4,694,83
subsidiary ledgers in a manual accounting system are mere proceeds 5.00
private documents[133] that support and are controlled by the 5,000,00
general ledger.[134] Such ledgers are neither foolproof nor Principal
0.00
standard in format, but are periodically subject to audit. Add:
Besides, we go by the presumption that the recording of Interest
private transactions has been fair and regular, and that the at 19.5%
ordinary course of business has been followed. p.a.
10/28/89-
Second Main Issue: 12/31/89
173,63
Extrajudicial Foreclosure Valid, But (5,000,000 x
0.14
Deficiency Claims Excessive 19.5% x
[65/365])
Respondent aptly exercised its option to "foreclose the 1/1/90-
mortgage,"[135] after petitioners had failed to pay all the Notes in 1/5/90
13,356. 186,986. 186,986.
full when they fell due.[136] The extrajudicial sale and (5,000,000
16 30 30
subsequent proceedings are therefore valid, but the alleged x 19.5% x
deficiency claim cannot be recovered. [5/365])
Amount due 5,186,98
Auction Price Adequate as of 1/5/90 6.30
Less: Payment
In the accessory contract[137] of real mortgage,[138] in which on 1/5/90 (pro- 543,807. 543,807.
immovable property or real rights thereto are used as rated upon 61 61
security[139] for the fulfillment of the principal loan obligation, interest)
[140]
 the bid price may be lower than the property's fair market Bala (356,82 4,643,17
value.[141] In fact, the loan value itself is only 70 percent of the nce 1.30) 8.70
appraised value.[142] As correctly emphasized by the appellate Add:
court, a low bid price will make it easier[143] for the owner to Interest
effect redemption[144] by subsequently reacquiring the property at 19.5%
or by selling the right to redeem and thus recover alleged p.a.
losses. Besides, the public auction sale has been regularly and 1/6/90-
fairly conducted,[145] there has been ample authority to effect 3/30/90
the sale,[146] and the Certificates of Title can be relied upon. No ([5,000,000- 208,370. 208,370.
personal notice[147] is even required,[148] because an 356,821.30] x 59 59
extrajudicial foreclosure is an action in rem, requiring only 19.5% x
notice by publication and posting, in order to bind parties [84/365])
interested in the foreclosed property.[149] Amount due
4,851,54
as of
[150] 9.29
As no redemption  was exercised within one year after the 3/30/90
date of registration of the Certificate of Sale with the Registry Less: Payment
of Deeds,[151] respondent -- being the highest bidder -- has the on 3/30/90 (pro- 163,182. 163,182.
right to a writ of possession, the final process that will rated upon 85 85
consummate the extrajudicial foreclosure. On the other hand, interest)
petitioner-spouses, who are mortgagors herein, shall lose all Bala 45,187.7 4,688,36
their rights to the property.[152] nce 5 6.44
Add:
No Deficiency Claim Receivable Interest
at 19.5%
After the foreclosure and sale of the mortgaged property, the p.a.
Real Estate Mortgage is extinguished. Although the 3/31/90-
mortgagors, being third persons, are not liable for any 5/31/90
deficiency in the absence of a contrary stipulation,[153] the ([5,000,000- 153,797. 153,797.
action for recovery of such amount -- being clearly sureties to 356,821.30] x 34 34
the principal obligation -- may still be directed against them. 19.5% x
[154]
 However, respondent may impose only the stipulated [62/365])
Amount due 8/16/91-11/29/91
198,985. 4,842,16
as of ([5,000,000-
09 3.79 135,0 135,05
5/31/90 (356,821.30+821.33+
50.49 0.49
Less: Payment 767,087.92)] x 12% x
on 5/31/90 (pro- 199,806. 199,806. [106/365])
rated upon 42 42 Amount due
370,1 4,245,
interest) as of
09.22 378.67
Bala 4,642,35 11/29/91
(821.33)
nce 7.36 Less: Payment
Add: on 11/29/91 (pro- 161,0 161,09
Interest rated upon 96.81 6.81
at 19.5% interest)
p.a. Bala 209,0 4,084,
6/1/90-6/29/90 nce 12.41 281.86
([5,000,000- Add
(356,821.30+8 71,924.7 71,924.7 :
21.33)] x 4 4 Interest at
19.5% x 12% p.a.
[29/365]) 11/30/91-12/20/91
Amount due ([5,000,000-
4,714,28 26,75 26,755
as of (356,821.30+821.33+
2.11 5.28 .28
6/29/90 767,087.92)] x 12% x
Less: Payment [21/365])
on 6/29/90 (pro- 839,012. 839,012. Amount due
235,7 4,111,
rated upon 66 66 as of
67.70 037.14
interest) 12/20/91
Bala (767,08 3,875,26 Less: Payment
nce 7.92) 9.44 on 12/20/91 (pro- 162,1 162,11
rated upon 15.78 5.78
Add interest)
: Bala 73,65 3,948,
Interest at nce 1.92 921.37
19.5% Add
p.a. :
6/30/90-12/31/90 Interest at
([5,000,000- 12% p.a.
383,0
(356,821.30+821.33+ 12/21/91-12/31/91
14.64
767,087.92)] x 19.5% ([5,000,000-
14,28
x [185/365]) (356,821.30+821.33+
1.03
1/1/91-6/29/91 767,087.92)] x 12% x
([5,000,000- [11/365])
372,6
(356,821.30+821.3 1/1/92-2/26/92
62.90
3+767,087.92)] x ([5,000,000-
74,00 88,28 88,282
19.5% x [180/365]) (356,821.30+821.3
1.70 2.74 .74
Interest at 12% 3+767,087.92)] x
p.a. upon 12% x [57/365])
automatic Amount due on
161,9 4,037,
conversion PN (1) as of P
34.66 204.10
6/30/91-8/8/91 2/26/92
([5,000,000-
50,96 806,6 806,63
(356,821.30+821.3 SCHEDULE 2:
2.45 39.99 9.99 2,700,00
3+767,087.92)] x PN (2) drawdown P
0.00
12% x [40/365]) amount on 9/1/89
Amount due 4,681, Less: Interest
as of 8/8/91 909.43 deducted in
180,559.
Less: Payment advance (per
88
on 8/8/91 (pro- 493,9 493,90 9/1/89 Disclosure
rated upon 06.31 6.31 Statement)
interest) Net 2,519,44
Bala 312,7 4,188, proceeds 0.12
nce 33.68 003.13 2,700,00
Principal
Add 0.00
: Add:
Interest at Interest
12% p.a. at 21.5%
8/9/91-8/15/91 p.a.
([5,000,000- 12/31/89
8,918. 8,918.
(356,821.30+821.3 (2,700,000 x 1,590.
43 43
3+767,087.92)] x 21.5% x 41
12% x [7/365]) [1/365])
Amount due 1/1/90-
321,6 4,196,
as of 1/5/90
52.11 921.55 7,952.
8/15/91 (2,700,000 x 9,542.47 9,542.47
05
Less: Payment 21.5% x
on 8/15/91 (pro- 86,59 86,593 [5/365])
rated upon 3.37 .37 Amount due 2,709,54
interest) as of 1/5/90 2.47
Bala 235,0 4,110, Less: Payment on
27,752.1 27,752.1
nce 58.74 328.18 1/5/90 (pro-rated
2 2
Add upon interest)
: Balan (18,209. 2,681,79
Interest at ce 65) 0.35
12% p.a. Add:
 Interest 8/15/91
at 21.5% Less: Payment
p.a. on 8/15/91 (pro- 57,03 57,033.
1/6/90- rated upon 3.69 69
3/30/90 interest)
([2,700,000- 132,693. 132,693. Bala 154,8 2,347,6
18,209.65] x 52 52 nce 18.64 01.74
21.5% x Add:
[84/365]) Interest at
Amount due 2,814,48 21.5%
as of 3/30/90 3.87 p.a.
Less: Payment on 8/16/91-9/1/91
103,917. 103,917.
3/30/90 (pro-rated ([2,700,000-
28 28 21,95
upon interest) (18,209.65+523.0
7.87
Balan 28,776.2 2,710,56 4+488,484.22)] x
ce 3 6.58 21.5% x [17/365])
Add: Interest at 12%
Interest p.a. upon
at 21.5% automatic
p.a. conversion
3/31/90- 9/2/91-11/29/91
5/31/90 ([2,700,000-
64,16 86,11 86,119.
([2,700,000- 97,940.4 97,940.4 (18,209.65+523.0
1.43 9.30 30
18,209.65] x 5 5 4+488,484.22)] x
21.5% x 12% x [89/365])
[62/365]) Amount due
240,9 2,433,7
Amount due 126,716. 2,808,50 as of
37.94 21.04
as of 5/31/90 69 7.04 11/29/91
Less: Payment on Less: Payment
127,239. 127,239.
5/31/90 (pro-rated on 11/29/91 (pro- 104,8 104,87
72 72
upon interest) rated upon 72.65 2.65
Balan 2,681,26 interest)
(523.04)
ce 7.31 Bala 136,0 2,328,8
Add: nce 65.30 48.39
Interest Add:
at 21.5% Interest at
p.a. 12% p.a.
6/1/90-6/29/90 11/30/91-12/20/91
([2,700,000- ([2,700,000-
45,801.9 45,801.9 15,13 15,139.
(18,209.65+52 (18,209.65+523.0
2 2 9.21 21
3.04)] x 21.5% 4+488,484.22)] x
x [29/365]) 12% x [21/365])
Amount due 2,727,06 Amount due
151,2 2,343,9
as of 6/29/90 9.24 as of
04.51 87.61
Less: Payment on 12/20/91
534,286. 534,286.
6/29/90 (pro-rated Less: Payment
14 14
upon interest) on 12/20/91 (pro- 103,9 103,96
Balan (488,484 2,192,78 rated upon 69.45 9.45
ce .22) 3.10 interest)
Bala 47,23 2,240,0
Add: nce 5.07 18.16
Interest at Add:
21.5% Interest at
p.a. 12% p.a.
6/30/90-12/31/90 12/21/91-12/31/91
([2,700,000- ([2,700,000-
238,9 7,930.
(18,209.65+523.04+ (18,209.65+523.0
53.28 06
488,484.22)] x 4+488,484.22)] x
21.5% x [185/365]) 12% x [11/365])
1/1/91-8/8/91 1/1/92-2/26/92
([2,700,000- ([2,700,000-
284,1 523,1 523,11 41,09 49,02 49,022.
(18,209.65+523.0 (18,209.65+523.0
60.66 13.94 3.94 2.15 2.22 22
4+488,484.22)] x 4+488,484.22)] x
21.5% x [220/365]) 12% x [57/365])
Amount due 2,715,8 Amount due on
96,25 2,289,0
as of 8/8/91 97.04 PN (2) as of P
7.28 40.38
Less: Payment 2/26/92
on 8/8/91 (pro- 320,3 320,30
rated upon 03.08 3.08 SCHEDULE 3: PN (3)
300,000.0
interest) drawdown amount on P
0
Bala 202,8 2,395,5 9/6/89
nce 10.86 93.95 Less: Interest
Add: deducted in advance
20,062.21
Interest at (per 9/6/89 Disclosure
21.5% Statement)
p.a. 279,937.7
Net proceeds
8/9/91-8/15/91 9
([2,700,000- 300,000.0
9,041. 9,041.4 Principal
(18,209.65+523.0 0
48 8
4+488,484.22)] x Add:
21.5% x [7/365]) Interest at
Amount due 211,8 2,404,6 21.5% p.a.
as of 52.33 35.43 1/5/90 176.71 176.71
 (300,000 x 583.14)]] x 21.5%
21.5% x x [7/365])
[1/365]) Amount due 23,67 268,69
Amount due as 300,176.7 as of 8/15/91 2.34 3.54
of 1/5/90 1 Less: Payment on
6,372. 6,372.9
Less: Payment on 8/15/91 (pro-rated
93 3
1/5/90 (pro-rated 513.93 513.93 upon interest)
upon interest) Bala 17,29 262,32
Balanc 299,662.7 nce 9.41 0.61
(337.22)
e 8 Add:
Add: Interest at
Interest at 21.5% p.a.
21.5% p.a. 8/16/91-9/6/91
1/6/90-3/30/90 ([300,000-
3,175.
([300,000- (337.22+58.44+54,
21
337.22] x 14,827.15 14,827.15 583.14)]] x 21.5%
21.5% x x [22/365])
[84/365]) Interest at 12%
Amount due as 314,489.9 p.a. upon
of 3/30/90 3 automatic
Less: Payment on conversion
3/30/90 (pro-rated 11,611.70 11,611.70 9/7/91-11/29/91
upon interest) ([300,000-
6,766. 9,941. 9,941.8
Balanc 302,878.2 (337.22+58.44+54,
3,215.45 61 82 2
e 4 583.14)]] x 12% x
Add: [84/365])
Interest at Amount due
27,24 272,26
21.5% p.a. as of
1.23 2.43
3/31/90- 11/29/91
5/31/90 Less: Payment on
([300,000- 11/29/91 (pro- 11,85 11,857.
10,943.85 10,943.85
337.22] x rated upon 7.24 24
21.5% x interest)
[62/365]) Bala 15,38 260,40
Amount due as 313,822.0 nce 3.98 5.18
14,159.30
of 5/31/90 8 Add:
Less: Payment on Interest at
5/31/90 (pro-rated 14,217.74 14,217.74 12% p.a.
upon interest) 11/30/91-12/20/91
Balanc 299,604.3 ([300,000-
(58.44) 1,691. 1,691.6
e 4 (337.22+58.44+54,
65 5
Add: 583.14)]] x 12% x
Interest at [21/365])
21.5% p.a. Amount due
17,07 262,09
6/1/90-6/29/90 as of
5.64 6.84
([300,000- 12/20/91
(337.22+58.44) 5,117.90 5,117.90 Less: Payment on
] x 21.5% x 12/20/91 (pro- 11,74 11,741.
[29/365]) rated upon 1.35 35
Amount due as 304,722.2 interest)
of 6/29/90 4 Bala 5,334. 250,35
Less: Payment on nce 29 5.49
6/29/90 (pro-rated 59,701.04 59,701.04 Add:
upon interest) Interest at
Balanc (54,583.14 245,021.2 12% p.a.
e ) 0 12/21/91-12/31/91
([300,000-
886.1
Add: (337.22+58.44+54,
0
Interest at 583.14)]] x 12% x
21.5% p.a. [11/365])
6/30/90-12/31/90 1/1/92-2/26/92
([300,000- ([300,000-
26,70 4,591. 5,477. 5,477.7
(337.22+58.44+54, (337.22+58.44+54,
0.60 63 73 3
583.14)] x 21.5% x 583.14)]] x 12% x
[185/365]) [57/365])
1/1/91-8/8/91 Amount due on
10,81 255,83
([300,000- PN (3) as of P
31,75 58,45 58,452. 2.03 3.22
(337.22+58.44+54, 2/26/92
2.06 2.66 66
583.14)]] x 21.5%
x [220/365]) SCHEDULE 4: Application of Payments Upon
Amount due 303,47 Interest
as of 8/8/91 3.86 Date Interest
Less: Payment on Payable Pro-rated
35,79 35,790.
8/8/91 (pro-rated P
0.61 61
upon interest) N
1/5/90 P 186,986.30 P 543,807.61
Bala 22,66 267,68 (1
nce 2.05 3.25 )
Add: P
Interest at N
9,542.47 27,752.12
21.5% p.a. (2
8/9/91-8/15/91 1,010. 1,010.2 )
([300,000- 29 9 P 176.71 513.93
(337.22+58.44+54, N
 (3 )
) P
196,705.48 572,073.65 N
240,937.94 104,872.65
============= ============= (2
= = )
P P
N N
3/30/90 208,370.59 163,182.85 27,241.23 11,857.24
(1 (3
) )
P 638,288.39 277,826.70
N ============= =============
132,693.52 103,917.28
(2 === ===
) P
P 12/20/9 N
235,767.70 162,115.78
N 1 (1
14,827.15 11,611.70
(3 )
) P
355,891.26 278,711.83 N
151,204.51 103,969.45
============= ============= (2
= == )
P P
N N
5/31/90 198,985.09 199,806.42 17,075.64 11,741.35
(1 (3
) )
P P 404,047.85 P 277,826.57
N ============= =============
126,716.69 127,239.72
(2 = ==
)
P In the preparation of the above-mentioned schedules, these
N basic legal principles were followed:
14,159.30 14,217.74
(3
) First, the payments were applied to debts that were already
339,861.08 341,263.89 due.[155] Thus, when the first payment was made and applied
============= ============= on January 5, 1990, all Promissory Notes were already due.
== ==
P Second, payments of the principal were not made until the
N interests had been covered.[156] For instance, the first payment
6/29/90 71,924.74 839,012.66
(1 on January 15, 1990 had initially been applied to all interests
) due on the notes, before deductions were made from their
P respective principal amounts. The resulting decrease in
N interest balances served as the bases for subsequent pro-
45,801.92 534,286.14
(2 ratings.
)
P Third, payments were proportionately applied to all interests
N that were due and of the same nature and burden.[157] This
5,117.90 59,701.04
(3 legal principle was the rationale for the pro-rated computations
) shown on Schedule 4.
122,844.56 1,432,999.84
============= ============= Fourth, since there was no stipulation on capitalization, no
== == interests due and unpaid were added to the principal; hence,
P such interests did not earn any additional interest.[158]The
N simple -- not compounded -- method of interest
8/8/91 806,639.99 493,906.31
(1 calculation[159] was used on all Notes until the date of public
) auction.
P
N In fine, under solutio indebiti[160] or payment by mistake,
523,113.94 320,303.08 [161]
(2  there is no deficiency receivable in favor of PNB, but rather
) an excess claim or surplus[162] payable by respondent; this
P excess should immediately be returned to petitioner-spouses
N or their assigns -- not to mention the buildings and
58,452.66 35,790.61
(3 improvements[163] on and the fruits of the property -- to the end
) that no one may be unjustly enriched or benefited at the
1,388,206.59 850,000.00 expense of another.[164] Such surplus is in the amount
============= ============= of P3,686,101.52, computed as follows:
=== === Total unpaid
P principal and
N interest on the
8/15/91 321,652.11 86,593.37
(1 promissory notes
) as of February 26,
P 1992:
N Drawdown on June
211,852.33 57,033.69
(2 29, 1989 P 4,037,204.10
) (Schedule 1)
P Drawdown on
N September 1, 1989 2,289,040.38
23,672.34 6,372.93
(3 (Schedule 2)
) Drawdown on
557,176.79 150,000.00 September 6, 1989 255,833.22
============= ============= (Schedule 3)
=== === 6,582,077.70
11/29/9 P 370,109.22 161,096.81 Add: 1% attorney's
65,820.78
1 N fees
(1 Total outstanding 6,647,898.48
obligation
Less: Bid price 10,334,000.00
Excess P 3,686,101.52
Joint and Solidary Agreement. Contrary to the contention of the
petitioner-spouses, their Joint and Solidary Agreement (JSA)
[165]
 was indubitably a surety, not a guaranty.[166] They
consented to be jointly and severally liable with Petitioner
NSBCI -- the borrower -- not only for the payment of all sums
due and payable in favor of respondent, but also for the faithful
and prompt performance of all the terms and conditions
thereof.[167] Additionally, the corporate secretary of Petitioner
NSBCI certified as early as February 23, 1989, that the
spouses should act as such surety.[168] But, their solidary
liability should be carefully studied, not sweepingly assumed to
cover all availments instantly.
First, the JSA was executed on August 31, 1989. As correctly
adverted to by petitioners,[169] it covered only the Promissory
Notes of P2,700,000 and P300,000 made after that date. The
terms of a contract of suretyship undeniably determine the
surety's liability[170] and cannot extend beyond what is stipulated
therein.[171] Yet, the total amount petitioner-spouses agreed to
be held liable for was P7,700,000; by the time the JSA was
executed, the first Promissory Note was still unpaid and was
thus brought within the JSA's ambit.[172]
Second, while the JSA included all costs, charges and
expenses that respondent might incur or sustain in connection
with the credit documents,[173] only the interest was imposed
under the pertinent Credit Agreements. Moreover, the relevant
Promissory Notes had to be resorted to for proper valuation of
the interests charged.
Third, although the JSA, as a contract of adhesion, should be
taken contra proferentum against the party who may have
caused any ambiguity therein, no such ambiguity was found.
Petitioner-spouses, who agreed to be accommodation
mortgagors,[174] can no longer be held individually liable for the
entire onerous obligation[175] because, as it turned out, it was
respondent that still owed them.
To summarize, to give full force to the Truth in Lending Act,
only the interest rates of 19.5 percent and 21.5 percent
stipulated in the Promissory Notes may be imposed by
respondent on the respective availments. After 730 days, the
portions remaining unpaid are automatically converted into
medium-term loans at the legal rate of 12 percent. In all
instances, the simple method of interest computation is
followed. Payments made by petitioners are applied and pro-
rated according to basic legal principles. Charges on penalty
and insurance are eliminated, and 1 percent attorney's fees
imposed upon the total unpaid balance of the principal and
interest as of the date of public auction. The P2 million
deficiency claim therefore vanishes, and a refund
of P3,686,101.52 arises.
WHEREFORE, this Petition is hereby PARTLY GRANTED.
The Decision of the Court of Appeals is AFFIRMED, with
the MODIFICATION that PNB is ORDERED to refund the sum
of P3,686,101.52 representing the overcollection computed
above, plus interest thereon at the legal rate of six percent
(6%) per annum from the filing of the Complaint until the finality
of this Decision. After this Decision becomes final and
executory, the applicable rate shall be twelve percent (12%)
per annum until its satisfaction. No costs.
SO ORDERED.
G.R. No. 148541             November 11, 2004
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
BONITA O. PEREZ and ALFREDO PEREZ, respondents.
CALLEJO, SR., J.:
This is a petition for review on certiorari seeking to reverse and
set aside the Decision1 of the Court of Appeals (CA) dated
February 28, 2001, and to reinstate the Decision of the
Regional Trial Court (RTC), Makati City, Branch 145, in Civil
Case No. 12057, as modified by trial court’s Order dated June
11, 1993.
The Antecedents
On April 28, 1978, petitioner Development Bank of the
Philippines (DBP) sent a letter to respondent Bonita Perez,
informing the latter of the approval of an industrial loan
amounting to P214,000.00 for the acquisition of machinery and
equipment and for working capital, and an additional industrial
loan amounting to P21,000.00 to cover unforeseen price
escalation.2
On May 18, 1978, the respondents were made to sign four
promissory notes covering the total amount of the loan,
P235,000.00. Three promissory notes for P24,000.00,
P48,000.00, and P142,000.00, respectively, were executed,
totaling P214,000.00. These promissory notes were all due on
August 31, 1988.3 A fourth promissory note due on September
19, 1988 was, likewise, executed to cover the additional loan of
P21,000.00.4 The promissory notes were to be paid in equal
quarterly amortizations and were secured by a mortgage
contract covering real and personal properties.5
On September 6, 1978, the petitioner sent a letter6 to the
respondents informing them of the terms for the payment of the
P214,000.00 industrial loan. On November 8, 1978, the
petitioner sent another letter7 to the respondents informing
them about the terms and conditions of their additional
P21,000.00 industrial loan.
Due to the respondents' failure to comply with their
amortization payments, the petitioner decided to foreclose the
mortgages that secured the obligation. However, in a
Letter8 dated October 7, 1981, Mrs. Perez requested for a
restructuring of their account due to difficulties they were
encountering in collecting receivables.
On April 1, 1982, the petitioner informed the respondents that it
had approved the restructuring of their accounts.9 The loan was
restructured, and on May 6, 1982, the respondents signed
another promissory note in the amount of P231,000.00 at
eighteen percent (18%) interest per annum, payable quarterly
at P12,553.27, over a period of ten years. The promissory note
stated in part:
PROMISSORY NOTE
P231,000.00 Makati, Metro Manila, May 6, 1982
On or before May 7, 1992, for value received, I/we,
jointly and severally, promise to pay the
DEVELOPMENT BANK OF THE PHILIPPINES, or
order at its office at Makati, Metro Manila, Philippines,
the sum of TWO HUNDRED THIRTY-ONE
THOUSAND PESOS (P231,000.00), Philippine
Currency, with interest at the rate of EIGHTEEN per
centum (18%) per annum. Before the date of maturity,
we hereby bind ourselves to make partial payments,
the first payment to be made on August 7, 1982 and
the subsequent payments on the 7th day of every
three (3) months thereafter, and each of all such
payments shall be TWELVE THOUSAND FIVE
HUNDRED FIFTY-THREE and 27/100 PESOS
(P12,553.27) which shall cover amortizations on the
principal and interest at the above-mentioned rate.
This loan shall be subject to penalty charges and
additional interest as follows:
 On loan with amortizations or portions thereof in
arrears irrespective of age.
Additional interest at the basic loan interest rate per
annum computed on total amortizations past due
irrespective of age.
PLUS
Penalty charge of 8% per annum computed on total
amortizations in arrears irrespective of age.
The DBP further reserves the right to increase, with
notice to the mortgagor, the rate of interest on the
loan as well as all other fees and charges on loans
and advances pursuant to such policy as it may adopt
from time to time during the period of the loan;
Provided that the rate of interest on the loan shall be
reduced in the event that the applicable maximum
rate of interest is reduced by law or by the Monetary
Board; Provided, further, that the adjustment in the
rate of interest shall take effect on or after the
effectivity of the increase or decrease in the maximum
rate of interest.
In case of non-payment of the amount of this note or
any portion of it on demand, when due, or any other
amount or amounts due on account of this note, the
entire obligation shall become due and demandable,
and if, for the enforcement of the payment thereof, the
DEVELOPMENT BANK OF THE PHILIPPINES, is
constrained to entrust the case to its attorneys, I/we,
jointly and severally, bind myself/ourselves to pay for
attorney's fees, as provided for in the mortgage
contract, in addition to the legal fees and other
incidental expenses. In the event of foreclosure of the
mortgage securing this note, I/we further bind
myself/ourselves, jointly and severally, to pay the
deficiency , if any.
SIGNED IN THE PRESENCE OF:
illegible SGD. SGD.
illegible BONITA ANG ORDIALES ALFREDO
PEREZ
(Bonita O. Perez)
This Promissory Note supersedes the Promissory
Note dated May 18, 1978 and stands secured by a
mortgage contract executed by the above parties on
the same date, subject to the following terms and
conditions.10
As stated in the promissory note, the first amortization was due
on August 7, 1982, and the succeeding amortizations, every
quarter thereafter. However, the respondents made their first
payment amounting to P15,000.0011 only on April 20, 1983 or
after the lapse of three quarters.12 Their second payment,
which should have been paid on November 7, 1982, was made
on December 2, 1983 and only in the amount of P5,000.00.
The third payment was then made at the time when the ninth
quarterly amortization should have been paid. After this, the
respondents completely stopped paying.13 The total payments
they made after the restructure of the loan amounted to
P35,000.00 only.14
This failure to meet the quarterly amortization of the loan
prompted the petitioner to institute foreclosure proceedings on
the mortgages. The sale of the properties covered by the
mortgage contract was scheduled on October 30, 1985.15
On October 24, 1985, the respondents filed a Complaint16 for
the nullification of the new promissory note with damages and
preliminary prohibitory injunction. The complaint alleged that
the petitioner restructured the respondents’ obligation in bad
faith by requiring them to sign another promissory note for
P231,000.00 without considering the total payments made on
the loan amounting to P224,383.43. The respondents claimed
that the petitioner failed to explain to them how it had arrived at
the amount of the restructured loan. The respondents also
alleged that the petitioner failed to furnish them with a
disclosure statement as required by Rep. Act No. 3765, also
known as the Truth in Lending Act, prior to the consummation
of the transaction. They averred that the interest imposed on
the said transaction was usurious. They, likewise, alleged that
the new promissory note constituted a novation of the previous
obligations.
In its answer, the petitioner denied the allegations and averred
that the claim for violation of the disclosure requirement under
Rep. Act No. 3765 was not within the jurisdiction of the RTC
and was barred by prescription. By way of compulsory
counterclaim, the petitioner prayed that the respondents be
ordered to pay their obligation, plus exemplary damages and
costs.17 During trial, the petitioner presented a Statement of
Account dated September 14, 1990, showing that the total
amount of the obligation as of September 15, 1990 was
P1,384,465.71.18
On October 25, 1985, the trial court ordered the petitioner to
desist from holding the public auction of the respondents’
properties. The trial court issued an Order on April 25, 1986 to
maintain the status quo.
In its Decision dated May 10, 1993, the court a quo upheld the
validity of the new promissory note and ordered the
respondents to pay their obligation. The dispositive portion
reads:
WHEREFORE, judgment is rendered dismissing the
complaint for failure of plaintiffs to prove their causes
of action by clear preponderance of evidence, with
costs against them.
The order issued on April 25, 1986, ordering the
defendant Bank to maintain the status quo and
suspending the auction sale, is hereby set aside.
Defendant Bank's counterclaim is hereby granted,
and plaintiffs are hereby ordered to pay the former the
sum of One Million Three Hundred Eighty-four
Thousand Four Hundred Sixty-five Pesos and
Seventy-one Centavos (P1,384,465.71), representing
the latter's obligation as of September 15, 1990, with
interest thereon at the legal rate of twelve (12%)
percent per annum pursuant to Sec. 2 of CB Circular
No. 905; (Sagrador vs. Valderrama, supra), from
September 15, 1990 up to full payment of said sum.
The other counterclaim for exemplary damages is
hereby dismissed.
SO ORDERED.19
Upon the petitioner’s motion for reconsideration, the trial court
issued an order20 amending the dispositive portion of its
decision by changing the rate of interest to eighteen percent
(18%) per annum.
Dissatisfied, the respondents appealed to the CA. On February
28, 2001, the CA rendered a decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, the Decision
dated May 10, 1993, docketed as Civil Case No.
12057 by the Regional Trial Court of Makati, Branch
145, is hereby MODIFIED in the sense that the
amount of P1,384,465.71 as of September 1990 is
SET ASIDE and the formula mandated by Central
Bank Circular No. 158 should be applied by the trial
court in computing the total obligation and liability of
appellants. All the other parts of the assailed decision
are AFFIRMED in toto.
SO ORDERED.21
The CA found that the respondents did not voluntarily sign the
restructured promissory note as they were only forced to sign it
for fear of having their mortgaged property foreclosed by the
bank. It ruled that the restructured promissory note which was
prepared by the petitioner alone was a contract of adhesion
which violates the rule on mutuality of contracts.
Nonetheless, the CA held that the trial court should have used
the formula prescribed by paragraph 3,22 Sec. 2(i), Central
Bank (CB) Circular No. 158, Rules and Regulations
Implementing Rep. Act No. 3765, in computing the total
obligation of the respondents considering that Sec. 3(a) thereof
provides that it applies to any loans, mortgages, deeds of trust,
advances and discounts.23 The CA also held that since the loan
is secured by a mortgage contract, the eighteen percent (18%)
interest rate was excessive and usurious under CB Circular
No. 817. According to the appellate court, CB Circular No. 905,
series of 1982, simply suspended the effectivity of the Usury
Law; it did not authorize either party to unilaterally raise the
interest without the other party's consent.24 Finally, the CA
concluded that there was neither basis nor explanation as to
how the measly amount of P214,000.00 in 1972, restructured
to P231,000.00 in 1982, ballooned to P1,384,465.71 as of
September 15, 1990.25
Both parties moved to reconsider the said decision. The CA
denied the said motions in a Resolution dated May 31, 2001.
The Present Petition
The petitioner raises the following grounds in the instant
petition:
1. Whether or not the Honorable Court of Appeals had
decided this instant case in a way not in accord with
the spirit and intent of Republic Act No. 3765,
otherwise known as the Truth in Lending Act, when it
declared that "the trial court should have applied the
formula provided by Central Bank Circular No. 158,
series of 1963, as provided above to arrive at the total
obligations of appellants less the amounts paid by
appellants as evidenced by the vouchers and receipts
attached to the records;"
2. Whether or not the conclusion of the Honorable
Court of Appeals stating that the private respondents
did not voluntarily sign the restructured promissory
note is entirely grounded on speculations and/or
surmises or conjectures;
3. Whether or not the Honorable Court of Appeals
failed to notice certain relevant facts which if it had
been considered would change its finding that the
restructured promissory note was prepared by the
appellee Bank alone;
4. Whether or not the Honorable Court of Appeals
failed to notice certain relevant facts which if it had
been considered would change its finding that the
amount of P1,384,465.71 as of September 15, 1990
has neither basis at all nor any explanation how this
amount came to existence;
5. Whether or not the conclusion of the Honorable
Court of Appeals stating that petitioner DBP failed to
follow Central Bank Circular No. 158 is grounded
entirely on speculation and surmises or conjecture.
And whether or not this finding is contradicted by
another finding of the same court; and
6. Whether or not this Honorable Court of Appeals
committed grave abuse of discretion when it ruled that
pursuant to Central Bank Circular No. 817 the 18%
interest per annum agreed upon by the parties in the
restructured promissory note is usurious, and that the
same should be reduced to 12% being the legal rate
of interest.26
In a nutshell, the issues in this case are as follows: (1) whether
the new promissory note is voidable for not having been
voluntarily signed by the respondents and for being a contract
of adhesion; (2) whether the interest rate agreed upon by the
parties in the new promissory note is usurious; (3) whether
Central Bank Circular No. 158 should be applied in computing
the total obligations of the respondents; and (4) the amount of
the total obligation of the respondents.
The petition is partly meritorious.
Anent the first issue, the petitioner points out that the
respondents admitted to having signed the new promissory
note. It avers that there was no evidence on record showing
that the signing of the new promissory note was attended by
mistake, violence, intimidation, undue influence, or fraud. The
petitioner posits that the respondents’ claim of having been
forced to sign the restructured note for fear of having their
mortgaged property foreclosed cannot serve as legal basis to
conclude that the respondents did not voluntarily sign the new
promissory note.27 The petitioner maintains that a perusal of the
evidence would reveal that the new promissory note was the
result of the mutual agreement of the parties and, as such, is
not a contract of adhesion.28
On the other hand, the respondents argue that this is a
question of fact which is not subject to review by this Court.
According to the respondents, the fact that the restructured
loan proved disadvantageous to them belies the petitioner’s
claim that they voluntarily signed the new promissory note.
We agree with the petitioner.
In petitions for review on certiorari as a mode of appeal under
Rule 45 of the Rules of Court, the petitioner can raise only
questions of law – the Supreme Court is not the proper venue
to consider a factual issue as it is not a trier of facts.29 A
departure from the general rule may be warranted where the
findings of fact of the Court of Appeals are contrary to the
findings and conclusions of the trial court, or when the same is
unsupported by the evidence on record.30
In the instant case, there was no evidence showing that the
respondents signed the new promissory note through mistake,
violence, intimidation, undue influence, or fraud. The
respondents merely alleged that they were forced to
restructure their loan for fear of having their mortgaged
properties foreclosed. However, it is axiomatic that this would
not amount to vitiated consent. The last paragraph of Article
1335 of the New Civil Code specifically states that a threat to
enforce one’s claim through competent authority, if the claim is
just or legal, does not vitiate consent. Foreclosure of
mortgaged properties in case of default in payment of a debtor
is a legal remedy afforded by law to a creditor. Hence, a threat
to foreclose the mortgage would not, per se, vitiate consent.
The CA noted that the petitioner prepared the new promissory
note on its own and that the only participation of the
respondents was to sign the same. The CA concluded,
therefore, that the new promissory note was a contract of
adhesion.
A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely affixes
his signature signifying his adhesion thereto.31 While we
accede to the appellate court’s conclusion that the new
promissory note was in the nature of a contract of adhesion,
we cannot fathom how this can further the respondents’ case.
In discussing the consequences of a contract of adhesion, we
held in Rizal Commercial Banking Corporation v. Court of
Appeals:32
It bears stressing that a contract of adhesion is just as
binding as ordinary contracts. It is true that we have,
on occasion, struck down such contracts as void
when the weaker party is imposed upon in dealing
with the dominant bargaining party and is reduced to
the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal
footing. Nevertheless, contracts of adhesion are not
 invalid per se; they are not entirely prohibited. The
one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.33
On the second issue, the CA held that under CB Circular No.
817, if the loan is secured by a registered real estate, the
interest of eighteen percent (18%) is usurious. The petitioner,
however, argues that usury has become legally inexistent with
the promulgation of CB Circular No. 905.34 It contends that the
interest rate should be eighteen percent (18%), the interest
rate they agreed upon.35 For their part, the respondents argue
that the Central Bank engaged in self-legislation in enacting
CB Circular No. 905.
We agree with the ruling of the CA. It is elementary that the
laws in force at the time the contract was made generally
govern the effectivity of its provision.36 We note that the new
promissory note was executed on May 6, 1982, prior to the
effectivity of CB Circular No. 905 on January 1, 1983. At that
time, The Usury Law, Act No. 2655, as amended by
Presidential Decree No. 116, was still in force and effect.
Under the Usury Law, no person shall receive a rate of
interest, including commissions, premiums, fines and penalties,
higher than twelve percent (12%) per annum or the maximum
rate prescribed by the Monetary Board for a loan secured by a
mortgage upon real estate the title to which is duly registered.37
In this case, by specific provision in the new promissory note,
the restructured loan continued to be secured by the same
mortgage contract executed on May 18, 1978 which covered
real and personal properties of the respondents. We, therefore,
find the eighteen percent (18%) interest rate plus the additional
interest and penalty charges of eighteen percent (18%) and
eight percent (8%), respectively, to be highly usurious.
In usurious loans, the entire obligation does not become void
because of an agreement for usurious interest; the unpaid
principal debt still stands and remains valid, but the stipulation
as to the usurious interest is void. Consequently, the debt is to
be considered without stipulation as to the interest.38 In the
absence of an express stipulation as to the rate of interest, the
legal rate at twelve percent (12%) per annum shall be
imposed.39
Neither is the contention of the respondents that the Central
Bank engaged in self-legislation correct. As we held in First
Metro Investment Corporation v. Este Del Sol Mountain
Reserve, Inc.: 40
… Central Bank Circular No. 905 did not repeal nor in
any way amend the Usury Law but simply suspended
the latter's effectivity. The illegality of usury is wholly
the creature of legislation. A Central Bank Circular
cannot repeal a law. Only a law can repeal another
law. Thus, retroactive application of a Central Bank
Circular cannot, and should not, be presumed.41
On the third issue, the petitioner argues that CB Circular No.
158 does not prescribe a formula in computing a debtor's
monetary obligation, but merely provides for the formula in
computing the simple annual rate. It contends that the amount
of the debtor's obligation must be computed in accordance with
the interest rate, charges, and manner of computation agreed
upon by the parties.42
We agree. The total obligation of the respondents must be
computed according to the terms and conditions agreed upon.
The formula provided under paragraph 3, Sec. 2(i), CB Circular
No. 158 cannot be used in computing the total obligation of the
respondents because it merely applies to the computation of
the simple annual rate. Simple annual rate is the uniform
percentage which represents the ratio, on an annual basis,
between the finance charges and the amount to be
financed.43 It is one of the items required to be disclosed under
the Truth in Lending Act pursuant to the State’s policy to
protect its citizens from lack of awareness of the true cost of
credit.44
Finally, we find that the records are insufficient to enable us to
determine the total amount of the respondents’ obligation. It is
not even clear how much the respondents have already paid
on the restructured loans and when such payments were
made. The receipts presented in evidence by the respondents
only showed that they paid P15,000.00 on April 20, 1983 and
P5,000.00 on December 2, 1983.45 On the other hand, Mr.
Roberto Balarao, who is assigned to the Traffic and Processing
Department of the petitioner, testified that a third payment was
made, but failed to state the amount.46 Another witness,
Carmen Chamen, an account officer of the petitioner, testified
that after the restructuring of the account, the total payment
made was P35,000.00.47
Moreover, considering our previous conclusion that the interest
rates prescribed under the new promissory note are usurious,
the statement of account presented by the petitioner is no
longer pertinent. It must be stressed that such statement of
account was arrived at based on the usurious interest rates.
Hence, the total amount of the obligation must necessarily be
recomputed.
IN LIGHT OF ALL THE FOREGOING, the assailed Decision
dated February 28, 2001 of the Court of Appeals and Order
dated June 11, 1993 of the Regional Trial Court, Makati City,
Branch 145, are AFFIRMED WITH MODIFICATION. The case
is hereby REMANDED to the trial court for determination of the
total amount of the respondents' obligation according to the
reduced interest rate of twelve percent (12%) per annum.
SO ORDERED.
G.R. No. 133107 March 25, 1999
RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and FELIPE LUSTRE, respondents.
 
KAPUNAN, J.:
A simple telephone call and an ounce of good faith on the part
of petitioner could have prevented the present controversy.
On March 10, 1993, private respondent Atty. Felipe Lustre
purchased a Toyota Corolla from Toyota Shaw, Inc. for which
he made a down payment of P164,620.00, the balance of the
purchase price to be paid in 24 equal monthly installments.
Private respondent thus issued 24 postdated checks for the
amount of P14,976.00 each. The first was dated April 10,
1991; subsequent checks were dated every 10th day of each
succeeding month.
To secure the balance, private respondent executed a
promissory note 1 and a contract of chattel mortgage 2 over the
vehicle in favor of Toyota Shaw, Inc. The contract of chattel
mortgage, in paragraph 11 thereof, provided for an
acceleration clause stating that should the mortgagor default in
the payment of any installment, the whole amount remaining
unpaid shall become due. In addition, the mortgagor shall be
liable for 25% of the principal due as liquidated damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its rights
and interests in the chattel mortgage to petitioner Rizal
Commercial Banking Corporation (RCBC).
All the checks dated April 10, 1991 to January 10, 1993 were
thereafter encashed and debited by RCBC from private
respondent's account, except for RCBC Check No. 279805
representing the payment for August 10, 1991, which was
unsigned. Previously, the amount represented by RCBC Check
No. 279805 was debited from private respondent's account but
was later recalled and re-credited, to him. Because of the
recall, the last two checks, dated February 10, 1993 and March A.
10, 1993, were no longer presented for payment. This was Plaintiff
purportedly in conformity with petitioner bank's procedure that RCBC to
once a client's account was forwarded to its account pay Atty.
representative, all remaining checks outstanding as of the date Lustre
the account was forwarded were no longer presented for the
patent. amount
of
On the theory that respondent defaulted in his payments, the P200,00
check representing the payment for August 10, 1991 being 0.00 as
unsigned, petitioner, in a letter dated January 21, 1993, moral
demanded from private respondent the payment of the balance damage
of the debt, including liquidated damages. The latter refused, s.
prompting petitioner to file an action for replevin and damages
before the Pasay City Regional Trial Court (RTC). Private B.
respondent, in his Answer, interposed a counterclaim for RCBC to
damages. pay
P100,00
After trial, the. RTC 3 rendered a decision disposing of the case 0.00 as
as follows: exempla
ry
damage
WHEREFORE, in view of the foregoing, s.
judgment is hereby, rendered as follows:
C.
I. The complaint; for lack of cause of action, RCBC to
is hereby DISMISSED and plaintiff RCBC is pay Atty.
hereby ordered, Obispo
P50,000
A. To .00 as
accept Attorney'
the s fees.
payment Atty.
equivale Lustre is
nt to the not
three entitled
checks to any
amounti fee for
ng to a lawyerin
total of g for
P44,938 himself.
.00,
without All awards for damages
interest. are subject to payment of
fees to be assessed by the
B. To Clerk of Court, RTC,
release/ Pasay City.
cancel
the SO ORDERED.
mortgag
e on the
car . . . On appeal by petitioner, the Court of Appeals affirmed the
upon decision of the RTC, thus:
payment
of the We . . . concur with the trial court's ruling that
amount the Chattel Mortgage contract being a
of contract of adhesion — that is, one wherein
P44,938 a party, usually a corporation, prepares the
.00, stipulations in the contract, while the other
without party merely affixes his signature or his
interest. "adhesion" thereto . . . — is to be strictly
construed against appellant bank which
C. To prepared the form Contract . . . Hence . . .
pay the paragraph 11 of the Chattel Mortgage
cost of contract [containing the acceleration clause]
suit. should be construed to cover only deliberate
and advertent failure on the part of the
mortgagor to pay an amortization as it
II. On The Counterclaim. became due in line with the consistent
holding of the Supreme Court construing
obscurities and ambiguities in the restrictive
sense against the drafter thereof . . . in the
light of Article 1377 of the Civil Code.

In the case at bench, plaintiff-appellant's

imputation of default to defendant-appellee
rested solely on the fact that the 5th check
issued by appellee . . . was recalled for lack
of signature. However, the check was
recalled only after the amount covered
thereby had been deducted from defendant-
appellee's account, as shown by the
 testimony of plaintiff's own witness Francisco
Bulatao who was in charge of the
preparation of the list and trial balances of
bank customers . . . . The "default" was
therefore not a case of failure to pay, the
check being sufficiently funded, and which
amount was in fact already debited [sic] from
appellee's account by the appellant bank
which subsequently re-credited the amount
to defendant-appelle's account for lack of
signature. All these actions RCBC did on its
own without notifying defendant until sixteen
(16) months later when it wrote its demand
letter dated January 21, 1993.
Clearly, appellant bank was remiss in the
performance, of its functions for it could have
easily called the defendant's attention to the
lack of signature on the check and sent the
check to or summoned, the latter to affix his
signature. It is also to be noted that the
demand letter contains no explanation as to
how defendant-appellee incurred arrearages
in the amount of P66,255.70, which is why
defendant-appellee made a protest notation
thereon.
Notably, all the other checks issued by the
appellee dated subsequent to August 10,
1991 and dated earlier than the demand
letter, were duly encashed. This fact should
have already prompted the appellant bank to
review its action relative to the unsigned
check. . . . 4
We take exception to the application by both the trial and
appellate courts of Article 1377 of the Civil Code, which states:
The interpretation of
obscure words or
stipulations in a contract
shall not favor the party
who caused the obscurity.
It bears stressing that a contract of adhesion is just as binding
as ordinary contracts. 5 It is true that we have, on occasion,
struck down such contracts as void when the weaker party is
imposed upon in dealing with the dominant bargaining party
and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal
footing. 6 Nevertheless, contracts of adhesion are not
invalid per se; 7 they are not entirely prohibited. 8 The one who
adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. 9
While ambiguities in a contract of adhesion are to be construed
against the party that prepared the same, 10 this rule applies
only if the stipulations in such contract are obscure or
ambiguous. If the terms thereof are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning
of its stipulations shall control. 11 In the latter case, there would
be no need for construction. 12
Here, the terms of paragraph 11 of the Chattel Mortgage
Contract 13 are clear. Said paragraph states:
11. In case the MORTGAGOR fails to pay
any of the installments, or to pay the interest
that may be due as provided in the said
promissory note, the whole amount
remaining unpaid therein shall immediately
become due and payable and the mortgage
on the property (ies) herein-above described
may be foreclosed by the MORTGAGEE, or
the MORTGAGEE may take any other legal
action to enforce collection of the obligation
hereby secured, and in either case the
MORTGAGOR further agrees to pay the
MORTGAGEE an additional sum of 25% of
the principal due and unpaid, as liquidated
damages, which said sum shall become part
thereof. The MORTGAGOR hereby waives
reimbursement of the amount heretofore
paid by him/it to the MORTGAGEE.
The above terms leave no room for construction. All that is
required is the application thereof.
Petitioner claims that private respondent's check representing
the fifth installment was "not encashed," 14 such that the
installment for August 1991 was not paid. By virtue of
paragraph 11 above, petitioner submits that it "was justified in
treating the entire balance of the obligation as due and
demandable." 15 Despite demand by petitioner, however,
private respondent refused to pay the balance of the debt.
Petitioner, in sum imputes delay on the part of private
respondent.
We do not subscribe to petitioner's theory.
Art. 170 of the Civil Code states that those who in the
performance of their obligations are guilty of delay are liable for
damages. The delay in the performance of the obligation,
however, must be either malicious or negligent.16 Thus,
assuming that private respondent was guilty of delay in the
payment of the value of unsigned check, private respondent
cannot be held liable for damages. There is no imputation,
much less evidence, that private respondent acted with malice
or negligence in failing to sign the check. Indeed, we agree
with the Court of Appeals finding that such omission was mere
"in advertence" on the part of private respondent. Toyota
salesperson Jorge Geronimo testified that he even verified
whether private respondent had signed all the checks and in
fact returned three or four unsigned checks to him for signing:
Atty. Obispo:
After these receipts were
issued, what else did you
do about the transaction?
A: During our transaction
with Atty. Lustre, I found
out when he issued to me
the 24 checks, I found out
3 to 4 checks are unsigned
and I asked him to signed
these checks.
Atty. Obispo:
What did you do?
A: I asked him to sign the
checks. After signing the
checks, I reviewed again
all the documents, after I
reviewed all the
documents and found out
that all are completed and
the down payments was
completed, we realed to
him the car. 17
Even when the checks were delivered to petitioner, it
did not object to the unsigned check. In view of the
lack of malice or negligence on the part of private
respondent, petitioner's blind and mechanical
invocation of paragraph 11 of the contract of chattel
mortgage was unwarranted.
Petitioner's conduct, in the light of the circumstances of this
case, can only be described as mercenary. Petitioner had
already debited the value of the unsigned check from private
respondent's account only to re-credit it much later to him.
Thereafter, petitioner encashed checks subsequently dated,
then abruptly refused to encash the last two. More than a year
after the date of the unsigned check, petitioner, claiming delay
and invoking paragraph 11, demanded from private respondent
payment of the value of said check and that of the last two
checks, including liquidated damages. As pointed out by the
trial court, this whole controversy could have been avoided if
only petitioner bothered to call up private respondent and ask
him to sign the check. Good faith not only in compliance with
its contractual obligations, 18 but also in observance of the
standard in human relations, for every person "to act with
justice, give everyone his due, and observe honesty and good
faith." 19 behooved the bank to do so.
Failing thus, petitioner is liable for damages caused to private
respondent. 20 These include moral damages for the mental
anguish, serious anxiety, besmirched reputation, wounded
feelings and social humiliation suffered by the latter. 21 The trial
court found that private respondent was:
[a] client who has shared transactions for
over twenty years with a bank . . ..The
shabby treatment given the defendant is
unpardonable since he was put to shame
and embarrassment after the case was filed
in Court. He is a lawyer in his own right,
married to another member of the bar. He
sired children who are all professionals in
their chosen field. He is known to the
community of golfers with whom he
gravitates. Surely the filing of the case made
defendant feel so bad and bothered.
To deter others from emulating petitioner's callous example,
we affirm the award of exemplary damages. 22 As exemplary
damages are warranted, so are attorney's fees. 23
We, however, find excessive the amount of damages awarded
by the trial court in favor of private respondent with respect to
his counterclaims and, accordingly, reduce the same as
follows:
(a) Moral damages — from P200,000.00 to
P100,000.00
(b) Exemplary damages — from
P100,000.00 to P75,000.00
(c) Attorney's fees — from P50,000.00 to P
30,000.00
WHEREFORE, subject to these modifications, the decision of
the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 164968               July 3, 2009
GLORIA OCAMPO and TERESITA TAN, Petitioners,
vs.
LAND BANK OF THE PHILIPPINES, URDANETA,
PANGASINAN BRANCH and EX OFFICIO PROVINCIAL
SHERIFF OF PANGASINAN, Respondents.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari assails the Court of
Appeals Decision1 dated July 21, 2004, in CA-G.R. CV No.
77683, which reversed and set aside the March 18, 2002
Decision2 of the Regional Trial Court, Branch 45, Urdaneta
City, Pangasinan, in Civil Case No. U-7095.
The facts, as culled from the records, follow.
In 1991, Gloria Ocampo and her daughter, Teresita Tan,
obtained from the Land Bank of the Philippines a
₱10,000,000.003 loan (herein referred to as quedan loan),
which was released to them on the following dates:
₱3,996,000.00 on January 31, 1991, upon the issuance of
promissory note (PN) Nos. 91-038 and 98-039,4 to mature on
July 30, 1991; ₱6,000,000.00, on April 5, 1991, upon the
issuance of PN Nos. 91-054, 91-055 and 91-056,5 to mature on
October 2, 1991.
Ocampo and Tan availed of the Quedan Financing Program for
Grain Stocks of the Quedan and Rural Credit Guarantee
Corporation6 (Quedancor), whereby the latter guaranteed to
pay the Land Bank their loan, upon maturity, in case of non-
payment. Pursuant thereto, they delivered to the Land Bank
several grains warehouse receipts (quedans), and executed a
Deed of Assignment/Contract of Pledge covering 41,690
cavans of palay.7
The liability of Quedancor, however, was limited to eighty
percent (80%) of the outstanding loan plus interests at the time
of maturity.8 Corollarily, the quedans delivered by Ocampo and
Tan, as security, turned out to be insufficient. To address the
matter, the Land Bank wrote Ocampo a letter9 dated August
15, 1991, requiring her and Tan to give an additional security
with respect to the (20%) percent unsecured portion of the
quedan loan.
Accordingly, Ocampo and Tan constituted a real estate
mortgage10 over two parcels of unregistered land owned by
Ocampo, as evidenced by Tax Declaration (TD) Nos. 6958 and
695911 (subsequently canceled and replaced by TD No. 317-
A).12 The mortgage was executed on September 6, 1991 and
delivered by Ocampo and Tan to the Land Bank, together with
the TDs and survey plan of the properties. Land Bank, in turn,
registered the mortgage with the Register of Deeds of
Lingayen, Pangasinan.
Meanwhile, Ocampo filed with the RTC, Branch 49, Urdaneta,
Pangasinan, a case for the registration of the subject
properties, docketed as Land Registration Case No. U-1116.
Land Bank filed therein a Motion,13 praying for the RTC to take
into consideration the mortgage over the properties, and to
register the same in Ocampo's name bearing the said
encumbrance.
On August 15, 1991, Ocampo signed debit advices amounting
to ₱100,000.00 as partial payment of the quedan loan.14 After
the maturity of the remaining three (3) promissory notes on
October 2, 1991, Ocampo failed to pay the balance for her
quedan loan. Thus, the Land Bank filed with Quedancor a
claim for guarantee payment. It also filed with the RTC, Branch
46, Urdaneta, Pangasinan, a criminal case for estafa15 against
Ocampo for disposing the stocks of palay covered by the
grains warehouse receipts, docketed as Criminal Case No. U-
7373.
As regards the 20% portion of the quedan loan, Land Bank
filed on March 27, 2000 a petition16 for extrajudicial foreclosure
of real estate mortgage pursuant to Act No. 3135, as amended.
On April 4, 2000, the Ex Officio Provincial Sheriff of
Pangasinan issued a Notice of Extrajudicial Sale,17 setting the
sale at public auction on May 30, 2000, a copy of which was
furnished to, and received by, Ocampo.
On May 25, 2000, Ocampo and Tan filed with the RTC a
Complaint18 for Declaration of Nullity and Damages with
Application for a Writ of Preliminary Injunction against the Land
Bank of the Philippines and the Ex Officio Provincial Sheriff of
Pangasinan, praying19 that after due notice and hearing on the
merits, the RTC: (1) declare the deed of real estate mortgage
null and void; (2) declare the extrajudicial foreclosure
proceedings and notice of extrajudicial sale, null and void; (3)
make the writ of preliminary injunction permanent; and (4)
order the defendants to pay, jointly and severally, moral
damages in an amount to be fixed by the RTC, plus attorney's
fees, expenses of litigation, among others.
In their Complaint, Ocampo and Tan claimed that the real
estate mortgage is a forgery, because Land Bank did not
inform them that the properties would be used to secure the
payment of a ₱2,000,000.00 loan, which they never applied
for, much less received its proceeds. They also claimed that
Tan could not have mortgaged the properties since she does
not own the same.
During the trial,20 Ocampo narrated that, on August 29, 1991,
she went to the Land Bank to apply for another loan amounting
to ₱5,000,000.00, but only ₱1,000,000.00 was approved. Not
amenable to the said amount, she decided not to pursue her
loan application. She further narrated that, in order to facilitate
her ₱5,000,000.00 loan application, she signed a document
denominated as Real Estate Mortgage. She insisted, however,
that when she affixed her signature thereon, some portions
were still in blank.21 As for the quedan loan, she contended that
she had fully paid the same when she executed a Deed of
Absolute Assignment22 dated July 3, 1991 in favor of
Quedancor.23 Such payment she made known to Land Bank
through a letter24 dated August 30, 1991.
In its Answer,25 Land Bank contended that Ocampo and Tan
executed a Deed of Real Estate Mortgage dated September 6,
1991, knowing fully well that the same would secure the 20%
portion of their quedan loan, which was not guaranteed by
Quedancor. They even submitted the TDs covering the
properties as well as the survey plan. Tan, on the other hand,
signed, not as a co-owner of the properties, but in her capacity
as a co-borrower of the quedan loan.
Land Bank presented as its witness, Zenaida Dasig, the
assigned account officer of Ocampo. Dasig testified26 that
Ocampo and Tan obtained a ₱10,000,000.00 quedan loan
from the Land Bank, 80% of which was secured by quedan
receipts. She stated that Ocampo was required to submit an
additional collateral for the 20% unsecured portion, which she
did through the mortgage contract. As for Ocampo's claim of
full payment of the quedan loan, Land Bank insisted otherwise.
It argued that the quedan loan was still not fully satisfied
because it was not made a party to the Deed of Absolute
Assignment between Ocampo and Quedancor. Land Bank
relayed its position on the matter through a letter27 dated
September 17, 1991 to Ocampo, wherein it acknowledged
receipt of her August 30, 1991 letter and informed her of the
subsisting balance in the quedan loan.
On May 29, 2000, the RTC issued a Writ of Temporary
Restraining Order,28 effective for seventy-two (72) hours, to
enjoin the Ex Officio Provincial Sheriff from proceeding with the
scheduled May 30, 2000 sale at public auction.
After the trial, the RTC rendered a Decision29 in favor of
Ocampo and Tan, to wit:
WHEREFORE, in view of the foregoing, the Court renders
judgment declaring the Real Estate Mortgage between the
Plaintiffs and Defendant [Land] Bank of the Philippines and
signed by the Plaintiffs on September 6, 1991, null and void.30
Land Bank moved for reconsideration,31 but the RTC denied
the same in its Order32 dated July 12, 2002.
Land Bank filed an appeal with the CA, which granted the
same. Accordingly, it reversed the RTC and ordered the
dismissal of the complaint. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, the instant appeal is
hereby GRANTED and the Decision dated March 18, 2002 of
the Regional Trial Court, Branch 45 of Urdaneta City,
Pangasinan, is hereby REVERSED and SET ASIDE. The
complaint is ordered DISMISSED.
SO ORDERED.33
Ocampo and Tan did not file a motion for reconsideration of
the CA decision. Instead, they elevated the matter before the
Court via  the present petition,34 which involves the following
issues: (1) whether or not the deed of real estate mortgage
was void; and (2) assuming that it was valid, whether or not the
loan was already extinguished.
The resolution of the first issue is factual in nature and calls for
a review of the evidence already considered in the proceedings
below. As a general rule, the Court is not a trier of facts and
does not normally undertake the re-examination of the
evidence presented by the contending parties during the trial of
the case.35 Only errors of law are reviewable by the Supreme
Court on petitions for review.36 However, this rule admits of
several exceptions, wherein We disregarded the aforesaid
tenet and proceeded to review the findings of facts of the lower
courts.37 Two exceptions are present in this case, namely: (1)
when the findings of facts are conflicting; and (2) when the
findings of fact of the Court of Appeals are contrary to those of
the trial court.
Ocampo and Tan filed the complaint invoking the nullity of the
real estate mortgage on the ground of forgery. To bolster their
claim, they averred that a physical examination of Ocampo's
signature showed that the typewritten name "Gloria Ocampo"
was superimposed, or it overlapped the signature "Gloria
Ocampo." They argued that this indicated that the signature
"Gloria Ocampo" was affixed to the printed form of the deed
before the typewritten "Gloria Ocampo" was typed thereon.
Such also confirmed the testimony of Ocampo that she was
made to sign a blank form before the typewritten parts thereof
were typed.381avvphi1
Forgery is present when any writing is counterfeited by the
signing of another’s name with intent to defraud.39 Here,
Ocampo admitted that she
had affixed her signature to a Deed of Real Estate Mortgage
purportedly as a prefatory act to a ₱5,000,000.00 loan
application. In her direct examination,40 she testified as follows:
ATTY. TANOPO: DIRECT EXAMINATION
Q. Mrs. Ocampo, I show you here a Deed of Real
Estate Mortgage purportedly executed by you and the
Land Bank of the Philippines, which has already been
marked for purposes of identification as Exhibit "6" for
the defendants, and I point to you a signature which
overlapped (sic) the typewritten name Gloria Ocampo,
will you inform this Honorable Court, whose
signature is that which overlaps the typewritten
name Gloria Ocampo?
A. That is my signature, sir.
ATTY. TANOPO:
Q. Now, in your complaint, you claim or alleged that
this mortgage is a forgery, notwithstanding the fact
that you admitted that the signature overlapped the
typewritten Gloria Ocampo is your signature. Kindly
inform the court why is this a forgery?
A. Because they made me sign a blank form, sir.
Q. Why were you made to sign a blank form by the
bank?
A. Because that was the procedure of the bank,
letting them sign blank forms for the loan.
xxxx
COURT:
Q. Madam Witness, what do you mean by blank
form? It would seem that the exhibit is not blank?
 A. They showed us blank instrument for us to sign
before we can obtain the loan, your Honor.
Q. You mean to say in blank form, the form is not
filled up although there are printed statements, is
that correct?
A. Yes, sir.
Corollarily, Ocampo's signature in the Deed of Real Estate
Mortgage was not forged. We agree with the CA when it held
that there is really no reason to discuss forgery.41 Notably,
Ocampo and Tan failed to present any evidence to disprove
the genuineness or authenticity of their signatures.42 A perusal
of the Deed of Real Estate Mortgage dated September 6, 1991
revealed the signatures of Gloria Ocampo and Teresita Tan as
well as that of Zenaida Dasig and Julita Orpiano. On the
acknowledgment portion were the names of Gloria Ocampo
and Teresita Tan, alongside their respective residence
certificate numbers and the places and dates of issue, together
with the name of Atty. Elmer Veloria, the notary public.
It is well settled that a document acknowledged before a notary
public is a public document that enjoys the presumption of
regularity. It is a prima facie evidence of the truth of the facts
stated therein and a conclusive presumption of its existence
and due execution. To overcome this presumption, there must
be presented evidence that is clear and convincing. Absent
such evidence, the presumption must be upheld. In addition,
one who denies the due execution of a deed where one’s
signature appears has the burden of proving that contrary to
the recital in the jurat, one never appeared before the notary
public and acknowledged the deed to be a voluntary act.43 We
have also held that a notarized instrument is admissible in
evidence without further proof of its due execution and is
conclusive as to the truthfulness of its contents, and has in its
favor the presumption of regularity.44
Ocampo denied having appeared before the notary
public.45 When asked further by the RTC if she was certain,
she replied that she cannot remember if she had indeed
appeared before the notary public.46 She also denied knowing
Zenaida Dasig but she knew Julita Orpiano, who, according to
her, was in-charge of the loan in Land Bank.47 Contrary to
Ocampo's claims, Dasig narrated that Ocampo signed the real
estate mortgage in the presence of the notary public48 because
she was also present during that time.49 As Land Bank's
account officer, Dasig was tasked to evaluate loan applications
and projects related thereto, for proposal as to viability and
profitability, including the renewal of credit lines for
management approval. As such, she was not only vested with
knowledge of banking procedures and practices, she was also
acquainted with the individuals who transact business with the
Land Bank.
The real issue here is not so much on forgery, but on the fact
that the Land Bank allegedly used the genuine signature of
Ocampo in order to make it appear that she had executed a
real estate mortgage to secure a ₱2,000,000.00 loan. Ocampo
maintained that when she signed the blank form, she was led
to believe by the Land Bank that such would be used to
process her ₱5,000,000.00 loan application. She was,
therefore, surprised when she received a notice from the
sheriff regarding the foreclosure of a mortgage over her
properties.
Article 1338 of the Civil Code provides:
ART. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would
not have agreed to.
Verily, fraud refers to all kinds of deception -- whether through
insidious machination, manipulation, concealment or
misrepresentation -- that would lead an ordinarily prudent
person into error after taking the circumstances into
account.50 The deceit employed must be serious. It must be
sufficient to impress or lead an ordinarily prudent person into
error, taking into account the circumstances of each case.51
Unfortunately, Ocampo was unable to establish clearly and
precisely how the Land Bank committed the alleged fraud. She
failed to convince Us that she was deceived, through
misrepresentations and/or insidious actions, into signing a
blank form for use as security to her previous loan. Quite the
contrary, circumstances indicate the weakness of her
submissions. The Court of Appeals aptly held that:
Granting, for the sake of argument, that appellant bank did not
apprise the appellees of the real nature of the real estate
mortgage, such stratagem, deceit or misrepresentations
employed by defendant bank are facts constitutive of fraud
which is defined in Article 1338 of the Civil Code as that
insidious words or machinations of one of the contracting
parties, by which the other is induced to enter into a contract
which without them, he would not have agreed to. When fraud
is employed to obtain the consent of the other party to enter
into a contract, the resulting contract is merely a voidable
contract, that is a valid and subsisting contract until annulled or
set aside by a competent court. It must be remembered that an
action to declare a contract null and void on the ground of
fraud must be instituted within four years from the date of
discovery of fraud. In this case, it is presumed that the
appellees must have discovered the alleged fraud since 1991
at the time when the real estate mortgage was registered with
the Register of Deeds of Lingayen, Pangasinan. The appellees
cannot now feign ignorance about the execution of the real
estate mortgage.52
In fine, We hold that the Deed of Real Estate Mortgage was
valid.
Anent the second issue, We also resolve the same against
Ocampo and Tan and, consequently, hold that the loan
obligation was not yet extinguished.
Ocampo claimed that she had already paid the quedan loan
when she assigned parcels of land covered by three (3)
transfer certificates of title in favor of Quedancor, as evidenced
by the Deed of Absolute Assignment,53 to wit:
WHEREAS, the ASSIGNOR acknowledges to be justly
indebted to the ASSIGNEE in the total sum of NINE MILLION
NINE HUNDRED NINETY-SIX THOUSAND
₱9,996,000.00 exclusive of interest charges.
WHEREAS, the ASSIGNOR, in full settlement thereof has
voluntarily offered to assign and convey certain properties
belonging to her and the ASSIGNEE indicated his willingness
to accept the same;
NOW, THEREFORE, for and in consideration of the sum
of NINE MILLION NINE HUNDRED NINETY-SIX
THOUSAND representing the total obligation owing to the
ASSIGNEE by the ASSIGNOR does hereby sede (sic), assign,
transfer and convey in a manner absolute and irrevocable in
favor of the said ASSIGNEE the following property/ies free and
clear of all liens and encumbrances, x x x
The essence of a contract of mortgage indebtedness is that a
property has been identified or set apart from the mass of the
property of the debtor-mortgagor as security for the payment of
money or the fulfillment of an obligation to answer the amount
of indebtedness, in case of default of payment.54 In the case
before Us, the loan amount was established. It was also
admitted that 80% was guaranteed by Quedancor, while the
remaining 20%, by the Deed of Real Estate Mortgage. Finally,
the records show that Ocampo and Tan obtained the loan from
the Land Bank and it was the latter which released the loan
proceeds.
We cannot countenance Ocampo's actions in order to justify
her alleged full payment of the quedan loan. The loan was
between her and the Land Bank; yet, she did not include the
latter as party to the Deed of Absolute Assignment, for the
following reasons: that it was Quedancor which collected from
her and that, once, when she went to the Land Bank to pay her
loan, the person she approached merely smiled at her.55 Her
justifications were flimsy and incredulous. Moreover, there are
other evidence on record which she chose to ignore, showing
her indebtedness to the Land Bank, and not to Quedancor, to
wit: (1) she delivered the TDs on her properties as well as the
survey plan to the Land Bank; (2) the mortgage was annotated
on TD Nos. 6958 and 6959, and subsequently, on TD 317-A;
(3) the Land Bank registered the mortgage with the Register of
Deeds of Lingayen, Pangasinan; (4) she used TD No. 317-A in
her application for the registration of her properties before the
cadastral court; (5) the Land Bank even filed a motion in the
land registration case so that the mortgage will be considered
and noted as encumbrance on the properties; and (6) she paid
Land Bank, by way of debit advices, in the amount of
₱100,000.00.
All the above circumstances, notwithstanding, Ocampo hastily
executed the Deed of Absolute Assignment and conveyed
some of her properties to Quedancor without prior notice to the
Land Bank.
In the case of Vda. De Jayme v. Court of Appeals,56 We held
that dacion en pago is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. Thus,
it is a special mode of payment where the debtor offers another
thing to the creditor, who accepts it as equivalent of payment of
an outstanding debt, which undertaking, in one sense,
amounts to a sale. As such, the essential elements are
consent, object certain, and cause or consideration. In its
modern concept, what actually takes place in dacion en pago
is an objective novation of the obligation where the thing
offered as an accepted equivalent of the performance of an
obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price. In any
case, common consent is an essential prerequisite, be it sale
or novation, to have the effect of totally extinguishing the debt
or obligation.
The requisite consent is not present in this case, for as
explained by the Court of Appeals:
x x x True, the plaintiffs-appellees executed a Deed of
Assignment. But what does the said deed guarantee? The
Deed of Assignment referred to was entered into between
Quedan [Guarantee] Fund Board and the plaintiffs-appellees.
The appellant creditor bank, however, had no participation, or
much less, consented to the execution of the said deed of
assignment. Hence, the deed of assignment cannot have the
valid effect of extinguishing the real estate mortgage or much
less the quedan loan insofar as the creditor bank is concerned.
Basic is the rule that in order to have a valid payment, the
payment shall be made to the person in whose favor the
obligation is constituted, or his successor-in-interest, or any
person authorized to receive it. Why then did the plaintiff Gloria
Ocampo assigned (sic) her properties to a guarantor and not
directly to the creditor bank? The pre-trial order will readily
disclose that the Quedan [Guarantee] Fund Board is a mere
guarantor or surety of 80% of the quedan loan. Thus, even if
the deed of assignment has the effect of a valid payment, we
may reasonably conclude that the extinguishment is only up to
the extent of 80% of the quedan loan. Thus, it leaves the
balance of 20% of the quedan loan which can be fully satisfied
by the foreclosure of the real estate mortgage.57
In a civil case, the burden of proof is on the plaintiff to establish
his case through a preponderance of evidence. If he claims a
right granted or created by law, he must prove his claim by
competent evidence.58 After considering the evidence
presented by the parties, as well as their arguments in their
respective pleadings, We hold that petitioners Ocampo and
Tan failed to sufficiently establish their cause of action.
Consequently, their complaint should have been dismissed by
the RTC.
One more thing. Ocampo is a businesswoman and she had
testified that she had availed of loans from other banks. The
amount involved was not a measly amount. Verily, she is
expected to be acquainted with the banking procedures as
regards to loan applications. With this premise, she ought to
have read the terms and conditions of the document that she
was signing, especially so when, as claimed by her, there were
still blank spaces at that time when she affixed her signature
thereon. Finally, We believe that she must also be familiar with
the manner by which the loans should be paid and settled; yet,
that was not what happened here. The Court has always
maintained its impartiality as early as in the case of Vales v.
Villa,59 and has warned litigants that:
x x x The law furnishes no protection to the inferior simply
because he is inferior any more than it protects the strong
because he is strong. The law furnishes protection to both alike
– to one no more or less than the other. It makes no distinction
between the wise and the foolish, the great and the small, the
strong and the weak. The foolish may lose all they have to the
wise; but that does not mean that the law will give it back to
them again. Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts, or annul the
effects of foolish acts. x x x60
WHEREFORE, the Petition is DENIED. The Court of Appeals
Decision dated July 21, 2004 in CA-G.R. CV No. 77683 is
hereby AFFIRMED. Costs against the petitioners.
SO ORDERED.
G.R. No. 146942             April 22, 2003
CORAZON G. RUIZ, petitioner,
vs.
COURT OF APPEALS and CONSUELO
TORRES, respondents.
PUNO, J.:
On appeal is the decision1 of the Court of Appeals in CA-G.R.
CV No. 56621 dated 25 August 2000, setting aside the
decision2 of the trial court dated 19 May 1997 and lifting the
permanent injunction on the foreclosure sale of the subject lot
covered by TCT No. RT-96686, as well as its subsequent
Resolution3 dated 26 January 2001, denying petitioner’s
Motion for Reconsideration.
The facts of the case are as follows:
Petitioner Corazon G. Ruiz is engaged in the business of
buying and selling jewelry.4 She obtained loans from private
respondent Consuelo Torres on different occasions, in the
following amounts: P100,000.00; P200,000.00; P300,000.00;
and P150,000.00.5 Prior to their maturity, the loans were
consolidated under one (1) promissory note dated March 22,
1995, which reads as follows:6
"P750,000.00 Quezon City
22, 1995
PROMISSORY NOTE
For value received, I, CORAZON RUIZ, as principal
and ROGELIO RUIZ as surety in solidum, jointly and
severally promise to pay to the order of CONSUELO
P. TORRES the sum of SEVEN HUNDRED FIFTY
THOUSAND PESOS (P750,000.00) Philippine
Currency, to earn an interest at the rate of three per
cent (3%) a month, for thirteen months, payable every
_____ of the month, and to start on April 1995 and to
mature on April 1996, subject to renewal.
If the amount due is not paid on date due, a
SURCHARGE of ONE PERCENT of the principal
loan, for every month default, shall be collected.
Remaining balance as of the maturity date shall earn
an interest at the rate of ten percent a month,
compounded monthly.
 It is finally agreed that the principal and surety in
solidum, shall pay attorney’s fees at the rate of
twenty-five percent (25%) of the entire amount to be
collected, in case this note is not paid according to the
terms and conditions set forth, and same is referred to
a lawyer for collection.
In computing the interest and surcharge, a fraction of
the month shall be considered one full month.
In the event of an amicable settlement, the principal
and surety in solidum shall reimburse the expenses of
the plaintiff.
(Sgd.) Corazon Ruiz __________________
            Principal
The consolidated loan of P750,000.00 was secured by a real
estate mortgage on a 240-square meter lot in New Haven
Village, Novaliches, Quezon City, covered by Transfer
Certificate of Title (TCT) No. RT-96686, and registered in the
name of petitioner.7 The mortgage was signed by Corazon
Ruiz for herself and as attorney-in-fact of her husband Rogelio.
It was executed on 20 March 1995, or two (2) days before the
execution of the subject promissory note.8
Thereafter, petitioner obtained three (3) more loans from
private respondent, under the following promissory notes: (1)
promissory note dated 21 April 1995, in the amount of
P100,000.00;9 (2) promissory note dated May 23, 1995, in the
amount of P100,000.00;10 and (3) promissory note dated
December 21, 1995, in the amount of P100,000.00.11 These
combined loans of P300,000.00 were secured by P571,000.00
worth of jewelry pledged by petitioner to private respondent.12
From April 1995 to March 1996, petitioner paid the stipulated
3% monthly interest on the P750,000.00 loan,13 amounting to
P270,000.00.14 After March 1996, petitioner was unable to
make interest payments as she had difficulties collecting from
her clients in her jewelry business.15
Due to petitioner’s failure to pay the principal loan of
P750,000.00, as well as the interest payment for April 1996,
private respondent demanded payment not only of the
P750,000.00 loan, but also of the P300,000.00 loan.16 When
petitioner failed to pay, private respondent sought the extra-
judicial foreclosure of the aforementioned real estate
mortgage.17
On September 5, 1996, Acting Clerk of Court and Ex-Officio
Sheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G.
Acal and Supervising Sheriff Silverio P. Bernas issued a Notice
of Sheriff’s Sale of subject lot. The public auction was
scheduled on October 8, 1996.18
On October 7, 1996, one (1) day before the scheduled auction
sale, petitioner filed a complaint with the RTC of Quezon City
docketed as Civil Case No. Q-96-29024, 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 P706,000.00. The
computed amount of P706,000.00 was based on the aggregate
loan of P750,000.00, covered by the March 22, 1995
promissory note, plus the other loans of P300,000.00, covered
by separate promissory notes, plus interest, minus
P571,000.00 representing the amount of jewelry pledged in
favor of private respondent.19
The trial court granted the prayer for the issuance of a
Temporary Restraining Order,20 and on 29 October 1996,
issued a writ of preliminary injunction.21 In its Decision dated
May 19, 1997, it ordered the Clerk of Court and Ex-Officio
Sheriff to desist with the foreclosure sale of the subject
property, and it made permanent the writ of preliminary
injunction. It held that the real estate mortgage is
unenforceable because of the lack of the participation and
signature of petitioner’s husband. It noted that although the
subject real estate mortgage stated that petitioner was
"attorney-in-fact for herself and her husband," the Special
Power of Attorney was never presented in court during the
trial.22
The trial court further held that the promissory note in question
is a unilateral contract of adhesion drafted by private
respondent. It struck down the contract as repugnant to public
policy because it was imposed by a dominant bargaining party
(private respondent) on a weaker party
(petitioner).23 Nevertheless, it held that petitioner still has an
obligation to pay the private respondent. 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, and interest of ten percent (10%) a month,
compounded monthly from September 1996 to January 1997.
Petitioner was thus ordered to pay the amount of P750,000.00
plus three percent (3%) interest per month, or a total of
P885,000.00, plus legal interest from date of [receipt of] the
decision until the total amount of P885,000.00 is paid.24
Aside from the foregoing, the trial court took into account
petitioner’s proposal to pay her other obligations to private
respondent in the amount of P392,000.00.25
The trial court also recognized the expenses borne by private
respondent with regard the foreclosure sale and attorney’s
fees. As the notice of the foreclosure sale has already been
published, it ordered the petitioner to reimburse private
respondent the amount of P15,000.00 plus attorney’s fees of
the same amount.26
Thus, the trial court computed petitioner’s obligation to private
respondent, as follows:
Principal Loan ……………. P 750,000.00
Interest…………………….. 135,000.00
Other Loans………………. 392,000.00
Publication Fees……………. 15,000.00
Attorney’s Fees ……………         15,000.00
TOTAL…………………… P1,307,000.00
with legal interest from date of receipt of decision until payment
of total amount of P1,307,000.00 has been made.27
Private respondent’s motion for reconsideration was denied in
an Order dated July 21, 1997.
Private respondent appealed to the Court of Appeals. The
appellate court set aside the decision of the trial court. 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. Consequently, she may encumber the lot
without the consent of her husband.28 It allowed its foreclosure
since the loan it secured was not paid.
Nonetheless, the appellate court declared as invalid the 10%
compounded monthly interest29 and the 10% surcharge per
month stipulated in the promissory notes dated May 23, 1995
and December 1, 1995,30 and so too the 1% compounded
monthly interest stipulated in the promissory note dated 21
April 1995,31 for being excessive, iniquitous, unconscionable,
and contrary to morals. 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 the entire amount due, and that the
only permissible rate of surcharge is 1% per month, without
compounding.32 The appellate court also granted attorney’s
fees in the amount of P50,000.00, and not the stipulated 25%
of the amount due, following the ruling in the case of Medel v.
Court of Appeals.33
Now, before this Court, petitioner assigns the following errors:
(1) PUBLIC RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN RULING THAT THE
PROMISSORY NOTE OF P750,000.00 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.
(2) PUBLIC RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN DECLARING THAT THE
PROPERTY COVERED BY THE SUBJECT DEED
OF MORTGAGE OF MARCH 20, 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, NOR DISCUSSED AND ARGUED BEFORE
THE TRIAL COURT.
(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.
The pertinent issues to be resolved are:
(1) Whether the promissory note of P750,000.00 is a contract
of adhesion;
(2) Whether the real property covered by the subject deed of
mortgage dated March 20, 1995 is paraphernal property of
petitioner; and
(3) Whether the rates of interests and surcharges on the
obligation of petitioner to private respondent are valid.
I greater force in the case at bar where not only one but several
We hold that the promissory note in the case at bar is not a
contract of adhesion. In Sweet Lines, Inc. vs. Teves,34 this
Court discussed the nature of a contract of adhesion as
follows:
". . . there are certain contracts almost all the
provisions of which have been drafted only by one
party, usually a corporation. Such contracts are
called contracts of adhesion, because the only
participation of the other party is the signing of his
signature or his ‘adhesion’ thereto. Insurance
contracts, bills of lading, contracts of sale of lots on
the installment plan fall into this category.35
" . . . it is drafted only by one party, usually the
corporation, and is sought to be accepted or adhered
to by the other party . . . who cannot change the same
and who are thus made to adhere hereto on the ‘take
it or leave it’ basis . . . "36
In said case of Sweet Lines,37 the conditions of the contract on
the 4 x 6 inches passenger ticket are in fine print. Thus we
held:
" . . . it is hardly just and proper to expect the
passengers to examine their tickets received from
crowded/congested counters, more often than not
during rush hours, for conditions that may be printed
thereon, much less charge them with having
consented to the conditions, so printed, especially if
there are a number of such conditions in fine print, as
in this case."38
We further stressed in the said case that the questioned
‘Condition No. 14’ was prepared solely by one party which was
the corporation, and the other party who was then a passenger
had no say in its preparation. The passengers have no
opportunity to examine and consider the terms and conditions
of the contract prior to the purchase of their tickets.39
In the case at bar, the promissory note in question did not
contain any fine print provision which could not have been
examined by the petitioner. Petitioner had all the time to go
over and study the stipulations embodied in the promissory
note. Aside from the March 22, 1995 promissory note for
P750,000.00, three other promissory notes of different dates
and amounts were executed by petitioner in favor of private
respondent. These promissory notes contain similar terms and
conditions, with a little variance in the terms of interests and
surcharges. 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 private respondent. Moreover,
petitioner, in her complaint40 dated October 7, 1996 filed with
the trial court, never claimed that she was forced to sign the
subject note. Paragraph five of her complaint states:
"That on or about March 22, 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 P750,000.00 . . ."
To be required is certainly different from being compelled. She
could have rejected the conditions made by private
respondent. As an experienced business- woman, she ought to
understand all the conditions set forth in the subject promissory
note. As held by this Court in Lee, et al. vs. Court of Appeals,
et al.,41 it is presumed that a person takes ordinary care of his
concerns.42 Hence, the natural presumption is that one does
not sign a document without first informing himself of its
contents and consequences. This presumption acquires
documents were executed at different times by petitioner in
favor of private respondent.
II
We also affirm the ruling of the appellate court that the real
property covered by the subject deed of mortgage is
paraphernal property. The property subject of the mortgage is
registered in the name of "Corazon G. Ruiz, of legal age,
married to Rogelio Ruiz, Filipinos." Thus, 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. Furthermore, registration
of the property in the name of "Corazon G. Ruiz, of legal age,
married to Rogelio Ruiz" is not proof that such property was
acquired during the marriage, and thus, is presumed to be
conjugal. The property could have been acquired by Corazon
while she was still single, and registered only after her
marriage to Rogelio Ruiz. Acquisition of title and registration
thereof are two different acts.43 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. Before such presumption can apply, it must first
be established that the property was in fact acquired during the
marriage. In other words, proof of acquisition during the
marriage is a condition sine qua non for the operation of the
presumption in favor of conjugal ownership.44 No such proof
was offered nor presented in the case at bar. Thus, on the
basis alone of the certificate of title, it cannot be presumed that
said property was acquired during the marriage and that it is
conjugal property. Since there is no showing as to when the
property in question was acquired, the fact that the title is in the
name of the wife alone is determinative of its nature as
paraphernal, i.e., belonging exclusively to said spouse.45 The
only import of the title is that Corazon is the owner of said
property, the same having been registered in her name alone,
and that she is married to Rogelio Ruiz.46
III
We now resolve the issue of whether the rates of interests and
surcharges on the obligation of petitioner to private respondent
are legal.
The four (4) unpaid promissory notes executed by petitioner in
favor of private respondent are in the following amounts and
maturity dates:
(1) P750,000.00, dated March 22, 1995 matured on
April 21, 1996;
(2) P100,000.00, dated April 21, 1995 matured on
August 21, 1995;
(3) P100,000.00, dated May 23, 1995 matured on
November 23, 1995; and
(4) P100,000.00, dated December 21, 1995 matured
on March 1, 1996.
The P750,000.00 promissory note dated March 22, 1995 has
the following provisions:
(1) 3% monthly interest, from the signing of the note
until its maturity date;
(2) 10% compounded monthly interest on the
remaining balance at maturity date;
(3) 1% surcharge on the principal loan for every
month of default; and
(4) 25% attorney’s fees.
The P100,000.00 promissory note dated April 21, 1995 has the
following provisions:
(1) 3% monthly interest, from the signing of the note
until its maturity date;
(2) 10% monthly interest on the remaining balance at
maturity date;
(3) 1% compounded monthly surcharge on the
principal loan for every month of default; and
(4) 10% attorney’s fees.
The two (2) other P100,000.00 promissory notes dated May
23, 1995 and December 1, 1995 have the following provisions:
(1) 3% monthly interest, from the signing of the note
until its maturity date;
(2) 10% compounded monthly interest on the
remaining balance at maturity date;
(3) 10% surcharge on the principal loan for every
month of default; and
(4) 10% attorney’s fees.
We affirm the ruling of the appellate court, striking down as
invalid the 10% compounded monthly interest, the 10%
surcharge per month stipulated in the promissory notes dated
May 23, 1995 and December 1, 1995, and the 1%
compounded monthly interest stipulated in the promissory note
dated April 21, 1995. 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. Also, the only permissible
rate of surcharge is 1% per month, without compounding. We
also uphold the award of the appellate court of attorney’s fees,
the amount of which having been reasonably reduced from the
stipulated 25% (in the March 22, 1995 promissory note) and
10% (in the other three promissory notes) of the entire amount
due, to a fixed amount of P50,000.00. However, 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 foregoing rates of interests and surcharges are in accord
with Medel vs. Court of Appeals,47 Garcia vs. Court of
Appeals,48 Bautista vs. Pilar Development Corporation,49 and
the recent case of Spouses Solangon vs. Salazar.50 This Court
invalidated a stipulated 5.5% per month or 66% per annum
interest on a P500,000.00 loan in Medel51 and a 6% per month
or 72% per annum interest on a P60,000.00 loan
in Solangon52 for being excessive, iniquitous, unconscionable
and exorbitant. In both cases, we reduced the interest rate to
12% per annum. We held that while the Usury Law has been
suspended by Central Bank Circular No. 905, s. 1982, effective
on January 1, 1983, and parties to a loan agreement have
been given wide latitude to agree on any interest rate, still
stipulated interest rates are illegal if they are unconscionable.
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.53 On the other hand, in Bautista vs. Pilar Development
Corp.,54 this Court upheld the validity of a 21% per annum
interest on a P142,326.43 loan, and in Garcia vs. Court of
Appeals, sustained the agreement of the parties to a 24% per
annum interest on an P8,649,250.00 loan. It is on the basis of
these cases that we reduce the 36% per annum interest to
12%. An interest of 12% per annum is deemed fair and
reasonable. While it is true that this Court invalidated a much
higher interest rate of 66% per annum in Medel55 and 72%
in Solangon56 it has sustained the validity of a much lower
interest rate of 21% in Bautista57 and 24% in Garcia.58 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.
The 1% surcharge on the principal loan for every month of
default is valid. This surcharge or penalty stipulated in a loan
agreement in case of default partakes of the nature of
liquidated damages under Art. 2227 of the New Civil Code, and
is separate and distinct from interest payment.59 Also referred
to as a penalty clause, it is expressly recognized by law. It is
an accessory undertaking to assume greater liability on the
part of an obligor in case of breach of an obligation.60 The
obligor would then be bound to pay the stipulated amount of
indemnity without the necessity of proof on the existence and
on the measure of damages caused by the breach.61 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, good customs, public order
or public policy, a stipulated penalty, nevertheless, may be
equitably reduced if it is iniquitous or unconscionable.62 In the
instant case, the 10% surcharge per month stipulated in the
promissory notes dated May 23, 1995 and December 1, 1995
was properly reduced by the appellate court.
In sum, petitioner shall pay private respondent the following:
1. Principal of loan under promissory note dated March 22, 199
a. 1% interest per month on principal from March 22, 19
until fully paid, less P270,000.00 paid by petitioner as
interest from April 1995 to March 1996
b. 1% surcharge per month on principal from May 1996
fully paid
2. Principal of loan under promissory note dated April 21, 1995
a. 1% interest per month on principal from April 21, 199
fully paid
b. 1% surcharge per month on principal from Septembe
1995 until fully paid
3. Principal of loan under promissory note dated May 23, 1995
a. 1% interest per month on principal from May 23, 199
fully paid
 Bank and the rates which the banks may charge their
b. 1% surcharge per month on principal from December 1995
customers if the respective credit documents are not to lose
until fully paid
their eligibility for rediscount or advances in the Central Bank.
4. Principal of loan under promissory note dated December 1, 1995
a. 1% interest per month on principal from December 1,the borrowing or lending operations of the banks shall apply
until fully paid
b. 1% surcharge per month on principal from April 1996 until
fully paid
5. Attorney’s fees
Hence, since the mortgage is valid and the loan it secures
remains unpaid, the foreclosure proceedings may now
proceed.
IN VIEW WHEREOF, the appealed Decision of the Court of
Appeals is AFFIRMED, subject to the MODIFICATION that the
interest rate of 36% per annum is ordered reduced to 12 % per
annum.
SO ORDERED.
G.R. No. 192986               January 15, 2013
ADVOCATES FOR TRUTH IN LENDING, INC. and
EDUARDO B. OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD, represented by
its Chairman, GOVERNOR ARMANDO M. TETANGCO, JR.,
and its incumbent members: JUANITA D. AMATONG,
ALFREDO C. ANTONIO, PETER FA VILA, NELLY F.
VILLAFUERTE, IGNACIO R. BUNYE and CESAR V.
PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of
transcendental importance to the public, filed directly with this
Court this Petition for Certiorari under Rule 65 of the 1997
Rules of Court, seeking to declare that the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), replacing the Central
Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.)
No. 7653, has no authority to continue enforcing Central Bank
Circular No. 905,1 issued by the CB-MB in 1982, which
"suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a
non-profit, non-stock corporation organized to engage in pro
bono concerns and activities relating to money lending issues.
It was incorporated on July 9, 2010,2 and a month later, it filed
this petition, joined by its founder and president, Eduardo B.
Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the
Philippines on June 15, 1948, empowered the CB-MB to,
among others, set the maximum interest rates which banks
may charge for all types of loans and other credit operations,
within limits prescribed by the Usury Law. Section 109 of R.A.
No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. — The
Monetary Board may fix the maximum rates of interest which
banks may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the
Usury Law fix the maximum rates of interest which banks may
charge for different types of loans and for any other credit
operations, or may fix the maximum differences which may
exist between the interest or rediscount rates of the Central
Any modifications in the maximum interest rates permitted for
1995
only to future operations and not to those made prior to the
date on which the modification becomes effective.
In order to avoid possible evasion of maximum interest rates
set by the Monetary Board, the Board may also fix the
maximum rates that banks may pay to or collect from their
customers in the form of commissions, discounts, charges,
fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by
Presidential Decree (P.D.) No. 1684, giving the CB-MB
authority to prescribe different maximum rates of interest which
may be imposed for a loan or renewal thereof or the
forbearance of any money, goods or credits, provided that the
changes are effected gradually and announced in advance.
Thus, Section 1-a of Act No. 2655 now reads:
Sec. 1-a. 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, goods or
credits, and to change such rate or rates whenever warranted
by prevailing economic and social conditions: Provided, That
changes in such rate or rates may be effected gradually on
scheduled dates announced in advance.
In the exercise of the authority herein granted the Monetary
Board may prescribe higher maximum rates for loans of low
priority, such as consumer loans or renewals thereof as well as
such loans made by pawnshops, finance companies and other
similar credit institutions although the rates prescribed for
these institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribe different
maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial
intermediaries. (Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the CB-
MB issued CB Circular No. 905, Series of 1982, effective on
January 1, 1983. Section 1 of the Circular, under its General
Provisions, removed the ceilings on interest rates on loans or
forbearance of any money, goods or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums,
fees and other charges, on a loan or forbearance of any
money, goods, or credits, regardless of maturity and whether
secured or unsecured, that may be charged or collected by any
person, whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as
amended. (Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the CB’s
"Manual of Regulations for Banks and Other Financial
Intermediaries" (Manual of Regulations) by removing the
applicable ceilings on specific interest rates. Thus, Sections 5,
9 and 10 of CB Circular No. 905 amended Book I, Subsections
1303, 1349, 1388.1 of the Manual of Regulations, by removing
the ceilings for interest and other charges, commissions,
premiums, and fees applicable to commercial banks; Sections
12 and 17 removed the interest ceilings for thrift banks (Book
II, Subsections 2303, 2349); Sections 19 and 21 removed the
ceilings applicable to rural banks (Book III, Subsection 3152.3-
c); and, Sections 26, 28, 30 and 32 removed the ceilings for
non-bank financial intermediaries (Book IV, Subsections
4303Q.1 to 4303Q.9, 4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into law
R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas
(BSP) to replace the CB. The repealing clause thereof, Section
135, reads:
Sec. 135. Repealing Clause. — Except as may be provided for
in Sections 46 and 132 of this Act, Republic Act No. 265, as
amended, the provisions of any other law, special charters,
rule or regulation issued pursuant to said Republic Act No.
265, as amended, or parts thereof, which may be inconsistent
with the provisions of this Act are hereby repealed. Presidential
Decree No. 1792 is likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going
directly to this Court to secure a writ of certiorari, petitioners
contend that the transcendental importance of their Petition
can readily be seen in the issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684,
the CB-MB had the statutory or constitutional
authority to prescribe the maximum rates of interest
for all kinds of credit transactions and forbearance of
money, goods or credit beyond the limits prescribed in
the Usury Law;
b) If so, whether the CB-MB exceeded its authority
when it issued CB Circular No. 905, which removed
all interest ceilings and thus suspended Act No. 2655
as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB
may continue to enforce CB Circular No. 905.5
Petitioners attached to their petition copies of several Senate
Bills and Resolutions of the 10th Congress, which held its
sessions from 1995 to 1998, calling for investigations by the
Senate Committee on Banks and Financial Institutions into
alleged unconscionable commercial rates of interest imposed
by these entities. Senate Bill (SB) Nos. 376 and 1860,7 filed by
Senator Vicente C. Sotto III and the late Senator Blas F. Ople,
respectively, sought to amend Act No. 2655 by fixing the rates
of interest on loans and forbearance of credit; Philippine
Senate Resolution (SR) No. 1053,8 10739 and 1102,10 filed by
Senators Ramon B. Magsaysay, Jr., Gregorio B. Honasan and
Franklin M. Drilon, respectively, urged the aforesaid Senate
Committee to investigate ways to curb the high commercial
interest rates then obtaining in the country; Senator Ernesto
Maceda filed SB No. 1151 to prohibit the collection of more
than two months of advance interest on any loan of money;
and Senator Raul Roco filed SR No. 114411 seeking an
investigation into an alleged cartel of commercial banks, called
"Club 1821", reportedly behind the regime of high interest
rates. The petitioners also attached news clippings12 showing
that in February 1998 the banks’ prime lending rates, or
interests on loans to their best borrowers, ranged from 26% to
31%.
Petitioners contend that under Section 1-a of Act No. 2655, as
amended by P.D. No. 1684, the CB-MB was authorized only to
prescribe or set the maximum rates of interest for a loan or
renewal thereof or for the forbearance of any money, goods or
credits, and to change such rates whenever warranted by
prevailing economic and social conditions, the changes to be
effected gradually and on scheduled dates; that nothing in P.D.
No. 1684 authorized the CB-MB to lift or suspend the limits of
interest on all credit transactions, when it issued CB Circular
No. 905. They further insist that under Section 109 of R.A. No.
265, the authority of the CB-MB was clearly only to fix the
banks’ maximum rates of interest, but always within the limits
prescribed by the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was
promulgated without the benefit of any prior public hearing, is
void because it violated Article 5 of the New Civil Code, which
provides that "Acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity."
They further claim that just weeks after the issuance of CB
Circular No. 905, the benchmark 91-day Treasury bills (T-
bills),13 then known as "Jobo" bills14 shot up to 40% per annum,
as a result. The banks immediately followed suit and re-priced
their loans to rates which were even higher than those of the
"Jobo" bills. Petitioners thus assert that CB Circular No. 905 is
also unconstitutional in light of Section 1 of the Bill of Rights,
which commands that "no person shall be deprived of life,
liberty or property without due process of law, nor shall any
person be denied the equal protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact
a provision similar to Section 109 of R.A. No. 265, and
therefore, in view of the repealing clause in Section 135 of R.A.
No. 7653, the BSP-MB has been stripped of the power either
to prescribe the maximum rates of interest which banks may
charge for different kinds of loans and credit transactions, or to
suspend Act No. 2655 and continue enforcing CB Circular No.
905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for
certiorari, as well as to grant due course thereto, is addressed
to the sound discretion of the court.15 A petition for certiorari
being an extraordinary remedy, the party seeking to avail of the
same must strictly observe the procedural rules laid down by
law, and non-observance thereof may not be brushed aside as
mere technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is
directed against a tribunal exercising judicial or quasi-judicial
functions.17 Judicial functions are exercised by a body or officer
clothed with authority to determine what the law is and what
the legal rights of the parties are with respect to the matter in
controversy. Quasi-judicial function is a term that applies to the
action or discretion of public administrative officers or bodies
given the authority to investigate facts or ascertain the
existence of facts, hold hearings, and draw conclusions from
them as a basis for their official action using discretion of a
judicial nature.18
The CB-MB (now BSP-MB) was created to perform executive
functions with respect to the establishment, operation or
liquidation of banking and credit institutions, and branches and
agencies thereof.19 It does not perform judicial or quasi-judicial
functions. Certainly, the issuance of CB Circular No. 905 was
done in the exercise of an executive function. Certiorari will not
lie in the instant case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of
justice on a given question." In private suits, Section 2, Rule 3
of the 1997 Rules of Civil Procedure provides that "every
action must be prosecuted or defended in the name of the real
party in interest," who is "the party who stands to be benefited
or injured by the judgment in the suit or the party entitled to the
avails of the suit." Succinctly put, a party’s standing is based
on his own right to the relief sought.21
Even in public interest cases such as this petition, the Court
has generally adopted the "direct injury" test that the person
who impugns the validity of a statute must have "a personal
and substantial interest in the case such that he has sustained,
or will sustain direct injury as a result."22 Thus, while petitioners
assert a public right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to make out
a sufficient interest in the vindication of the public order and the
securing of relief. It is significant that in this petition, the
petitioners do not allege that they sustained any personal injury
from the issuance of CB Circular No. 905.
Petitioners also do not claim that public funds were being
misused in the enforcement of CB Circular No. 905. In
Kilosbayan, Inc. v. Morato,23 involving the on-line lottery
contract of the PCSO, there was no allegation that public funds
were being misspent, which according to the Court would have
made the action a public one, "and justify relaxation of the
requirement that an action must be prosecuted in the name of
the real party-in-interest." The Court held, moreover, that the
status of Kilosbayan as a people’s organization did not give it
the requisite personality to question the validity of the contract.
Thus:
Petitioners do not in fact show what particularized interest they
have for bringing this suit. It does not detract from the high
regard for petitioners as civic leaders to say that their interest
falls short of that required to maintain an action under the Rule
3, Sec. 2.24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good
Government,25 it was held that no question involving the
constitutionality or validity of a law or governmental act may be
heard and decided by the court unless there is compliance with
the legal requisites for judicial inquiry, namely: (a) that the
question must be raised by the proper party; (b) that there
must be an actual case or controversy; (c) that the question
must be raised at the earliest possible opportunity; and (d) that
the decision on the constitutional or legal question must be
necessary to the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court
summarized the requirements before taxpayers, voters,
concerned citizens, and legislators can be accorded a standing
to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal
disbursement of public funds or that the tax measure
is unconstitutional;
(3) for voters, there must be a showing of obvious
interest in the validity of the election law in question;
(4) for concerned citizens, there must be a showing
that the issues raised are of transcendental
importance which must be settled early; and
(5) for legislators, there must be a claim that the
official action complained of infringes upon their
prerogatives as legislators.
While the Court may have shown in recent decisions a certain
toughening in its attitude concerning the question of legal
standing, it has nonetheless always made an exception where
the transcendental importance of the issues has been
established, notwithstanding the petitioners’ failure to show a
direct injury.27 In CREBA v. ERC,28 the Court set out the
following instructive guides as determinants on whether a
matter is of transcendental importance, namely: (1) the
character of the funds or other assets involved in the case; (2)
the presence of a clear case of disregard of a constitutional or
statutory prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any other
party with a more direct and specific interest in the questions
being raised. Further, the Court stated in Anak Mindanao
Party-List Group v. The Executive Secretary29 that the rule on
standing will not be waived where these determinants are not
established.
In the instant case, there is no allegation of misuse of public
funds in the implementation of CB Circular No. 905. Neither
were borrowers who were actually affected by the suspension
of the Usury Law joined in this petition. Absent any showing of
transcendental importance, the petition must fail.
More importantly, the Court notes that the instant petition
adverted to the regime of high interest rates which obtained at
least 15 years ago, when the banks’ prime lending rates
ranged from 26% to 31%,30 or even 29 years ago, when the
91-day Jobo bills reached 40% per annum. In contrast,
according to the BSP, in the first two (2) months of 2012 the
bank lending rates averaged 5.91%, which implies that the
banks’ prime lending rates were lower; moreover, deposit
interests on savings and long-term deposits have also gone
very low, averaging 1.75% and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the savings
rates must be approaching 0%.1âwphi1 In the auctions held on
November 12, 2012, the rates of 3-month, 6-month and 1-year
T-bills have dropped to 0.150%, 0.450% and 0.680%,
respectively.32 According to Manila Bulletin, this very low
interest regime has been attributed to "high liquidity and strong
investor demand amid positive economic indicators of the
country."33
While the Court acknowledges that cases of transcendental
importance demand that they be settled promptly and
definitely, brushing aside, if we must, technicalities of
procedure,34 the delay of at least 15 years in the filing of the
instant petition has actually rendered moot and academic the
issues it now raises.
For its part, BSP-MB maintains that the petitioners’ allegations
of constitutional and statutory violations of CB Circular No. 905
are really mere challenges made by petitioners concerning the
wisdom of the Circular. It explains that it was in view of the
global economic downturn in the early 1980’s that the
executive department through the CB-MB had to formulate
policies to achieve economic recovery, and among these
policies was the establishment of a market-oriented interest
rate structure which would require the removal of the
government-imposed interest rate ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury
Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law
pursuant to P.D. No. 1684 has long been recognized and
upheld in many cases. As the Court explained in the landmark
case of Medel v. CA,36 citing several cases, CB Circular No.
905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter’s effectivity;"37 that "a CB Circular
cannot repeal a law, [for] only a law can repeal another
law;"38 that "by virtue of CB Circular No. 905, the Usury Law
has been rendered ineffective;"39 and "Usury has been legally
non-existent in our jurisdiction. Interest can now be charged as
lender and borrower may agree upon."40
In First Metro Investment Corp. v. Este Del Sol Mountain
Reserve, Inc.41 cited in DBP v. Perez,42 we also belied the
contention that the CB was engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way
amend the Usury Law but simply suspended the latter’s
effectivity. The illegality of usury is wholly the creature of
legislation. A Central Bank Circular cannot repeal a law. Only a
law can repeal another law. x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a loan
agreement authorized the PNB to unilaterally increase the rate
of interest to 25% per annum, plus a penalty of 6% per annum
on past dues, then to 30% on October 15, 1984, and to 42%
on October 25, 1984. The Supreme Court invalidated the rate
increases made by the PNB and upheld the 12% interest
imposed by the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 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, goods or credits. In fine, they can agree
to adjust, upward or downward, the interest previously
stipulated. x x x.45
Thus, according to the Court, by lifting the interest ceiling, CB
Circular No. 905 merely upheld the parties’ freedom of contract
to agree freely on the rate of interest. It cited Article 1306 of the
New Civil Code, under which the contracting parties may
establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of
interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods, or
credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person,
whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended."
It does not purport to suspend the Usury Law only as it applies
to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to
"suspend" the Usury Law, the new BSP-MB did not retain this
power of its predecessor, in view of Section 135 of R.A. No.
7653, which expressly repealed R.A. No. 265. The petitioners
point out that R.A. No. 7653 did not reenact a provision similar
to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265
covered only loans extended by banks, whereas under Section
1-a of the Usury Law, as amended, the BSP-MB may prescribe
the maximum rate or rates of interest for all loans or renewals
thereof or the forbearance of any money, goods or credits,
including those for loans of low priority such as consumer
loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the
BSP-MB to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope,
whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other
financial institutions. Had R.A. No. 7653 been intended to
repeal Section 1-a of Act No. 2655, it would have so stated in
unequivocal terms.
Moreover, the rule is settled that repeals by implication are not
favored, because laws are presumed to be passed with
deliberation and full knowledge of all laws existing pertaining to
the subject.46 An implied repeal is predicated upon the
condition that a substantial conflict or repugnancy is found
between the new and prior laws. Thus, in the absence of an
express repeal, a subsequent law cannot be construed as
repealing a prior law unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and old laws.47 We
find no such conflict between the provisions of Act 2655 and
R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize
stipulations charging excessive, unconscionable, and
iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a
carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of
their assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a
money debt, even if knowingly and voluntarily assumed, is
immoral and unjust. It is tantamount to a repugnant spoliation
and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason
whatsoever which may justify such imposition as righteous and
as one that may be sustained within the sphere of public or
private morals.50
Stipulations authorizing iniquitous or unconscionable interests
have been invariably struck down for being contrary to morals,
if not against the law.51 Indeed, under Article 1409 of the Civil
Code, these contracts are deemed inexistent and void ab initio,
and therefore cannot be ratified, nor may the right to set up
their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest
does not affect the lender’s right to recover the principal of a
loan, nor affect the other terms thereof.52 Thus, in a usurious
loan with mortgage, the right to foreclose the mortgage
subsists, and this right can be exercised by the creditor upon
failure by the debtor to pay the debt due. The debt due is
considered as without the stipulated excessive interest, and a
legal interest of 12% per annum will be added in place of the
excessive interest formerly imposed,53following the guidelines
laid down in the landmark case of Eastern Shipping Lines, Inc.
v. Court of Appeals,54 regarding the manner of computing legal
interest:
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on
unliquidated claims or damages except when or until
the demand can be established with reasonable
certainty. Accordingly, where the demand is
established with reasonable certainty, the interest
shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably
established at the time the demand is made, the
interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a
forbearance of credit.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v.
Court of Appeals, 56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies "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," with the application of
both rates reckoned "from the time the complaint was filed until
the [adjudged] amount is fully paid." In either instance, the
reckoning period for the commencement of the running of the
legal interest shall be subject to the condition "that the courts
are vested with discretion, depending on the equities of each
case, on the award of interest."57 (Citations omitted)
WHEREFORE, premises considered, the Petition for certiorari
is DISMISSED.
SO ORDERED.
G.R. No. 148325             September 3, 2007
REYNALDO P. FLOIRENDO, JR., petitioner,
vs.
METROPOLITAN BANK and TRUST
COMPANY, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review
on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision1 dated
February 22, 2001 and Order2 dated May 2, 2001 rendered by
the Regional Trial Court (RTC), Branch 39, Cagayan de Oro
City in Civil Case No. 98-476, entitled, "REYNALDO P.
FLOIRENDO, JR., plaintiff, v. METROPOLITAN BANK AND
TRUST COMPANY, ET AL., defendants."
Reynaldo P. Floirendo, Jr., petitioner, is the president and
chairman of the Board of Directors of Reymill Realty
Corporation, a domestic corporation engaged in real estate
business. On March 20, 1996, he obtained a loan
of P1,000,000.00 from the Metropolitan Bank and Trust
Company, Cagayan de Oro City Branch, respondent, to infuse
additional working capital for his company. As security for the
loan, petitioner executed a real estate mortgage in favor of
respondent bank over his four (4) parcels of land, all situated at
Barangay Carmen, Cagayan de Oro City.
The loan was renewed for another year secured by the same
real estate mortgage. Petitioner signed a promissory note
dated March 14, 1997 fixing the rate of interest at
"15.446% per annum for the first 30 days, subject to
upward/downward adjustment every 30 days thereafter"; and a
penalty charge of 18% per annum "based on any unpaid
principal to be computed from date of default until payment of
the obligation." The promissory note likewise provides that:
The rate of interest and/or bank charges herein
stipulated, during the term of this Promissory Note, its
extension, renewals or other modifications, may be
increased, decreased, or otherwise changed from
time to time by the Bank without advance notice to
me/us in the event of changes in the interest rate
prescribed by law or the Monetary Board of the
Central Bank of the Philippines, in the rediscount rate
of member banks with the Central Bank of the
Philippines, in the interest rates on savings and time
deposits, in the interest rates on the bank’s
borrowings, in the reserve requirements, or in the
overall costs of funding or money;
I/We hereby expressly consent to any extension
and/or renewal hereof in whole or in part and/or
partial payment on account which may be requested
by and/or granted to anyone of us for the payment of
this note upon payment of the corresponding renewal
or extension fee.
On July 11, 1997, respondent bank started imposing higher
interest rates on petitioner’s loan which varied through the
months, in fact, as high as 30.244% in October 1997. As a
result, petitioner could no longer pay the high interest rates
charged by respondent bank. Thus, he negotiated for the
renewal of his loan. Respondent bank agreed provided
petitioner would pay the arrears in interest amounting to the
total sum of P163,138.33. Despite payment by petitioner,
respondent bank, instead of renewing the loan, filed with the
Office of the Clerk of Court and Provincial Sheriff, RTC,
Cagayan de Oro City a petition for foreclosure of mortgage
which was granted. On August 17, 1998, the auction sale was
set.
Prior thereto or on August 11, 1998, petitioner filed with the
RTC, Branch 39, same city, a complaint for reformation of real
estate mortgage contract and promissory note, docketed as
Civil Case No. 98-476. Referring to the real estate mortgage
and the promissory note as "contracts of adhesion," petitioner
alleged that the increased interest rates unilaterally imposed by
respondent bank are scandalous, immoral, illegal and
unconscionable. He also alleged that the terms and conditions
of the real estate mortgage and the promissory note are such
that they could be interpreted by respondent bank in whatever
manner it wants, leaving petitioner at its mercy. Petitioner thus
prayed for reformation of these documents and the issuance of
a temporary restraining order (TRO) and a writ of preliminary
injunction to enjoin the foreclosure and sale at public auction of
his four (4) parcels of land.
On August 14, 1998, the RTC issued a TRO and on
September 3, 1998, a writ of preliminary injunction.
In its answer to the complaint, respondent bank asserted that
the interest stipulated by the parties in the promissory note is
not per annum but on a month to month basis. The 15.446%
interest appearing therein was good only for the first 30 days of
the loan, subject to upward and downward adjustment every
30 days thereafter. The terms of the real estate mortgage and
promissory note voluntarily entered into by petitioner are clear
and unequivocal. There is, therefore, no legal and factual basis
for an action for reformation of instruments.
On February 22, 2001, the RTC rendered a Judgment (1)
dismissing the complaint for reformation of instruments, (2)
dissolving the writ of preliminary injunction and (3) directing the
sale at public auction of petitioner’s mortgaged properties. The
RTC ruled:
In order that an action for reformation of an instrument
may prosper, the following requisites must occur:
1.) There must have been a meeting of the minds
upon the contract;
2.) The instrument or document evidencing the
contract does not express the true agreement
between the parties; and
3.) The failure of the instrument to express the
agreement must be due to mistake, fraud, inequitable
conduct or accident. (National Irrigation
Administration v. Gamit, G.R. No. 85869, November
5, 1992)
xxx
A perusal further of the complaint and the evidences
submitted by the parties convinced the court that
there was certainly a meeting of the minds between
the parties. Plaintiff and defendant bank entered into
a contract of loan, the terms and conditions of which,
especially on the rates of interest, are clearly and
unequivocally spelled out in the promissory note. The
court believes that there was absolutely no mistake,
fraud or anything that could have prevented a meeting
of the minds between the parties.
The RTC upheld the validity of the escalation clause, thus:
Escalation clauses are valid stipulations in
commercial contract to maintain fiscal stability and to
retain the value of money in loan term contracts,
(Llorin v. CA, G.R. No. 103592, February 4, 1993).
 xxx   xxx   xxx
x x x the Court has no other alternative to resolve
Issue No. 1 that defendant bank is allowed to impose
the interest rate questioned by plaintiff considering
that Exhibit "B" and "B-1," which is Exhibit "1" and "1-
A" of defendant bank is very clear that the rate of
interest is 15.446% per annum for the first 30 days
subject to upward/downward adjustment every 30
days thereafter.
On the issue of the validity of the foreclosure of the real estate
mortgage, the RTC ruled that:
It is a settled rule that in a real estate mortgage when
the obligation is not paid when due, the mortgagee
has the right to foreclose the mortgage and to have
the property seized and sold in view of applying the
proceeds to the payment of the obligation (Estate
Investment House v. CA, 215 SCRA 734).
On May 2, 2001, petitioner filed a motion for reconsideration
but it was denied for lack of merit.
Hence, the instant petition.
The fundamental issue for our resolution is whether the
mortgage contract and the promissory note express the true
agreement between the parties herein.
Petitioner contends that the "escalation clause" in the
promissory note imposing 15.446% interest on the loan "for the
first 30 days subject to upward/downward adjustment every
30 days thereafter" is illegal, excessive and arbitrary. The
determination to increase or decrease such interest rate is
primarily left to the discretion of respondent bank.
We agree.
We hold that the increases of interest rate unilaterally imposed
by respondent bank without petitioner’s assent are violative of
the principle of mutuality of contracts ordained in Article 1308
of the Civil Code3 which provides:
Article 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them.
The binding effect of any agreement between the parties to a
contract is premised on two settled principles: (1) that
obligations arising from contracts have the force of law
between the contracting parties; and (2) that there must be
mutuality between the parties based on their essential equality
to which is repugnant to have one party bound by the contract
leaving the other free therefrom.4 Any contract which appears
to be heavily weighed in favor of one of the parties so as to
lead to an unconscionable result is void. Any stipulation
regarding the validity or compliance of the contract which is left
solely to the will of one of the parties is likewise invalid.5
The provision in the promissory note authorizing respondent
bank to increase, decrease or otherwise change from time to
time the rate of interest and/or bank charges "without advance
notice" to petitioner, "in the event of change in the interest rate
prescribed by law or the Monetary Board of the Central Bank of
the Philippines," does not give respondent bank unrestrained
freedom to charge any rate other than that which was agreed
upon. Here, the monthly upward/downward adjustment of
interest rate is left to the will of respondent bank alone. It
violates the essence of mutuality of the contract.
In Philippine National Bank v. Court of Appeals,6 and in later
cases,7 we held:
In order that obligations arising from contracts may
have the force of law between the parties, there must
be mutuality between the parties based on their
essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting
parties, is void (Garcia v. Rita Legarda, Inc., 21 SCRA
555). Hence, even assuming that the P1.8 million loan
agreement between the PNB and the private
respondent gave the PNB a license (although in fact
there was none) to increase the interest rate at will
during the term of the loan, that license would have
been null and void for being violative of the principle
of mutuality essential in contracts. It would have
invested the loan agreement with the character of a
contract of adhesion, where the parties do not bargain
on equal footing, the weaker party’s (the debtor)
participation being reduced to the alternative "to take
it or leave it" (Qua v. Law Union & Rock Insurance
Co., 95 Phil. 85). Such a contract is a veritable trap
for the weaker party whom the courts of justice must
protect against abuse and imposition.
In New Sampaguita Builders Construction, Inc. (NSBCI) v.
Philippine National Bank,8 we ruled that while it is true that
escalation clauses are valid in maintaining fiscal stability and
retaining the value of money on long term contracts, however,
giving respondent an unbridled right to adjust the interest
independently and upwardly would completely take away from
petitioner the right to assent to an important modification in
their agreement, hence, would negate the element of mutuality
in their contracts. Such escalation clause would make the
fulfillment of the contracts dependent exclusively upon the
uncontrolled will of respondent bank and is therefore void. In
the present case, the promissory note gives respondent bank
authority to increase the interest rate at will during the term of
the loan. This stipulation violates the principle of mutuality
between the parties. It would be converting the loan agreement
into a contract of adhesion where the parties do not bargain on
equal footing, the weaker party’s (petitioner’s) participation
being reduced to the alternative "to take it or leave it.9 While
the Usury Law ceiling on interest rate was lifted by Central
Bank Circular No. 905, nothing therein could possibly be read
as granting respondent bank carte blanche authority to raise
interest rate to levels which would either enslave its borrower
(petitioner herein) or lead to hemorrhaging of his assets.10
In Philippine National Bank v. Court of Appeals¸11 we declared
void the escalation clause in the Credit Agreement between
petitioner bank and private respondents whereby the "Bank
reserves the right to increase the interest rate within the limit
allowed by law at any time depending on whatever policy it
may adopt in the future xxx." We held:
It is basic that there can be no contract in the true
sense in the absence of the element of agreement, or
of mutual assent of the parties. If this assent is
wanting on the part of one who contracts, his act has
no more efficacy than if it had been done under
duress or by a person of unsound mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all
the parties must meet as to the proposed
modification, especially when it affects an important
aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of
interest is always a vital component, for it can make
or break a capital venture. Thus, any change must
be mutually agreed upon, otherwise, it is bereft of any
binding effect.
We cannot countenance petitioner bank’s posturing
that that escalation clause at bench gives it unbridled
right to unilaterally upwardly adjust the interest on
private respondents’ loan. That would completely take
away from private respondents the right to assent to
an important modification in their agreement, and
would negate the element of mutuality in contracts.
Under Article 1310 of the Civil Code, courts are granted
authority to reduce/increase interest rates equitably, thus:
Article 1310. The determination shall not be obligatory
if it is evidently inequitable. In such case, the courts
 shall decide what is equitable under the
circumstances.
In the other Philippine National Bank v. Court of
Appeals12 case, we disauthorized petitioner bank from
unilaterally raising the interest rate on the loan of private
respondent from 18% to 32%, 41% and 48%. In Almeda v.
Court of Appeals,13 where the interest rate was increased from
21% to as high as 68% per annum, we declared arbitrary "the
galloping increases in interest rate imposed by respondent
bank on petitioners’ loan, over the latter’s vehement protests."
In Medel v. Court of Appeals,14 the stipulated interest of 5.5%
per month or 66% per annum on a loan amounting
to P500,000.00 was equitably reduced for being iniquitous,
unconscionable and exorbitant. In Solangon v. Salazar,15 the
stipulated interest rate of 6% per month or 72% per
annum was found to be "definitely outrageous and inordinate"
and was reduced to 12% per annum which we deemed fair and
reasonable. In Imperial v. Jaucian,16 we ruled that the trial court
was justified in reducing the stipulated interest rate from 16%
to 1.167% or 14% per annum and the stipulated penalty
charge from 5% to 1.167% per month or 14% per annum.
In this case, respondent bank started to increase the agreed
interest rate of 15.446% per annum to 24.5% on July 11, 1997
and every month thereafter; 27% on August 11, 1997; 26% on
September 10, 1997; 33% on October 15, 1997; 26.5% on
November 27, 1997; 27% on December 1997; 29% on January
13, 1998; 30.244% on February 7, 1998; 24.49% on March 9,
1998; 22.9% on April 18, 1998; and 18% on May 21, 1998.
Obviously, the rate increases are excessive and arbitrary. It
bears reiterating that respondent bank unilaterally increased
the interest rate without petitioner’s knowledge and consent.
As mentioned earlier, petitioner negotiated for the renewal of
his loan. As required by respondent bank, he paid the interests
due. Respondent bank then could not claim that there was no
attempt on his part to comply with his obligation. Yet,
respondent bank hastily filed a petition to foreclose the
mortgage to gain the upperhand in taking petitioner’s four (4)
parcels of land at bargain prices. Obviously, respondent bank
acted in bad faith.
In sum, we find that the requisites for reformation of the
mortgage contract and promissory note are present in this
case. There has been meeting of minds of the parties upon
these documents. However, these documents do not express
the parties’ true agreement on interest rates. And the failure of
these documents to express their agreement on interest rates
was due to respondent bank’s inequitable conduct.
WHEREFORE, we GRANT the petition. The Judgment dated
February 22, 2001 of the RTC of Cagayan de Oro City, Branch
39 in Civil Case No. 98-476 is REVERSED. The real estate
mortgage contract and the promissory note agreed upon by the
parties are reformed in the sense that any increase in the
interest rate beyond 15.446% per annum should not be
imposed by respondent bank without the consent of petitioner.
The interest he paid in excess of 15.446% should be applied to
the payment of the principal obligation.
SO ORDERED.
G.R. No. 149004             April 14, 2004
RESTITUTA M. IMPERIAL, petitioner,
vs.
ALEX A. JAUCIAN, respondent.
DECISION
PANGANIBAN, J.:
Iniquitous and unconscionable stipulations on interest rates,
penalties and attorney’s fees are contrary to morals.
Consequently, courts are granted authority to reduce them
equitably. If reasonably exercised, such authority shall not be
disturbed by appellate courts.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules
of Court, assailing the July 19, 2000 Decision2 and the June
14, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR
CV No. 43635. The decretal portion of the Decision is as
follows:
"WHEREFORE, premises considered, the appealed
Decision of the Regional Trial Court, 5th Judicial
Region, Branch 21, Naga City, dated August 31,
1993, in Civil Case No. 89-1911 for Sum of Money, is
hereby AFFIRMED in toto."4
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
The dispositive portion of the August 31, 1993 Decision,
promulgated by the Regional Trial Court (RTC) of Naga City
(Branch 21) and affirmed by the CA, reads as follows:
"Wherefore, Judgment is hereby rendered declaring
Section I, Central Bank Circular No. 905, series of
1982 to be of no force and legal effect, it having been
promulgated by the Monetary Board of the Central
Bank of the Philippines with grave abuse of discretion
amounting to excess of jurisdiction; declaring that the
rate of interest, penalty, and charges for attorney’s
fees agreed upon between the parties are
unconscionable, iniquitous, and in violation of Act No.
2655, otherwise known as the Usury Law, as
amended; and ordering Defendant to pay Plaintiff the
amount of FOUR HUNDRED SEVENTY-EIGHT
THOUSAND, ONE HUNDRED NINETY-FOUR and
54/100 (₱478,194.54) PESOS, Philippine currency,
with regular and compensatory interests thereon at
the rate of twenty-eight (28%) per centum per annum,
computed from August 31, 1993 until full payment of
the said amount, and in addition, an amount
equivalent to ten (10%) per centum of the total
amount due and payable, for attorney’s fees, without
pronouncement as to costs."5
The Facts
The CA summarized the facts of the case in this wise:
"The present controversy arose from a case for
collection of money, filed by Alex A. Jaucian against
Restituta Imperial, on October 26, 1989. The
complaint alleges, inter alia, that defendant obtained
from plaintiff six (6) separate loans for which the
former executed in favor of the latter six (6) separate
promissory notes and issued several checks as
guarantee for payment. When the said loans became
overdue and unpaid, especially when the defendant’s
checks were dishonored, plaintiff made repeated oral
and written demands for payment.
"Specifically, the six (6) separate loans obtained by
defendant from plaintiff on various dates are as
follows:
(a) November 13, 1987 ₱ 50,000.00
(b) December 28, 1987 40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00

Total ₱320,000.00
"The loans were covered by six (6) separate
promissory notes executed by defendant. The face
value of each promissory notes is bigger [than] the
amount released to defendant because said face
value already include[d] the interest from date of note
to date of maturity. Said promissory notes, which
indicate the interest of 16% per month, date of issue,
due date, the corresponding guarantee checks issued
by defendant, penalties and attorney’s fees, are the
following:
1. Exhibit ‘D’ – for loan of ₱40,000.00 on
December 28, 1987, with face value of
₱65,000.00;
2. Exhibit ‘E’ – for loan of ₱50,000.00 on
January 11, 1988, with face value of
₱82,000.00;
3. Exhibit ‘F’ – for loan of ₱50,000.00 on
January 12, 1988, with face value of
₱82,000.00;
4. Exhibit ‘G’ – for loan of ₱100,000.00 on
January 13, 1988, with face value of
₱164,000.00;
5. Exhibit ‘H’ – This particular promissory
note covers the second renewal of the
original loan of ₱50,000.00 on November 13,
1987, which was renewed for the first time
on March 16, 1988 after certain payments,
and which was renewed finally for the
second time on January 4, 1988 also after
certain payments, with a face value of
₱56,240.00;
6. Exhibit ‘I’ – This particular promissory note
covers the second renewal of the original
loan of ₱30,000.00 on January 6, 1988,
which was renewed for the first time on June
4, 1988 after certain payments, and which
was finally renewed for the second time on
August 6, 1988, also after certain payments,
with [a] face value of ₱12,760.00;
"The particulars about the postdated checks, i.e.,
number, amount, date, etc., are indicated in each of
the promissory notes. Thus, for Exhibit ‘D’, four (4) PB
checks were issued; for Exhibit ‘E’ four (4) checks; for
Exhibit ‘F’ four (4) checks; for Exhibit ‘G’ four (4)
checks; for Exhibit ‘H’ one (1) check; for Exhibit ‘I’ one
(1) check;
"The arrangement between plaintiff and defendant
regarding these guarantee checks was that each time
a check matures the defendant would exchange it
with cash.
"Although, admittedly, defendant made several
payments, the same were not enough and she always
defaulted whenever her loans mature[d]. As of August
16, 1991, the total unpaid amount, including accrued
interest, penalties and attorney’s fees, [was]
₱2,807,784.20.
"On the other hand, defendant claims that she was
extended loans by the plaintiff on several occasions,
i.e., from November 13, 1987 to January 13, 1988, in
the total sum of ₱320,000.00 at the rate of sixteen
percent (16%) per month. The notes mature[d] every
four (4) months with unearned interest compounding
every four (4) months if the loan [was] not fully paid.
The loan releases [were] as follows:
(a) November 13, 1987 ₱ 50,000.00
(b) December 28, 1987 40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Total ₱320,000.00
"The loan on November 13, 1987 and January 6,
1988 ha[d] been fully paid including the usurious
interests of 16% per month, this is the reason why
these were not included in the complaint.
"Defendant alleges that all the above amounts were
released respectively by checks drawn by the plaintiff,
and the latter must produce these checks as these
were returned to him being the drawer if only to serve
the truth. The above amount are the real amount
released to the defendant but the plaintiff by masterful
machinations made it appear that the total amount
released was ₱462,600.00. Because in his
computation he made it appear that the true amounts
released was not the original amount, since it
include[d] the unconscionable interest for four
months.
"Further, defendant claims that as of January 25,
1989, the total payments made by defendants [were]
as follows:
a. Paid releases on November 13, 1987 of ₱50,000.00
and January 6, 1988 of ₱30,000.00 these two items w
not included in the complaint affirming the fact that the
were paid
b. Exhibit ‘26’ Receipt
c. Exhibit ‘8-25’ Receipt
d. Exhibit ‘27’ Receipt
Total
Less:
Excess Payment
"Defendant contends that from all perspectives the
above excess payment of ₱121,780.00 is more than
the interest that could be legally charged, and in fact
as of January 25, 1989, the total releases have been
fully paid.
"On 31 August 1993, the trial court rendered the
assailed decision."6
Ruling of the Court of Appeals
On appeal, the CA held that without judicial inquiry, it was
improper for the RTC to rule on the constitutionality of Section
1, Central Bank Circular No. 905, Series of 1982. Nonetheless,
the appellate court affirmed the judgment of the trial court,
holding that the latter’s clear and detailed computation of
petitioner’s outstanding obligation to respondent was
convincing and satisfactory.
Hence, this Petition.7
The Issues
Petitioner raises the following arguments for our consideration:
 "1. That the petitioner has fully paid her obligations
even before filing of this case.
"2. That the charging of interest of twenty-eight (28%)
per centum per annum without any writing is illegal.
"3. That charging of excessive attorney’s fees is
hemorrhagic.
"4. Charging of excessive penalties per month is in
the guise of hidden interest.
"5. The non-inclusion of the husband of the petitioner
at the time the case was filed should have dismissed
this case."8
The Court’s Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the loan before the filing
of the case, petitioner alleges that the two lower courts
misappreciated the facts when they ruled that she still had an
outstanding balance of ₱208,430.
This issue involves a question of fact. Such question exists
when a doubt or difference arises as to the truth or the
falsehood of alleged facts; and when there is need for a
calibration of the evidence, considering mainly the credibility of
witnesses and the existence and the relevancy of specific
surrounding circumstances, their relation to each other and to
the whole, and the probabilities of the situation.9
It is a well-entrenched rule that pure questions of fact may not
be the subject of an appeal by certiorari under Rule 45 of the
Rules of Court, as this remedy is generally confined to
questions of law.10 The jurisdiction of this Court over cases
brought to it is limited to the review and rectification of errors of
law allegedly committed by the lower court. As a rule, the
latter’s factual findings, when adopted and affirmed by the CA,
are final and conclusive and may not be reviewed on appeal.11
Generally, this Court is not required to analyze and weigh all
over again the evidence already considered in the proceedings
below.12 In the present case, we find no compelling reason to
overturn the factual findings of the RTC -- that the total amount
of the loans extended to petitioner was ₱320,000, and that she
paid a total of only ₱116,540 on twenty-nine dates. These
findings are supported by a preponderance of evidence.
Moreover, the amount of the outstanding obligation has been
meticulously computed by the trial court and affirmed by the
CA. Petitioner has not given us sufficient reason why her
cause falls under any of the exceptions to this rule on the
finality of factual findings.
Second Issue:
Rate of Interest
The trial court, as affirmed by the CA, reduced the interest rate
from 16 percent to 1.167 percent per month or 14 percent per
annum; and the stipulated penalty charge, from 5 percent to
1.167 percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between
the parties, the lower courts should have imposed the rate of
12 percent per annum only.
The records show that there was a written agreement between
the parties for the payment of interest on the subject loans at
the rate of 16 percent per month. As decreed by the lower
courts, this rate must be equitably reduced for being iniquitous,
unconscionable and exorbitant. "While the Usury Law ceiling
on interest rates was lifted by C.B. Circular No. 905, nothing in
the said circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets."13
In Medel v. CA,14 the Court found the stipulated interest rate of
5.5 percent per month, or 66 percent per annum,
unconscionable. In the present case, the rate is even more
iniquitous and unconscionable, as it amounts to 192 percent
per annum. When the agreed rate is iniquitous or
unconscionable, it is considered "contrary to morals, if not
against the law. [Such] stipulation is void."15
Since the stipulation on the interest rate is void, it is as if there
were no express contract thereon.16 Hence, courts may reduce
the interest rate as reason and equity demand. We find no
justification to reverse or modify the rate imposed by the two
lower courts.
Third and Fourth Issue:
Penalties and Attorney’s Fees
Article 1229 of the Civil Code states thus:
"The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been
no performance, the penalty may also be reduced by
the courts if it is iniquitous or unconscionable."
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of
each case.17 What may be iniquitous and unconscionable in
one may be totally just and equitable in another. In the present
case, iniquitous and unconscionable was the parties’ stipulated
penalty charge of 5 percent per month or 60 percent per
annum, in addition to regular interests and attorney’s fees.
Also, there was partial performance by petitioner when she
remitted ₱116,540 as partial payment of her principal
obligation of ₱320,000. Under the circumstances, the trial court
was justified in reducing the stipulated penalty charge to the
more equitable rate of 14 percent per annum.
The Promissory Note carried a stipulation for attorney’s fees of
25 percent of the principal amount and accrued interests.
Strictly speaking, this covenant on attorney’s fees is different
from that mentioned in and regulated by the Rules of
Court.18 "Rather, the attorney’s fees here are in the nature of
liquidated damages and the stipulation therefor is aptly called a
penal clause."19 So long as the stipulation does not contravene
the law, morals, public order or public policy, it is binding upon
the obligor. It is the litigant, not the counsel, who is the
judgment creditor entitled to enforce the judgment by
execution.
Nevertheless, it appears that petitioner’s failure to comply fully
with her obligation was not motivated by ill will or malice. The
twenty-nine partial payments she made were a manifestation
of her good faith. Again, Article 1229 of the Civil Code
specifically empowers the judge to reduce the civil penalty
equitably, when the principal obligation has been partly or
irregularly complied with. Upon this premise, we hold that the
RTC’s reduction of attorney’s fees -- from 25 percent to 10
percent of the total amount due and payable -- is reasonable.
Fifth Issue:
Non-Inclusion of Petitioner’s Husband
Petitioner contends that the case against her should have been
dismissed, because her husband was not included in the
proceedings before the RTC.
We are not persuaded. The husband’s non-joinder does not
warrant dismissal, as it is merely a formal requirement that
may be cured by amendment.20 Since petitioner alleges that
her husband has already passed away, such an amendment
has thus become moot.
WHEREFORE, the Petition is DENIED. Costs against
petitioner.
SO ORDERED.
FLORENCIA T. HUIBONHOA, Petitioner, v. COURT OF
APPEALS, Spouses Rufina G. Lim and ANTHONY LIM,
LORETA GOJOCCO CHUA and Spouses SEVERINO and
PRISCILLA GOJOCCO, Respondents.
[G.R. No. 102604. December 14, 1999.]
SEVERINO GOJOCCO and LORETA GOJOCCO
CHUA, Petitioners, v. COURT OF APPEALS, HON.
HERMOGENES R. LIWAG, as Judge of the RTC of Manila
Branch 55 and FLORENCIA HUIBONHOA, Respondents.
DECISION
PURISIMA, J.:
These two petitions for review on certiorari under Rule 45 of
the Rules of Court seek the reversal of the Decisions of the
Court of Appeals in CA-G.R. CV No. 16575 and CA-G.R. SP
No. 24654 which affirmed, respectively, the decision of Branch
148 of the Regional Trial Court of Makati City, dismissing the
complaint for reformation of contract, and the decision of
Branch 55 of the Regional Trial Court of Manila, reversing that
of Branch 13 of the Metropolitan Trial Court of Manila, which
favorably acted in the ejectment case. Both petitions involve
the same parties.chanrobles law library
Culled from the records on hand, the facts giving rise to the
two cases are as follows:chanrob1es virtual 1aw library
On June 8, 1983, Florencia T. Huibonhoa entered into a
memorandum of agreement with siblings Rufina Gojocco Lim,
Severino Gojocco and Loreta Gojocco Chua stipulating that
Florencia T. Huibonhoa would lease from them (Gojoccos)
three (3) adjacent commercial lots at Ilaya Street, Binondo,
Manila, described as lot nos. 26-A, 26-B and 26-C, covered by
Transfer Certificates of Title Nos. 76098, 80728 and 155450,
all in their (Gojoccos’) names.
On June 30, 1983, pursuant to the said memorandum of
agreement, the parties inked a contract of lease of the same
three lots for a period of fifteen (15) years commencing on July
1, 1983 and renewable upon agreement of the parties. Subject
contract was to enable the lessee, Florencia T. Huibonhoa, to
construct a "four-storey reinforced concrete building with
concrete roof deck, according to plans and specifications
approved by the City Engineer’s Office." The parties agreed
that the lessee could let/sublease the building and/or its
spaces to interested parties under such terms and conditions
as the lessee would determine and that all amounts collected
as rents or income from the property would belong exclusively
to the lessee. The lessee undertook to complete construction
of the building "within eight (8) months from the date of the
execution of the contract of lease." The contract further
provided as follows:jgc:chanrobles.com.ph
"5. Good will Money and Rate of Monthly Rental: Upon the
signing of this Contract of Lease, LESSEE shall pay to each of
the LESSOR the sum of P300,000.00 each or a total sum of
P900,000.00, as goodwill money.
LESSEE shall pay to each of the LESSOR the sum of
P15,000.00 each or a total amount of P45,000.00 as monthly
rental for the leased premises, within the first five (5) days of
each calendar month, at the office of the LESSOR or their
authorized agent; Provided, however, that LESSEE’s obligation
to pay the rental shall start only upon completion of the
building, but if it is not completed within eight (8) months from
date hereof as provided for in par. 4 above, the monthly rental
shall already accrue and shall be paid by LESSEE to LESSOR.
In other words, during the period of construction, no monthly
rental shall be collected from LESSEE; Provided, Finally, that
the monthly rental shall be adjusted/increased upon the
corresponding increase in the rental of sub-leasees (sic) using
the percentage increase in the totality of rentals of the sub-
leasees (sic) as basis for the percentage increase of monthly
rental that LESSEE will pay to LESSOR."cralaw virtua1aw
library
The parties also agreed that upon the termination of the lease,
the ownership and title to the building thus constructed on the
said lots would automatically transfer to the lessor, even
without any implementing document therefor. Real estate taxes
on the land would be borne by the lessor while that on the
building, by the lessee, but the latter was authorized to
advance the money needed to meet the lessors’ obligations
such as the payment of real estate taxes on their lots. The
lessors would deduct from the monthly rental due all such
advances made by the lessee.
After the execution of the contract, the Gojoccos executed a
power of attorney granting Huibonhoa the authority to obtain
"credit facilities" in order that the three lots could be mortgaged
for a limited one-year period from July 1983. 1 Hence, on
September 12, 1983, Huibonhoa obtained from China Banking
Corporation "credit facilities" not exceeding One Million
(P1,000,000.00) Pesos. Simultaneously, she mortgaged the
three lots to the creditor bank. 2 Fifteen days later or on
September 27, 1983, to be precise, Huibonhoa signed a
contract amending the real estate mortgage in favor of China
Banking Corporation whereby the "credit facilities" were
increased to the principal sum of Three Million (P3,000,000.00)
Pesos. 3
During the construction of the building which later became
known as Poulex Merchandise Center, 4 former Senator
Benigno Aquino, Jr. was assassinated. The incident must have
affected the country’s political and economic stability. The
consequent hoarding of construction materials and increase in
interest rates allegedly affected adversely the construction of
the building such that Huibonhoa failed to complete the same
within the stipulated eight-month period from July 1, 1983.
Projected to be finished on February 29, 1984, the construction
was completed only in September 1984 or seven (7) months
later.
Under the contract, Huibonhoa was supposed to start paying
rental in March 1984 but she failed to do so. Consequently, the
Gojoccos made several verbal demands upon Huibonhoa for
the payment of rental arrearages and, for her to vacate the
leased premises. On December 19, 1984, lessors sent lessee
a final letter of demand to pay the rental arrearages and to
vacate the leased premises. The former also notified the latter
of their intention to terminate the contract of lease. 5
However, on January 3, 1985, Huibonhoa brought an action for
reformation of contract before Branch 148 of the Regional Trial
Court in Makati. Docketed as Civil Case No. 9402, the
Complaint alleged that although there was a meeting of the
minds between the parties on the lease contract, their true
intention as to when the monthly rental would accrue was not
therein expressed due to mistake or accident. She (lessee)
alleged that the Gojoccos had erroneously considered the first
accrual date of the rents to be March 1984 when their true
intention was that during the entire period of actual
construction of the building, no rents would accrue. Thus,
according to Huibonhoa, the first rent would have been due
only in October 1984. Moreover, the assassination of former
Senator Benigno Aquino, Jr., an unforeseen event, caused the
country’s economy to turn from bad to worse and as a result,
the prices of commodities like construction materials so
increased that the building worth Six Million pesos escalated to
"something like 11 to 12 million pesos." However, she averred
that by reason of mistake or accident, the lease contract failed
to provide that should an unforeseen event dramatically
increase the cost of construction, the monthly rental would be
reduced and the term of the lease would be extended for such
duration as may be fair and equitable to both the lessors and
the lessee.
Huibonhoa then prayed that the contract of lease be reformed
so as to reflect the true intention of the parties; that its terms be
novated so that the accrual of rents should be computed from
October 1984; that the monthly rent of P45,000.00 be equitably
reduced to P30,000.00, and the term of the lease be extended
by five (5) years. 6
Eleven days later or on January 14, 1985, to be exact, the
Gojoccos filed Civil Case No. 106097 against Huibonhoa for
"cancellation of lease, ejectment and collection" with the
Metropolitan Trial Court of Manila. They theorized that despite
the expiration of the 8-month construction period, Huibonhoa
failed to pay the rents that had accrued since March 1, 1984,
their verbal demands therefor notwithstanding; that, in their
letter of December 19, 1984, they had notified Huibonhoa of
their intention to "terminate and cancel the lease for violation of
its terms" and that they demanded from her the "restitution of
the land in question" and the payment of all rentals due
thereunder; that Huibonhoa refused to pay the rentals in bad
faith because she had "sublet the stalls, bodegas and offices to
numerous tenants and/or stallholders" from whom she had
collected "goodwill money and exorbitant rentals even prior to
the completion of the building or as of March 1984;" that she
was about to sublease the vacant spaces in the building; that
she was able to finish construction of the building "without
utilizing her own capital or investment" on account of the
mortgages of their land in the amount of P3,700,000 (sic); that
because the mortgage indebtedness with China Banking
Corporation had remained outstanding and unpaid, they had
revoked the power of attorney in Huibonhoa’s favor on
December 21, 1984, and that, because Huibonhoa was about
to depart from the Philippines, the rentals due and owing from
the leased premises should be held to answer for their claim by
virtue of a writ of attachment.chanrobles law library
The Gojoccos prayed that Huibonhoa and all persons claiming
rights under her be ordered to vacate the leased premises, to
surrender to them actual and physical possession thereof and
to pay the rents due and unpaid at the agreed rate of
P45,000.00 a month from March 1984 to January 1985, with
legal interest thereon. They also prayed that Huibonhua be
ordered to pay the fair rental value of P60,000.00 a month
"beginning February 5, 1985 and every 5th of the month until
the premises shall be actually vacated and restored" to them
and that, "considering the nature of the action," the Rules on
Summary Procedure be applied to prevent further losses,
damages and expenses on their part. 7
Meanwhile, in Civil Case No. 9402, the Gojoccos submitted an
answer to the complaint for reformation of contract; asserting
that the true intention of the parties was to obligate Huibonhoa
to pay rents immediately upon the expiration of the maximum
period of eight (8) months from the execution of the lease
contract, which intention was meant to avoid a situation
wherein Huibonhoa would deliberately delay the completion of
the building within the 8-month period to elude payment of
rental starting March 1984. They also claimed that Huibonhoa
instituted the case in anticipation of the ejectment suit they
would file against her; that she was estopped from questioning
the enforceability of the lease contract after having received
monetary benefits as a result of her utilization of the premises
to her sole profit and advantage; that the financial reverses she
suffered after the assassination of Senator Benigno Aquino, Jr.
could not be considered a fortuitous event that would justify the
reduction of the monthly rental and extension of the contract of
lease for five years; and that the "principle of contract of
adhesion" in interpreting the lease contract should be strictly
applied to Huibonhoa because it was her counsel who
prepared it. 8
The Gojoccos prayed that Huibonhoa be ordered to pay them
the sum of P495,000.00 representing unpaid rents from March
1, 1984 to January 31, 1985 and the monthly rent of
P60,000.00 from February 1, 1985 until Huibonhoa shall have
surrendered the premises to them, and that she be ordered to
pay attorney’s fees, moral and exemplary damages and the
costs of suit.
On January 31, 1985, Rufina Gojocco Lim entered into an
agreement 9 with Huibonhoa whereby, to put an end to Civil
Case No. 9402, the former agreed to extend the term of the
lease by three (3) more years or for eighteen (18) years from
July 1, 1983. The agreement expressly provided that no rents
would be collected unless and until the construction work was
already completed or that during the construction, no monthly
rental should be collected. It also provided that "in case some
unforeseen event should dramatically increase the cost of the
building, then the amount of monthly rent shall be reduced to
such sum and the term of the lease extended for such duration
as may be fair and equitable, bearing in mind the actual
construction cost of the building." The agreement recognized
the fact that the Aquino assassination that resulted in the
"hoarding of construction materials and the skyrocketing of the
interest rates" on Huibonhoa’s loans, resulted in the increase in
actual cost of the construction from P6,000,000.00 to between
P11,000,000.00 and P12,000,000.00.
There is no record that Rufina Gojocco Lim was dropped as a
defendant in Civil Case No. 9402 but only Loretta Gojocco
Chua and the Spouses Severino and Priscilla Gojocco filed the
memorandum for the defendants in that case. 10
On March 9, 1987, the Makati RTC 11 rendered a decision
holding that Huibonhoa had not presented clear and
convincing evidence to justify the reformation of the lease
contract. It considered as "misplaced" her contention that the
Aquino assassination was an "accident" within the purview of
Art. 1359 of the Civil Code. It held that the act of Rufina G. Lim
in entering into an agreement with Huibonhoa that, in effect,
"reformed" the lease contract, was not binding upon Severino
and Loretta Gojocco considering that they were separate and
independent owners of the lots subject of the lease. On this
point, the trial court cited Sec. 25, Rule 130 of the Rules of
Court which provides that the rights of a party cannot be
prejudiced by the act, declaration or omission of another. It
thus decided Civil Case No. 9402 as
follows:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered:chanrob1es
virtual 1aw library
a) Dismissing the plaintiff’s complaint and defendant Rufina
Lim’s counterclaim, with costs against them;
b) Ordering the plaintiff to pay to defendant Loretta Gojocco
Chua the amount of P360,000.00, representing rentals due
from March 1, 1984 to February 28, 1987, with interests
thereon at the legal rate from date of the filing of the complaint
until full payment thereof, plus the sum of P15,000.00 per
month beginning March, 1987 and for as long as the plaintiff is
in possession of the leased premises;
c) Ordering the plaintiff to pay to defendant Severino Gojocco
Chua the amount of P360,000.00, representing rentals due
from March 1, 1984 to February 28, 1987, with interests
thereon at the legal rate from date of the filing of the complaint
until full payment thereof, plus the sum of P15,000.00 per
month beginning March, 1987 and for as long as the plaintiff is
in possession of the leased premises;
d) Ordering the plaintiff to pay attorney’s fees in favor of the
above-named defendants in the sum of P36,000.00, aside from
costs of suit.
SO ORDERED."cralaw virtua1aw library
Upon motion of the Gojocco, the trial court amended the
dispositive portion of its aforesaid decision in that Huibonhua
was ordered to pay each of Loretta Gojocco Chua and
Severino Gojocco the amount of P540,000.00 instead of
P360,000.00 and that attorney’s fees of P54,000.00, instead of
P36,000.00, be paid by Huibonhoa.
On the other hand, in Civil Case No. 102604, the Metropolitan
Trial Court of Manila granted Huibonhoa’s prayer that the case
be excluded from the operation of the Rule on Summary
Procedure for the reason that the unpaid rents sued upon
amounted to P495,000.00. 12 Thereafter, Huibonhoa
presented a motion to dismiss or, in the alternative, to suspend
proceedings in the case, contending that the pendency of the
action for reformation of contract constituted a ground of lis
pendens or at the very least, posed a prejudicial question to
the ejectment case. The Gojoccos opposed such motion,
pointing out that while there was identity of parties between the
two cases, the causes of action, subject matter and reliefs
sought for therein were different.

On May 10, 1985, after Huibonhoa had sent in her reply to the
said opposition, Rufina G. Lim, through counsel, prayed that
she be dropped as plaintiff in the case, and counsel begged
leave to withdraw as the lawyer of the latter in the case.
Subsequently, Severino Gojocco and Loretta Gojocco Chua
filed a motion praying for an order requiring Huibonhoa to
deposit the rents. On March 25, 1986, the court below issued
an Omnibus Order denying Huibonhoa’s motion to dismiss,
requiring her to pay monthly rental of P30,000.00 starting
March 1984 and every month thereafter, and denying Rufina
G. Lim’s motion that she be dropped as plaintiff in the case. 13
Huibonhoa moved for reconsideration of said order but the
plaintiffs, apparently including Rufina, opposed the motion.
On July 21, 1986, Severino Gojocco and Huibonhoa entered
into an agreement that altered certain terms of the lease
contract in the same way that the agreement between
Huibonhoa and Rufina G. Lim "novated" the contract. 14
On March 24, 1987, the Metropolitan Trial Court of Manila
issued an Order denying Huibonhoa’s motion for
reconsideration and the Gojoccos’ motion for issuance of a writ
of preliminary attachment, and allowing Huibonhoa a period of
fifteen (15) days within which to deposit P30,000.00 a month
starting March 1984 and every month thereafter. 15 Huibonhoa
interposed a second motion for reconsideration of the March
25, 1986 order on the ground that she had amicably settled the
case with Severino Gojocco and Rufina G. Lim. She therein
alleged that only P15,000.00 was due Loretta G. Chua. She
informed the court of the decision of the Makati Regional Trial
Court in Civil Case No. 9402 and argued that since that court
had awarded the Gojoccos rental arrearages, it would be
unjust should she be made to pay rental arrearages, once
again.chanroblesvirtual|awlibrary
On June 30, 1987, the Metropolitan Trial Court of Manila
issued an Order reiterating its decision to assume jurisdiction
over Civil Case No. 106097 and modified its March 24, 1987
Order by deleting the portion thereof which required Huibonhua
to deposit monthly rents. It also required Huibonhoa to file her
answer within fifteen (15) days from receipt of the copy of the
court’s order. Accordingly, on July 21, 1987, Huibonhoa sent in
her answer alleging that the lease contract had been novated
by the agreements she had signed on January 31, 1985 and
July 21, 1986, with Rufina G. Lim and Severino Gojocco,
respectively. Huibonhoa added that she had paid Severino
Gojocco the amount of P228,000.00 through an Allied Bank
manager’s check. 16
On August 27, 1987, the Metropolitan Trial Court of Manila
issued a Pre-trial Order limiting the issues in Civil Case No.
106097 to: (a) whether or not plaintiffs had the right to eject the
defendant on the ground of violation of the conditions of the
lease contract and (b) whether or not Severino Gojocco had
the right to pursue the ejectment case in view of the agreement
he had entered into with Huibonhoa on July 21, 1986.
On July 30, 1990, the Metropolitan Trial Court of Manila 17
came out with a decision "in favor of plaintiffs Severino
Gojocco and Loreta Gojocco Chua and against Florencia T.
Huibonhoa." It ordered Huibonhoa to vacate the lots owned by
Severino Gojocco and Loreta Gojocco Chua and to pay each
of them the amounts P5,000.00 as attorney’s fees and
P1,000.00 as appearance fee. All three (3) party-litigants
appealed to the Regional Trial Court of Manila.
On February 14, 1991, the Regional Trial Court of Manila,
Branch 55, 18 reversed the decision of the Metropolitan Trial
Court and ordered the dismissal of the complaint in Civil Case
No. 106097. The reversal of the inferior court’s decision was
based primarily on its finding that:jgc:chanrobles.com.ph
"1. The suit below is intrinsically and inherently an action for
cancellation of lease or rescission of contract. In fact, the
plaintiffs themselves recognized this intrinsic nature of the
action by categorizing the same action as one for cancellation
of lease, ejectment and collection. The suit cannot properly be
reduced to one of simple ejectment as rights of the parties to
the still existing contracts have yet to be determined and
resolved. Necessarily, to put an end to the parties’ relation, the
contract between them has got to be abrogated, rescinded or
resolved. The action for the purpose is however cognizable by
the Regional Trial Court as its subject-matter is incapable of
pecuniary estimation (See Sec. 19(1), B.P. 129)."cralaw
virtua1aw library
Hence, Civil Case Nos. 9402 and 106097 (that was docketed
before the RTC of Manila as Civil Case No. 90-54557) were
both elevated to the Court of Appeals.
In CA-G.R. CV No. 16575, the Court of Appeals rendered a
Decision 19 on May 31, 1990, affirming the decision of the
Makati Regional Trial Court in Civil Case No. 9402. Huibonhoa
filed a motion for the reconsideration of such Decision and on
October 18, 1990, the Court of Appeals modified the same
accordingly, by ordering that the amount of P270,825.00 paid
by Huibonhoa to Severino and Priscilla Gojocco be deducted
from the total amount of unpaid rentals due the said spouses.
In CA-G.R. SP No. 24654, the Court of Appeals also affirmed
the decision of the Regional Trial Court of Manila in Civil Case
No. 106097 by its Decision 20 promulgated on October 29,
1991. Considering the allegations of the complaint for
cancellation of lease, ejectment and collection, the Court of
Appeals ratiocinated and concluded:jgc:chanrobles.com.ph
"These allegations, which are denied by private respondent,
raised issues which go beyond the simple issue of unlawful
possession in ejectment cases. While the complaint does not
seek the rescission of the lease contract, ejecting the lessee
would, in effect, deprive the lessee of the income and other
beneficial fruits of the building of which she is the owner until
the end of the term of the lease. Certainly this cannot be
decreed in a summary action for ejectment. The decision of the
MTC, it is true, only ordered the ejectment of the private
respondent from the leased premises. But what about the
building which, according to petitioners themselves, cost the
private respondent P3,700,000.00 to construct? Will it be
demolished or will its ownership vest, even before the end of
the 15-year term, in the petitioners as owners of the land?
Indeed, inextricably linked to the question of physical
possession is the ownership of the building which the lessee
was permitted to put up on the land. To evict the lessee from
the land would be to bar her not only from entering the building
which she owns but also from collecting the rents from its
tenants."cralaw virtua1aw library
With respect to the contention of the Gojoccos that since
Huibonhoa had submitted to the jurisdiction of the Metropolitan
Trial Court, the jurisdictional issue had been foreclosed, the
Court of Appeals opined:jgc:chanrobles.com.ph
"Petitioners point out that private respondent can no longer
raise the question of jurisdiction because she filed a motion to
dismiss in the MTC but she did not raise this question (Rule
15, sec. 8). But the Omnibus motion rule does not cover two
grounds which, although not raised in a motion to dismiss, are
not waived. These are (1) failure to state a cause of action and
(2) lack of jurisdiction over the subject matter. (Rule 9, sec. 2).
These grounds can be invoked any time. Moreover, in this
case it was not really private respondent who questioned the
jurisdiction over the Metropolitan Trial Court. It was the
Regional Trial Court which did so motu propio."cralaw
virtua1aw library
On February 19, 1992, 21 the Court resolved that these two
petitions for review on certiorari be consolidated. Although they
sprang from the same factual milieu, the petitions are to be
discussed separately, however, because the issues raised are
cognate yet independent from each other.
In G.R. No. 95897
Petitioner Huibonhoa contends that:chanrob1es virtual 1aw
library
1. THE RESPONDENT COURT OF APPEALS COMMITTED A
GRAVE AND SERIOUS ERROR, CONSTITUTING ABUSE OF
DISCRETION, IN FINDING THE AGREEMENT BETWEEN
PETITIONER AND PRIVATE RESPONDENT SEVERINO
GOJOCCO (ANNEX "E") WORTHLESS AND USELESS
ALTHOUGH IT HAS RECOGNIZED THE PAYMENTS WHICH
RESPONDENT SEVERINO GOJOCCO HAS RECEIVED
FROM THE PETITIONER WHICH ACTUALLY
CONSTITUTED AN ACT OF RATIFICATION;cralawnad

2. THE RESPONDENT COURT FAILED TO CONSIDER THE
TRAGIC ASSASSINATION OF FORMER SENATOR
BENIGNO AQUINO AS A FORTUITOUS EVENT OR FORCE
MAJEURE WHICH JUSTIFIES THE ADJUSTMENT OF THE
TERMS OF THE CONTRACT OF LEASE. 22
Article 1305 of the Civil Code defines a contract as "a meeting
of the minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some
service." Once the minds of the contacting parties meet, a valid
contract exists, whether it is reduced to writing or not. When
the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon. As such,
there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of
the written agreement, except when it fails to express the true
intent and agreement of the parties. 23 In such an exception,
one of the parties may bring an action for the reformation of the
instrument to the end that their true intention may be
expressed. 24
Reformation is that remedy in equity by means of which a
written instrument is made or construed so as to express or
conform to the real intention of the parties. 25 As to its nature,
in Toyota Motor Philippines Corporation v. Court of Appeals,
26 the Court said:jgc:chanrobles.com.ph
"An action for reformation is in personam, not in rem, . . . even
when real estate is involved. . . It is merely an equitable relief
granted to the parties where through mistake or fraud, the
instrument failed to express the real agreement or intention of
the parties. While it is a recognized remedy afforded by courts
of equity it may not be applied if it is contrary to well-settled
principles or rules. It is a long-standing principle that equity
follows the law. It is applied in the absence of and never
against statutory law. . . Courts are bound by rules of law and
have no arbitrary discretion to disregard them. . . Courts of
equity must proceed with outmost caution especially when
rights of third parties may intervene. . ."cralaw virtua1aw library
Article 1359 of the Civil Code provides that" (w)hen, there
having been a meeting of the minds of the parties to a contract,
their true intention is not expressed in the instrument
purporting to embody the agreement, by reason of mistake,
fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that such
intention may be expressed. . . ." An action for reformation of
instrument under this provision of law may prosper only upon
the concurrence of the following requisites: (1) there must have
been a meeting of the minds of the parties to the contact; (2)
the instrument does not express the true intention of the
parties; and (3) the failure of the instrument to express the true
intention of the parties is due to mistake, fraud, inequitable
conduct or accident. 27
The meeting of the minds between Huibonhoa, on the one
hand, and the Gojoccos, on the other, is manifest in the written
lease contract duly executed by them. The success of the
action for reformation of the contract of lease at bar should
therefore, depend on the presence of the two other requisites
aforementioned.
To prove that the lease contract does not evince the true
intention of the parties, specifically as regards the time when
Huibonhoa should start paying rents, she presented as a
witness one of the lessors, Rufina G. Lim, who testified that
prior to the execution of the lease contract on June 30, 1983,
the parties had entered into a Memorandum of Agreement on
June 8, 1983; that on December 21, 1984, the lessors revoked
the special power of attorney in favor of Huibonhoa; that on
January 31, 1985, she entered into an agreement with
Huibonhoa whereby the amount of the rent was reduced to
P10,000 a month and the term of the lease was extended by
three (3) years, and that Huibonhoa started paying rental in
September 1984. 28
There is no statement in such testimony that categorically
points to the fact that the contract of lease has failed to
express the true intention of the parties. While it is true that
paragraph 4 of the Memorandum of Agreement 29 states that
the P15,000 monthly rental due each of the three lessors shall
be collected in advance within the first five (5) days of each
month "upon completion of the building," the same
memorandum of agreement also provides as
follows:jgc:chanrobles.com.ph
"8. This Memorandum of Agreement shall bind the SECOND
PARTY only after the signing of the Contact of Lease by both
parties which shall not be later than June 30, 1983, provided,
however, that should the SECOND PARTY decide not to
proceed with the signing on the deadline aforestated, the
FIRST PARTY shall not hold her liable therefor."cralaw
virtua1aw library
In view thereof, reliance on the provisions of the Memorandum
of Agreement is misplaced considering that its provisions
would bind the parties only upon the signing of the lease
contract. However, the lease contract that was later entered
into by the parties qualified the time when the lessee should
start paying the monthly rentals. Paragraph 5 of the lease
contract states that the "LESSEE’s" obligation to pay the rental
shall start only upon the completion of the building, but if it is
not completed within eight (8) months from date hereof as
provided for in par. 5 (sic) above, the monthly rental shall
already accrue and shall be paid by LESSEE to LESSOR."
That qualification applies even though the next sentence states
that" (I)n other words, during the period of construction, no
monthly rentals shall be collected from LESSEE." Otherwise,
there was no reason for the insertion of that qualification on the
period of construction of the building the termination of which
would signal the accrual of the monthly rentals. Non-inclusion
of that qualification would also give the lessee the unbridled
discretion as to the period of construction of the building to the
detriment of the lessor’s right to exercise ownership thereover
upon the expiration of the 15-year lease period.
In actions for reformation of contact, the onus probandi is upon
the party who insists that the contract should be reformed. 30
Huibonhoa having failed to discharge that burden of proving
that the true intention of the parties has not been accurately
expressed in the lease contract sought to be reformed, the trial
court correctly held that no clear and convincing proof warrants
the reformation thereof.
In the complaint, Huibonhoa alleged:jgc:chanrobles.com.ph
"5.9 By reason of mistake or accident, the contract (Annex ‘A’)
fails to state the true intention and real agreement of the
parties to the effect that in case some unforeseen event should
dramatically increase the cost of the building, then the amount
of monthly rent shall be reduced to such sum and the term of
the lease extended for such duration as may be fair and
equitable to both parties, bearing in mind the actual
construction cost of the building.chanrobles law library : red
5.10. As a direct result of the tragic Aquino assassination on 21
August 1983, which the parties did not foresee and coming as
it did barely two (2) months after the contract (Annex ‘A’) had
been signed, the country’s economy dramatically turned from
bad to worse, and the resulting ill effects thereof specifically
the hoarding of construction materials adversely affected the
plaintiff resulting, among others, in delaying the construction
work and the skyrocketing of the interest rates on plaintiff’s
loans, such that instead of roughly P6 Million as originally
budgeted the building in question now actually cost the plaintiff
something like 11 to 12 million pesos, more or less."cralaw
virtua1aw library
In the present petition, Huibonhoa asserts that: by reason of
oversight or mistake, the true intention of the parties that
should some unforeseen event dramatically increase the cost
of the building, then the amount of monthly rent shall be
reduced to such sum and the term of the lease extended to
such period as would be fair and equitable to both sides,
bearing in mind always that petitioner was ordinary LESSEE
but was an investor-developer." She insists that" (i)n truth, the
contract, while that of lease, really amounted to a common
business venture of the parties." 31
On account of her failure to prove what costly mistake
allegedly suppressed the true intention of the parties,
Huibonhoa honestly admitted that there was an oversight in the
drafting of the contract by her own counsel. By such
admission, oversight may not be attributed to all the parties to
the contract and therefore, it cannot be considered a valid
reason for the reformation of the same contract. In fact,
because it was Huibonhoa’s counsel himself who drafted the
contract, any obscurity therein should be construed against
her. 32 Unable to substantiate her stance that the true intention
of the parties is not expressed in the lease contract in question,
Huibonhoa nonetheless contends that paragraph 5 thereof
should be interpreted in such a way that she should only begin
paying monthly rent in October 1984 and not in March 1984.
33
Such contention betrays Huibonhoa’s confusion on the
distinction between interpretation and reformation of contracts.
In National Irrigation Administration v. Gamit, 34 the Court
distinguished the two concepts as
follows:jgc:chanrobles.com.ph
"‘Interpretation’ is the act of making intelligible what was before
not understood, ambiguous, or not obvious. It is a method by
which the meaning of language is ascertained. The
‘interpretation’ of a contract is the determination of the meaning
attached to the words written or spoken which make the
contract. On the other hand, ‘reformation’ is that remedy in
equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of
the parties. In granting reformation, therefore, equity is not
really making a new contract for the parties, but is confirming
and perpetuating the real contract between the parties which,
under the technical rules of law, could not be enforced but for
such reformation. As aptly observed by the Code Commission,
the rationale of the doctrine is that it would be unjust and
inequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds
of the parties."cralaw virtua1aw library
By bringing an action for the reformation of subject lease
contract, Huibonhoa chose to reform the instrument and not
the contract itself. 35 She is thus precluded from inserting
stipulations that are not extant in the lease contract itself lest
the very agreement embodied in the instrument is altered.
Neither does the Court find merit in her submission that the
assassination of the late Senator Benigno Aquino, Jr. was a
fortuitous event that justified a modification of the terms of the
lease contract.
A fortuitous event is that which could not be foreseen, or which
even if foreseen, was inevitable. To exempt the obligor from
liability for a breach of an obligation due to an "act of God", the
following requisites must concur: (a) the cause of the breach of
the obligation must be independent of the will of the debtor; (b)
the event must be either unforeseeable or unavoidable; (c) the
event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the debtor must
be free from any participation in, or aggravation of the injury to
the creditor. 36
In the case under scrutiny, the assassination of Senator
Aquino may indeed be considered a fortuitous event. However,
the said incident per se could not have caused the delay in the
construction of the building. What might have caused the delay
was the resulting escalation of prices of commodities including
construction materials. Be that as it may, there is no merit in
Huibonhoa’s argument that the inflation borne by the Filipinos
in 1983 justified the delayed accrual of monthly rental, the
reduction of its amount and the extension of the lease by three
(3) years.
Inflation is the sharp increase of money or credit or both
without a corresponding increase in business transaction. 37
There is inflation when there is an increase in the volume of
money and credit relative to available goods resulting in a
substantial and continuing rise in the general price level. 38
While it is of judicial notice that there has been a decline in the
purchasing power of the Philippine peso, this downward fall of
the currency cannot be considered unforeseeable considering
that since the 1970’s we have been experiencing inflation. It is
simply a universal trend that has not spared our country. 39
Conformably, this Court upheld the petitioner’s view in Occeña
v. Jabson 40 that even a worldwide increase in prices does not
constitute a sufficient cause of action for modification of an
instrument.
It is only when an extraordinary inflation supervenes that the
law affords the parties a relief in contractual obligations. 41 In
Filipino Pipe and Foundry Corporation v. NAWASA, 42 the
Court explained extraordinary inflation
thus:jgc:chanrobles.com.ph
"Extraordinary inflation exists when ‘there is a decrease or
increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the
value of said currency, and such decrease or increase could
not have been reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of the
establishment of the obligation. (Tolentino, Commentaries and
Jurisprudence on the Civil Code, Vol. IV, p. 284.)
An example of extraordinary inflation is the following
description of what happened to the Deutschmark in
1920:chanrob1es virtual 1aw library
‘More recently, in the 1920’s Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark
was 4.2 to the U.S. dollar. By May of the same year, it had
stumbled to 62 to the U.S. dollar. And as prices went up
rapidly, so that by October 1923, it had reached 4.2 trillion to
the U.S. dollar!’ (Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition]).
As reported, ‘prices were going up every week, then every day,
then every hour. Women were paid several times a days so
that they could rush out and exchange their money for
something of value before what little purchasing power was left
dissolved in their hands. Some workers tried to beat the
constantly rising prices by throwing their money out of the
windows to their waiting wives, who would rush to unload the
nearly worthless paper. A postage stamp cost millions of marks
and a loaf of bread, billions.’ (Sidney Rutberg, ‘The Money
Balloon’ New York: Simon and Schuster, 1975, p. 19, cited in
‘Economics, An Introduction’ by Villegas & Abola, 3rd Ed.)"
No decrease in the peso value of such magnitude having
occurred, Huibonhoa has no valid ground to ask this Court to
intervene and modify the lease agreement to suit her purpose.
As it is, Huibonhoa even failed to prove by evidence,
documentary or testimonial, that there was an extraordinary
inflation from July 1983 to February 1984. Although she
repeatedly alleged that the cost of constructing the building
doubled from P6 million to P12 million, she failed to show by
how much, for instance, the price index of goods and services
had risen during that intervening period. An extraordinary
inflation cannot be assumed. 43 Hence, for Huibonhoa to claim
exemption from liability by reason of fortuitous event under Art.
1174 of the Civil Code, she must prove that inflation was the
sole and proximate cause of the loss or destruction of the
contract 44 or, in this case, of the delay in the construction of
the building. Having failed to do so, Huibonhoa’s contention is
untenable.
Pathetically, if indeed a fortuitous event deterred the timely
fulfillment of Huibonhoa’s obligation under the lease contract,
she chose the wrong remedy in filing the case for reformation
of the contract. Instead, she should have availed of the remedy
of rescission of contract in order that the court could release
her from performing her obligation under Arts. 1266 45 and
1267 46 of the Civil Code, so that the parties could be restored
to their status prior to the execution of the lease contract.
As regards Huibonhoa’s assertion that the lease contract was
novated by Rufina G. Lim and Severino Gojocco who entered
into an agreement with her on January 31, 1985 and July 21,
1986, respectively, it bears stressing that the lease contract
they had entered into is not a simple one. It is unique in that
while there is only one lessee, Huibonhoa, and the contract
refers to a "LESSOR," there are actually three lessors with
separate certificates of title over the three lots on which
Huibonhoa constructed the 4-storey building. As Huibonhoa
herself ironically asserts, the lease contract is an "indivisible"
one because the lessors’ interests "cannot be separated even
if they owned the lands separately under different certificates
of title." 47 Hence, the acts of Rufina G. Lim and Severino
Gojocco in entering into the new agreement with Huibonhoa
could have affected only their individual rights as lessors
because no new agreement was forged between Huibonhoa
and all the lessors, including Loreta Gojocco.chanrobles law
library : red

Consequently, because the three lot owners simultaneously
entered into the lease contract with Huibonhoa, novation of the
contract could only be effected by their simultaneous act of
abrogating the original contract and at the same time forging a
new one in writing. Although as a rule no form of words or
writing is necessary to give effect to a novation, 48 a written
agreement signed by all the parties to the lease contract is
required in this case. Ordinary diligence on the part of the
parties demanded that they execute a written agreement if
indeed they wanted to enter into a new one because of the 15-
year life span of the lease affecting real property and the fact
that third persons would be affected thereby on account of the
express agreement allowing the lessee to lease the building to
third parties. 49
Under the law, novation is never presumed. The parties to a
contract must expressly agree that they are abrogating their
old contract in favor of a new one. 50 Accordingly, it was held
that no novation of a contract had occurred when the new
agreement entered into between the parties was intended "to
give life" to the old one. 51 "Giving life" to the contract was the
very purpose for which Rufina G. Lim signed the agreement on
January 31, 1986 with Huibonhoa. It was intended to graft into
the lease contract provisions that would facilitate fulfillment of
Huibonhoa’s obligation therein. 52 That the new agreement
was meant to strengthen the enforceability of the lease is
further evidenced by the fact, although its stipulations as to the
period of the lease and as to the amount of rental were altered,
the agreement with Rufina G. Lim does not even hint that the
lease itself would be abrogated. As such, even Huibonhoa’s
agreement with Rufina G. Lim cannot be considered a novation
of the original lease contract. Where the parties to the new
obligation expressly recognize the continuing existence and
validity of the old one, where, in other words, the parties
expressly negated the lapsing of the old obligation, there can
be no novation. 53
As regards the new agreement with Severino Gojocco, it
should be noted that he only disclaimed its existence when the
check issued by Huibonhoa to him, allegedly in accordance
with the new agreement, was dishonored. That unfortunate fact
might have led Severino Gojocco to refuse acceptance of rents
paid by Huibonhoa subsequent to the dishonor of the check.
However, the non-existence of the new agreement with
Severino Gojocco is a question of fact that the courts below
had properly determined. The Court of Appeals has affirmed
the trial court’s finding that "not only was Gojocco’s consent
vitiated by fraud and false representation there likewise was
failure of consideration in the execution of Exhibit C, (and
therefore) the said agreement is legally inefficacious." 54 In the
Resolution of October 18, 1990, the Court of Appeals
considered the amount of P270,825.00 represented by the
check handed by Huibonhoa to Severino Gojocco as "partial
settlement" or "partial payment" 55 clearly under the terms of
the original lease contract. There is no reason to depart from
the findings and conclusions of the appellate court on this
matter.
Nevertheless, because Severino Gojocco repudiates the new
agreement even before this Court as his consent thereto had
allegedly been "vitiated by fraud and false representation," 56
Huibonhoa may not escape complete fulfillment of her
obligation under the original lease contract as far as Severino
Gojocco is concerned. She is thus contractually bound to pay
him the unpaid rents.
Aside from the monthly rental that should be paid by
Huibonhoa starting March 1984, Loreto Gojocco Chua is also
entitled to interest at the rate of 6% per annum from the
accrual of the rent in accordance with Article 2209 57 of the
Civil Code until it is fully paid because the monetary award
does not partake of a loan or forbearance in money. However,
the interim period from the finality of this judgment until the
monetary award is fully satisfied, is equivalent to a forbearance
of credit and therefore, during that interim period, the
applicable rate of legal interest shall be 12%. 58 As regards
Severino Gojocco, he shall be entitled to such interests only
from the time that Huibonhoa defaulted paying her monthly
rentals to him considering that he had already received from
her the amount of P270,825.00 as rentals.
The amount of monthly rentals upon which interest shall be
charged shall be that stipulated in paragraph 5 of the lease
contract or P15,000.00 to each lessor. That amount, however,
shall be subject to the provision therein that the amount of
rentals shall be "adjusted/increased upon the corresponding
increase in the rental of subleases using the percentage
increase in the totality of rentals of the sub-lessees as basis for
the percentage increase of monthly rental that LESSEE will
pay to LESSOR." Upon remand of this case therefore, the trial
court shall determine the total monetary award in favor of
Loreta Gojocco Chua and of Severino Gojocco.
From the facts of the case, it is clear that what Huibonhoa
aimed for in filing the action for reformation of the lease
contract, is to absolve herself from her delay in the payment of
monthly rentals and to extend the term of the lease, which
under the original lease contract, expired in 1988. The
ostensible reasons behind the institution of the case she
alleged were the unfavorable repercussions resulting from the
economic and political upheaval on the heels of the Aquino
assassination. However, a contract duly executed is the law
between the parties who are obliged to comply with its terms.
Events occurring subsequent to the signing of an agreement
may suffice to alter its terms only if, upon failure of the parties
to arrive at a valid compromise, the court deems the same to
be sufficient reasons in law for altering the terms of the
contract. This court once said:jgc:chanrobles.com.ph
"It is a long established doctrine that the law does not relieve a
party from the effects of an unwise, foolish, or disastrous
contract, entered into with all the required formalities and with
full awareness of what he was doing. Courts have no power to
relieve parties from obligations voluntarily assumed, simply
because their contracts turned out to be disastrous deals or
unwise investments." 59
In G.R. No. 102604
Petitioners Severino Gojocco and Loreta G. Chua assail the
Decision of the Court of Appeals on the following grounds;
a) RESPONDENT COURT HAS DECIDED QUESTIONS OF
SUBSTANCE NOT HERETOFORE DETERMINED BY THIS
HONORABLE COURT OR HAS DECIDED THEM IN A WAY
CLEARLY CONTRARY TO LAW OR THE APPLICABLE
DECISIONS OF THIS HONORABLE COURT;
b) RESPONDENT COURT HAS SO FAR DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWERS OF SUPERVISION BY THE HONORABLE COURT.
60
The contentions of petitioners relate to the basic issue raised in
the petition — whether or not the Court of Appeals erred in
affirming the decision of the Regional Trial Court that
dismissed for lack of jurisdiction the complaint for ejectment
brought by petitioners before the Metropolitan Trial Court of
Manila. In other words, the issue for determination here is:
whether or not the Metropolitan Trial Court had jurisdiction over
the complaint for "cancellation of lease, ejectment and
collection" in Civil Case No. 90-54557.
The governing law on jurisdiction when the complaint was filed
on January 14, 1985 was Sec. 33 (2) of Batas Pambansa Blg.
129 vesting municipal courts with:jgc:chanrobles.com.ph
"Exclusive original jurisdiction over cases of forcible entry and
unlawful detainer. Provided, That when, in such cases, the
defendant raises the question of ownership in his pleadings
and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership should
be resolved only to determine the issue of possession."cralaw
virtua1aw library
Thereunder, when the issue of ownership is indispensable to
the resolution of the issue of possession, the Metropolitan Trial
Court is empowered to decide it as well. 61 Explaining this
jurisdictional matter, in Dizon v. Court of Appeals, 62 the Court
said:chanrobles law library : red
". . . Well-settled is the rule that in an ejectment suit, the only
issue is possession de facto or physical or material possession
and not possession de jure. So that, even if the question of
ownership is raised in the pleadings, as in this case, the court
may pass upon such issue but only to determine the question
of possession especially if the former is inseparably linked with
the latter. It cannot dispose with finality the issue of ownership-
such issue being inutile in an ejectment suit except to throw
light on the question of possession. This is why the issue of
ownership or title is generally immaterial and foreign to an
ejectment suit.
Detainer, being a mere quieting process, questions raised on
real property are incidentally discussed. In fact, any evidence
of ownership is expressly banned by Sec. 4, Rule 70 except to
resolve the question of possession. Thus, all that the court may
do, is to make an initial determination of who is the owner of
the property so that it can resolve who is entitled to its
possession absent other evidence to resolve the latter. But
such determination of ownership is not clothed with finality.
Neither will it affect ownership of the property nor constitute a
binding and conclusive adjudication on the merits with respect
to the issue of ownership. . . ."cralaw virtua1aw library
The Court has consistently held that in forcible entry and
unlawful detainer cases, jurisdiction is determined by the
nature of the action as pleaded in the complaint. 63 The test of
the sufficiency of the facts alleged in the complaint is whether
or not admitting the facts alleged therein, the court could
render a valid judgment upon the same in accordance with the
prayer of the plaintiff. 64
In an ejectment case, or specifically in an action for unlawful
detainer like the present case, it suffices to allege that the
defendant is unlawfully withholding possession of the property
in question. 65 A complaint for unlawful detainer is therefore
sufficient if it alleges that the withholding of possession or the
refusal to vacate is unlawful without necessarily employing the
terminology of the law. 66 It is therefore in order to make an
inquiry into the averments of the complaint in Civil Case No.
90-54557. 67 The complaint, that was called one for
"cancellation of lease, ejectment and collection," alleged the
following facts:chanrob1es virtual 1aw library
1. The parties are residents of different barangays and
therefore the provisions of P.D. No. 1508 (the law on the
katarungang pambarangay) are inapplicable;
2. The plaintiffs, Rufina G. Lim, Severino Gojocco and Loreta
Gojocco Chua are the registered owners of three parcels of
commercial land in Ilaya Street, Binondo, Manila.
3. On June 30, 1983, they entered into a lease contract with
defendant Huibonhoa whereby the latter would construct a 4-
storey building on the three lots that, after the expiration of the
15-year period of the lease, would be owned by the lessors,
and that, upon completion of construction of the building within
eight (8) months from signing of the lease contract, the lessee
would start paying monthly rentals;
4. After the expiration of the 8-months period or in March 1984,
the rentals of P45,000.00 a month accrued.
5. Despite "verbal demands, meetings and conferences" by
which the plaintiffs demanded from demanded from defendant
payment of the total amount due on account of the lease
contract, defendant failed to pay;
6. On December 19, 1984, the plaintiffs, through counsel,
wrote defendant letter informing her of their intention to
"terminate and cancel the lease for violation of its terms by the
defendant" at the same time demanding restitution of the lots in
question and payment of all rentals due;
7. Despite such verbal and written demands, the defendant
refused to comply therewith to the damage and prejudice of the
plaintiffs considering that defendant was subleasing the stalls,
bodegas and offices to tenants who had paid her goodwill
money and "exorbitant rentals" since March 1984 or prior to
the completion of the building until the filing of the complaint in
amounts totaling millions of pesos;
8. Defendant continued to sublease vacant spaces while
depriving plaintiffs of reasonable compensation for the use and
occupation of the premises;
9. Defendant did not utilize her own capital in the construction
of the building as she was able to mortgage the lots to the
China Banking Corporation in the total amount of
P3,700,000.00 as well as collect goodwill money from tenants;
10. Plaintiffs revoked the authority given to defendant to
encumber the property because of her failure of pay and
liquidate the real estate loan within the one-year period which
expired on September 30, 1984;
11. That plaintiffs were forced to file the action by reason of
defendant’s bad faith and unwarranted refusal to satisfy their
claims; and
12. The rentals should be made to answer for plaintiffs’
monetary claims on account of defendant’s impending
departure from the Philippines.
After praying for the issuance of a preliminary writ of
attachment, the plaintiffs prayed as
follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, it is most respectfully
prayed that judgment be rendered in favor of plaintiffs and
against the defendant as follows:chanrob1es virtual 1aw library
1. Ordering defendant and all persons claiming rights under
her to forthwith vacate the leased premises described in this
Complaint and to surrender actual and physical possession to
herein plaintiffs and/or their duly authorized representatives;
2. Ordering defendant to pay plaintiff all rentals due and unpaid
at the agreed rate of P45,000.00 per month from March, 1984
to January, 1985 or for a period of 11 months with legal
interests thereon until fully paid;chanroblesvirtual|awlibrary
3. Ordering the defendant to deposit past and future rentals
with this Honorable Court, or in a bank acceptable to both
parties, the Passbook to be turned over and submitted to this
Honorable Court for further disposition;
4. Sentencing defendant to pay the fair rental value of, and/or
reasonable compensation for, the use and occupancy of the
leased premises at the rate of P60,000 per month beginning
February 5, 1985 and every 5th of the succeeding month
thereafter until the premises is actually vacated and restored to
herein plaintiffs;
5. To pay plaintiffs a sum equivalent to 20% of the total amount
claimed in this action for and as attorney’s fees exclusive of
appearance fees and costs of this action;
6. That pending hearing of this case, a writ of preliminary
attachment be issued against the credits due defendant from
the tenants or sublessees of the premises in question to serve
as security for the satisfaction of any judgment that may be
recovered in this case;
7. For such other and further relief as this Honorable Court
may deem proper, just and equitable;
8. Plaintiffs further respectfully pray that for expediency,
considering the nature of this action and to protect plaintiffs
from incurring further losses, damages and expenses
concomitant to the deprivation or loss of their possession, that
notwithstanding the amount of claim involved, they hereby
respectfully invoke the applicability of the rules on Summary
Procedure in the interest of justice."cralaw virtua1aw library
Undoubtedly, the complaint avers ultimate facts required for a
cause of action in an unlawful detainer case. It alleges
possession of the properties by the lessee, verbal and written
demands to pay rental arrearages and to vacate the leased
premises, continued refusal of the lessees to surrender
possession of the premises, and the fact that the action was
filed within one year from demand to vacate.
A reading of the allegations of the complaint and the reliefs
prayed for indeed reveals facts that appear to be extraneous to
the primary aim of recovering possession of property in an
action for unlawful detainer although these facts do not involve
issue of ownership of the premises. Thus, consonant with the
allegation that defendant was leasing the spaces in the
building to the tune of millions of peso, plaintiffs pray for an
increase in monthly rentals to P60,000.00 a month starting
February 5, 1985 or after construction of the building had been
completed. The prayer likewise speaks of "past and future
rentals" that should be deposited with the court or in an
acceptable bank. In other words, the complaint seeks relief that
are not limited to payment of the rent arrearages and the
eviction of defendant from the leased premises.
Although for reasons of their own the Gojoccos opted not to
express in the complaint their intention to terminate the lease,
such intention could be gleaned from their prayer that the court
should "sentence" Huibonhoa to pay the higher rent of
P60,000.00 a month. That explains why the complaint is
captioned as one for "cancellation of the lease" aside from its
being one for ejectment and "collection." In praying that the
court directs the defendant to pay the increased rental of
P60,000.00 a month, plaintiffs, in effect, would want the
existing contract terminated in order that the court could
substitute it with another providing for an increased monthly
rental.
However, forging contracts for parties in a case is beyond the
jurisdiction of courts. Otherwise, it would result in the court’s
substitution of its own volition in a contract that should express
only the parties’ will. Necessarily, the Metropolitan Trial Court
could not favorably act on the prayer for cancellation of the
contract with another containing terms suggested by the
plaintiffs as the allegations and prayer therefor are no more
than superfluities that do not affect the main cause of action
averred in the complaint. The court therefore granted only the
main relief sought by the plaintiffs-the eviction of the
defendant.
The Regional Trial Court incorrectly held that the complaint
was also for rescission of contract, a case that is certainly not
within the jurisdiction of the Metropolitan Trial Court. By the
allegations of the complaint, the Gojoccos’ aim was to cancel
or terminate the contract because they sought its partial
enforcement in praying for rental arrearages. There is a
distinction in law between cancellation of a contract and its
rescission. To rescind is to declare a contract void in its
inception and to put an end to it as though it never were. It is
not merely to terminate it and release parties from further
obligations to each other but to abrogate it from the beginning
and restore the parties to relative positions which they would
have occupied had no contract ever been made. 68
Termination of a contract is congruent with an action for
unlawful detainer. The termination or cancellation of a contract
would necessarily entail enforcement of its terms prior to the
declaration of its cancellation in the same way that before a
lessee is ejected under a lease contract, he has to fulfill his
obligations thereunder that had accrued prior to his ejectment.
However, termination of a contract need not undergo judicial
intervention. The parties themselves may exercise such option.
Only upon disagreement between the parties as to how it
should be undertaken may the parties resort to courts. Hence,
notwithstanding the allegations in the complaint that are
extraneous or not essential in an action for unlawful detainer,
the Metropolitan Trial Court correctly assumed jurisdiction over
Civil Case No. 90-54557.
The Court finds sustainable basis for the observation of the
Court of Appeals that execution of the judgment ejecting
Huibonhoa would cause complications that are anathema to a
peaceful resolution of the controversy between the parties.
Thus, while Huibonhoa would be ejected from the lots owned
by Severino Gojocco and Loreta Gojocco Chua, she would be
bound by her agreement with Rufina G. Lim to continue with
the lease. The result would be disadvantageous to both
Huibonhoa and Severino Gojocco and Loreta G. Chua. The
said owners would be unable to exercise rights of ownership
over their lots upon which the building was constructed unless
they remove or buy two-thirds of the building.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
However, an action for unlawful detainer does not preclude the
lessee or ejected party from availing of other remedies
provided by law. The prevailing doctrine is that suits or actions
for the annulment of sale, title or document do not abate any
ejectment action respecting the same property. 69 In fact, in
this case, the lessee, as it was, "jumped the gun" over the
lessors in filing the action for reformation of the lease contract.
That it proved unfavorable to her does not detract from the fact
that the controversy between her and the lessors has been
resolved in accordance with law albeit not in consonance with
the wishes of all the parties.
Be that as it may, the problem of ejecting Huibonhoa has been
rendered moot and academic by the expiration of the lease
contract litigated upon in June 1998. The parties might have
availed of the provision of paragraph 1 of the lease contract
whereby the parties agreed to renew it "for a similar or shorter
period upon terms and conditions mutually agreeable" to them.
If they opted to brush aside that provision, with more reason,
Huibonhoa’s eviction should ensue as a matter of enforcement
of the lease contract.
WHEREFORE, judgment is hereby rendered as
follows:chanrob1es virtual 1aw library
a.) In G.R. No. 95897, the decision of the Court of Appeals in
CA-G.R. CV No. 16575, dismissing petitioner’s complaint for
reformation of contract, is AFFIRMED with the modifications
that:chanrob1es virtual 1aw library
1] Private respondent Loreta Gojocco Chua is adjudged
entitled to legal interest of 6% per annum from March, 1984,
the time the rents became due;
2] Private respondent Severino Gojocco shall receive 6% legal
interest only from the time Florencia T. Huibonhoa defaulted in
the payment of her monthly rents; and
3] Legal interest of 12% per annum shall accrue from the
finality of this decision until the amount due is fully paid.
b) In G.R. No. 102604, the decision of the Court of Appeals in
CA-G.R. SP No. 24654, affirming the decision of the Regional
Trial Court of origin which dismissed the ejectment case
instituted by the petitioners against the private respondent is
SET ASIDE; the order of ejectment issued by the Metropolitan
Trial Court a quo on July 30, 1980 is UPHELD; and the private
respondent and all persons claiming authority under her are
ordered to vacate the land and portion of the building
corresponding to Lot No. 26-B covered by TCT No. 80728 of
petitioner Severino Gojocco, and the portion corresponding to
Lot No. 26-C covered by TCT No. 155450 of petitioner Loreta
Chua. No pronouncement as to costs.
SO ORDERED.chanrobles virtual lawlibrary
G.R. No. 137798               October 4, 2000
LUCIA R. SINGSON, petitioner,
vs.
CALTEX (PHILIPPINES), INC. respondent.
DECISION
GONZAGA-REYES, J.:
Petitioner seeks a review on certiorari of the decision of the
former Special Second Division of the Court of Appeals dated
November 27, 1998,1 affirming the decision of the Regional
Trial Court of Manila, Branch 252 which dismissed petitioner's
action for reformation of contract and adjustment of rentals.
The facts of the case are undisputed ---
Petitioner and respondent entered into a contract of lease on
July 16, 1968 over a parcel of land in Cubao, Quezon City. The
land, which had an area of 1,400 square meters and was
covered by Transfer Certificates of Title No. 43329 and 81636
issued by the Register of Deeds of Quezon City, was to be
used by respondent as a gasoline service station.
The contract of lease provides that the lease shall run for a
period of twenty (20) years and shall abide by the following
rental rates:
x x x           x x x          x x x
Rental. --- The LESSEE agrees to pay the following rental for
said premises:
P2.50/sq.m. per month from the 1st to 10th years and
P3.00/sq.m. per month from the 11th to 20th years, payable
monthly in advance within the 1st 15 days of each month;
provided that the rentals for the 1st 5 years less a discount of
eleven (11) percent per annum computed on a monthly
diminishing balance, shall be paid to LESSOR upon
compliance of the three (3) conditions provided in clause (2)
above.
LESSEE also agrees to pay lessor, the sum of Six Thousand
Pesos (P6,000.00) as demolition expenses, upon effectivity of
this lease.
The rental herein provided for is in any event the maximum
rental which LESSOR may collect during the term of this lease
or any renewal or extension thereof. LESSEE further agrees
for thirty (30) days after written notice of such default has
actually been delivered to the General Manager of Caltex
(Philippines), Inc. LESSOR shall then have the right to
terminate this lease on thirty (30) days written notice to
LESSEE. xxx xxx xxx 3
Thus, based on the foregoing provisions of the lease contract,
the monthly rental was fixed at P3,500.00 for the first ten
years, and at P4,200.00 for the succeeding ten years of the
lease.
On June 23, 1983, or five years before the expiration of the
lease contract, petitioner asked respondent to adjust or
increase the amount of rentals citing that the country was
experiencing extraordinary inflation. In a letter dated August 3,
1983, respondent refused petitioner's request and declared
that the terms of the lease contract are clear as to the rental
amounts therein provided being "the maximum rental which the
lessor may collect during the term of the lease."4
On September 21, 1983, petitioner instituted a complaint
before the RTC praying for, among other things, the payment
by respondent of adjusted rentals based on the value of the
Philippine peso at the time the contract of lease was executed.
The complaint invoked Article 1250 of the Civil Code, stating
that since the execution of the contract of lease in 1968 an
extraordinary inflation had supervened resulting from the
deterioration of worldwide economic conditions, a
circumstance that was not foreseen and could not have been
reasonably foreseen by the parties at the time they entered
into contract.
To substantiate its allegation of extraordinary inflation,
petitioner presented as witness Mr. Narciso Uy, Assistant
Director of the Supervising and Examining Sector of the
Central Bank, who attested that the inflation rate increased
abruptly during the period 1982 to 1985, caused mainly by the
devaluation of the peso.5 Petitioner also submitted into
evidence a certification of the official inflation rates from 1966
to 1986 prepared by the National Economic Development
Authority ("NEDA") based on consumer price index, which
reflected that at the time the parties entered into the subject
contract, the inflation rate was only 2.06%; then, it soared to
34.51% in 1974, and in 1984, reached a high of 50.34%.6
In a decision rendered on July 15, 1991, the RTC dismissed
the complaint for lack of merit. This judgment was affirmed by
the Court of Appeals. Both courts found that petitioner was
unable to prove the existence of extraordinary inflation from
1968 to 1983 (or from the year of the execution of the contract
up to the year of the filing of the complaint before the RTC) as
to justify an adjustment or increase in the rentals based upon
the provisions of Article 1250 of the Civil Code.
The Court of Appeals declared that although, admittedly, there
was an economic inflation during the period in question, it was
not such as to call for the application of Article 1250 which is
made to apply only to "violent and sudden changes in the price
level or uncommon or unusual decrease of the value of the
currency. (It) does not contemplate of a normal or ordinary
decline in the purchasing power of the peso."7
The Court of Appeals also found similarly with the trial court
that the terms of rental in the contract of lease dated July 16,
1968 are clear and unequivocal as to the specific amount of
the rental rates and the fact that the rentals therein provided
shall be the "maximum rental" which petitioner as lessor may
collect. Absent any showing that such contractual provisions
are contrary to law, morals, good customs, public order or
public policy, the Court of Appeals held that there was no basis
for not acknowledging their binding effect upon the parties. It
also upheld the application by the trial court of the ruling
in Filipino Pipe and Foundry Corporation vs. National
Waterworks and Sewerage Authority, 161 SCRA 32, where the
Court held that although there has been a decline in the
purchasing power of the Philippine peso during the period
1961 to 1971, such downward fall of the currency could not be
considered "extraordinary" and was simply a universal trend
that has not spared the Philippines.
Thus, the dispositive portion of the decision of the Court of
Appeals reads:
WHEREFORE, in view of the foregoing, the appeal is hereby
DISMISSED and the decision appealed from is hereby
AFFIRMED.
SO ORDERED.8
Petitioner's motion for reconsideration of the above decision
was denied by the Court of Appeals in a resolution dated
March 10, 1999.
Aggrieved, petitioner filed this petition for review
on certiorari where she assails as erroneous the decision of
the Court of Appeals, specifically, (1) in ruling that Article 1250
of the Civil Code is inapplicable to the instant case, (2) in not
recognizing the applicability of the principle of rebus sic
stantibus, and (3) in applying the ruling in Filipino Pipe and
Foundry Corporation vs. NAWASA.
Petitioner contends that the monthly rental of P3.00 per square
meter is patently inequitable. Based on the inflation rates
supplied by NEDA, there was an unusual increase in inflation
that could not have been foreseen by the parties; otherwise,
they would not have entered into a relatively long-term contract
of lease. She argued that the rentals in this case should not be
regarded by their quantitative or nominal value, but as "debts
of value", that is, the rental rates should be adjusted to reflect
the value of the peso at the time the lease was contracted.9
Petitioner also insists that the factual milieu of the present case
is distinct from that in Filipino Pipe and Foundry Corporation
vs. NAWASA. She pointed out that the inflation experienced by
the country during the period 1961 to 1971 (the pertinent time
period in the Filipino Pipe case) had a lowest of 1.35% in 1969
and a highest of 15.03% in 1971, whereas in the instant case,
involving the period 1968 to 1983, there had been highly
abnormal inflation rates like 34.51% in 1974 (triggered by the
OPEC oil price increases in 1973) and 50.34% in 1984
(caused by the assassination of Benigno Aquino, Jr. in 1983).
Petitioner argues that the placing of the country under martial
rule in 1972, the OPEC oil price increases in 1973, and the
Aquino assassination which triggered the EDSA revolution,
were fortuitous events that drastically affected the Philippine
economy and were beyond the reasonable contemplation of
the parties.
To further bolster her arguments, petitioner invokes by analogy
the principle of rebus sic stantibus in public international law,
under which a vital change of circumstances justifies a state's
unilateral withdrawal from a treaty. In the herein case,
petitioner posits that in pegging the monthly rental rates of
P2.50 and P3.00 per square meter, respectively, the parties
were guided by the economic conditions prevalent in 1968,
when the Philippines faced robust economic prospects.
Petitioner contends that between her and respondent, a
corporation engaged in high stakes business and employing
economic and business experts, it is the latter who had the
unmistakable advantage to analyze the feasibility of entering
into a 20-year lease contract at such meager rates.
The only issue crucial to the present appeal is whether there
existed an extraordinary inflation during the period 1968 to
1983 that would call for the application of Article 1250 of the
Civil Code and justify an adjustment or increase of the rentals
between the parties.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
Article 1250 was inserted in the Civil Code of 1950 to abate the
uncertainty and confusion that affected contracts entered into
or payments made during World War II, and to help provide a
just solution to future cases.10 The Court has, in more than one
occasion, been asked to interpret the provisions of Article
1250, and to expound on the scope and limits of "extraordinary
inflation".
We have held extraordinary inflation to exist when there is a
decrease or increase in the purchasing power of the Philippine
currency which is unusual or beyond the common fluctuation in
the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the
establishment of the obligation.11
An example of extraordinary inflation, as cited by the Court
in Filipino Pipe and Foundry Corporation vs. NAWASA, supra,
is that which happened to the deutschmark in 1920. Thus:
"More recently, in the 1920s, Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark
was 4.2 to the U.S. dollar. By May of the same year, it had
stumbled to 62 to the U.S. dollar. And as prices went up
rapidly, so that by October 1923, it had reached 4.2 trillion to
the U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every
day, then every hour.1âwphi1 Women were paid several times
a day so that they could rush out and exchange their money for
something of value before what little purchasing power was left
dissolved in their hands. Some workers tried to beat the
constantly rising prices by throwing their money out of the
windows to their waiting wives, who would rush to unload the
nearly worthless paper. A postage stamp cost millions of marks
and a loaf of bread, billions." (Sidney Rutberg, "The Money
Balloon", New York: Simon and Schuster, 1975, p. 19, cited in
"Economics, An Introduction" by Villegas & Abola, 3rd Ed.)
The supervening of extraordinary inflation is never
assumed.12 The party alleging it must lay down the factual
basis for the application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that
the voluminous records and statistics submitted by plaintiff-
appellant proved that there has been a decline in the
purchasing power of the Philippine peso, but this downward fall
cannot be considered "extraordinary" but was simply a
universal trend that has not spared our country.13 Similarly, in
Huibonhoa vs. Court of Appeals,14 the Court dismissed plaintiff-
appellant's unsubstantiated allegation that the Aquino
assassination in 1983 caused building and construction costs
to double during the period July 1983 to February 1984.
In Serra vs. Court of Appeals,15 the Court again did not
consider the decline in the peso's purchasing power from 1983
to 1985 to be so great as to result in an extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also
raises as basis for the application of Article 1250 the Philippine
economic crisis in the early 1980s --- when, based on
petitioner's evidence, the inflation rate rose to 50.34% in 1984.
We hold that there is no legal or factual basis to support
petitioner's allegation of the existence of extraordinary inflation
during this period, or, for that matter, the entire time frame of
1968 to 1983, to merit the adjustment of the rentals in the
lease contract dated July 16, 1968. Although by petitioner's
evidence there was a decided decline in the purchasing power
of the Philippine peso throughout this period, we are hard put
to treat this as an "extraordinary inflation" within the meaning
and intent of Article 1250. Rather, we adopt with approval the
following observations of the Court of Appeals on petitioner's
evidence, especially the NEDA certification of inflation rates
based on consumer price index:
xxx (a) from the period 1966 to 1986, the official inflation rate
never exceeded 100% in any single year; (b) the highest
official inflation rate recorded was in 1984 which reached only
50.34%; (c) over a twenty one (21) year period, the Philippines
experienced a single-digit inflation in ten (10) years (i.e., 1966,
1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986);
(d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979,
1980, 1981, 1982, 1984 and 1989) when the Philippines
experienced double-digit inflation rates, the average of those
rates was only 20.88%; (e) while there was a decline in the
purchasing power of the Philippine currency from the period
1966 to 1986, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the Philippine peso
which is a characteristic of most currencies.16
"Erosion" is indeed an accurate description of the trend of
decline in the value of the peso in the past three to four
decades. Unfortunate as this trend may be, it is certainly
distinct from the phenomenon contemplated by Article 1250.
Moreover, this Court has held that the effects of extraordinary
inflation are not to be applied without an official declaration
thereof by competent authorities.17
Lastly, the provisions on rentals in the lease contract dated
July 16, 1968 between petitioner and respondent are clear and
categorical, and we have no reason to suppose that such lease
contract does not reflect or express their true intention and
agreement. The contract is the law between the parties and if
there is indeed reason to adjust the rent, the parties could have
by themselves negotiated the amendment of the contract.18
WHEREFORE, the petition seeking the reversal of the decision
of the Court of Appeals in CA-G.R. CV No. 54115 is DENIED.
SO ORDERED.
G.R. No. 119872 July 7, 1997
REMEDIOS NAVOA RAMOS, petitioner,
vs.
COURT OF APPEALS, HON. PRESIDING JUDGE, Regional
Trial Court, Branch 93, Quezon City, and SPS. MANUEL
and ESMERALDA MALAPIT, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the resolution of the
Court of Appeals, dismissing the appeal of petitioner from the
decision of the Regional Trial Court, Branch 93, of Quezon
City.
The facts of the case are as follows:
Petitioner is the owner of factory space No. 5 at the corner of
Scout Madrinan and Scout Torillo Streets, Quezon City. On
September 30, 1988, she entered into a contract of lease with
private respondents respecting the property in question.
The contract of lease contained, among other things, the
following stipulations:
1(2) The Lessee agrees that on the 5th year,
the Lessee shall change the principal Yakal
posts into reinforced concrete posts, all the
way from the base on the ground up to the
roofing holding or supporting the main
trusses of the galvanized roofing at the
expense of the Lessee and no expense
whatsoever to the Owner-Lessor. Failure of
the Lessee to comply with this term will
automatically terminate or cancel this
contract.
1(3) . . . In case of inflation or devaluation of
the Philippine Peso, the monthly rental will
automatically increase or decrease
depending on the devaluation or inflation
rate of the pesos to a dollar.
12. The monthly rental shall be paid every
first week of the month. In case of delay in
the payment of monthly rental, the Lessee
will pay a penalty of 20%  per annum for
every month of delay; this contract is
terminated if the delay reaches 3 months.
20. The Lessee agrees that on the 5th year,
the Lessee shall change the roofing and the
three posts located at the back part of the
lease premises into reinforced concrete post
all the way from the base on the ground up
to the roofing holding or supporting the main
trusses of the galvanized roofing at the
expense of the Lessee and no expense
whatsoever to the Lessor.
On May 24, 1994, petitioner filed a complaint for ejectment
before the Metropolitan Trial Court of Quezon City, alleging
failure by respondents to comply with their undertakings under
the contract of lease without any valid or justifiable reason.
The MeTC gave judgment for petitioner, describing private
respondents' defenses as "utterly flimsy." It rejected private
respondents' defense that they were not able to comply with
the requirement to replace wooden posts with concrete ones
because petitioner's son forbade them to do so. The MeTC
held that since petitioner's son was not a party to the contract,
only petitioner's waiver could excuse private respondents from
complying with their obligation under the lease contract. As
regards the failure of private respondents to pay the rents for
more than three months, the MeTC also rejected private
respondents' claim that the petitioner's son refused to accept
payment because even if this was true, private respondents
had a remedy of consigning the rentals in court. For these
reasons, the MeTC upheld petitioner's right to rescind the
contract even in the absence of judicial pronouncement. It
quoted the ruling in University of the Philippines v. De los
Angeles,1 reiterated in Lim v. Court of Appeals, 2 that a party
who deems the contract violated may consider it resolved and
rescinded and act accordingly without previous court action,
although it acts at its own risk as only the final judgment of a
court can finally determine his right.
On appeal, the RTC reversed the decision and dismissed the
case. First, with respect to the failure of private respondents to
replace the yakal posts with reinforced concrete ones, the RTC
said that, as private respondents alleged, it was not only
petitioner's son but petitioner as well who prevented private
respondents from replacing the wooden posts. In fact, private
respondents had already engaged the services of a contractor
to undertake the work.
With respect to the alleged failure of private respondents to
pay increased rent because of inflation or devaluation of the
Philippine peso, the RTC held that there had been no official
declaration of inflation or devaluation of the Philippine peso.
The RTC added that since the contract between the parties
already provided for an annual increase in the rent over a
period of ten years and for penalty of twenty (20) per cent  per
annum for every month of delay in the payment of the monthly
rental, the imposition of additional rent due to inflation or
devaluation of the Philippine peso would be exceedingly
unconscionable.
On the claim that because private respondents had been in
arrears for three months, the contract was terminated, the RTC
ruled that there was no delay in the payment of rent because
the case was brought on May 20, 1994, eleven (11) days
before the end of three (3) months since the arrears started, so
that petitioner had no cause of action against private
respondents.
The dispositive portion of the decision of the RTC reads:
Wherefore, finding reversible errors in
appealed decision of the lower court, this
Court hereby reverses the aforesaid decision
of the lower court and finds judgment in favor
of the defendant and that the aforesaid
decision is hereby dismissed and the plaintiff
is ordered to:
1. pay the defendant exemplary damages in
the amount of P50,000.00;
2. pay the defendant the amount of
P100,000.00 for and as attorney's fees and
expenses of litigation;
3. pay actual and compensatory damages in
the amount of P50,000.00; and
4. pay the costs.
On March 2, 1995, petitioner filed a petition for review in the
Court of Appeals, but the appellate court dismissed her petition
on March 13, 1995 for her failure to attach a certified true copy
of the decision of the MeTC as well as the corrected dispositive
portion of that decision, in addition to the certified true copy of
the decision of the RTC.
On March 29, 1995, petitioner filed a motion for
reconsideration but her motion was denied. Hence, this petition
for review on certiorari.
The petitioner assigns three (3) errors to wit: (1) the
respondent Court of Appeals erred in dismissing petitioner's
appeal from the decision of the RTC and denying petitioner's
motion for reconsideration; (2) the respondent RTC erred in
reversing the decision of the MeTC; and (3) the respondent
RTC erred in awarding damages of P50,000.00 as exemplary
damages, P100,000.00 as attorney's fees, and P50,000.00
actual and compensatory damages.
Petitioner argues that her lawyer's failure to attach a certified
true copy of the decision of the MeTC and the corrected
dispositive portion of that decision to her petition for review in
the Court of Appeals was due to an honest mistake and that
the mistake was made without bad faith.
The pertinent provision of the Revised Internal Rules of the
Court of Appeals (hereafter RIRCA), on the basis of which the
Court of Appeals dismissed petitioner's appeal, provides:
 Rule 6, §3(b). The petition shall be
accompanied by a certified true copy of the
disputed decisions, judgments, or orders of
the lower courts, together with true copies of
the pleadings and other material portions of
the record as would support the allegations
of the petition.
Petitioner's counsel claims that he thought that only a certified
true copy of the decision of the RTC had to be attached to the
petition for review which he filed because the decision of the
MeTC is not a "disputed decision" within the meaning of Rule
6, §3(b), it being favorable to her.
Petitioner is right that the MeTC's decision cannot be
considered a "disputed decision." The phrase is the equivalent
of "ruling, order or decision appealed from" in Rule 32, §2 of
the 1964 Rules made applicable to appeals from decisions of
the then Courts of First Instance to the Court of Appeals by
R.A. No. 296, as amended by R.A. No. 5433. Since petitioner
was not appealing from the decision of the MeTC in her favor,
she was not required to attach a certified true copy — but only
a true or plain copy — of the aforesaid decision of the MeTC.
The reason is that inclusion of the decision is part of the
requirement to attach to the petition for review "other material
portion of the record as would support the allegations of the
petition." Indeed, petitioner referred to the MeTC decision in
many parts of her petition for review in the Court of Appeals for
support of her theory.
Nonetheless, the Court of Appeals should have reconsidered
its dismissal of petitioner's appeal after petitioner submitted a
certified true copy of the MeTC's decision. It was clear from the
petition for review that the RTC incurred serious errors in
awarding damages to private respondents which were made
without evidence to support the award and without any
explanation. It should have been evident to the appellate court
that the RTC made these awards in gross disregard of the
rulings of this Court that, for example, no award of attorney's
fees can be made without an express finding of the facts that
bring the case within the exception in Art. 2208 of the Civil
Code.3
Indeed, there was compelling reason to set aside the
procedural defect in order to correct the patent injustice. "Rules
of procedure are but mere tools designed to facilitate the
attainment of justice, such that when rigid application of the
rules would tend to frustrate rather than promote substantial
justice, this Court empowered to suspend its operation."4
Coming now to the merits of the petition, we think petitioner is
right that the RTC erred in giving judgment for private
respondents because the fact is that the latter violated the
provisions of the lease contract, to wit: (1) failure of private
respondents to change the principal yakal posts on the fifth
year of the contract of lease and (2) to pay the rent for more
than three months on several occasions.
With respect to the first item (private respondents' failure to
change the yakal posts on the fifth year of the contract of
lease), while the MeTC found that it was the petitioner's son
who stopped the private respondents from changing the posts
and, hence, private respondents should not have felt bound to
comply with the order, the RTC found that it was not
petitioner's son alone but also petitioner who prevented the
private respondents from changing the yakal posts.5 The RTC
relied on the letter, dated March 23, 1994, of private
respondents' counsel to petitioner's counsel in which it was
claimed that private respondents did not replace the wooden
posts of the building with concrete ones because petitioner,
"through one of her children stated that it was unnecessary to
perform such changes at the time as it may alter the structure."
Private respondents said that they had in fact started to look
for contractors to undertake the work but petitioner prevented
them from doing so. This was denied by petitioner and indeed,
if it was true that petitioner did not want private respondents to
replace the posts, this was a modification of their contract.
Under paragraph 10 of the contract, the alleged agreement
would not be binding unless it was reduced in writing and was
duly signed by both of them. Indeed, the replacement of the
yakal posts on the fifth year of the contract was deemed by the
parties so important that its nonfulfillment is a ground for the
termination of the contract.
The second violation alleged (private respondents' failure to
pay the rent for three consecutive months, i.e., March, April
and May, 1994) was likewise proven. As already noted, the
RTC dismissed this allegation on the ground that when the
complaint against private respondent was filed on May 20,
1994 the period covered by private respondents' failure was
eleven (11) days short of three months. Hence, petitioner had
no cause of action against private respondents based on this
ground.
But, as petitioner correctly points out, under the contract of
lease (par. 12) the monthly rental was due on the first week of
the month so that, inasmuch as the rent for May 1994 was due
in the first week of May, private respondents' failure to pay
then, plus their previous default in payment of the rent for
March and April 1994, made them altogether in arrears for
three consecutive months. The error of the RTC lay in
assuming that the monthly rental fell due only at the end of the
month, which is contrary to the express agreement of the
parties. Pursuant to the contract, the failure to pay the rent for
the consecutive months resulted in the termination of the
lease.
Because of these violations of the lease contract by private
respondents there is ground, based on Art. 1673(3) of the Civil
Code, for their ejectment.6
But petitioner's last contention (that private respondents failed
to pay increased rent despite supervening inflation or
devaluation of the Philippine peso) is untenable. The provision
of Art. 1250 requires for its application a declaration of inflation
by the Central Bank. Without such declaration creditors cannot
demand an increase of what is due them.7
WHEREFORE, the resolutions of the Court of Appeals
dismissing the petition for review and denying reconsideration
are REVERSED and the decision of the Metropolitan Trial
Court is REINSTATED.
SO ORDERED.
G.R. No. 187678               April 10, 2013
SPOUSES IGNACIO F. JUICO and ALICE P.
JUICO, Petitioners,
vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, assailing the
February 20, 2009 Decision1 and April 27, 2009 Resolution2 of
the Court of Appeals (CA) in CA G.R. CV No. 80338. The CA
affirmed the April 14, 2003 Decision3 of the Regional Trial
Court (RTC) of Makati City, Branch 147.
The factual antecedents:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners)
obtained a loan from China Banking Corporation (respondent)
as evidenced by two Promissory Notes both dated October 6,
1998 and numbered 507-001051-34 and 507-001052-0,5 for the
sums of !!6,216,000 and ₱4, 139,000, respectively. The loan
was secured by a Real Estate Mortgage (REM) over
petitioners’ property located at 49 Greensville St., White Plains,
Quezon City covered by Transfer Certificate of Title (TCT) No.
RT-103568 (167394) PR-412086 of the Register of Deeds of
Quezon City.
When petitioners failed to pay the monthly amortizations due,
respondent demanded the full payment of the outstanding 04-Jan-2001 31 days @
balance with accrued monthly interests. On September 5, 21.50%. . . . . . . . . . . . . . . . . . . 75,579.27
2000, petitioners received respondent’s last demand
letter7 dated August 29, 2000. Interest on ₱4,139,000.00 fr. 04-Jan-
2001
As of February 23, 2001, the amount due on the two 04-Feb-2001 31 days @
promissory notes totaled ₱19,201,776.63 representing the 19.50%. . . . . . . . . . . . . . . . . . 68,548.64
principal, interests, penalties and attorney’s fees. On the same
day, the mortgaged property was sold at public auction, with Interest on ₱4,139,000.00 fr. 04-Feb-
respondent as highest bidder for the amount of ₱10,300,000. 2001

On May 8, 2001, petitioners received8 a demand letter9 dated 23-Feb-2001 19 days @

May 2, 2001 from respondent for the payment of 18.00%. . . . . . . . . . . . . . . . . . 38,781.86
₱8,901,776.63, the amount of deficiency after applying the
proceeds of the foreclosure sale to the mortgage debt. As its Penalty charge @ 1/10 of 1% of the
demand remained unheeded, respondent filed a collection suit total amount due
in the trial court. In its Complaint,10 respondent prayed that (₱4,139,000.00 from 11-04-99 to 02-23-
judgment be rendered ordering the petitioners to pay jointly 2001 @
and severally: (1) ₱8,901,776.63 representing the amount of 1/10 of 1% per day). . . . . . . . . . . . . . . . . 1,974,303.00
deficiency, plus interests at the legal rate, from February 23, Sub-
2001 until fully paid; (2) an additional amount equivalent to total. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1/10 of 1% per day of the total amount, until fully paid, as ... 7,002,110.73
penalty; (3) an amount equivalent to 10% of the foregoing
amounts as attorney’s fees; and (4) expenses of litigation and PN# 507-0010513 due on 04-07-2004
costs of suit. Principal balance of PN#
5070010513. . . . . . . . . . . . . . 6,216,000.00
In their Answer,11 petitioners admitted the existence of the debt Interest on ₱6,216,000.00 fr. 06-Oct-99
but interposed, by way of special and affirmative defense, that 04-Nov-2000 395 days @
the complaint states no cause of action considering that the 15.00%. . . . . . . . . . . . . . . . . 1,009,035.62
principal of the loan was already paid when the mortgaged
property was extrajudicially foreclosed and sold for Interest on ₱6,216,000.00 fr. 04-Nov-
₱10,300,000. Petitioners contended that should they be held 2000
liable for any deficiency, it should be only for ₱55,000 04-Dec-2000 30 days @
representing the difference between the total outstanding 24.50%. . . . . . . . . . . . . . . . . . 125,171.51
obligation of ₱10,355,000 and the bid price of ₱10,300,000.
Petitioners also argued that even assuming there is a cause of Interest on ₱6,216,000.00 fr. 04-Dec-
action, such deficiency cannot be enforced by respondent 2000
because it consists only of the penalty and/or compounded 04-Jan-2001 31 days @
interest on the accrued interest which is generally not favored 21.50%. . . . . . . . . . . . . . . . . . . 113,505.86
under the Civil Code. By way of counterclaim, petitioners
prayed that respondent be ordered to pay ₱100,000 in Interest on ₱6,216,000.00 fr. 04-Jan-
attorney’s fees and costs of suit. 2001
04-Feb-2001 31 days @
19.50%. . . . . . . . . . . . . . . . . . 102,947.18
At the trial, respondent presented Ms. Annabelle Cokai Yu, its
Senior Loans Assistant, as witness. She testified that she Interest on ₱6,216,000.00 fr. 04-Feb-
handled the account of petitioners and assisted them in 2001
processing their loan application. She called them monthly to 23-Feb-2001 19 days @
inform them of the prevailing rates to be used in computing 18.00%. . . . . . . . . . . . . . . . . . 58,243.07
interest due on their loan. As of the date of the public auction,
petitioners’ outstanding balance was ₱19,201,776.6312 based Penalty charge @ 1/10 of 1% of the
on the following statement of account which she prepared: total amount due
(₱6,216,000.00 from 10-06-99 to 02-23-
2001 @
STATEMENT OF ACCOUNT 1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00
As of FEBRUARY 23, 2001
IGNACIO F. JUICO Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . .
...... 10,770,199.23
PN# 507-0010520 due on 04-07-2004
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .
1âwphi1 ....... 17,772,309.96

Principal balance of PN#

Less: A/P applied to balance of principal (55,000.00)
5070010520. . . . . . . . . . . . . . 4,139,000.00
Less: Accounts payable L & D
(261,149.39) 17,456,160.57
Interest on ₱4,139,000.00 fr. 04-Nov-99

04-Nov-2000 366 days @

Add: 10% Attorney’s Fee 1,745,616.06
15.00%. . . . . . . . . . . . . . . . . 622,550.96

Interest on ₱4,139,000.00 fr. 04-Nov-

Total amount due 19,201,776.63
2000

04-Dec-2000 30 days @
Less: Bid Price 10,300,000.00
24.50%. . . . . . . . . . . . . . . . . . 83,346.99
TOTAL DEFICIENCY AMOUNT AS OF
Interest on ₱4,139,000.00 fr. 04-Dec- FEB. 23, 2001 8,901,776.63 13

2000
Petitioners thereafter received a demand letter14 dated May 2,
2001 from respondent’s counsel for the deficiency amount of
₱8,901,776.63. Ms. Yu further testified that based on the
Statement of Account15 dated March 15, 2002 which she
prepared, the outstanding balance of petitioners was
₱15,190,961.48.16
On cross-examination, Ms. Yu reiterated that the interest rate
changes every month based on the prevailing market rate and
she notified petitioners of the prevailing rate by calling them
monthly before their account becomes past due. When asked if
there was any written authority from petitioners for respondent
to increase the interest rate unilaterally, she answered that
petitioners signed a promissory note indicating that they
agreed to pay interest at the prevailing rate.17
Petitioner Ignacio F. Juico testified that prior to the release of
the loan, he was required to sign a blank promissory note and
was informed that the interest rate on the loan will be based on
prevailing market rates. Every month, respondent informs him
by telephone of the prevailing interest rate. At first, he was able
to pay his monthly amortizations but when he started to incur
delay in his payments due to the financial crisis, respondent
pressured him to pay in full, including charges and interests for
the delay. His property was eventually foreclosed and was sold
at public auction.18
On cross-examination, petitioner testified that he is a Doctor of
Medicine and also engaged in the business of distributing
medical supplies. He admitted having read the promissory
notes and that he is aware of his obligation under them before
he signed the same.19
In its decision, the RTC ruled in favor of respondent. The fallo
of the RTC decision reads:
WHEREFORE, premises considered, the Complaint is hereby
sustained, and Judgment is rendered ordering herein
defendants to pay jointly and severally to plaintiff, the following:
1. ₱8,901,776.63 representing the amount of the
deficiency owing to the plaintiff, plus interest thereon
at the legal rate after February 23, 2001;
2. An amount equivalent to 10% of the total amount
due as and for attorney’s fees, there being stipulation
therefor in the promissory notes;
3. Costs of suit.
SO ORDERED.20
The trial court agreed with respondent that when the
mortgaged property was sold at public auction on February 23,
2001 for ₱10,300,000 there remained a balance of
₱8,901,776.63 since before foreclosure, the total amount due
on the two promissory notes aggregated to ₱19,201,776.63
inclusive of principal, interests, penalties and attorney’s fees. It
ruled that the amount realized at the auction sale was applied
to the interest, conformably with Article 1253 of the Civil Code
which provides that if the debt produces interest, payment of
the principal shall not be deemed to have been made until the
interests have been covered. This being the case, petitioners’
principal obligation subsists but at a reduced amount of
₱8,901,776.63.
The trial court further held that Ignacio’s claim that he signed
the promissory notes in blank cannot negate or mitigate his
liability since he admitted reading the promissory notes before
signing them. It also ruled that considering the substantial
amount involved, it is unbelievable that petitioners threw all
caution to the wind and simply signed the documents without
reading and understanding the contents thereof. It noted that
the promissory notes, including the terms and conditions, are
pro forma and what appears to have been left in blank were
the promissory note number, date of the instrument, due date,
amount of loan, and condition that interest will be at the
prevailing rates. All of these details, the trial court added, were
within the knowledge of the petitioners.
When the case was elevated to the CA, the latter affirmed the
trial court’s decision. The CA recognized respondent’s right to
claim the deficiency from the debtor where the proceeds of the
sale in an extrajudicial foreclosure of mortgage are insufficient
to cover the amount of the debt. Also, it found as valid the
stipulation in the promissory notes that interest will be based
on the prevailing rate. It noted that the parties agreed on the
interest rate which was not unilaterally imposed by the bank
but was the rate offered daily by all commercial banks as
approved by the Monetary Board. Having signed the
promissory notes, the CA ruled that petitioners are bound by
the stipulations contained therein.
Petitioners are now before this Court raising the sole issue of
whether the interest rates imposed upon them by respondent
are valid. Petitioners contend that the interest rates imposed by
respondent are not valid as they were not by virtue of any law
or Bangko Sentral ng Pilipinas (BSP) regulation or any
regulation that was passed by an appropriate government
entity. They insist that the interest rates were unilaterally
imposed by the bank and thus violate the principle of mutuality
of contracts. They argue that the escalation clause in the
promissory notes does not give respondent the unbridled
authority to increase the interest rate unilaterally. Any change
must be mutually agreed upon.
Respondent, for its part, points out that petitioners failed to
show that their case falls under any of the exceptions wherein
findings of fact of the CA may be reviewed by this Court. It
contends that an inquiry as to whether the interest rates
imposed on the loans of petitioners were supported by
appropriate regulations from a government agency or the
Central Bank requires a reevaluation of the evidence on
records. Thus, the Court would in effect, be confronted with a
factual and not a legal issue.
The appeal is partly meritorious.
The principle of mutuality of contracts is expressed in Article
1308 of the Civil Code, which provides:
Article 1308. The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of
them. Article 1956 of the Civil Code likewise ordains that "no
interest shall be due unless it has been expressly stipulated in
writing."
The binding effect of any agreement between parties to a
contract is premised on two settled principles: (1) that any
obligation arising from contract has the force of law between
the parties; and (2) that there must be mutuality between the
parties based on their essential equality. Any contract which
appears to be heavily weighed in favor of one of the parties so
as to lead to an unconscionable result is void. Any stipulation
regarding the validity or compliance of the contract which is left
solely to the will of one of the parties, is likewise, invalid.21
Escalation clauses refer to stipulations allowing an increase in
the interest rate agreed upon by the contracting parties. This
Court has long recognized that there is nothing inherently
wrong with escalation clauses which are valid stipulations in
commercial contracts to maintain fiscal stability and to retain
the value of money in long term contracts.22 Hence, such
stipulations are not void per se.23
Nevertheless, an escalation clause "which grants the creditor
an unbridled right to adjust the interest independently and
upwardly, completely depriving the debtor of the right to assent
to an important modification in the agreement" is void. A
stipulation of such nature violates the principle of mutuality of
contracts.24 Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of
increases in the rate of interest provided in loan contracts.25
In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the
escalation clause stated: "I/We hereby authorize Banco Filipino
to correspondingly increase the interest rate stipulated in this
contract without advance notice to me/us in the event a law
should be enacted increasing the lawful rates of interest that
may be charged on this particular kind of loan." While
escalation clauses in general are considered valid, we ruled
that Banco Filipino may not increase the interest on
respondent borrower’s loan, pursuant to Circular No. 494
issued by the Monetary Board on January 2, 1976, because
said circular is not a law although it has the force and effect of
law and the escalation clause has no provision for reduction of
the stipulated interest "in the event that the applicable
maximum rate of interest is reduced by law or by the Monetary
Board" (de-escalation clause).
Subsequently, in Insular Bank of Asia and America v. Spouses
Salazar27 we reiterated that escalation clauses are valid
stipulations but their enforceability are subject to certain
conditions. The increase of interest rate from 19% to 21% per
annum made by petitioner bank was disallowed because it did
not comply with the guidelines adopted by the Monetary Board
to govern interest rate adjustments by banks and non-banks
performing quasi-banking functions.
In the 1991 case of Philippine National Bank v. Court of
Appeals,28 the promissory notes authorized PNB to increase
the stipulated interest per annum "within the limits allowed by
law at any time depending on whatever policy PNB may adopt
in the future; Provided, that, the interest rate on this note shall
be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary
Board." This Court declared the increases (from 18% to 32%,
then to 41% and then to 48%) unilaterally imposed by PNB to
be in violation of the principle of mutuality essential in
contracts.29
A similar ruling was made in a 1994 case30 also involving PNB
where the credit agreement provided that "PNB reserves the
right to increase the interest rate within the limits allowed by
law at any time depending on whatever policy it may adopt in
the future: Provided, that the interest rate on this
accommodation shall be correspondingly decreased in the
event that the applicable maximum interest is reduced by law
or by the Monetary Board x x x".
Again, in 1996, the Court invalidated escalation clauses
authorizing PNB to raise the stipulated interest rate at any time
without notice, within the limits allowed by law. The Court
observed that there was no attempt made by PNB to secure
the conformity of respondent borrower to the successive
increases in the interest rate. The borrower’s assent to the
increases cannot be implied from their lack of response to the
letters sent by PNB, informing them of the increases.31
In the more recent case of Philippine Savings Bank v.
Castillo,32 we sustained the CA in declaring as unreasonable
the following escalation clause: "The rate of interest and/or
bank charges herein stipulated, during the terms of this
promissory note, its extensions, renewals or other
modifications, may be increased, decreased or otherwise
changed from time to time within the rate of interest and
charges allowed under present or future law(s) and/or
government regulation(s) as the PSBank may prescribe for its
debtors." Clearly, the increase or decrease of interest rates
under such clause hinges solely on the discretion of petitioner
as it does not require the conformity of the maker before a new
interest rate could be enforced. We also said that respondents’
assent to the modifications in the interest rates cannot be
implied from their lack of response to the memos sent by
petitioner, informing them of the amendments, nor from the
letters requesting for reduction of the rates. Thus:
… the validity of the escalation clause did not give petitioner
the unbridled right to unilaterally adjust interest rates. The
adjustment should have still been subjected to the mutual
agreement of the contracting parties. In light of the absence of
consent on the part of respondents to the modifications in the
interest rates, the adjusted rates cannot bind them
notwithstanding the inclusion of a de-escalation clause in the
loan agreement.33
It is now settled that an escalation clause is void where the
creditor unilaterally determines and imposes an increase in the
stipulated rate of interest without the express conformity of the
debtor. Such unbridled right given to creditors to adjust the
interest independently and upwardly would completely take
away from the debtors the right to assent to an important
modification in their agreement and would also negate the
element of mutuality in their contracts.34 While a ceiling on
interest rates under the Usury Law was already lifted under
Central Bank Circular No. 905, nothing therein "grants lenders
carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of
their assets."35
The two promissory notes signed by petitioners provide:
I/We hereby authorize the CHINA BANKING CORPORATION
to increase or decrease as the case may be, the interest
rate/service charge presently stipulated in this note without any
advance notice to me/us in the event a law or Central Bank
regulation is passed or promulgated by the Central Bank of the
Philippines or appropriate government entities, increasing or
decreasing such interest rate or service charge.36
Such escalation clause is similar to that involved in the case of
Floirendo, Jr. v. Metropolitan Bank and Trust Company37 where
this Court ruled:
The provision in the promissory note authorizing respondent
bank to increase, decrease or otherwise change from time to
time the rate of interest and/or bank charges "without advance
notice" to petitioner, "in the event of change in the interest rate
prescribed by law or the Monetary Board of the Central Bank of
the Philippines," does not give respondent bank unrestrained
freedom to charge any rate other than that which was agreed
upon. Here, the monthly upward/downward adjustment of
interest rate is left to the will of respondent bank alone. It
violates the essence of mutuality of the contract.38
More recently in Solidbank Corporation v. Permanent Homes,
Incorporated,39 we upheld as valid an escalation clause which
required a written notice to and conformity by the borrower to
the increased interest rate. Thus:
The Usury Law had been rendered legally ineffective by
Resolution No. 224 dated 3 December 1982 of the Monetary
Board of the Central Bank, and later by Central Bank Circular
No. 905 which took effect on 1 January 1983. These circulars
removed the ceiling on interest rates for secured and
unsecured loans regardless of maturity. The effect of these
circulars is to allow the parties to agree on any interest that
may be charged on a loan. The virtual repeal of the Usury Law
is within the range of judicial notice which courts are bound to
take into account. Although interest rates are no longer subject
to a ceiling, the lender still does not have an unbridled license
to impose increased interest rates. The lender and the
borrower should agree on the imposed rate, and such imposed
rate should be in writing.
The three promissory notes between Solidbank and
Permanent all contain the following provisions:
"5. We/I irrevocably authorize Solidbank to increase or
decrease at any time the interest rate agreed in this Note or
Loan on the basis of, among others, prevailing rates in the
local or international capital markets. For this purpose, We/I
authorize Solidbank to debit any deposit or placement account
with Solidbank belonging to any one of us. The adjustment of
the interest rate shall be effective from the date indicated in the
written notice sent to us by the bank, or if no date is indicated,
from the time the notice was sent.
6. Should We/I disagree to the interest rate adjustment, We/I
shall prepay all amounts due under this Note or Loan within
thirty (30) days from the receipt by anyone of us of the written
notice. Otherwise, We/I shall be deemed to have given our
consent to the interest rate adjustment."
The stipulations on interest rate repricing are valid because (1)
the parties mutually agreed on said stipulations; (2) repricing
takes effect only upon Solidbank’s written notice to Permanent
of the new interest rate; and (3) Permanent has the option to
prepay its loan if Permanent and Solidbank do not agree on
the new interest rate. The phrases "irrevocably authorize," "at
any time" and "adjustment of the interest rate shall be effective
from the date indicated in the written notice sent to us by the
bank, or if no date is indicated, from the time the notice was
sent," emphasize that Permanent should receive a written
notice from Solidbank as a condition for the adjustment of the
interest rates. (Emphasis supplied.)
In this case, the trial and appellate courts, in upholding the
validity of the escalation clause, underscored the fact that there
was actually no fixed rate of interest stipulated in the
promissory notes as this was made dependent on prevailing
rates in the market. The subject promissory notes contained
the following condition written after the first paragraph:
With one year grace period on principal and thereafter payable
in 54 equal monthly instalments to start on the second year.
Interest at the prevailing rates payable quarterly in arrears.40
In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder
assailed the trial and appellate courts in ruling for the validity of
the escalation clause in the Cardholder’s Agreement. On
petitioner’s contention that the interest rate was unilaterally
imposed and based on the standards and rate formulated
solely by respondent credit card company, we held:
The contractual provision in question states that "if there
occurs any change in the prevailing market rates, the new
interest rate shall be the guiding rate in computing the interest
due on the outstanding obligation without need of serving
notice to the Cardholder other than the required posting on the
monthly statement served to the Cardholder." This could not be
considered an escalation clause for the reason that it neither
states an increase nor a decrease in interest rate. Said clause
simply states that the interest rate should be based on the
prevailing market rate.
Interpreting it differently, while said clause does not expressly
stipulate a reduction in interest rate, it nevertheless provides a
leeway for the interest rate to be reduced in case the prevailing
market rates dictate its reduction.
Admittedly, the second paragraph of the questioned proviso
which provides that "the Cardholder hereby authorizes Security
Diners to correspondingly increase the rate of such interest in
the event of changes in prevailing market rates x x x" is an
escalation clause. However, it cannot be said to be dependent
solely on the will of private respondent as it is also dependent
on the prevailing market rates.
Escalation clauses are not basically wrong or legally
objectionable as long as they are not solely potestative but
based on reasonable and valid grounds. Obviously, the
fluctuation in the market rates is beyond the control of private
respondent.42 (Emphasis supplied.)
In interpreting a contract, its provisions should not be read in
isolation but in relation to each other and in their entirety so as
to render them effective, having in mind the intention of the
parties and the purpose to be achieved. The various
stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result
from all of them taken jointly.43
Here, the escalation clause in the promissory notes authorizing
the respondent to adjust the rate of interest on the basis of a
law or regulation issued by the Central Bank of the Philippines,
should be read together with the statement after the first
paragraph where no rate of interest was fixed as it would be
based on prevailing market rates. While the latter is not strictly
an escalation clause, its clear import was that interest rates
would vary as determined by prevailing market rates.
Evidently, the parties intended the interest on petitioners’ loan,
including any upward or downward adjustment, to be
determined by the prevailing market rates and not dictated by
respondent’s policy. It may also be mentioned that since the
deregulation of bank rates in 1983, the Central Bank has
shifted to a market-oriented interest rate policy.44
There is no indication that petitioners were coerced into
agreeing with the foregoing provisions of the promissory notes.
In fact, petitioner Ignacio, a physician engaged in the medical
supply business, admitted having understood his obligations
before signing them. At no time did petitioners protest the new
rates imposed on their loan even when their property was
foreclosed by respondent.
This notwithstanding, we hold that the escalation clause is still
void because it grants respondent the power to impose an
increased rate of interest without a written notice to petitioners
and their written consent. Respondent’s monthly telephone
calls to petitioners advising them of the prevailing interest rates
would not suffice. A detailed billing statement based on the
new imposed interest with corresponding computation of the
total debt should have been provided by the respondent to
enable petitioners to make an informed decision. An
appropriate form must also be signed by the petitioners to
indicate their conformity to the new rates. Compliance with
these requisites is essential to preserve the mutuality of
contracts. For indeed, one-sided impositions do not have the
force of law between the parties, because such impositions are
not based on the parties’ essential equality.45
Modifications in the rate of interest for loans pursuant to an
escalation clause must be the result of an agreement between
the parties. Unless such important change in the contract
terms is mutually agreed upon, it has no binding effect.46 In the
absence of consent on the part of the petitioners to the
modifications in the interest rates, the adjusted rates cannot
bind them. Hence, we consider as invalid the interest rates in
excess of 15%, the rate charged for the first year.
Based on the August 29, 2000 demand letter of China Bank,
petitioners’ total principal obligation under the two promissory
notes which they failed to settle is ₱10,355,000. However, due
to China Bank’s unilateral increases in the interest rates from
15% to as high as 24.50% and penalty charge of 1/10 of 1%
per day or 36.5% per annum for the period November 4, 1999
to February 23, 2001, petitioners’ balance ballooned to
₱19,201,776.63. Note that the original amount of principal loan
almost doubled in only 16 months. The Court also finds the
penalty charges imposed excessive and arbitrary, hence the
same is hereby reduced to 1% per month or 12% per
annum.1âwphi1
Petitioners’ Statement of Account, as of February 23, 2001, the
date of the foreclosure proceedings, should thus be modified
as follows:
Principal ₱10,355,000.00
Interest at 15% per annum
₱10,355,000 x .15 x 477 days/365 days 2,029,863.70
Penalty at 12% per annum 1,623 ,890. 96
₱10,355,000 x .12 x 477days/365 days
Sub-Total 14,008,754.66
Less: A/P applied to balance of principal (55,000.00)
Less: Accounts payable L & D (261,149.39)
13,692,605.27
Add: Attorney's Fees 1,369,260.53
Total Amount Due 15,061,865.79
Less: Bid Price 10,300,000.00
TOTAL DEFICIENCY AMOUNT 4,761,865.79
WHEREFORE, the petition for review on certiorari is PARTLY
GRANTED. The February 20, 2009 · Decision and April 27,
2009 Resolution of the Court of Appeals in CA G.R. CV No.
80338 are hereby MODIFIED. Petitioners Spouses Ignacio F.
Juico and Alice P. Juico are hereby ORDERED to pay jointly
and severally respondent China Banking Corporation ₱4, 7
61 ,865. 79 representing the amount of deficiency inclusive of
interest, penalty charge and attorney's fees. Said amount shall
bear interest at 12% per annum, reckoned from the time of the
filing of the complaint until its full satisfaction.

No pronouncement as to costs.

SO ORDERED.