EN BANC Held: It is true that the Bank of Taiwan, Ltd.

was
the original creditor and the transaction between
[G.R. No. L-20240. December 31, 1965.] the appellant and the Bank of Taiwan was a private
contract of loans. However, pursuant to the
REPUBLIC OF THE PHILIPPINES, Trading with the Enemy Act, as amended, and
plaintiff-appellee, vs. Executive Order No. 9095 of the United States;
JOSE and under Vesting Order No. P-4, dated January
21, 1946, the properties of the Bank of Taiwan,
GRIJALDO, defendant-appellant. Ltd., an entity which was declared to be under the
jurisdiction of the enemy country (Japan), were
vested in the United States Government.
Solicitor General for plaintiff-appellee. Pursuant, further, to the Philippine Property Act of
1946 and Transfer Agreement dated July 20, 1954
Isabelo P. Samson for defendants-appellant. and June 15, 1957, between the United States
Government and the Republic of the Philippines,
the assets of the Bank of Taiwan, Ltd., were
SYLLABUS transferred to and vested in the Republic of the
Philippines. The successive transfers of the rights
1. OBLIGATIONS AND CONTRACTS; over the loans in question from the Bank of
CROP LOANS OBTAINED FROM THE BANK OF Taiwan, Ltd. to the United States Government, and
TAIWAN, LTD.; RIGHT OF PHILIPPINE from the United States Government to the
GOVERNMENT TO COLLECT THE LOANS. — In government of the Republic of the Philippines,
1943, appellant obtained crop loans from the Bank made the Republic of the Philippines the
of Taiwan, Ltd., Bacolod City Branch evidenced by successor of the rights, title and interest in said
promissory notes. To secure payment of the loans, loans, thereby creating a privity of contract
appellant executed a chattel mortgage over the between the appellee and the appellant.
standing crops on his land. After the war, the
Republic of the Philippines brought the present 2. ID.; ID,; ID.; DESTRUCTION OF
action to collect from appellant the unpaid account CROP THROUGH ENEMY ACTION; EFFECT ON
THE OBLIGATION. — Appellant maintains, in not run against the right of action of the
support of his contention that the appellee has no Government of the Philippines (Government of the
cause of action, that because the loans were Philippine Islands vs. Monte de Piedad, etc., 35
secured by a chattel mortgage on the standing Phil. 738-751).
crops on the land owned by him and those crops
were lost or destroyed through enemy action his 4. ID.; ID.; ID.; ID.; EFFECT OF
obligation to pay the loans was thereby MORATORIUM LAWS. — Moreover, the running
extinguished. Held: This argument is untenable. of the period of prescription of the action to collect
The obligation of the appellant under the the loan from the appellant was interrupted by the
promissory notes was not to deliver a determinate moratorium laws (Executive Order No. 25, dated
thing; namely, the crops to be harvested from his November 18, 1944; Executive Order No. 32,
land, but to pay a generic thing - the amount of dated March 10, 1945; and Republic Act No. 342
money representing the total sum of his loans, with approved on July 26, 1948). Computed
interest. The chattel mortgage on the crops simply accordingly, the prescriptive period was
stood as a security for the ful llment of appellant's suspended for 8 years and 6 months. Hence,
obligation covered by the promissory notes, and appellee's action had not yet prescribed.
the loss of the crops did not extinguish his
obligation to pay, because the account could still 5. ID.; ID.; ID.; PAYMENT IN
be paid from other sources aside from the JAPANESE WAR NOTES; APPLICATION OF
mortgaged crops. BALLANTYNE SCALE OF VALUE. — Contracts
stipulating for payments presumably in Japanese
ID.; ID.; ID.; PRESCRIPTION OF ACTIONS; war notes may be enforced after the liberation to
PRESCRIPTION DOES NOT RUN AGAINST THE the extent of the just obligation of the contracting
GOVERNMENT. — The complaint in the present parties and, as said notes have become worthless,
case was brought by the Republic of the in order that justice may be done and the party
Philippines not as a nominal party but in the entitled to be paid can recover their actual value in
exercise of its sovereign functions, to protect the Philippine Currency, what the debtor or defendant
interests of the State over a public property. This bank should return or pay is the value of the
Court has held that the statute of limitations does Japanese military notes in relation to the peso in
 Philippine Currency obtaining on the date when as Hacienda Campugas in Hinigaran, Negros
and at the place where the obligation was incurred Occidental.
unless the parties had agreed otherwise. (Hilado
vs. De la Costa, L-150, April 30, 1950, 46 Off. Gaz. By virtue of Vesting Order No. P-4, dated January 21,
5472.) 1946, and under the authority provided for in the Trading
with the Enemy Act, as amended, the assets in the
Philippines of the Bank of Taiwan, Ltd. were vested in
the Government of the United States. Pursuant to the
DECISION Philippine Property Act of 1946 of the United States,
these assets, including the loans in question, were
ZALDIVAR, J p: subsequently transferred to the Republic of the
Philippines by the Government of the United States
under Transfer Agreement dated July 20, 1954. These
In the year 1943 appellant Jose Grijaldo obtained five assets were among the properties that were placed
loans from the branch office of the Bank of Taiwan, under the administration of the Board of Liquidators
Ltd. in Bacolod City, in the total sum of P1,281.97 with created under Executive Order No. 372, dated
interest at the rate of 6% per annum, compounded November 24, 1950, and in accordance with Republic
quarterly. These loans are evidenced by five Act Nos. 8 and 477 and other pertinent laws.
promissory notes executed by the appellant in favor On September 29, 1954 the appellee, Republic of
of the Bank of Taiwan, Ltd., as follows: On June 1, the Philippines, represented by the Chairman of the
1943, P600.00; on June 3, 1943, P159.11; on June Board of Liquidators, made a written extra-judicial
18, 1943, P22.86; on August 9, 1943, P300.00; on demand upon the appellant for the payment of the
August 13, 1943, P200.00, all notes without due account in question. The record shows that the
dates, but because the loans were crop loans it was appellant had actually received the written demand
considered that the loans were due one year after for payment, but he failed to pay.
they were incurred. To secure the payment of the The aggregate amount due as principal of the ve
loans the appellant executed a chattel mortgage on loans in question, computed under the Ballantyne
the standing crops on his land, Lot No. 1494 known scale of values as of the time that the loans were
incurred in 1943, was P889.64; and the interest due
thereon at the rate of 6% per annum compounded legal heirs of Jose Grijaldo, to appear and be
quarterly, computed as of December 31, 1959 was substituted as appellants in accordance with
P1,457.39; so that the total account as of December Section 17 of Rule 3 of the Rules of Court.
31, 1959 was P2,377.23.
In the present appeal the appellant
On January 17, 1961 the appellee led a contends: (1) that the appellee has no cause of
complaint in the Justice of the Peace Court of action against the appellant; (2) that if the appellee
Hinigaran, Negros Occidental, to collect from the has cause of action at all, that action had
appellant the unpaid account in question. The prescribed; and (3) that the lower court erred in
Justice of the Peace of Hinigaran, after hearing, ordering the appellant to pay the amount of
dismissed the case on the ground that the action P2,377.23.
had prescribed. The appellee appealed to the
Court of First Instance of Negros Occidental and In discussing his rst point of contention, the appellant
on March 26, 1962 the court a quo rendered a maintains that the appellee has no privity of contract
decision ordering the appellant to pay the appellee with the appellant. It is claimed that the transaction
the sum of P2,377.23 as of December 31, 1959, involved in this case was a private transaction between
plus interest at the rate of 6% per annum the Taiwan Bank, Ltd. and the appellant, so that the
compounded quarterly from the date of the ling of appellee, Republic of the Philippines, could not legally
the complaint until full payment was made. The bring action against the appellant for the enforcement of
appellant was also ordered to pay the sum the obligation involved in said transaction. This
equivalent to 10% of the amount due as attorney's contention has no merit. It is true that the Bank of
fees and the costs. Taiwan, Ltd. was the original creditor and the
transaction between the appellant and the Bank of
The appellant appealed directly to this Court. Taiwan was a private contract of loan. However,
During the pendency of this appeal the appellant pursuant to the Trading with the Enemy Act, as
Jose Grijaldo died. Upon motion by the Solicitor amended, and Executive Order No. 9095 of the United
General this Court, in a resolution of May 13, 1963, States; and under Vesting Order No. P- 4, dated
required Manuel Lagtapon, Jacinto Lagtapon, January 21, 1946, the properties of the Bank of Taiwan,
Ruben Lagtapon and Anita L. Aguilar, who are the Ltd., an entity which was declared to be under the
jurisdiction of the enemy country (Japan), were vested
in the United States Government. Pursuant, further, to The United States of America acting as a belligerent
the Philippine Property Act of 1946 and Transfer sovereign power seized the assets of the Bank of
Agreements dated July 20, 1954 and June 1957, Taiwan, Ltd. which belonged to an enemy country.
between the United States Government and the The confiscation of the assets of the Bank of Taiwan,
Republic of the Philippines, the assets of the Bank of Ltd. being an involuntary act of war, and sanctioned
Taiwan, Ltd. were transferred to and vested in the by international law, the United States succeeded to
Republic of the Philippines. The successive transfers of the rights and interests of said Bank of Taiwan, Ltd.
the rights over the loans in question from the Bank of over the assets of said bank. As successor in interest
Taiwan, Ltd. to the United States Government, and from in, and transferee of, the property rights of the United
the United States Government to the government of the States of America over the loans in question, the
Republic of the Philippines, made the Republic of the Republic of the Philippines had thereby become a
Philippines the successor of the rights, title and interests privy to the original contracts of loan between the
in said loans, thereby creating a privity of contract Bank of Taiwan, Ltd. and the appellant. It follows,
between the appellee and the appellant. In de ning the therefore, that the Republic of the Philippines has a
word "privy" this Court, in a case, said: legal right to bring the present action against the
"The word `privy' denotes appellant Jose Grijaldo.
the idea of succession . . . hence,
an assignee of a credit, and one The appellant likewise maintains, in support
subrogated to it, etc. will be privies; of his contention that the appellee has no cause of
in short, he who, by succession is action, that because the loans were secured by a
placed in the position of one of chattel mortgage on the standing crops on a land
those who contracted the juridical owned by him and those crops were lost or
relation and executed the private destroyed through enemy action his obligation to
document and appears to be pay the loans was thereby extinguished. This
substituting him in his personal argument is untenable. The terms of the
rights and obligation is a privy" promissory notes and the chattel mortgage that the
(Alpuerto vs. Perez, 38 Phil. 785, appellant executed in favor of the Bank of Taiwan,
790). Ltd. do not support the claim of appellant. The
obligation of the appellant under the ve promissory the ful llment of appellant's obligation covered by
notes was not to deliver a determinate thing; the ve promissory notes, and the loss of the crops
namely, the crops to be harvested from his land, or did not extinguish his obligation to pay, because
the value of the crops that would be harvested from the account could still be paid from other sources
his land. Rather, his obligation was to pay a aside from the mortgaged crops.
generic thing the amount of money representing
the total sum of the ve loans, with interest. The In his second point of contention, the
transaction between the appellant and the Bank of appellant maintains that the action of the appellee
Taiwan, Ltd. was a series of ve contracts of simple had prescribed. The appellant points out that the
loan of sums of money. "By a contract of (simple) loans became due on June 1, 1944; and when the
loan, one of the parties delivers to another . . . complaint was led on January 17, 1961 a period of
money or other consumable thing upon the more than 16 years had already elapsed — far
condition that the same amount of the same kind beyond the period of ten years when an action
and quality shall be paid." (Article 1933, Civil based on a written contract should be brought to
Code.) The obligation of the appellant under the ve court.
promissory notes evidencing the loans in question
is to pay the value thereof; that is, to deliver a sum This contention of the appellant has no merit.
of money — a clear case of an obligation to deliver Firstly, it should be considered that the complaint
a generic thing. Article 1263 of the Civil Code in the present case was brought by the Republic of
provides: the Philippines not as a nominal party but in the
exercise of its sovereign functions, to protect the
"In an obligation to deliver a interests of the State over a public property. Under
generic thing, the loss or paragraph 4 of Article 1108 of the Civil Code
destruction of anything of the same prescription, both acquisitive and extinctive, does
kind does not extinguish the not run against the State. This Court has held that
obligation." the statute of limitations does not run against the
right of action of the Government of the Philippines
The chattel mortgage on the crops growing (Government of the Philippine Islands vs. Monte
on appellant's land simply stood as a security for de Piedad, etc. 35 Phil. 738-751). Secondly, the
running of the period of prescription of the action Nos. 25 and 32 were declared unconstitutional by
to collect the loan from the appellant was this Court. Computed accordingly, the prescriptive
interrupted by the moratorium laws (Executive period was suspended for 8 years and 6 months.
Order No. 25, dated November 18, 1944; By the appellant's own admission, the cause of
Executive Order No. 32, dated March 10, 1945; action on the ve promissory notes in question
and Republic Act No. 342, approved on July 26, arose on June 1, 1944. The complaint in the
1948). The loan in question, as evidenced by the present case was led on January 17, 1961, or after
ve promissory notes, were incurred in the year a period of 16 years 6 months and 16 days when
1943, or during the period of Japanese occupation the cause of action arose. If the prescriptive period
of the Philippines. This case is squarely covered was not interrupted by the moratorium laws, the
by Executive Order No. 25, which became action would have prescribed already; but, as We
effective on November 18, 1944, providing for the have stated, the prescriptive period was
suspension of payments of debts incurred after suspended by the moratorium laws for a period of
December 31, 1941. The period of prescription 8 years and 6 months. If we deduct the period of
was, therefore, suspended beginning November suspension (8 years and 6 months) from the period
18, 1944. This Court, in the case of Rutter vs. that elapsed from the time the cause of action
Esteban (L-3708, May 18, 1953; 93 Phil. 68), arose to the time when the complaint was led (16
declared on May 18, 1953 that the Moratorium years, 6 months and 16 days) there remains a
Laws, R.A. No. 342 and Executive Order Nos. 25 period of 8 years and 16 days. In other words, the
and 32, are unconstitutional; but in that case this prescriptive period run for only 8 years and 16
Court ruled that the moratorium laws had days. There still remained a period of one year, 11
suspended the prescriptive period until May 18, months and 14 days of the prescriptive period
1953. This ruling was categorically reiterated in the when the complaint was filed.
decision in the case of Manila Motors vs. Flores, L-
9396, August 16, 1956. It follows, therefore, that In his third point of contention the appellant
the prescriptive period in the case now before Us maintains that the lower court erred in ordering him
was suspended from November 18, 1944, when to pay the amount of P2,377.23. It is claimed by
Executive Order No. 25 took effect, until May 18, the appellant that it was an error on the part of the
1953 when R.A. 342 along with Executive Order lower court to apply the Ballantyne Scale of values
in evaluating the Japanese war notes as of June in June 1943. This stand of the appellee was
1943 when the loans were incurred, because what upheld by the lower court; and the decision of the
should be done is to evaluate the loans on the lower court is supported by the ruling of this Court
basis of the Ballantyne scale as of the time the in the case of Hilado vs. De la Costa (83 Phil. 471;
loans became due, and that was in June 1944. 46 O. G., 5472), which states:
This contention of the appellant is also without
merit. ". . . Contracts stipulating for
payments presumably in Japanese
The decision of the court a quo ordered the appellant war notes may be enforced in our
to pay the sum of P2,377.23 as of December 31, Courts after the liberation to the
1959, plus interest at the rate of 6% per annum extent of the just obligation of the
compounded quarterly from the date of the ling of the contracting parties and, as said
complaint, The sum total of the ve loans obtained by notes have become worthless, in
the appellant from the Bank of Taiwan, Ltd. was order that justice may be done and
P1,281.97 in Japanese war notes. Computed under the party entitled to be paid can
the Ballantyne Scale of values as of June 1943, this recover their actual value in
sum of P1,281.97 in Japanese war notes in June Philippine Currency, what the
1943 is equivalent to P889.64 in genuine Philippine debtor or defendant bank should
Currency. It is this amount of P889.64 in genuine return or pay is the value of the
Philippine Currency which was considered the Japanese military notes in relation
aggregate amount due as principal of the ve loans, to the peso in Philippine Currency
and the amount of P2,377.23 as of December 31, obtaining on the date when and at
1959 was arrived at after computing the interest on the place where the obligation was
the principal sum of P889.64 compounded quarterly incurred unless the parties had
from the time the obligations were incurred in 1943. agreed otherwise. . . ." (italics
supplied)
It is the stand of the appellee that the
Ballantyne scale of value should be applied as of IN VIEW OF THE VIEW FOREGOING, the
the time the obligation was incurred, and that was decision appealed from is a rmed, with costs
 against the appellant. Inasmuch as the appellant EN BANC
Jose Grijaldo died during the pendency of this
appeal, his estate must answer in the execution of [G.R. No. L-21146. September 20, 1965.]
the judgment in the present case.
RURAL BANK OF LUCENA,
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista INC., petitioner, vs. HON.
Angelo, Reyes, J.B.L., Dizon, Makalintal and Bengzon, FRANCISCO ARCA, as
J.P., JJ., concur. Judge,Court of First Instance
of Manila, Branch I and
CENTRAL BANK OF THE
PHILIPPINES, respondents.

Norberto J. Quisumbing for petitioner.

Nat. M. Balboa, F. E. Evangelista and Solicitor

General for respondents.

SYLLABUS

RURAL BANKS; LIQUIDATION OF

ASSETS; NO CONFLICT BETWEEN SECTION
10 OF REPUBLIC ACT NO. 720 AND SECTION
29 OF REPUBLIC ACT NO. 265.
— There is no irreconcilable con ict between
section 10 (as amended) of Republic Act No. 720
(Rural Banks Act) and section 29 of Republic Act
No. 265 (Central Bank Act). What the former
section authorized is the take over of the
management by the Central Bank, until the contravened applicable laws, rules and regulations
governing body of the offending Rural Bank is to the substantial prejudice of the government, its
recognized with a view to assuring compliance by depositors and creditors. Such previous hearing is
it with the laws and regulations. Upon the other nowhere required by section 29 of the Central
hand, section 29 of the Central Bank Act has in Bank law. Manifestly, whether a rural bank's
view a much more drastic step, the liquidation of a continuance in business would involve probable
rural bank by taking over its assets and converting loss to its clients or creditors, and that it can not
them into money to pay off its creditors. resume business with safety, is a matter of
appreciation and judgment that the law entrusts
ID.; ID.; ID.; WHEN SECTION 29 OF primarily to the Monetary Board. For this reason,
CENTRAL BANK ACT APPLICABLE TO RURAL the statute has provided for a subsequent judicial
BANKS. — Section 29 of Republic Act No. 265 review of the Monetary Board, in lieu of a previous
(Central Banks Act) applies to rural banks hearing. Such review must be asked within ten
organized under Republic Act 720, whenever the days from notice of the resolution of the Board.
Monetary Board should nd that the rural bank
affected is insolvent, or that its continuance in ID.; ID.; ID.; ID.; DUTY OF COURT OF FIRST
business would involve probable loss to its INSTANCE TO ASSIST IN THE LIQUIDATION OF
depositors or creditors, and that it can not resume RURAL BANKS. — In case where the Central Bank,
business as liquidator, petitions the Court of First Instance for
assistance in the liquidation of the affairs of the rural
with safety. banks, the court cannot inquire into the merits of the
case before issuing an order requiring the surrender
ID.; ID.; ID.; ID.; PREVIOUS of the assets and papers of the rural bank. Under the
HEARING NOT REQUIRED BY SECTION 29 OF fourth paragraph of section 29 of Republic Act No.
THE CENTRAL BANK LAW. — Under section 10 265, the role of the Court of First Instance is confined
of the Rural Banks Act, the Monetary Board may to assisting and supervising the liquidation of the rural
not take over the management of a rural bank banks.
without giving the latter a hearing i.e., an
opportunity to rebut the charge that it has
 Department of Rural Banks recommended the
DECISION liquidation of the Rural Bank of Lucena, adopted
on February 2, 1962 its Resolution No. 122
(Petition, Annex "C" ) —

REYES, J. B. L., J p:
"To request the Solicitor
The Rural Bank of Lucena, Inc., a banking General, pursuant to section 29
corporation organized under Republic Act No. 720, of Republic Act No. 265, to file a
instituted, on June 22, 1961, in the Court of First petition in the proper courts for
Instance of Manila (Civil Case No. 47345) an the liquidation of the affairs of the
action to collect damages and to enjoin the Central Rural Bank of Lucena, Inc."
Bank from enforcing Resolution No. 928 of its
Monetary Board, nding that the Rural Bank of Notice was given by Central Bank o cials on
Lucena (Lucena for short), through its o cers, February 10, 1962 that the Lucena bank was
directors, and employees, had committed acts temporarily closed pending nal decision of the
substantially prejudicial to the Government, Court, and that business be transacted with
depositors, and creditors, and directing Lucena to Central Bank representatives only.
reorganize its board of directors; to refrain from
granting or renewing loans, or accept new Two days later (February 12, 1962), the
deposits, and not to issue drafts or make Lucena bank filed suit in the Court of First Instance
disbursements without the approval of the of Quezon (Tayabas) to annul Resolution 122 of
supervising Central Bank examiners; and the Monetary Board (Case No. 6471) and enjoin its
threatening Lucena that its management would be enforcement; and on February 14 the court issued
taken over if the latter should fail to comply with the ex parte a writ of preliminary injunction to such
resolution. After issue joined and trial of the case, effect.
and while the litigation was still undecided by the
Court of First Instance, the Monetary Board, On the same day, the Court of First Instance
having been informed that the Director of its of Manila, per Judge, now Court of Appeals
 Justice, Magno Gatmaitan of Branch XIV, decided thru its duly authorized
Case No. 47345, enjoining enforcement of representative, within a period of ve
Resolution No. 928 of the Monetary Board, for (5) days from receipt of copy of this
having been issued without the prior hearing order, the physical possession of all
prescribed by section 10 of the Rural Bank Act, of said Rural Bank of Lucena's
and ordering the Central Bank to pay P5,000.00 assets, properties and papers.
damages and costs. The Central Bank appealed. Should the Rural Bank of Lucena or
its o cers fail to comply with the
Upon the other hand, the Court of First above order within the period
Instance of Quezon Province, in its Case No. 6471, indicated herein, the Central Bank,
on February 24, 1962, dissolved its preliminary thru its authorized representatives,
injunction against the enforcement of Resolution is hereby authorized to take actual
122 of the Monetary Board. Other than ling a and physical possession of all said
motion for reconsideration (ultimately denied on assets, properties and papers of
January 9, 1963) the Lucena bank took no other the Rural Bank of Lucena, duly
steps to prosecute the case it had filed. inventoried in the presence of the
Provincial Fiscal, the Provincial
On the 31st of March 1962, invoking section 29 of Commander, the Provincial
Republic Act 265, the Central Bank, as liquidator, Treasurer, and the Provincial
petitioned the Court of First Instance of Manila for Auditor of Quezon province or their
assistance in the liquidation of the Lucena bank (Civil duly authorized representatives."
Case No. 50019). Upon motion, and after hearing the
parties, Judge Arca issued an interlocutory order on The Rural Bank of Lucena resorted to this
March 28, 1963, the dispositive portion of which is to the Court on certiorari, claiming that Judge Arca
following effect (Petition, Annex "D"): gravely abused his discretion in issuing the above
"The Rural Bank of Lucena, order, in that—
thru its duly authorized o cers or
representatives, is hereby ordered
to turn over to the Central Bank,
 6. it interferes with the immediately "The director of the
executory judgment of Judge Gatmaitan in Case Department of the Central Bank
No. 47345 of the Court of First Instance of Manila; designated by the Monetary Board
to supervise Rural Banks . . . upon
7. Section 29 of the Central Bank Act (R. proof that the Rural Bank or its
A. 265) does not apply; board of directors or o cers are
conducting and managing the
8. there was no prior valid take over of affairs of the bank in a manner
assets nor due hearing of the liquidated Bank; contrary to laws, orders,
instructions, rules and regulations
9. Judge Gatmaitan's decision promulgated by the Monetary
constitutes a judicial review of the Monetary Board or in any manner
Board's action that can not be nullified by the substantially prejudicial to the
challenged order of Judge Arca; and interests of the government,
depositors or creditors, to take over
10. the turn over should not be ordered the management of such bank
before trial on the merits. when speci cally authorized to do
so by the Monetary Board after due
This Court issued a temporary restraining hearing until a new board of
order until April 25, 1963, but the same was not directors and officers are elected
renewed when it expired. and qualified . . .."

We see no irreconcilable con ict between It is easily seen that what this section
section 10 (as amended) of Republic Act No. 720 authorized is the take over of the management by
(Rural Banks' Act) and section 29 of Republic Act the Central Bank, until the governing body of the
No. 265 (Central Bank Act.) The former provides offending Rural Bank is recognized with a view to
in substance as follows: assuring compliance by it with the laws and
regulations.
 Upon the other hand, section 29 of the The Monetary Board shall
Central Bank Act; (R. A. 265) has in view a much thereupon determine within thirty
more drastic step, the liquidation of a rural bank by days whether the institution may be
taking over its assets and converting them into reorganized or otherwise placed in
money to pay off its creditors. Said section such a condition so that it may be
prescribes: permitted to resume business with
safety to its creditors and shall
"SEC. 29. Proceedings upon prescribe the conditions under
insolvency. — Whenever, upon which such resumption of business
examination by the Superintendent shall take place. In such case the
or his examiners or agents into the expenses and fees in the
condition of any banking institution, administration of the institution
it shall be disclosed that the shall be determined by the Board
condition of the same is one of and shall be paid to the Central
insolvency, or that its continuance Bank out of the assets of such
in business would involve probable banking institution.
loss to its depositors or creditors, it
shall be the duty of the At any time within ten days
Superintendent forthwith, in writing, after the Monetary Board has taken
to inform the Monetary Board of the charge of the assets of any banking
facts, and the Board, upon nding institution, such institution may
the statements of the apply to the Court of First Instance
Superintendent to be true, shall for an order requiring the Monetary
forthwith forbid the institution to do Board to show cause why it should
business in the Philippines and not be enjoined from continuing
shall take charge of its assets and such charge of its assets, and the
proceeds according to law. court may direct the Board to
refrain from further proceedings
 and to surrender charge of its with any provision of this Act, are
assets. hereby made a part of this Act."

If the Monetary Board shall We nd no room for questioning the

determine that the banking applicability of section 29 of Republic Act No. 265
institution cannot resume business (Central Bank Act) to rural banks organized under
with safety to its creditors, it shall, Republic Act 720, whenever the Monetary Board
by the Solicitor General, le a should nd that the rural bank affected, is insolvent,
petition in the Court of First or that its continuance in business would involve
Instance reciting the proceedings probable loss to its depositors or creditors, and
which have been taken and praying that it can not resume business with safety.
the assistance and supervision of
the court in the liquidation of the It follows that on the assumption that under section
affairs of the same. The 10 of the Rural Banks Act the Monetary Board may
Superintendent shall thereafter, not take over the management of a rural bank without
upon order of the Monetary Board giving the latter a hearing, i.e., an opportunity to rebut
and under the supervision of the the charge that it has contravened applicable laws,
court and with all convenient rules and regulations, to the substantial prejudice of
speed, convert the assets of the the government, its depositors and creditors, such a
banking institution to money." previous hearing is nowhere required by section 29
of the Central Bank law. Manifestly, whether a rural
Considering that section 27 of the Rural bank's "continuance in business would involve
Banks law (R. A. No. 720) expressly declares probable loss" to its clients or creditors, and that "it
that— can not resume business with safety", is a matter of
appreciation and judgment that the law entrusts
"The provisions of Republic primarily to the Monetary Board. Equally apparent is
Acts numbered 265 and 337, in so that if the rural bank affected is in the condition
far as applicable and not in con ict previously adverted to, every minute of delay in
securing its assets from dissipation inevitably
increases the danger to the creditors. For this reason, Bank to take over management under section 10
the statute has provided for a subsequent judicial of the Rural Banks law (R.A. No. 720) in
review of the Monetary Board, in lieu of a previous connection with the Monetary Board's resolution
hearing. No. 928 of June 16, 1961. Even more conclusive
is the consideration that said action (Case No.
In point of fact, the petitioner Rural Bank of 47345) was led on June 22, 1961, and could not
Lucena did le a petition (Annex "G") for judicial possibly be a judicial review of the Resolution No.
review in the Court of First Instance of Quezon 122 adopted eight months later, on February 2,
Province, dated February 12, 1962, and 1962. A review can not precede the adoption of the
challenged the validity of Resolution No. 122 of the resolution being reviewed. This proposition
Monetary Board (Case No. 6471); but the Court of requires no demonstration.
First Instance of Quezon dissolved the preliminary
injunction issued in that case and allowed The narrated events also rebut the
Resolution No. 122 to take effect, without any contention that the order of Judge Arca, issued on
steps being taken for a review of such action. This March 28, 1963, in Case No. 50019, constitutes
being the case, and in view of the manifest unlawful interference with the enforcement of
reluctance of the Lucena bank's o cials to comply Judge Gatmaitan's decision of February 14, 1962,
with the Monetary Board's resolution, the Central the issues involved being different in each case.
Bank had caused to seek judicial assistance for the As heretofore pointed out, one involved a take over
discharge of its duties as liquidator. of management under section 10 of the Rural
Banks Act, and the other a seizure of assets and
The petitioner rural bank seems to take the liquidation under section 29 of the Central Bank
view that the proceedings had before Judge law (R. A. 265).
Gatmaitan in case No. 47345, Branch XIV, of the
Court of First Instance of Manila, constituted the Nor can the proceedings before Judge Arca
judicial review required by section 29 of Republic be deemed a judicial review of the 1962 Resolution
Act No. 265, the Central Bank Act. Such a stand is No. 122 of the Monetary Board, if on]y because by
untenable, for the case tried and decided by judge law (section 29, R.A. 265) such review must be
Gatmaitan concerned an attempt by the Central asked within 10 days from notice of the resolution
of the Board. Between the adoption of Resolution Monetary Board's resolution to stop operations
No. 122 and the challenged order of Judge Arca, and proceed to the liquidation of
more than one year had elapsed. Hence, the
validity of the Monetary Board's resolution can no the Lucena Rural Bank should rst be adjudged
longer be litigated before Judge Arca, whose role before making the resolution effective, it being
under the fourth paragraph of section 29 is con ned enough that a subsequent judicial review be
to assisting and supervising the liquidation of the provided (section 29, R. A. 265; 12 Am. Jur., p.
Lucena bank. 305, sec. 611; Bourjois vs. Chapman, 301 U. S.
183, 81 Law Ed. 1027, 1032; American Surety Co.
Whether or not the Central Bank acted with vs. Baldwin, 77 Law, Ed. 231, 86 ALR 307; Wilson
arbitrariness or bad faith in decreeing that vs. Standefer, 46 Law Ed. 612); (2) the period for
circumstances called for the liquidation of the asking such judicial review had elapsed with
Lucena Rural Bank, and should be answerable in excess between the adoption of the Monetary
damages, should be threshed out and determined, Board Resolution No. 122 and the ling of the case
not by Judge Arca but in Case No. 6471 of the by the Central Bank in the Court of First Instance
Court of First Instance of Quezon Province, which of Manila; (3) the correctness of said resolution
was led within the 10 -day period prescribed by the had already been put in issue before the Court of
Central Bank law, and which appears to be still Quezon Province; (4) because the latter court had
pending, unless the Lucena bank had abandoned refused to stop implementation of the Resolution
such litigation, a fact that we need not decide at of the Monetary Board when it dissolved its own
present. Su ce it to say that Judge Arca had no preliminary injunction; and (5) because the Lucena
reason to inquire into the merits of the case before Rural Bank had apparently acquiesced in the
issuing the disputed order requiring the surrender action taken by the Court of Quezon Province,
of the assets and papers of the Lucena bank, since the Rural Bank had not sought that the action
because: (1) neither the statute (sec. 29, R. A. of the Quezon court Be set aside by a higher court.

o nor the constitutional requirement of due IN VIEW OF THE FOREGOING, the writ
process demand that the correctness of the applied for is denied, with costs against the
petitioner Lucena Rural Bank, Inc.
 FIRST DIVISION
Bengzon, C. J., Bautista Angelo, Concepcion, Dizon,
Makalintal, Bengzon J.P., and Zaldivar, JJ., concur. [G.R. No. L-38745. August 6, 1975.]

LUCIA TAN, plaintiff-

appellee, vs. ARADOR
VALDEHUEZA and
REDICULO VALDEHUEZA,
defendants-appellants.

Alaric P. Acosta for plaintiff-appellee.

Lorenzo P. de Guzman for defendants-

appellants.

SYNOPSIS

Plaintiff led an action for declaration of

ownership and recovery of possession of a parcel
of land and for consolidation of ownership of two
portions of another land. The subject matter of the
rst cause of action was acquired by plaintiff in a
public auction. The Deed of Absolute Sale was
executed in her favor after defendant Arador
Valdehueza had failed to redeem the same within
the one-year period prescribed by law. By reason
thereof, plaintiff applied for an injunction (Civil
Case 2002) to prevent defendant from entering the recovery of possession;" and that under the
premises which, injunction, however, was second cause of action, the contracts are
dismissed, for failure to prosecute. presumed to be equitable mortgages under Art
1602 of the New Civil Code, whether registered or
With respect to the second cause of action, not, there being no third parties involve. However,
defendants executed two Pacto de Retro Deeds of imposition of interest was held to be without legal
Sale (one registered and one unregistered) in favor basis for not having been expressly stipulated in
of plaintiff, but the defendant did not vacate the writing.
premises and continued paying the taxes thereon.
Thus modified decision affirmed in all other
The trial court declared the plaintiff as respects.
absolute owner on the land and ordered the
dispossession of defendant under the rst cause of
action; and under the second cause of action, SYLLABUS
considered the registered Pacto De Retro Deed of
Sale as a mortgage and the unregistered deed "as
a simple loan, secured by the property sold under ACTIONS; DISMISSAL; PRINCIPLE OF RES
pacto de retro thus, ordering defendant to pay with JUDICATA. CAUSES OF ACTION MUST BE
interest. Defendant appealed on the ground that IDENTICAL. — Res Judicata does not apply where
there was res judicata in the rst cause of action, the rst cause of action for injunction against entry
and that in the second cause of action the into and gathering of fruits from the land while the
transaction were simple loan. second case seeks to remove any doubt or cloud
of the plaintiff ownership with prayer for declaration
The Supreme Court ruled that res judicata of ownership and recovery of possession, since
does not apply in the rst cause of action since Civil the causes of action are not identical.
Case 2002 was for injunction involving only
possession while the instant case seeks "to 2. ID.; ID.; ID.; ID.; TEST OF ABSENCE
remove any doubt or cloud of plaintiff's ownership OF INCONSISTENCY CASE AT BAR. — One test
with prayer for declaration of ownership and of identity of causes of action is whether the
judgment. The failure of plaintiff to secure an possession of the land and paid the realty tax
injunction against the defendants to prevent them thereon, the contract which purports to be a pacto
from entering the land and gathering fruits is not de retro transaction is presumed to be equitable
inconsistent with her being adjudged later as mortgage under Art. 1602 of the New Civil Code,
owner of the land with right to recover possession whether registered or not, where no third parties
thereof. As the injunction cases involved only are involved.
possession and the fruits thereof, and the other
case involves ownership, the judgment 5. ID.; ID.; INTEREST; WRITTEN
STIPULATION REQUIRED. — Interest may not
in the rst could not and did not encompass the be imposed in the absence of a written stipulation
judgment in the second case, although the second therefor, "No interest shall be due unless it has
judgment would encompass the rst. Moreover, the been expressly stipulated in writing."
New Civil Code provides that suitors in action to
quiet title "need not be in possession of said 6. EVIDENCE; RECEPTION OF
property." EVIDENCE; DISCRETION OF COURT; EFFECT
OF STIPULATION OF FACTS. — Where, as in the
3. MORTGAGE; UNREGISTERED case at bar, nowhere in the original and amended
MORTGAGE BINDING BETWEEN THE complainant is an allegation of delivery to plaintiff
PARTIES. — Under Article 1875 of the Civil Code of the harvest, and, further, in submitting their
of 1889 registration was a necessary requisite for stipulation of facts, the parties prayed "for its
the validity of a mortgage even as between the approval and may be made the basis of the
parties, but under Article 2125 of the New Civil decision of the Honorable Court . . . " the court
Code, this is no longer so. "If the instrument is not cannot be faulted for not receiving evidence on
recorded the mortgage is nevertheless binding who profited from the harvest.
between the parties.

4. ID.; WHEN PACTO DE RETRO IS DECISION

PRESUMED TO BE EQUITABLE MORTGAGE.
— Where the supposed vendor a retro remained in
 Concepcion and Rosario, all surnamed
CASTRO, J p: Valdehueza, are brothers and sisters;
that the answer led by Arador and
This appeal was certi ed to this Court by the Rediculo stand as the answer of Pacita,
Court of Appeals as involving questions purely of Concepcion and Rosario.
law.
That the parties admit the identity of the land i
The decision a quo was rendered by the Court "2. action.
of First Instance of Misamis Occidental (Branch I) That the parcel of land described in the rst ca
in an action instituted by the plaintiff-appellee Lucia "3. the
Tan against the defendants-appellants Arador subject matter of the public auction sale
Valdehueza and Rediculo Valdehueza (docketed held on May 6, 1955 at the Capitol
as civil case 2574) for (a) declaration of ownership Building in Oroquieta, Misamis
and recovery of possession of the parcel of land Occidental, wherein the plaintiff was the
described in the rst cause of action of the highest bidder and as such a Certi cate
complaint, and (b) consolidation of ownership of of Sale was executed by MR. VICENTE
two portions of another parcel of (unregistered) D. ROA who was then the Ex-O cio
land described in the second cause of action of the Provincial Sheriff in favor of LUCIA TAN
complaint, purportedly sold to the plaintiff in two the herein plaintiff. Due to the failure of
separate deeds of pacto de retro. defendant Arador Valdehueza to
redeem the said land within the period
After the issues were joined, the parties of one year as being provided by law,
submitted the following stipulation of MR. VICENTE D. ROA who was then
the Ex-O cio Provincial Sheriff executed
facts: an ABSOLUTE DEED OF SALE in favor
of the plaintiff LUCIA TAN.
"1. That parties admit the legal capacity
of plaintiff to sue; that defendants "A copy of the NOTICE OF SHERIFF'S
herein, Arador, Rediculo, Pacita, SALE is hereby marked as 'Annex A',
the CERTIFICATE OF SALE is marked documents are marked as "Annex D"
as 'Annex B' and the ABSOLUTE DEED and "Annex E", respectively and made
OF SALE is hereby marked as "Annex as integral parts of this stipulation of
C" and all of which are made as integral facts.
Parts of this stipulation of facts.
"6. That from the execution of the Deed
"4. That the party-plaintiff is the same of Sale with right to repurchase
plaintiff in Civil Case No. 2002; that the mentioned in the second cause of
parties defendants Arador, Rediculo action, defendants Arador Valdehueza
and Pacita, all Valdehueza were the and Rediculo Valdehueza remained in
same parties-defendants in the same the possession of the land; that land
said Civil Case No. 2002; the complaint taxes to the said land were paid by the
in Civil Case No. 2002 to be marked as same said defendants."
Exhibit 1; the answer as Exhibit 2 and
the order dated May 22, 1963 as Exhibit Civil case 2002 referred to in stipulation of fact no.
3, and said exhibits are made integral 4 was a complaint for injunction led by Tan on July 24,
part of this stipulation. 1957 against the Valdehuezas, to enjoin them "from
entering the abovedescribed parcel of land and
"5. That defendants ARADOR gathering the nuts therein . . ." This complaint and the
VALDEHUEZA and REDICULO counterclaim were subsequently dismissed for failure of
VALDEHUEZA have executed two the parties "to seek for the immediate trial thereof, thus
documents of DEED OF PACTO DE evincing lack of interest on their part to proceed with the
RETRO SALE in favor of the plaintiff case." 1
herein, LUCIA TAN of two portions of a The Deed of Pacto de Retro referred to in
parcel of land which is described in the stipulation of fact no. 5 as "Annex D" (dated August
second cause of action with the total 5, 1955) was not registered in the Registry of Deeds,
amount of ONE THOUSAND FIVE while the Deed of Pacto de Retro referred to as
HUNDRED PESOS (P1,500.00), "Annex E" (dated March 15, 1955) was registered.
Philippine Currency, copies of said
 On the basis of the stipulation of facts and the with the Rules of Court for the release of
annexes, the trial court rendered judgment as the mortgage debt, plus costs;
follows:
"3. And as regards the land covered by
"WHEREFORE, judgment is hereby rendered deed of pacto de retro annex 'D', the
in favor of the plaintiff: herein defendants Arador Valdehueza
and Rediculo Valdehueza are hereby
"1. Declaring Lucia Tan the absolute ordered to pay the plaintiff the amount
owner of the property described in the rst of P300 with legal interest of 6% from
cause of action of the amended August 15, 1966, the said land serving
complaint; and ordering the herein as guaranty of the said amount of
defendants not to encroach and molest her payment;
in the exercise of her proprietary
"4. Sentencing the defendants Arador
rights; and, from which property they must be Valdehueza and Rediculo Valdehueza
dispossessed; to pay jointly and severally to the herein
plaintiff Lucia Tan the amount of
"2. Ordering the defendants, Arador 1,000.00 as attorney's fees; and
Valdehueza and Rediculo Valdehueza,
jointly and severally to pay to the "5. To pay the costs of the proceedings."
plaintiff, Lucia Tan, on Annex 'E' the
amount of P1,200, with legal interest of The Valdehuezas appealed, assigning the
6% as of August 15, 1966, within 90 following errors:
days to be deposited with the O ce of
the Clerk of Court within 90 days from "That the lower court erred in failing to
the date of service of this decision, and adjudge on the rst cause of action that
that in default of such payment, the there exists res judicata; and
property shall be sold in accordance
 "That the lower court erred in making a from entering the land and gathering nuts is not
nding on the second cause of action that inconsistent with her being adjudged, in case 2574,
the transactions between the parties as owner of the land with right to recover possession
were simple loan, instead, it should be thereof. Case 2002 involved only the possession of
declared as equitable mortgage." the land and the fruits thereof, while case 2574
involves ownership of the land, with possession as a
We affirm in part and modify in part. mere attribute of ownership. The judgment in the rst
case could not and did not encompass the judgment
Relying on Section 3 of Rule 17 of the in the second, although the second judgment would
Rules of Court which pertinently provides that a encompass the rst. Moreover, the new Civil Code
dismissal for failure to prosecute "shall have the provides that suitors in actions to quiet title "need not
effect of an adjudication upon the merits," the be in possession of said property." 3
Valdehuezas submit that the dismissal of civil case
2 . The trial court treated the registered deed of
2002 operated, upon the principle of res judicata, as pacto de retro as an equitable mortgage but
a bar to the rst cause of action in civil case 2574. We considered the unregistered deed of pacto de retro
rule that this contention is untenable as the causes of "as a mere case of simple loan, secured by the
action in the two cases are not identical. Case 2002 property thus sold under pacto de retro," on the
was for injunction against the entry into and the ground that no suit lies to foreclose an unregistered
gathering of nuts from the land, while case 2574 mortgage. It would appear that the trial judge had not
seeks to "remove any doubt or cloud of the plaintiff's updated himself on law and jurisprudence; he cited,
ownership . . ." (Amended complaint, Rec. on App., in support of his ruling, article 1875 of the old Civil
p. 27), with a prayer for declaration of ownership and Code and decisions of this Court circa 1910 and
recovery of possession. 1912.
Under article 1875 of the Civil Code of 1889,
Applying the test of absence of inconsistency registration was a necessary requisite for the validity
between prior and subsequent judgments, 2 we hold of a mortgage even as between the parties, but under
that the failure of Tan, in case 2002, to secure an article 2125 of the new Civil Code (in effect since
injunction against the Valdehuezas to prevent them August 30, 1950), this is no longer so. 4
 In submitting their stipulation of facts, the
"If the instrument is not recorded, the parties prayed "for its approval and maybe made the
mortgage is nonetheless binding basis of the decision of this Honorable Court."
between the parties." (Article 2125, 2nd (emphasis supplied) This, the court did. It cannot
sentence) therefore he faulted for not receiving evidence on
who profited from the harvest.
The Valdehuezas having remained in 4. The imposition of legal interest on the
possession of the land and the realty taxes having amounts subject of the equitable mortgages, P1,200
been paid by them, the contracts which purported to and P300, respectively, is without legal basis, for, "No
be pacto de retro transactions are presumed to be interest shall be due unless it has been expressly
equitable mortgages, 5 whether registered or not, stipulated in writing." (Article 1956, new Civil Code)
there being no third parties involved. Furthermore, the plaintiff did not pray for such
3. . The Valdehuezas claim that their answer to interest; her thesis was a consolidation of ownership,
the complaint of the plaintiff a rmed that they which was properly rejected, the contracts being
remained in possession of the land and gave the equitable mortgages.
proceeds of the harvest to the plaintiff; it is thus With the de nitive resolution of the rights of the
argued that they would suffer double prejudice if they parties as discussed above, we nd it needless to
are to pay legal interest on the amounts stated in the pass upon the plaintiff's petition for receivership.
pacto de retro contracts, as the lower court has Should the
directed, and that therefore the court should have
ordered evidence to be adduced on the harvest. circumstances so warrant, she may address the
said petition to the court a quo.
The record does not support this claim, ACCORDINGLY, the judgment a quo is
Nowhere in the original and the amended complaints hereby modi ed, as follows: (a) the amounts of
is an allegation of delivery to the plaintiff of the P1,200 and P300 mentioned in Annexes E and D
harvest from the land involved in the second cause shall bear interest at six percent per annum from
of action. Hence, the defendants' answer had none the nality of this decision; and (b) the parcel of land
to affirm. covered by Annex D shall be treated in the same
manner as that covered by Annex E, should the
defendants fail to pay to the plaintiff the sum of EN BANC
P300 within 90 days from the finality of this
decision. In all other respects the judgment is [G.R. No. 47878. July 24, 1942.]
affirmed. No costs.
GIL JARDENIL , plaintiff-
Makalintal, C.J., Makasiar, Esguerra and appellant, vs. HEFTI SOLAS
Muñoz Palma, JJ., concur. (alias HEPTI SOLAS, JEPTI
SOLAS), defendant-appellee.
Teehankee, J., is on leave;
Eleuterio J. Gustilo, for appellant.
Martin, J., did not take part.
Jose C. Robles, for appellee.

SYLLABUS

1. INTEREST; ARTICLE 1755 OF THE

CIVIL CODE; INTERPRETATION OF
CONTRACTS. — Defendant has agreed to pay
interest only up to the late of maturity, or until
March 31, 1934. As the contract is silent as to
whether after that date, in the event of non-
payment, the debtor would continue to pay
interest, no legal presumption as to such interest
can be indulged, for this would be imposing upon
the debtor an obligation that the parties have not
chosen to agree. article 1755 of the Civil Code
provides that "interests shall be due only when it
has been expressly stipulated."
 effected? This question is, in our opinion,
2. ID.; ID.; ID. — As the contract is clear and controlled by the express stipulation of the parties.
unmistakable and the terms therein have not been
shown to belie or otherwise fail to express the true Paragraph 4 of the mortgage deed recites:
intention of the parties, and that the deed has not
been assailed on the ground of mutual mistake "Que en consideracion a dicha suma aun por
which would require its reformation, same should pagar de DOS MIL CUATROCIENTOS PESOS
be given its full force and effect. When a party sues (P2,400.00), moneda lipina, que el Sr. Hepti Solas
on a written contract and no attempt is made to se compromete a pagar al Sr. Jardenil en o antes
show any vice therein, he cannot be allowed to lay del dÃa treintaiuno (31) de marzo de mil
any claim than what its clear stipulations accord. novecientos treintaicuatro (1934), con los
His omission, to which the law attaches a definite intereses de dicha suma al tipo de doce por ciento
meaning as in the instant case, cannot by the (12%) anual a partir desde esta fecha hasta el
courts be arbitrarily supplied by what their own dÃa de su vencimiento, o sea el treintaiuno (31)
notions of justice or equity may dictate. de marzo de mil novecientos treintaicuatro (1934),
por la presente, el Sr. Hepti Solas cede y
traspasa, por vÃa de primera hipoteca, a favor del
Sr. Jardenil, sus herederos y causahabientes, la
DECISION parcela de terreno descrita en el párrafo primero
(1.°) de esta escritura."
Defendant-appellee has, therefore, clearly
agreed to pay interest only up to the date of
MORAN, J. p. maturity, or until March 31, 1934. As the contract
is silent as to whether after that date, in the event
This is an action for foreclosure of mortgage. of non- payment, the debtor would continue to pay
The only question raised in this appeal is: Is interest, we cannot, in law, indulge in any
defendant-appellee bound to pay the stipulated presumption as to such interest; otherwise, we
interest only up to the date of maturity as xed in the would be imposing upon the debtor an obligation
promissory note, or up to the date payment is that the parties have not chosen to agree upon.
Article 1755 of the Civil Code provides that evidence to establish it and asked that the deed be
"interest shall be due only when it has been reformed accordingly, under the parcel-evidence
expressly stipulated." (Italic supplied.). rule.

A writing must be interpreted according to We hold, therefore, that as the contract is

the legal meaning of its language (section 286, Act clear and unmistakable and the terms employed
No. 190, now section 58, Rule 123), and only when therein have not been shown to belie or otherwise
the wording of the written instrument appears to be fail to express the true intention of the parties, and
contrary to the evident intention of the parties that that the deed has not been assailed on the ground
such intention must prevail. (Article 1281, Civil of mutual mistake which would require its
Code.) There is nothing in the mortgage deed to reformation, same should be given its full force and
show that the terms employed by the parties effect. When a party sues on a written contract and
thereto are at war with their evident intent. On the no attempt is made to show any vice therein, he
contrary, the act of the mortgagee of granting to cannot be allowed to lay any claim more than what
the mortgagor, on the same date of the execution its clear stipulations accord. His omission, to which
of the deed of mortgage, an extension of one year the law attaches a de nite meaning as in the instant
from the date of maturity within which to make case, cannot by the courts be arbitrarily supplied
payment, without making any mention of any by what their own notions of justice or equity may
interest which the mortgagor should pay during the dictate.
additional period (see Exhibit B attached to the
complaint), indicates that the true intention of the Plaintiff is, therefore, entitled only to the
parties was that no interest should be paid during stipulated interest of 12 per cent on the loan of
the period of grace. What reasons the parties may P2,400 from November 8, 1932 to March 31, 1934.
have therefor, we need not here seek to explore. And it being a fact that extrajudicial demands have
been made which we may assume to have been
Neither has either of the parties shown that, so made on the expiration of the year of grace, he
by mutual mistake, the deed of mortgage fails to shall be entitled to legal interest upon the principal
express their true agreement, for if such mistake and the accrued interest from April 1, 1935, until
existed, plaintiff would have undoubtedly adduced full payment.
Thus modified, judgment is affirmed, with costs FUJITA, petitioner, vs. FLORA SAN DIEGO-
against appellant. SISON, respondent.

Yulo, C.J., Ozaeta and Bocobo, JJ., concur.

DECISION

AUSTRIA-MARTINEZ, J p:

Before us is a Petition for Review on Certiorari

led by Bobie Rose V. Frias represented by her
Attorney-in-fact, Marie Regine F. Fujita (petitioner)
seeking to annul the Decision 1 dated June 18, 2002
and the Resolution 2 dated September 11, 2002 of the
Court of Appeals (CA) in CA-G.R. CV No. 52839.

Petitioner is the owner of a house and lot

located at No. 589 Batangas East, Ayala Alabang,
Muntinlupa, Metro Manila, which she acquired from
Island Masters Realty and Development Corporation
THIRD DIVISION (IMRDC) by virtue of a Deed of Sale dated Nov. 16,
1990. 3 The property is covered by TCT No. 168173
[G.R. No. 155223. April 3, 2007.] of the Register of Deeds of Makati in the name of
IMRDC. 4
BOBIE ROSE V. FRIAS, represented by her
Attorney-in-fact, MARIE F.
 On December 7, 1990, petitioner, as the FIRST
PARTY, and Dra. Flora San Diego-Sison 4. That prior to the six months
(respondent), as the SECOND PARTY, entered into period given to the SECOND PARTY
a Memorandum of Agreement 5 over the property within which to decide whether or not to
with the following terms: ACTIHa purchase the above-mentioned
property, the FIRST PARTY may still
NOW, THEREFORE, for and in offer the said property to other persons
consideration of the sum of THREE who may be interested to buy the same
MILLION PESOS (P3,000,000.00) provided that the amount of
receipt of which is hereby P3,000,000.00 given to the FIRST
acknowledged by the FIRST PARTY PARTY BY THE SECOND PARTY shall
from the SECOND PARTY, the parties be paid to the latter including interest
have agreed as follows: based on prevailing compounded bank
interest plus the amount of the sale in
3. That the SECOND PARTY excess of P7,000,000.00 should the
has a period of Six (6) months from the property be sold at a price more than P7
date of the execution of this contract million.
within which to notify the FIRST PARTY
of her intention to purchase the 3. That in case the FIRST PARTY has
aforementioned parcel of land together no other buyer within the rst six months
within (sic) the improvements thereon at from the execution of this contract, no
the price of SIX MILLION FOUR interest shall be charged by the
HUNDRED THOUSAND PESOS SECOND PARTY on the P3 million
(P6,400,000.00). Upon notice to the however, in the event that on the sixth
FIRST PARTY of the SECOND month the SECOND PARTY would
PARTY's intention to purchase the decide not to purchase the
same, the latter has a period of another aforementioned property, the FIRST
six months within which to pay the PARTY has a period of another six
remaining balance of P3.4 million. months within which to pay the sum of
 P3 million pesos provided that the said Petitioner subsequently failed to pay respondent the
amount shall earn compounded bank amount of two million pesos.
interest for the last six months only.
Under this circumstance, the amount of On April 1, 1993, respondent led with the
P3 million given by the SECOND Regional Trial Court (RTC) of Manila, a complaint 10
PARTY shall be treated as [a] loan and for sum of money with preliminary attachment against
the property shall be considered as the petitioner. The case was docketed as Civil Case No.
security for the mortgage which can be 93 -65367 and ra ed to Branch 30. Respondent
enforced in accordance with law. alleged the foregoing facts and in addition thereto
HECTaA averred that petitioner tried to deprive her of the
security for the loan by making a false report 11 of the
xxx xxx xxx. 6 loss of her owner's copy of TCT No. 168173 to the
Taguig Police Station on June 3, 1991, executing an
Petitioner received from respondent two million a davit of loss and by ling a petition 12 for the issuance
pesos in cash and one million pesos in a post- dated of a new owner's duplicate copy of said title with the
check dated February 28, 1990, instead of 1991, RTC of Makati, Branch 142; that the petition was
which rendered said check stale. 7 Petitioner then granted in an Order 13 dated August 31, 1991; that
gave respondent TCT No. 168173 in the name of said Order was subsequently set aside in an Order
IMRDC and the Deed of Absolute Sale over the dated April 10, 1992 14 where the RTC Makati
property between petitioner and IMRDC. granted respondent's petition for relief from judgment
due to the fact that respondent is in possession of the
Respondent decided not to purchase the owner's duplicate copy of TCT No. 168173, and
property and noti ed petitioner through a letter 8 dated ordered the provincial public prosecutor to conduct an
March 20, 1991, which petitioner received only on investigation of petitioner for perjury and false
June 11, 1991, 9 reminding petitioner of their testimony. Respondent prayed for the ex-parte
agreement that the amount of two million pesos which issuance of a writ of preliminary attachment and
petitioner received from respondent should be payment of two million pesos with interest at 36% per
considered as a loan payable within six months. annum from December 7, 1991, P100,000.00 moral,
corrective and exemplary damages and P200,000.00 which her secretary placed in her attache case; that
for attorney's fees. HAcaCS the envelope together with her other personal things
were lost when her car was forcibly opened the
In an Order dated April 6, 1993, the Executive following day; that she sought the help of Atty. Lozada
Judge of the RTC of Manila issued a writ of who advised her to secure a police report, to execute
preliminary attachment upon the filing of a bond in the an a davit of loss and to get the services of another
amount of two million pesos. lawyer to le a petition for the issuance of an owner's
duplicate copy; that the petition for the issuance of a
15 new owner's duplicate copy was led on her behalf
without her knowledge and neither did she sign the
Petitioner led an Amended Answer 16 alleging that petition nor testify in court as falsely claimed for she
the Memorandum of Agreement was conceived and was abroad; that she was a victim of the
arranged by her lawyer, Atty. Carmelita Lozada, who manipulations of Atty. Lozada and respondent as
is also respondent's lawyer; that she was asked to shown by the ling of criminal charges for perjury and
sign the agreement without being given the chance to false testimony against her; that no interest could be
read the same; that the title to the property and the due as there was no valid mortgage over the property
Deed of Sale between her and the IMRDC were as the principal obligation is vitiated with fraud and
entrusted to Atty. Lozada for safekeeping and were deception. She prayed for the dismissal of the
never turned over to respondent as there was no complaint, counter-claim for damages and attorney's
consummated sale yet; that out of the two million fees.
pesos cash paid, Atty. Lozada took the one million
pesos which has not been returned, thus petitioner Trial on the merits ensued. On January 31,
had led a civil case against her; that she was never 1996, the RTC issued a decision, 17 the dispositive
informed of respondent's decision not to purchase the portion of which reads:
property within the six month period xed in the
agreement; that when she demanded the return of WHEREFORE, judgment is hereby
TCT No. 168173 and the Deed of Sale between her RENDERED:
and the IMRDC from Atty. Lozada, the latter gave her
these documents in a brown envelope on May 5, 1991
 3. Ordering defendant to pay petitioner executed an a davit of loss and instituted a
plaintiff the sum of P2 Million plus petition for the issuance of an owner's duplicate title
interest thereon at the rate of thirty two knowing the same was in respondent's possession,
(32%) per cent per annum beginning entitled respondent to moral damages; and that
December 7, 1991 until fully paid. petitioner's bare denial cannot be accorded credence
SAHaTc because her testimony and that of her witness did not
appear to be credible. TDaAHS
4. Ordering defendant to pay
plaintiff the sum of P70,000.00 The RTC further found that petitioner admitted
representing premiums paid by plaintiff that she received from respondent the two million
on the attachment bond with legal pesos in cash but the fact that petitioner gave the one
interest thereon counted from the date million pesos to Atty. Lozada was without
of this decision until fully paid. respondent's knowledge thus it is not binding on
respondent; that respondent had also proven that in
5. Ordering defendant to pay 1993, she initially paid the sum of P30,000.00 as
plaintiff the sum of P100,000.00 by way premium for the issuance of the attachment bond,
of moral, corrective and exemplary P20,000.00 for its renewal in 1994, and P20,000.00
damages. for the renewal in 1995, thus plaintiff should be
reimbursed considering that she was compelled to go
6. Ordering defendant to pay to court and ask for a writ of preliminary attachment to
plaintiff attorney's fees of P100,000.00 protect her rights under the agreement.
plus cost of litigation. 18
Petitioner led her appeal with the CA. In a
The RTC found that petitioner was under Decision dated June 18, 2002, the CA affirmed the
obligation to pay respondent the amount of two million RTC decision with modification, the dispositive
pesos with compounded interest pursuant to their portion of which reads:
Memorandum of Agreement; that the fraudulent
scheme employed by petitioner to deprive respondent WHEREFORE, premises considered, the decision
of her only security to her loaned money when appealed from is MODIFIED in the sense that the rate
of interest is reduced from 32% to 25% per annum, secured by a real estate mortgage in 1991 ranged
effective June 7, 1991 until fully paid. 19 from 25% to 32% per annum as certi ed to by
The CA found that: petitioner gave the one Prudential Bank,
million pesos to Atty. Lozada partly as her
commission and partly as a loan; respondent did not 1 that in fairness to petitioner, the rate to be charged
replace the mistakenly dated check of one million should be 25% only.
pesos because she had decided not to buy the
property and petitioner knew of her decision as early Petitioner's motion for reconsideration was
as April 1991; the award of moral damages was denied by the CA in a Resolution dated September
warranted since even granting petitioner had no hand 11, 2002.
in the ling of the petition for the issuance of an owner's
copy, she executed an a davit of loss of TCT No. Hence the instant Petition for Review on
168173 when she knew all along that said title was in Certiorari led by petitioner raising the following issues:
respondent's possession; petitioner's claim that she
thought the title was lost when the brown envelope 3 WHETHER OR NOT THE
given to her by Atty. Lozada was stolen from her car COMPOUNDED BANK
was hollow; that such deceitful conduct caused INTEREST SHOULD BE
respondent serious anxiety and emotional distress. LIMITED TO SIX (6) MONTHS AS
TIEHSA CONTAINED IN THE
MEMORANDUM OF
AGREEMENT. cDCHaS
The CA concluded that there was no basis for
petitioner to say that the interest should be charged 3 WHETHER OR NOT THE
for six months only and no more; that a loan always RESPONDENT IS ENTITLED TO
bears interest otherwise it is not a loan; that interest MORAL DAMAGES.
should commence on June 7, 1991 20 with
compounded bank interest prevailing at the time the 3 WHETHER OR NOT THE
two million was considered as a loan which was in GRANT OF CORRECTIVE AND
June 1991; that the bank interest rate for loans EXEMPLARY DAMAGES AND
 ATTORNEY'S FEES IS PROPER peso loan even beyond the second six months
EVEN IF NOT MENTIONED IN stipulated period.
THE TEXT OF THE DECISION.
22 The Memorandum of Agreement executed between
the petitioner and respondent on December 7, 1990
Petitioner contends that the interest, whether at is the law between the parties. In resolving an issue
32% per annum awarded by the trial court or at 25% based upon a contract, we must rst examine the
per annum as modi ed by the CA which should run contract itself, especially the provisions thereof which
from June 7, 1991 until fully paid, is contrary to the are relevant to the controversy. 24 The general rule is
parties' Memorandum of Agreement; that the that if the terms of an agreement are clear and leave
agreement provides that if respondent would decide no doubt as to the intention of the contracting parties,
not to purchase the property, petitioner has the period the literal meaning of its stipulations shall prevail. 25
of another six months to pay the loan with It is further required that the various stipulations of a
compounded bank interest for the last six months contract shall be interpreted together, attributing to
only; that the CA's ruling that a loan always bears the doubtful ones that sense which may result from all
interest otherwise it is not a loan is contrary to Art. of them taken jointly. 26 ATEHDc
1956 of the New Civil Code which provides that no
interest shall be due unless it has been expressly In this case, the phrase "for the last six months
stipulated in writing. cHaADC only" should be taken in the context of the entire
agreement. We agree with and adopt the CA's
We are not persuaded. interpretation of the phrase in this wise:

While the CA's conclusion, that a loan always bears Their agreement speaks of two
interest otherwise it is not a loan, is awed since a (2) periods of six months each. The rst
simple loan may be gratuitous or with a stipulation to six-month period was given to plaintiff-
pay interest, 23 we nd no error committed by the CA appellee (respondent) to make up her
in awarding a 25% interest per annum on the two- mind whether or not to purchase
million defendant-appellant's (petitioner's)
property. The second six -month period
 was given to defendant-appellant to pay of Agreement shall be considered as a loan, the
the P2 million loan in the event that monetary interest for the last six months continued to
plaintiff-appellee decided not to buy the accrue until actual payment of the loaned amount.
subject property in which case interest
will be charged "for the last six months The payment of regular interest constitutes the
only", referring to the second six-month price or cost of the use of money and thus, until the
period. This means that no interest will principal sum due is returned to the creditor, regular
be charged for the rst six-month period interest continues to accrue since the debtor
while appellee was making up her mind continues to use such principal amount. 28 It has
whether to buy the property, but only for been held that for a debtor to continue in possession
the second period of six months after of the principal of the loan and to continue to use the
appellee had decided not to buy the same after maturity of the loan without payment of the
property. This is the meaning of the monetary interest, would constitute unjust enrichment
phrase "for the last six months only". on the part of the debtor at the expense of the creditor.
Certainly, there is nothing in their 29
agreement that suggests that interest
will be charged for six months only even Petitioner and respondent stipulated that the
if it takes defendant-appellant an loaned amount shall earn compounded bank
eternity to pay the loan. 27 interests, and per the certi cation issued by Prudential
Bank, the interest rate for loans in 1991 ranged from
The agreement that the amount given shall bear 25% to 32% per annum. The CA reduced the interest
compounded bank interest for the last six months rate to 25% instead of the 32% awarded by the trial
only, i.e., referring to the second six-month period, court which petitioner no longer assailed.
does not mean that interest will no longer be charged
after the second six-month period since such
stipulation was made on the logical and reasonable In Bautista v. Pilar Development Corp., 30 we
expectation that such amount would be paid within the upheld the validity of a 21% per annum interest on a
date stipulated. Considering that petitioner failed to P142,326.43 loan. In Garcia v. Court of Appeals, 31
pay the amount given which under the Memorandum we sustained the agreement of the parties to a 24%
per annum interest on an P8,649,250.00 loan. Thus, respondent of the security of her loan by executing an
the interest rate of 25% per annum awarded by the a davit of loss of the title and instituting a petition for
CA to a P2 million loan is fair and reasonable. the issuance of a new owner's duplicate copy of TCT
CTHDcE No. 168173 entitles respondent to moral damages.
Moral damages may be awarded in culpa contractual
Petitioner next claims that moral damages were or breach of contract cases when the defendant acted
awarded on the erroneous nding that she used a fraudulently or in bad faith. Bad faith does not simply
fraudulent scheme to deprive respondent of her connote bad judgment or negligence; it imports a
security for the loan; that such nding is baseless since dishonest purpose or some moral obliquity and
petitioner was acquitted in the case for perjury and conscious doing of wrong. It partakes of the nature of
false testimony filed by respondent against her. fraud. 33

We are not persuaded. The Memorandum of Agreement provides that

in the event that respondent opts not to buy the
Article 31 of the Civil Code provides that when property, the money given by respondent to petitioner
the civil action is based on an obligation not arising shall be treated as a loan and the property shall be
from the act or omission complained of as a felony, considered as the security for the mortgage. It was
such civil action may proceed independently of the testi ed to by respondent that after they executed the
criminal proceedings and regardless of the result of agreement on December 7, 1990, petitioner gave her
the latter. 32 the owner's copy of the title to the property, the Deed
of Sale between petitioner and IMRDC, the certi cate
While petitioner was acquitted in the false of occupancy, and the certi cate of the Secretary of
testimony and perjury cases led by respondent the IMRDC who signed the Deed of Sale. 34
against her, those actions are entirely distinct from the However, notwithstanding that all those documents
collection of sum of money with damages filed by were in respondent's possession, petitioner executed
respondent against petitioner. EDCcaS an a davit of loss that the owner's copy of the title and
the Deed of Sale were lost.
We agree with the ndings of the trial court and
the CA that petitioner's act of trying to deprive
 Although petitioner testified that her execution issuance of new title. Thus, the award of moral
of the affidavit of loss was due to the fact that she was damages is in order. IASEca
of the belief that since she had demanded from Atty.
Lozada the return of the title, she thought that the The entitlement to moral damages having been
brown envelope with markings which Atty. Lozada established, the award of exemplary damages is proper.
gave her on May 5, 1991 already contained the title 38 Exemplary damages may be imposed upon
and the Deed of Sale as those documents were in the petitioner by way of example or correction for the public
same brown envelope which she gave to Atty. Lozada good. 39 The RTC awarded the amount of P100,000.00
prior to the transaction with respondent. 35 Such as moral and exemplary damages. While the award of
statement remained a bare statement. It was not moral and exemplary damages in an aggregate amount
proven at all since Atty. Lozada had not taken the may not be the usual way of awarding said damages,
stand to corroborate her claim. In fact, even 40 no error has been committed by CA. There is no
petitioner's own witness, Benilda Ynfante (Ynfante), question that respondent is entitled to moral and
was not able to establish petitioner's claim that the title exemplary damages.
was returned by Atty. Lozada in view of Ynfante's
testimony that after the brown envelope was given to Petitioner argues that the CA erred in awarding
petitioner, the latter passed it on to her and she placed attorney's fees because the trial court's decision did
it in petitioner's attaché case 36 and did not bother to not explain the ndings of facts and law to justify the
look at the envelope. 37 award of attorney's fees as the same was mentioned
only in the dispositive portion of the RTC decision.
It is clear therefrom that petitioner's execution ITScAE
of the a davit of loss became the basis of the ling of
the petition with the RTC for the issuance of new
owner's duplicate copy of TCT No. 168173. We agree.
Petitioner's actuation would have deprived
respondent of the security for her loan were it not for Article 2208 41 of the New Civil Code
respondent's timely ling of a petition for relief whereby enumerates the instances where such may be
the RTC set aside its previous order granting the awarded and, in all cases, it must be reasonable, just
and equitable if the same were to be granted. 42
Attorney's fees as part of damages are not meant to
enrich the winning party at the expense of the losing Ynares-Santiago, Callejo, Sr., Chico-Nazario and
litigant. They are not awarded every time a party Nachura, JJ., concur.
prevails in a suit because of the policy that no
premium should be placed on the right to litigate. 43
The award of attorney's fees is the exception rather
than the general rule. As such, it is necessary for the
trial court to make ndings of facts and law that would
bring the case within the exception and justify the
grant of such award. The matter of attorney's fees
cannot be mentioned only in the dispositive portion of
the decision. 44 They must be clearly explained and
justi ed by the trial court in the body of its decision. On
appeal, the CA is precluded from supplementing the
bases for awarding attorney's fees when the trial court
failed to discuss in its Decision the reasons for THIRD DIVISION
awarding the same. Consequently, the award of
attorney's fees should be deleted. [G.R. No. 142277. December 11, 2002.]

WHEREFORE, in view of all the foregoing, the ARWOOD INDUSTRIES, INC.,

Decision dated June 18, 2002 and the Resolution petitioner, vs. D.M. CONSUNJI,
dated September 11, 2002 of the Court of Appeals in INC., respondent.
CA-G.R. CV No. 52839 are AFFIRMED with
MODIFICATION that the award of attorney's fees is Roberto B. Arca for petitioner.
DELETED. IaESCH
Castillo Laman Tan Pantaleon and San Jose for
No pronouncement as to costs. respondent.

SO ORDERED.
 SYNOPSIS
The Supreme Court denied the petition and a
Petitioner and respondent, as owner and rmed the decision of the Court of Appeals. The phrase
contractor, respectively, entered into a Civil, "monthly progress billings" refers to a portion of the
Structural and Architectural Works Agreement for the contract price payable by the owner (petitioner) of the
construction of petitioner's condominium unit. Despite project to the contractor (respondent) based on the
the completion of the condominium project, the percentage of completion of the project or on work
amount of P962,434.78 remained unpaid by accomplished at a particular stage. It refers to that
petitioner. Repeated demands by respondent for portion of the contract price still to be paid as work
petitioner to pay went unheeded. Respondent led a progresses, after the downpayment is made." The de
complaint for the recovery of the balance of the nition is not without basis. Articles 6.02 and 6.03 of the
contract price with interest of 2% per month or a Agreement, which respectively provides that the
fraction thereof, from November 1990 up to the time "(b)alance shall be paid in monthly progress payments
of payment and for damages against petitioner. The based on actual value of the work accomplished" and
trial court resolved to grant the relief prayed for by that "the progress payments shall be reduced by a
respondent. On appeal, the Court of Appeals upheld portion of the downpayment made by the OWNER
the trial court despite dauntless demurring by corresponding to the value of the work completed," give
petitioner. Respondent court found basis in Article sense to respondent's interpretation of "monthly
6.03 of the Agreement concerning the imposition of progress billings." Even supposing that petitioner has a
2% interest, which reads: "In the event OWNER different de nition of "monthly progress billings," it must
delays the payments . . . the CONTRACTOR shall nonetheless be interpreted in favor of respondent
have the option to either suspend the works on the because Article 6.03 of the Agreement, which gives
Project until such payments have been remitted by respondent the option in case of petitioner's default in
the OWNER or continue the work but the OWNER payment, was obviously stipulated for respondent's
shall be required to pay the interest at a rate of two bene t. Thus, respondent correctly contended that the
(2%) percent per month or the fraction thereof in days amount claimed, which is part of the contract price,
of the amount due for payment by the OWNER." would not have accumulated had petitioner been
Petitioner moved for reconsideration, but was denied. diligent in the monthly payment of the work
Hence, the present petition. accomplished by respondent. The Court emphasized
that the Agreement or the contract between the parties delay on the part of petitioner. This delay was never
is the formal expression of the parties' rights, duties and disputed. Delay in the performance of an obligation is
obligations. It is the best evidence of the intention of the looked upon with disfavor because, when a party to a
parties. contract incurs delay, the other party who performs
SYLLABUS his part of the contract suffers damages thereby.
Dilationes in lege sunt idiosae. Obviously, respondent
1.CIVIL LAW; OBLIGATIONS AND suffered damages brought about by the failure of
CONTRACTS; DELAY IN THE PERFORMANCE OF petitioner to comply with its obligation on time. And,
AN OBLIGATION IS LOOKED UPON WITH sans elaboration of the matter at hand, damages take
DISFAVOR BECAUSE WHEN A PARTY TO A the form of interest. Accordingly, the appropriate
CONTRACT INCURS DELAY, THE OTHER PARTY measure of damages in this case is the payment of
WHO PERFORMS HIS PART OF THE CONTRACT interest at the rate agreed upon, which is 2% interest
SUFFERS DAMAGES THEREBY. — The Agreement for every month of delay. It must be noted that the
or the contract between the parties is the formal Agreement provided the contractor, respondent in this
expression of the parties' rights, duties and case, two options in case of delay in monthly
obligations. It is the best evidence of the intention of payments, to wit: a) suspend work on the project until
the parties. Thus, "when the terms of an agreement payment is remitted by the owner or b) continue the
have been reduced to writing, it is considered as work but the owner shall be required to pay interest at
containing all the terms agreed upon and there can a rate of two percent (2%) per month or a fraction
be, between the parties and their successors in thereof. Evidently, respondent chose the latter option,
interest, no evidence of such terms other than the as the condominium project was in fact already
contents of the written agreement." Consequently, completed. The payment of the 2% monthly interest,
upon the ful llment by respondent of its obligation to therefore, cannot be jettisoned overboard. Since the
complete the construction project, petitioner had the Agreement stands as the law between the parties, this
correlative duty to pay for respondent's services. Court cannot ignore the existence of such provision
However, petitioner refused to pay the balance of the providing for a penalty for every month's delay. Facta
contract price. From the moment respondent legem facunt inter partes. Neither can petitioner
completed the construction of the condominium impugn the Agreement to which it willingly gave its
project and petitioner refused to pay in full, there was consent. From the moment petitioner gave its
consent, it was bound not only to ful ll what was case of delay in discharging an obligation consisting
expressly stipulated in the Agreement but also all the of the payment of a sum of money, is the payment of
consequences which, according to their nature, may penalty interest at the rate agreed upon; and in the
be in keeping with good faith, usage and law. absence of a stipulation of a particular rate of penalty
Petitioner's attempt to mitigate its liability to interest, then the payment of additional interest at a
respondent should thus fail. rate equal to the regular monetary interest; and if no
regular interest had been agreed upon, then payment
2.ID.; DAMAGES; ACTUAL OR COMPENSATORY; of legal interest or six percent (6%) per annum."
EVEN IN THE ABSENCE OF A STIPULATION ON Hence, even in the absence of a stipulation on
INTEREST, RESPONDENT WOULD STILL BE interest, under Article 2209 of the Civil Code,
ENTITLED TO RECOVER THE BALANCE OF THE respondent would still be entitled to recover the
CONTRACT PRICE WITH INTEREST UNDER balance of the contract price with interest.
ARTICLE 2209 OF THE CIVIL CODE. — Moreover, Respondent court, therefore, correctly interpreted the
even assuming that there was a default of stipulation terms of the agreement which provides that "the
or agreement on interest, respondent may still recover OWNER shall be required to pay the interest at a rate
on the basis of the general provision of law, which is of two percent (2%) per month or the fraction thereof
Article 2209 of the Civil Code, thus: "Art. 2209. If the in days of the amount due for payment by the
obligation consists in the payment of a sum of money, OWNER." IEaHSD
and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, 3.ID.; ID.; ID.; THE "TERM MONTHLY
shall be the payment of the interest agreed upon, and PROGRESS BILLINGS" REFERS TO A PORTION
in the absence of stipulation, the legal interest, which OF THE CONTRACT PRICE PAYABLE BY THE
is six percent per annum." Article 2209 of the Civil OWNER OF THE PROJECT TO THE
Code, as abovementioned, speci es the appropriate CONTRACTOR BASED ON THE PERCENTAGE OF
measure of damages where the obligation breached COMPLETION OF THE PROJECT OR ON WORK
consisted of the payment of sum of money. Article ACCOMPLISHED AT A PARTICULAR STAGE. —
2209 was, in extent, explicated by the Court in State Petitioner appears confused by a semantics problem.
Investment House, Inc. vs. Court of Appeals, which "Monthly progress billings" certainly form part of the
provides: "The appropriate measure for damages in contract price. If the amount claimed by respondent is
not the "monthly progress billings" provided in the correctly contends that the amount claimed, which is
contract, what then does such amount represent? part of the contract price, would not have accumulated
Petitioner has not in point of fact convincingly supplied had petitioner been diligent in the monthly payment of
an answer to this query. Neither has petitioner shown the work accomplished by respondent.
any effort to clarify the meaning of "monthly progress
billings" to support its position. This leaves us no 4.REMEDIAL LAW; EVIDENCE; OBJECTION
choice but to agree with respondent that the phrase, TO EVIDENCE CANNOT BE RAISED FOR THE
"monthly progress billings" refers to a portion of the FIRST TIME ON APPEAL. — Respondent's claim, it
contract price payable by the owner (petitioner) of the must be noted, includes "payment of the sum of
project to the contractor (respondent) based on the P962,474.78, exclusive of damages." The Complaint
percentage of completion of the project or on work of plaintiff -respondent prayed for the amount of
accomplished at a particular stage. It refers to that P962,474.78 "exclusive of damages." Petitioner had
portion of the contract price still to be paid as work all the opportunity to squarely meet the issue on
progresses, after the downpayment is made." This de interest at the pre -trial as it was deemed included in
nition is, indeed, not without basis. Articles 6.02 and the phrase "exclusive of damages." The appeal to the
6.03 of the Agreement, which respectively provides respondent court on the matter of interest was,
that the "(b)alance shall be paid in monthly progress therefore, a belated effort to object to the contents of
payments based on actual value of the work the Agreement. Petitioner cannot resort to this sneaky
accomplished" and that "the progress payments shall scheme. "Objection to evidence cannot be raised for
be reduced by a portion of the downpayment made by the rst time on appeal; when a party desires the court
the OWNER corresponding to the value of the work to reject the evidence offered, he must so state in the
completed" give sense to respondent's interpretation form of objection. Without such objection, he cannot
of "monthly progress billings." Even supposing that raise the question for the rst time on appeal." And,
petitioner has a different de nition of "monthly since there was no timely objection to the contents of
progress billings," it must nonetheless be interpreted the Agreement, the Agreement and its contents form
in favor of herein respondent because Article 6.03 of part of the evidence of the case. All the parties to the
the Agreement, which gives respondent the options in case, therefore, are considered bound by any
case of petitioner's default in payment, was obviously favorable or unfavorable effects resulting from the
stipulated for respondent's bene t. Thus, respondent evidence.
 This is a petition for review of the decision 1
5.ID.; ID.; ARTICLE 6.03 OF THE AGREEMENT dated November 12, 1999 of the Court of Appeals,
NEED NOT BE SUBMARKED AND FORMALLY which a rmed, with modi cation, the decision 2 dated
OFFERED IN EVIDENCE DURING THE PRE-TRIAL April 1, 1997 of the Regional Trial Court, Branch 153,
BEFORE SAID PROVISION MAY TAKE EFFECT; Pasig City in Civil Case No. 63489. TaDIHc
THE PROVISION IS INCLUDED IN THE
AGREEMENT AND THE EXISTENCE AND The core issue of this petition is the propriety of
VALIDITY OF WHICH WERE NOT OBJECTED TO the imposition of two percent (2%) interest on the
BY PETITIONER. — Needless to state, it is not amount adjudged by the trial court and later a rmed
indispensable that Article 6.03 of the Agreement be by the Court of Appeals in favor of respondent D.M.
sub-marked and formally offered in evidence during Consunji, Inc. and against petitioner Arwood
the pre-trial before said provision may take effect. For Industries, Inc.
one, the provision on the payment of monthly interest
is included in the Agreement, the existence and
validity of which, to reiterate, were not objected to by The factual backdrop of this case is as follows:
petitioner. For another, the payment of interest as
penalty is a necessary consequence of petitioner's Petitioner and respondent, as owner and
failure to exercise diligence in the discharge of its contractor, respectively, entered into a Civil,
obligation under the contract. Structural and Architectural Works Agreement 3
(Agreement) dated February 6, 1989 for the
construction of petitioner's Westwood Condominium
at No. 23 Eisenhower St., Greenhills, San Juan, Metro
DECISION Manila. The contract price for the condominium
project aggregated P20,800,000.00.

Despite the completion of the condominium

CORONA, J p: project, the amount of P962,434.78 remained unpaid
by petitioner. Repeated demands by respondent for
petitioner to pay went unheeded.
 per month from
Thus, on August 13, 1993, respondent, as November 1990 up to
plaintiff in Civil Case No. 63489 led its complaint 4 for the time of payment;
the recovery of the balance of the contract price and
for damages against petitioner. DTCAES "(2)the amount of P150,000.00 as
attorney's fees; and
Respondent speci cally prayed for the payment
of the (a) amount of P962,434.78 with interest of 2% "(3)Cost(s) of suit.
per month or a fraction thereof, from November 1990
up to the time of payment; (b) the amount of P250,000 SO ORDERED." 6
as attorney's fees and litigation expenses; (c) amount
of P150,000 as exemplary damages and (d) costs of Petitioner appealed to the Court of Appeals,
suit. 5 particularly opposing the nding of the trial court with
regard to the imposition of the monetary interest of 2%
After trial, the court below resolved to grant the per month on the adjudicated amount.
relief prayed for by respondent,
The Court of Appeals upheld the trial court
thus: despite dauntless demurring by petitioner.
Respondent court found basis in Article 6.03 of the
"WHEREFORE, judgment is Agreement concerning the imposition of the 2%
hereby rendered in favor of the plaintiff interest, which reads:
and against defendant ordering the
latter to pay the former the following: "Payment shall be made by the OWNER
to the CONTRACTOR
"(1)the sum of within
P962,434.78
representing the fteen
balance of contract
price with interest at 2%
 3. calendar days after receipt of the same was not mentioned in the body of
Construction Manager's Certi cate. In the decision.
the event OWNER delays the payments
(i.e. beyond the stipulated time) to the "On this ultimate point, We agree.
CONTRACTOR of monthly progress
billings, the CONTRACTOR shall have "In the case of Del Rosario vs. Court of
the option to either suspend the works Appeals (267 SCRA 158, 175), the
on the Project until such payments have
been remitted by the OWNER or Supreme Court held that:
continue the work but the OWNER shall
be required to pay the interest at a rate 'Finally, like the
of two (2%) percent per month or the adjudication of actual of
fraction thereof in days of the amount compensatory damages, the
due for payment by the OWNER. The award of attorney's fees must
same interest shall be added to the be deleted. The matter was
billing of the following month. dealt with only in the
Furthermore, the progress payments dispositive portion of the Trial
shall be reduced by a portion of the Court's decision. Since the
downpayment made by the OWNER judgment does not say why
corresponding to the value of the work attorney's fees were
completed." 7 awarded, there is no basis for
such award, which should
Respondent court, however, modi ed the consequently be removed.
decision of the trial court by deleting the award of So did this Court rule, for
attorney's fees for the following reasons: instance, in Scott
Consultants and Resource
"Finally, defendant-appellant Development Corp., Inc. et
argues that the court a quo erred in al. (242 SCRA 393, 406):
awarding attorney's fees because the
 'It is settled that the award of does not apply to the claim of respondent but refers
attorney's fees is the exception to the "monthly progress billings." The amount of
rather than the rule and counsel's P962,434.78 is not a "monthly progress billing" and
fees are not to be awarded every should not therefore be subject to interest.
time a party wins. The power of the
court to award attorney's fees Furthermore, the pre-trial order of the trial court
under Article 2208 of the Civil Code dated February 4, 1994 did not include interest as one
demands factual, legal, and of the issues to be resolved and determined during
equitable justi cation; its basis the trial; the parties agreed that the main issue was —
cannot be left to speculation or
conjecture. Where granted, the ". . . whether or not defendant is
court must explicitly state in the liable to pay the balance of P964,434.78
body of the decision, and not only as stated in the Complaint." 9
in the dispositive portion thereof,
the legal reason for the award of Thus, the trial court erroneously disposed of the issue
attorney's fees." 8 on payment of interest.

Petitioner moved to reconsider, unsuccessfully. Petitioner points to the error of the Court of
Appeals in basing its decision (on the issue of interest)
Hence, this petition for review. The only issue is on Article 6.03 of the Agreement. It reasons that while
the correctness of imposing a 2% per month interest there was a formal offer of the Agreement and its sub-
on the award of P962,434.78. markings, the provision on interest was neither sub-
marked nor formally offered in evidence. 10 Hence,
Petitioner argues that the trial court's decision the imposition of interest is wanting in basis as it is not
has no basis in imposing the 2% interest per month. even explicitly alleged in the complaint before the trial
Although the Agreement contained a provision with court.
regard to the interest, this provision was not
mentioned by the trial court in awarding interest in the Petitioner's stance hardly deserves this Court's
dispositive portion. This provision of the Agreement attention.
 time. And, sans elaboration of the matter at hand,
The Agreement or the contract between the damages take the form of interest. Accordingly, the
parties is the formal expression of the parties' rights, appropriate measure of damages in this case is the
duties and obligations. It is the best evidence of the payment of interest at the rate agreed upon, which is
intention of the parties. Thus, "when the terms of an 2% interest for every month of delay.
agreement have been reduced to writing, it is
considered as containing all the terms agreed upon It must be noted that the Agreement provided the
and there can be, between the parties and their contractor, respondent in this case, two options in
successors in interest, no evidence of such terms case of delay in monthly payments, to wit: a) suspend
other than the contents of the written agreement." 11 work on the project until payment is remitted by the
owner or b) continue the work but the owner shall be
Consequently, upon the ful llment by required to pay interest at a rate of two percent (2%)
respondent of its obligation to complete the per month or a fraction thereof. Evidently, respondent
construction project, petitioner had the correlative chose the latter option, as the condominium project
duty to pay for respondent's services. However, was in fact already completed. The payment of the 2%
petitioner refused to pay the balance of the contract monthly interest, therefore, cannot be jettisoned
price. From the moment respondent completed the overboard.
construction of the condominium project and
petitioner refused to pay in full, there was delay on the Since the Agreement stands as the law
part of petitioner. This delay was never disputed. between the parties, 13 this Court cannot ignore the
existence of such provision providing for a penalty for
every month's delay. Facta legem facunt inter partes.
Delay in the performance of an obligation is 14 Neither can petitioner impugn the Agreement to
looked upon with disfavor because, when a party to a which it willingly gave its consent. From the moment
contract incurs delay, the other party who performs petitioner gave its consent, it was bound not only to
his part of the contract suffers damages thereby. ful ll what was expressly stipulated in the Agreement
Dilationes in lege sunt idiosae. 12 Obviously, but also all the consequences which, according to
respondent suffered damages brought about by the their nature, may be in keeping with good faith, usage
failure of petitioner to comply with its obligation on
and law. 15 Petitioner's attempt to mitigate its liability to be paid as work progresses, after the
to respondent should thus fail. downpayment is made." 16

As a last-ditch effort to evade liability, petitioner This de nition is, indeed, not without basis.
argues that the amount of P962,434.78 claimed by Articles 6.02 and 6.03 of the Agreement, which
respondent and later awarded by the lower courts respectively provides that the "(b)alance shall be paid
does not refer to "monthly progress billings," the in monthly progress payments based on actual value
delayed payment of which would earn interest at 2% of the work accomplished" 17 and that "the progress
per month. payments shall be reduced by a portion of the
downpayment made by the OWNER corresponding to
We disagree. the value of the work completed" give sense to
respondent's interpretation of "monthly progress
Petitioner appears confused by a semantics billings." HDIaST
problem. "Monthly progress billings" certainly form
part of the contract price. If the amount claimed by Even supposing that petitioner has a different
respondent is not the "monthly progress billings" de nition of "monthly progress billings," it must
provided in the contract, what then does such amount nonetheless be interpreted in favor of herein
represent? Petitioner has not in point of fact respondent because Article 6.03 of the Agreement,
convincingly supplied an answer to this query. Neither which gives respondent the options in case of
has petitioner shown any effort to clarify the meaning petitioner's default in payment, was obviously
of "monthly progress billings" to support its position. stipulated for respondent's benefit. 18
This leaves us no choice but to agree with respondent
that the phrase, "monthly progress billings" refers to a Thus, respondent correctly contends that the
portion of the contract price payable by the owner amount claimed, which is part of the contract price,
(petitioner) of the project to the contractor would not have accumulated had petitioner been
(respondent) based on the percentage of completion diligent in the monthly payment of the work
of the project or on work accomplished at a particular accomplished by respondent.
stage. It refers to that portion of the contract price still
Respondent's claim, it must be noted, includes another, the payment of interest as penalty is a
"payment of the sum of P962,474.78, exclusive of necessary consequence of petitioner's failure to
damages." The Complaint of plaintiff-respondent exercise diligence in the discharge of its obligation
prayed for the amount of P962,474.78 "exclusive of under the contract.
damages." Petitioner had all the opportunity to
squarely meet the issue on interest at the pre-trial as
it was deemed included in the phrase "exclusive of Moreover, even assuming that there was a
damages." The appeal to the respondent court on the default of stipulation or agreement on interest,
matter of interest was, therefore, a belated effort to respondent may still recover on the basis of the
object to the contents of the Agreement. Petitioner general provision of law, which is Article 2209 of the
cannot resort to this sneaky scheme. "Objection to Civil Code, thus:
evidence cannot be raised for the rst time on appeal;
when a party desires the court to reject the evidence "Art. 2209.If the obligation
offered, he must so state in the form of objection. consists in the payment of a sum of
Without such objection, he cannot raise the question money, and the debtor incurs in delay,
for the rst time on appeal." 19 And, since there was the indemnity for damages, there being
no timely objection to the contents of the Agreement, no stipulation to the contrary, shall be
the Agreement and its contents form part of the the payment of the interest agreed
evidence of the case. All the parties to the case, upon, and in the absence of stipulation,
therefore, are considered bound by any favorable or the legal interest, which is six percent
unfavorable effects resulting from the evidence. 20 per annum."

Needless to state, it is not indispensable that Article 2209 of the Civil Code, as
Article 6.03 of the Agreement be sub-marked and abovementioned, speci es the appropriate measure of
formally offered in evidence during the pre-trial before damages where the obligation breached consisted of
said provision may take effect. For one, the provision the payment of sum of money. Article 2209 was, in
on the payment of monthly interest is included in the extent, explicated by the Court in State Investment
Agreement, the existence and validity of which, to House, Inc. vs. Court of Appeals, 21 which provides:
reiterate, were not objected to by petitioner. For
 "The appropriate measure for WHEREFORE, the petition is hereby DENIED.
damages in case of delay in discharging
an obligation consisting of the payment SO ORDERED.
of a sum of money, is the payment of
penalty interest at the rate agreed upon; Puno, Sandoval-Gutierrez and Carpio-Morales,
and in the absence of a stipulation of a JJ., concur.
particular rate of penalty interest, then Panganiban, J., is on official leave.
the payment of additional interest at a
rate equal to the regular monetary
interest; and if no regular interest had
been agreed upon, then payment of FIRST DIVISION
legal interest or six percent (6%) per
annum." 22 [G.R. No. 43579. June 14, 1938.]

Hence, even in the absence of a stipulation on JOSUE SONCUYA, plaintiff-

interest, under Article 2209 of the Civil Code, appellant, vs. JUAN AZARRAGA
respondent would still be entitled to recover the ET AL., defendants-appellants.
balance of the contract price with interest.
Respondent court, therefore, correctly interpreted the Gervacio Diaz, Joaquin Azarraga,
terms of the agreement which provides that "the Sumulomg, Lavidez & Sumulomg, and Laurel, Del
OWNER shall be required to pay the interest at a rate Rosario & Sabido for defendants and appellants.
of two percent (2%) per month or the fraction thereof
in days of the amount due for payment by the Josue Soncuyu in his own behalf.
OWNER." ADTEaI

We, therefore, nd no basis to alter the ndings SYLLABUS

of the Court of Appeals a rming the decision of the
trial court. 1. DEBTOR AND CREDITOR; LOAN;
ANTICHRESIS OR "PACTO COMISORIO";
ASSIGNMENT IN PAYMENT OF A DEBT; SALE or without guaranty, that interest may be
WITH RIGHT OF REPURCHASE; NOVATION. — demanded (articles 1108, 1740, 1755, 1868, 1876,
When plaintiff extended the time within which and 1881 of the Civil Code). As a matter of fact, the
defendants A, in general, and J. A., in particular, contract embodied in Exhibit A was novated by
could pay his credits against them, subject to the Exhibits 5 and M, and plaintiff desired to have it
condition that they pay him interest at 12 per cent novated for the third time by means of Exhibit 2. It
per annum, and thereafter granting them another does not appear of record, however, that the
extension of time under the same conditions as to defendants A ever assented to the latter novation.
interest, what perhaps could have been Perhaps their refusal to agree ,to the same was
considered as an antichresis or pacto comisorio as due to the fact that plaintiff wanted to raise their old
to the former (not an assignment in payment of a obligation (P3,000 or P2,700 of all the brothers,
debt, or a sale with a right of repurchase, because plus P4,000 which J. A. alone owed, which two
there is nothing in the document to indicate that accounts both plaintiff and defendants considered
such was the intention of the defendants A, or, at as amounting to P7,000, exclusive of the annual
least, that they bound themselves to deliver the interest of 12 per cent) to a round sum of P12,000.
land in question to the plaintiff, the latter to pay From all this it may easily be inferred that the
them the value thereof, and because there was obligation which defendants had imposed upon
what may be considered as themselves by means of Exhibit A had ceased to
exist and became a simple loan with security, if so
the resolutory condition of ve years), and what may desired, of the lands in question, but without
be considered as a sale with the right of prejudice to third parties by reason of the failure to
repurchase in the case of J. A., were converted inscribe in the registry of property either Exhibit A
into simple loans by the decisive circumstance that or the deed of assignment Exhibit C, executed by
the plaintiff chose to collect thereafter, and the L. A. in favor of the plaintiff.
defendants agreed to pay him, 12 per cent annual
interest. ID.; ID.; ID. — The plaintiff never considered the
contract entered into by him with J. A. as, strictly
ID.; ID.; COLLECTION OF speaking, a sale with the right of repurchase. And if
INTEREST. — It is only in contracts of loan, with he had ever considered it as such, it is, nevertheless,
true that he novated it on February 16, 1926, indemni ed for the deprivation of their possession.
considering it from that time on as a simple loan, And he has no reason to complain that his lien, if
inasmuch as on that date he began to charge said his right over said lands could be termed as such,
defendant 12 per cent annual interest with the latter's was not annotated in the certi cate of title which
assent and conformity. defendants A had obtained, or that the latter did
not ask that it be stated therein that the lands to
3. ID.; ID.; ASSIGNMENT IN PAYMENT, which it refers are charged with his credit against
OF A DEBT; PURCHASE WITH "PACTO DE them; inasmuch as he was himself negligent in that
RETRO"; RIGHT OF DOMINION TO BE he did not ask the court, while the registration case
ENJOYED IN SUCH CASES. — The contention of relating to said lands was bring heard, for the
defendants that plaintiff did not and could never annotation of what he considered necessary to
receive the lands in question as an assignment in protect his rights, and in not seeking the revision
payment of a debt and much less did he acquire or modi cation of the decree of registration within
them by purchase with pacto de retro, is well taken. the period of one year provided for that purpose.
At no time did plaintiff claim any rights of dominion
over the lands since he did not even intimate to the
defendants, either directly or indirectly, that by DECISION
reason of their failure to pay him his credit within
the time provided therefor, he became the absolute
owner thereof. Moreover, notwithstanding the fact
that all the extensions he had given defendants DIAZ, J p:
had expired, he did not, even only for tax
declaration purposes, declare the lands as his This case is now before us on appeal from
property. the Court of First Instance of Capiz. After trial, the
plaintiff led a second amended complaint, which
4. ID.; ID.; NEGLIGENCE OF the lower court at rst refused to consider, but later
CREDITOR. — If plaintiff never became the owner on admitted after it was convinced that the
of the lands in question, he can neither claim allowance thereof was proper in order to make the
payment of the value of the same nor ask to be allegations conform to the established facts. This
was done without the defendants interposing any plaintiff prays that the defendants surnamed
exception, notwithstanding that they had Azarraga, with the exception of Joaquin Azarraga,
previously opposed the admission of the be ordered to make up to 123 hectares, 13 ares
amendment. They did not afterwards and do not and 99 centares the land which the latter had sold
now, in their brief on appeal, question the aforesaid to him, because plaintiff did not take possession of
amendment. the land, except a portion thereof, having an area
of 72 hectares, 83 ares and 5 centares. In other
It appears from the allegations of the complaint words, the defendants should deliver to the plaintiff
thus amended that the plaintiff has four causes of an additional 50 hectares, 30 ares and 94 centares
action. Under the rst cause he seeks to recover inasmuch as the participation of said Joaquin
from the defendants the sum of P118,635.68 as Azarraga in the estate left to him and his brothers,
damages, which he alleges to have been caused his co-defendants herein, by their common
by the defendants in fraudulently depriving him of grandfather, Juan Azarraga y Galvez, which
the possession of four parcels of land with a total Joaquin Azarraga sold to plaintiff, had that area
area of 296 hectares, 58 ares and 92 centares, according to the deed of partition, executed by all
which they, with knowledge that said real of them, and the plan of said estate which was
properties belonged to him exclusively, registered subsequently drawn up.
in their names in the registry of property and
mortgaged in favor of "Hijos de I. de la Rama" to In their answer of February 26, 1931, the
pay a certain obligation which they had contracted defendants Azarraga interposed a general denial
with the Panay Municipal Cadastre. Under the of each and all the allegations of the plaintiff's
second cause, plaintiff seeks to recover P6,080 as complaint, excepting those relating to their
the supposed value of the heads of cattle personal circumstances. They, in turn, alleged the
belonging to him, which the tenants of the following special defenses: First, that the
defendants had slaughtered. Under the third complaint does not allege facts constituting causes
cause, he seeks payment of the sum of P5,575 as of action,; second, that the plaintiff and his
the supposed value of 1,115 coconut trees which predecessor in interest were negligent in failing to
he had planted on the four parcels of land in inscribe in the o ce of the register of deeds the
question. Under the fourth and last cause of action, supposed encumbrances in their favor over the
lands in question, granting that said
encumbrances had ever existed; third, that the (a) That plaintiff is liable to them in damages
plaintiff knew and was personally informed that the in the sum of P100,000 because while the contract
lands aforesaid would be surveyed at their which the defendants had entered into with
instance and inscribed in their names as their own Leodegario Azarraga was still in force, the plaintiff
property, but that he did nothing to defend or took possession of their lands not covered by the
protect his rights either during the pendency of the said contract; that he set loose therein his cattle,
proceedings for the registration of the lands in utilizing the same as grazing ground in a negligent
question or during the period prescribed by law manner and without taking the necessary steps to
after the issuance of a decree and title, within avoid damages to their plantations; that
which the validity of the same may be assailed; notwithstanding repeated requests, the plaintiff
fourth, that at the time of ling their application for refused to fence the lands in which he had set
registration as well as of the issuance of the decree loose his animals, thereby causing damages and
ordering the inscription in their names in the destruction to their plantations; that the animals
registry of property of the lands in question, they belonging to the plaintiff not only destroyed and
were the sole owners of the same, and that damaged the coconut, palay and corn plantations
admitting for the sake of argument the theory of the existing already on the lands before said animals
plaintiff that he had a right to said lands, it was were brought thereto, but also destroyed their
nothing more than an expectation that he would be farms and plantations on their enclosed lands; that
someday their owner; all this was due to the neglect and carelessness of
the plaintiff; that by reason of his refusal to enclose
fth, that the plaintiff had no right to apply for or the lands converted into grazing grounds, the
obtain from the court a writ of preliminary defendants were unable to derive any bene ts from
injunction, wherefore, that obtained was illegal; their lands or to sell or rent them to those who
and sixth, that the right of action of the plaintiff, if desired to do so.
any, had prescribed.
(b) That the plaintiff is further liable and should be
The defendants Azarraga further alleged the sentenced to pay them in damages the sum of
following counterclaims: P15,000 for having caused the annotation in the
corresponding registry book of the o ce of the
register of deeds of the Province of Capiz of a (e) That in case it is adjudged that the lands
notice of lis pendens not only with regard to the in controversy had been improperly inscribed by
150 hectares, 48 ares and 50 centares which he the defendants in their names in the registry of
claims in his complaint, but also with regard to the property, they pray that the plaintiff be ordered to
whole area of 246 hectares, 27 ares and 98 reimburse them in the sum of P5,000 which
centares, described in the original certi cate of title represent the taxes paid by them on said lands,
No. 9785 issued in the name of the defendants; plus interest from the dates said taxes were paid;
that as a result of this act of the plaintiff, they could
not enter into any transactions over that (f) The defendants lastly pray that upon the
unquestioned portion of the land to which said title dissolution of the writ of preliminary injunction
relates. issued against them on the date above-stated and
the cancellation of the annotation of said writ in the
(c) That the plaintiff is likewise liable and the corresponding book of the office of the register of
defendants pray that he should be sentenced to deeds of Capiz, the plaintiff be sentenced to pay
pay them the sum of P30,000 also in damages, for the costs of the suit.
having sought and secured the issuance of an
order of preliminary attachment of their properties "Hijos de I. de la Rama" and
described in certificates of title Nos. 9804 and Panay Municipal Cadastre were
10361. included in the complaint only for the
purpose of enjoining the former from
(d) That the plaintiff is liable and should be increasing to P25,000 the credit it had
sentenced to pay them in damages the sum of extended to the defendants Azarraga,
P10,000 for having asked and secured from the who had already obtained P16,000 on a
court on February 7, 1931 a writ of preliminary mortgage of the lands in question
injunction in the same case, thereby preventing the executed by them in its favor; and of
defendants from exercising acts of ownership not restraining the latter from collecting from
only on the four parcels in question, but also on all said loan of P25,000, extended by
the other lands belonging to them. "Hijos de I. de la Rama" to the
 defendants, the credit which it claims to "Wherefore, the defendants Juan, Jose,
have against them under a contract Salvador, Joaquin, Emilio, Luis, Rosario, Julio,
whereby they abound themselves to all surnamed Azarraga, are hereby sentenced
provide it with funds to carry on the to pay the plaintiff, jointly and severally, the
enterprise for which it has been sum of P24,627.98, with legal interest from
organized. November 10, 1926, as damages because they
fraudulently deprived the plaintiff of his lands in
"Hijos de I. de la Rama" showed Bay -ang, and likewise to pay the plaintiff,
very little interest in the case, for, jointly and severally, the sum of P5,575 with
according to the lower court, it merely legal interest from November 10, 1926,
filed an answer with a general denial. representing the value of 1,115 coconut trees
as improvements on said lands, and, with the
Panay Municipal Cadastre, in its answer, exception of Joaquin Azarraga, to pay the
denied all the allegations of the complaint in so far plaintiff, jointly and severally, the sum of
as it might be affected thereby, and alleged as P5,030.94 with interest at the legal rate from
special defense that the plaintiff had no right to ask November 10, 1926 for eviction and warranty.
for, and much less obtain, a writ of preliminary "In case the defendants Azarraga
injunction against it. It further alleged as a have no unencumbered properties or
counterclaim that the said plaintiff has become can not redeem the mortgage over their
liable to it in damages in the sum of P15,000, plus properties, with which to satisfy the
P5,000 every month, beginning February 7, 1931, indemnity for damages, the payment of
because the plaintiff prevented it from receiving said indemnity shall be charged against
from the defendants Azarraga or from "Hijos de I. the bond of the sureties, who secured
de la Rama" the sums which they had bound the lifting of the attachment on the
themselves to deliver under a contract which they properties of the defendants.
had executed on September 20, 1929. After trial,
the court rendered judgment as follows: "The writ of preliminary injunction
issued in this case on February 7, 1931
against the defendants Azarraga, Hijos
 de I. de la Rama and Panay Municipal and the heirs of Don Juan Azarraga y
Cadastre is hereby made nal, with the Galvez as contained in the plan of
exception of that portion which enjoins partition Exhibit 'A' is one of cession of
Hijos de I. de la Rama from delivering to property in payment of a debt known in
the defendants surnamed Azarraga and Spanish law as 'dacion en pago.'
Panay Municipal Cadastre more than
the sum of P16,000, which had already "II. The trial court erred in not
been delivered, and which likewise holding that the stipulation between
enjoins the latter from demanding from Attorney Leodegario Azarraga and the
said entity more than the above- heirs of the deceased Juan Azarraga y
mentioned sum of P16,000, which Galvez to the effect that the lands were
portion is hereby declared dissolved. to become the property of Attorney
Leodegario Azarraga in case the
"The plaintiff is absolved defendants failed to pay his fees within
from the counterclaims interposed ve years and that during this period the
by the defendants Azarraga and by said attorney had the usufruct and
the Panay Municipal Cadastre. possession of the lands, as contained in
The defendants Azarraga shall pay Exhibit 'A', is one of pacto comisorio,
the costs." which is prohibited by article 1884 of the
Civil Code.
From the foregoing judgment the defendants
as well as the plaintiff appealed, and in their "III. The trial court erred in nding
respective briefs they assign the following errors: that the three parcels of land in
question, lots Nos. 81, 82, and 83, were
ASSIGNMENTS OF ERROR OF THE DEFENDANTS. sold by Attorney Leodegario Azarraga
to the plaintiff herein.
"I. The trial court erred in holding
that the true nature of the stipulation "IV. The trial court erred in not
between Attorney Leodegario Azarraga holding that the right established by
 Attorney Leodegario Azarraga by virtue "VIII. The trial court erred in not holding
of Exhibit 'A' and transferred to the that the plaintiff had been negligent in
plaintiff is at most an attorney's lien over not asking for the review of the decree
the properties in question and that the within one year, and in not holding that
action of the plaintiff as transferee of this the plaintiff purposely allowed the one-
lien should be to compel the defendants year period, within which he could
to recognize it as a lien. petition for review of the decree, to
elapse in order that he might have a
"V. The trial court erred in holding that cause of action for damages against the
the defendants procured the defendants.

registration of the lands in question by "IX. The trial court erred in

fraudulent means. permitting the plaintiff to prove the
market value of the lands in question
"VI. The trial court erred in not holding although there was absolutely no
that the plaintiff, having no real allegation to that effect in the complaint
notwithstanding the objection thereto
right over the lands in question, the and the exception taken by the
omission of his name from the defendants.
application is not fraudulent and not
fatal to the registration of the lands. "X. The trial court erred in not
holding that Joaquin Azarraga has not
"VII. The trial court erred in not holding that intervened in the registration of the
the plaintiff, being a mere usufructuary of the lands lands in question, he being only a
in question for a limited period of time by grace of coowner pro indiviso and as such has
the owners, was not entitled to be mentioned in the not been guilty of fraud in connection
application for registration and to be notified with the registration of the lands.
personally of its proceedings.
 "XI. The trial court erred in not defendants amounting to P58,000."
holding that the plaintiff had no real right
over the land referred to in Exhibit 'E' in ASSIGNMENTS OF ERROR
view of the fact that the said document OF THE PLAINTIFF
had not been registered.
"(a) he lower court erred in notnding
"XII. The trial court erred in holding that the market value of the
that the land referred to in Exhibit
lands in litigation in 1926 was P118,635.68;
'E' contains an area of 164 hectares instead of
63 hectares only. "(b) he lower court erred in not
sentencing the defendants to pay the
"XIII. The trial court erred in nding plaintiff the sum of P6,080 as indemnity
that the total area of lots 81, 82, for the wrongful slaughter of his
animals; and
and 83, which are the subject matter of
the 'pactum commissorium' between "(c) he lower court erred in not
Attorney Leodegario Azarraga and the sentencing the defendants to pay the
defendants, is 243 hectares instead of plaintiff, jointly and severally, the sum of
87 hectares only. P130,290.68 as indemnity, plus legal
interest from November 10, 1926."
"XIV. The trial court erred in
sentencing the defendants to pay to the The salient facts established at the trial
plaintiff the sum of P35,233.92 and in which may serve as a basis for an intelligent
not absolving them from the complaint. discussion of the questions raised by the parties
and for a proper decision of the same, may be
"XV. The trial court erred in disallowing briefly stated as follows:
all the five counterclaims of the
 By reason of the proceedings had in case pay any rent until his fees shall have
No. 11489 of the Court of First Instance of Manila, been fully paid: Provided, however, that
entitled "Testate Estate of the Deceased Juan if, at the end of the period of ve years
Azarraga y Galvez", the defendants surnamed from the date of the approval of this
Azarraga became indebted to Attorney Leodegario project of partition, said parties shall not
Azarraga, who represented them in said case, for have been able to pay in full the fees of
attorney's fees, which on October 21, 1919 the said attorney, then said parcels of land,
court, which took cognizance of the case, fixed at Nos. 81, 82 and 83, located in Bay-ang,
P3,000 (Exhibit B). shall be de nitely adjudicated to said
attorney, Mr. Leodegario Azarraga, as
The defendants Azarraga had previously his property, in payment of his fees, and
agreed among themselves to pay Attorney all sums which he may have received
Leodegario Azarraga attorney's fees in the manner from time to time from the interested
set out in Exhibit A, which they executed on parties in these testate proceedings,
January 20, 1919 and approved by the court on within the said period, shall be returned
August 29, of the same year. (Exhibit C.) The to said parties: Provided, further, that in
pertinent part of the aforesaid Exhibit A reads as case said interested parties in the
follows: testate proceedings shall be able to pay
in full the fees of the attorney for the
"The parties also agree that the parcels testate estate before the expiration of
of land located in Bay-ang, New said period of ve years, then said
Washington, Capiz, P. I., which are parcels of land situated in Bay -ang shall
enumerated in the inventory of this continue in the possession of said
partition as Nos. 81, 82 and 83, are attorney for an additional period of three
specially mortgaged and subject to the years from the date of the last payment
payment of the fees of said attorney of in the event that said attorney may have
the testate estate, which fees shall be kept livestock in said lands."
xed by the court, and said attorney may
hold said lands under no obligation to
 About nine months after the court approved term was later extended to April 26, 1926 on the
Exhibit A, or to be exact, on June 9, 1920, which request of the defendants, but also with the
was long before the expiration of the period of ve condition that they would pay the plaintiff the same
years within which the defendants Azarraga were interest of 12 per cent. (Exhibits L and M.) The
bound to pay Attorney Leodegario Azarraga his plaintiff granted another extension to expire on
fees, which had been xed at P3,000, said attorney October 31, 1928, but subject to the condition that
decided to sell and did sell to the plaintiff his credit instead of seven thousand and odd pesos, which
against the defendants for the sum of P2,500 with undoubtedly referred to the interest of 12 per cent
all the rights inherent therein in accordance with per annum charged the defendants, they should
the agreements and stipulations appearing in said pay him P12,000 (Exhibit 2). In said two amounts
document (Exhibit C). One of said agreements was of P7,000 and P12,000 the sum of P4,000 which
that Attorney Leodegario Azarraga would take the plaintiff had given to the defendant Joaquin
possession of the said parcels of land and, occupy Azarraga and which will be dealt with further in
the same, if he so desired, without paying any rent detail, was included.
or annuity, until his fees shall have been fully paid.
Said parcels were identical with lots Nos. 81, 82 Aside from the above transactions between the
and 83 described in paragraph II of the plaintiff's plaintiff and the defendants Azarraga, one of the
second amended complaint. latter, Joaquin Azarraga, executed in favor of the
former, the deed known as Exhibit E of the record
When the plaintiff became the creditor of the and dated October 14, 1922, by which he sold to
defendants Azarraga by virtue of the sale and the plaintiff, for the sum of P4,000, his portion of
cession which Attorney Azarraga had made in his the inheritance in the testate estate of the late Juan
favor of the rights which said attorney had under Azarraga y Galvez, consisting of an undivided tract
Exhibit A, he .Allowed the defendants an extension of land containing an estimated area of 63
of a few years over the ve years within which they hectares and located in Bay-ang Chico, New
would have to pay him his credit, or up to February Washington, Capiz. It is further stated therein that
16, 1926, but with the express condition that they the period of redemption would be ve years to be
would pay him interest at the rate of 12 per cent counted from February 16, 1921, which was later
per annum, from August 30, 1924 (Exhibit 5). This extended to April 26, 1926. In granting him this
extension, the plaintiff imposed on Joaquin young coconut trees, the latter being more
Azarraga the condition that he should pay him numerous. In 1925, 1926 and 1927, Joaquin
interest at the rate of 12 per cent from the Azarraga, either by himself or his laborers, planted
expiration of the rst term (Exhibit M; par. III of the therein hundreds of coconut trees of which but a
second amended complaint of plaintiff; and page 5 few hundreds, as was the case with the old ones,
of the brief of the plaintiff as appellant). A second remained on account of the long droughts or of
extension was further granted, but under the destructive animals or other causes. There is
condition that he should, together with his nothing de nite in the record to show the exact
brothers, pay the plaintiff instead of seven number of animals which the plaintiff had brought
thousand and odd pesos, representing the interest to Bay-ang or the cause of the death of some of
referred to in the preceding paragraph, in which them. It seems that some had been wounded, by
the P3,000 mentioned in Exhibit A were included, whom it is not known, much less is it known
P12,000 (Exhibit 2). The deed referred to was whether they were wounded by men of the
never annotated or inscribed in any register in the defendants Azarraga. The plaintiff himself has not
o ce of the register of deeds of said province. spoken with certainty; his statements on this point
are mere conjectures uncorroborated by anybody
By virtue of the transfer made to him by or anything (transcript of stenographic notes,
Joaquin Azarraga and also of the terms and pages 145-147). There have been also no exact
conditions enumerated in said Exhibit A, the accounts as to whether the animals of the plaintiff
plaintiff took possession of practically the whole were those which destroyed the coconut trees
land of the defendants Azarraga, located in Bay- planted on the land by Joaquin Azarraga during the
ang, placing therein livestock from the month of years 1925, 1926 and 1927 above-mentioned, or
August, 1920 and in the same year built were the animals of other persons.
sheepfolds therein, besides erecting some wire
fences. When the plaintiff took possession of part Sometime in May, 1928, the plaintiff went to
of the land in question in August, 1920 and another the house of the defendant Joaquin Azarraga to
part thereof in February, 1922, after the execution collect not only his credit against all the defendants
in his favor of the deed of transfer, which is a clari Azarraga, but also the special credit which,
cation of Exhibit E, he found fruit-bearing and according to him, he had against Joaquin
Azarraga. And on October 9, 1928, he addressed redeem it, then in order to avoid the
a letter to each and every one of the defendants inconvenience of a law suit, I would
including Joaquin Azarraga whom he expressly request that on the same day or prior
mentioned therein, and, among other things, told thereto that you shall have at least
them that: submitted to the court your motion
praying for an order approving the
"Last May, Messrs. Salvador segregation and transfer of the portion
and Joaquin came to an agreement of said land which belongs to me,
with me whereby they were to redeem together with the corresponding plan,
the land in Bay -ang for seven namely, that corresponding to the land
thousand and odd pesos last which shall be in my name in the
September, and in default thereof to Torrens title. In the understanding that if
transfer in my name the Torrens title of said date, October 31st, arrives, and
the portion belonging to me; but until you have not done anything either one
now neither of these has been done. way or the other, then through your own
fault, I would be compelled to resort to
"For this reason and in view of the the courts to ask protection of my rights
fact that you have not stated in the before I lose them, urging the court to
Torrens title of the land in Bay-ang when order you to pay me by reason of such
you applied for the same, the two fraudulent omission a sum more than
encumbrances thereon in my favor, I am double the amount above- mentioned."
compelled by this omission, which is a (Exhibit 2.)
clear disregard of my rights, to seek
redress therefor in the courts, if you The land in Bay-ang to which the above-
refuse the same to me. Therefore, if you transcribed letter refers is the same land made up
desire to redeem the land, you may do by the four parcels mentioned in paragraph II of
so for the sum of twelve thousand pesos the second amended complaint of the plaintiff, as
(P12,000) until the 31st of this month of parcels 81, 82, 83 and that having an area of 63
October; but should you not wish to hectares.
 undivided properties of the Azarraga
Between the date of the execution of the brothers, an extension of the term for
document Exhibit A [January 20, 1919) and the the payment of the credit which
date of said letter; Exhibit 2 (October 9, 1928), the encumbers the land in Bay-ang, and,
defendants secured the inscription in the registry consequently, of the redemption of the
of property and the issuance in their favor of the same, up to February 16, 1926. Said
corresponding certi cate of title of the lands land and its encumbrances are
described in original certi cate of title Nos. 9785, by described in the deed of sale of the said
virtue of the decree of registration of October 27, credit with all the rights inherent therein,
1925 (Exhibit Q). Of this fact the plaintiff had full executed by Mr. Leodegario Azarraga in
knowledge by reason of the letter dated July 9, favor of the undersigned on July 9,
1924, which was sent to him by the defendant Juan 1920.
Azarraga, wherein the latter, besides asking for an
extension of three years, informed him (plaintiff) of "As the granting of this extension is
the registration proceedings which were then causing me a real sacri ce and a great
going on. (Exhibit 1.) The plaintiff did not then nor nancial strain, in justice and equity, I
thereafter take any step to oppose the same, or to also ask from you, as administrator of
ask at least for the revision of the decree of the undivided properties of the Azarraga
registration, which was issued later, within the brothers, the lucrum cessans so that
period of one year prescribed by law. To this letter, from August 30, 1924 the aforesaid
the plaintiff replied on the 30th of the same month credit of P3,000 shall earn 12 per cent
and year, stating, among other things: annual

"Now that I am somewhat relieved interest.

from the pressure of work, I am writing
to inform you that, although I need cash "This letter will serve you as
to meet my pressing nancial obligations, evidence of the granting of the
your requests have compelled me to extension of the term for redemption of
grant you, as administrator of the the said land in Bay -ang, and,
 therefore, there is no necessity for 1 upon the ling of a bond required by the court in
executing another document to that the sum of P12,500 by the interested parties. Said
effect." (Exhibit 5.). bond having been led by the defendants, the court,
on the
At the time of the ling of the original
complaint, plaintiff simultaneously asked for and same day, ordered the cancellation of the notice of
obtained on February 7, 1931, upon posting a lis pendens annotated in the o ce of the register of
bond in the amount of P2,000, a writ of preliminary deeds and the inscription of all the necessary
injunction against the defendants (Exh. 15), and in annotations. (Exhibit Y.)
the time caused the annotation in the o ce of the
register of deeds of the Province of Capiz of a As clearly proven as the foregoing are the
notice of lis pendens not only with regard to the facts that the defendant "Hijos de I. de la Rama"
portion having an area of 150 hectares, 48 ares entered into a contract with its co-defendants
and 50 centares of the lands of the defendants Azarraga for the purpose of granting them a credit
Azarraga, but also with regard to the whole area of of P25,000, having delivered to them on different
246 hectares, 27 ares and 98 centares described occasions after the execution by said defendants
in original certificate of title No. 9785. of a deed of mortgage Exhibit 16 in its favor on
September 20, 1929, as part of the
The plaintiff also secured from the Court of First aforementioned sum, the total amount of P16,000.
Instance a preliminary attachment of the properties of The Azarragas needed said amount for carrying on
the defendants, described in certi cates of title Nos. the business for which the defendant Panay
9804 and 10351, on February 5, 1929 (Exhibit R); Municipal Cadastre, Inc., had been organized, as
and the same was annotated in the registry of set forth in said Exhibit 16 and clarified in Exhibit
property in the same month. Seven months after, or 17.
on September 9, of said year, the aforementioned
attachment was lifted by order of September 7, 1929 By virtue of the writ of injunction issued by
(Exhibit the lower court on February 7, 1931, enjoining the
defendants Azarraga and the Panay Municipal
Cadastre from obtaining from their co-defendant
"Hijos de I. de la Rama" another loan, aside from issued by the court of Capiz on October 21, 1929,
the P16,000 which they had previously obtained hence, it was in being for not more than one year,
(Exhibit 14), said defendant "Hijos de I. de la three months and one day.
Rama" did not extend the credit, which it had
opened to its co- defendants, to P25,000 as The writ of preliminary injunction
required by the contracts Exhibits 16 and 17 subsequently issued on February 7, 1931, has
above-referred to. In connection with the issuance remained in force up to the present, as the lower
of the writ of preliminary injunction, the following court declared in its judgment that it shall be nal
facts must be mentioned: After the plaintiff with respect to the P9,000 still owing from "Hijos
commenced the present case against the de I. de la Rama" on account of the loan which it
defendants Azarraga on January 28, 1929 by had agreed to extend to the other defendants.
means of his original complaint, he instituted
another action against them, which was civil case The works for which the Panay Municipal
No. 2643, for the purpose of obtaining a writ of Cadastre had been organized were begun in
injunction to prevent them from securing the October, 1929. According to the testimony of
aforementioned loan of P25,000 from "Hijos de I. Gaspar Ferraren, for all the work which they
de la Rama". This latter case reached this court on intended to undertake, they needed a capital of not
certiorari led on March 22, 1930. As its sole object more than P40,000 to make a gross pro t of
was the issuance of a writ of preliminary injunction, P100,000. Of this estimated capital they invested
this court, reiterating once more the ruling that said the P16,000, obtained from "Hijos de I. de la
remedy is purely subsidiary available only in aid of Rama", which immediately yielded a return of
the right sought to be enforced in the action P6,000. He also stated that the Panay Municipal
wherein the same is issued, and that a separate Cadastre completed half of its works with only the
action to secure the same does not lie as it would capital obtained from "Hijos de I. de la Rama"
permit of multiplicity of suits with the consequent (P16,000), plus its rst pro t of P6,000 and that it
needless expenses (Panay Municipal Cadastre vs. made a pro t of P24,277.15, meaning thereby that
Garduño and Soncuya, 55 Phil., 574, 578), granted with the aforementioned P16,000 it obtained
the certiorari prayed for on January 22, 1931, thus P30,277.15, or a net profit of P14,277.15.
setting aside the writ of preliminary injunction
Another fact which has been clearly established by commercial value has increased after they have
the testimony of the plaintiff himself is that he deprived me of the same, I should collect from
decided to sell all the animals which he had placed them such value;" and ". .
on the land in question because he became
discouraged by the destruction of said animals by 3 I want to say again that what I am collecting
the tenants of the defendants Azarraga. This fact, now is not the credit which I have against them,
however, has been established not by competent but the damages they have caused me by
evidence, but by hearsay testimony, which was of depriving me of the property."
course timely objected to; and, although he testi ed
in the same breath that he had still some cattle The facts of the case being as above set out,
there, he could not state their exact number, but the questions raised by the parties in their
limited himself to saying "I cannot tell whether respective assignments of error, should now be
there were fifty of them." (Transcript, page 14.) considered. In fact, the most important or those
discussed in the rst fourteen errors attributed by
In his subsequent dealings with the the defendants to the lower court, and in the rst
defendants Azarraga, including Joaquin Azarraga, and last errors, which plaintiff, in turn, assigned,
as in his pleadings and testimony, the plaintiff, in may be reduced to the following:
referring to the amount of P2,700 or P3,000, the
value of the credit which he had purchased from 4. Was the contract entered into by the
Attorney Leodegario Azarraga, and to that of Azarraga brothers, the defendants herein, with
P4,000 which he gave to Joaquin Azarraga on the Attorney Leodegario Azarraga from whom the
date and under the circumstances stated in Exhibit plaintiff derived his right, a sale with pacto de retro,
E, he alluded to, and considered them as his or an assignment in payment of a debt, or was it
"credit". Thus, on page 176 of the transcript of the an antichresis partaking of the nature of what was
stenographic notes, he said: ". . .land mortgaged anciently known as pacto comisorio, or a
to me . . .;" and on pages 192 and 194 of said mortgage, or was it merely a loan with real estate
transcript, he also said: "Now I am not collecting security?
the credit; I am collecting the damages. Although
they may have sold that property to me for P1, if its
 II. Was the contract executed by the thereafter, and the obligors agreed to pay him, 12
defendant Joaquin Azarraga, on the one hand, and per cent annual interest. It is only in contracts of
the plaintiff, on the other, embodied in Exhibit E, a loan, with or without guaranty, that interest may be
sale with pacto de retro or simply a loan with real demanded (articles 1108, 1740, 1755, 1868, 1876,
estate security? and 1881 of the Civil Code). As a matter of fact, the
contract embodied in Exhibit A was novated by
The rst question offers no di culty if account is Exhibits 5 and M, and the plaintiff wanted to have
taken of the established facts and the conduct of it novated for the third time by means of Exhibit 2.
the interested parties after the expiration of the It does not appear of record, however, that the
term of ve years xed in Exhibit A. When the plaintiff defendants Azarraga ever assented to the latter
extended the period to February 16, 1926 within novation. Perhaps, their refusal to agree to the
which the defendants Azarraga could pay him his same was due to the fact that the plaintiff wanted
credit, but imposed on them the condition that they to raise their old obligation (P3,000 or P2,700 of all
pay him 12 per cent annual interest from August the Azarraga brothers, plus P4,000 which Joaquin
30, 1924 on the principal of P3,000 (Exh. 5) and Azarraga alone owed, which two accounts both the
gave them another extension up to April 26, 1926, plaintiff and the defendants considered as
under the same conditions as regard interest (Exh. amounting to P7,000, exclusive of the annual
M), what perhaps could have been considered as interest of 12 per cent) to the round sum of
an antichresis or pacto comisorio — not an P12,000. From all this it may easily be inferred that
assignment in payment of a debt, or a sale with the obligation which the defendants had imposed
pacto de retro because there is nothing in Exhibit upon themselves by Exhibit A had ceased to exist
A to indicate that such was the intention of the and became a simple loan with security, if so
defendants Azarraga or, at least, that they bound desired, of the lands in question, but without
themselves to deliver the land in question to the prejudice to third parties as neither Exhibit A nor
plaintiff and that the latter should pay them the the deed of assignment Exhibit C, executed by
value thereof; and because there was what may be Leodegario Azarraga in favor of the plaintiff, was
considered the resolutory condition of ve years — inscribed in the registry of deeds.
was converted into a simple loan by the decisive
circumstance that plaintiff chose to collect
 There is also no di culty in disposing of the receive the lands in question as an assignment in
second question, considering the various payment of a debt, and much less did he acquire
novations which, as has been said, had taken them by purchase with pacto de retro , is well
place and had been extended not only to the taken. It must also be noted that at no time did the
Azarraga brothers with respect to their obligation plaintiff claim any rights of dominion over the lands
of P3,000 or P2,700, but also to the defendant since he did not even intimate to the defendants,
Joaquin Azarraga as regard his personal debt of either directly or indirectly, that for their failure to
P4,000. We must not lose sight of the fact that the pay him his credit within the time provided therefor,
plaintiff never considered the contract entered into he became the absolute owner thereof.
by him with Joaquin Azarraga as, strictly speaking, Notwithstanding the fact that all the extensions he
a sale with pacto de retro. And if he had ever had given defendants had expired, he did not,
considered it as such, it is, nevertheless, true that even only for tax declaration purposes, declare the
he novated it on February 16, 1926, considering it lands as his property. Having reached this
from that time on as a simple loan, inasmuch as on conclusion, it is needless to state that the plaintiff
that date he began to charge the said defendant has no right to the various sums which he seeks in
12 per cent annual interest with the latter's assent his complaint and to which he refers in the rst and
and conformity. This clearly appears in Exhibit M last errors assigned by him. If, as has been shown,
which must be considered together with he never became the owner of the lands in
paragraphs 7 and 8 of Exhibit E, as the plaintiff question, he can neither claim payment of the
himself does in his brief (brief for the plaintiff as value of the same nor ask to be indemnified for the
appellant, pages 4 and 5), because the term of ve deprivation of their possession. The plaintiff,
years to which said Exhibit E refers and which moreover, has no reason to complain that his lien,
should have expired on February 16, 1926 was if his right over said lands could be termed as such,
extended by the said plaintiff, by Exhibit M, up to was not annotated in the certi cate of title which the
April 26, 1926 under the aforementioned condition defendants Azarraga had obtained, or that the
that he should be paid 12 per cent annual interest. latter did not ask that it be stated therein that the
lands to which it refers are charged with his credit
Consequently, the contention of the against them; inasmuch as he was himself
defendants that the plaintiff did not and could never negligent in that he did not ask the court, while the
registration case relating to said lands was being We likewise hold that the issuance of the
heard, for the annotation of what he considered writs of preliminary injunction and attachment at
necessary to protect his rights, and in not seeking the instance of the plaintiff did not prejudice the
the revision or modi cation of the decree of defendants, inasmuch as there is no competent
registration within the period of one year provided evidence of record to the contrary. On the other
for that purpose. hand, there is evidence to show that from the loan
which the defendants Azarraga had obtained from
As to the fteenth error attributed to the lower court "Hijos de I. de la Rama" they derived a net pro t of
by the defendants Azarraga, we hold that, in view P14,277.15 within the short period of one year and
of the established facts above- related, they have a few months.
failed to show satisfactorily that they have any right
under all or any of their several counterclaims. If There is no support for the contention of the
the coconut trees planted by Joaquin Azarraga on defendants that they suffered damages by reason
a portion of the land in question were indeed lost of the preliminary attachment ordered by the lower
or destroyed, it was due more to his own court because they were unable to sell one of their
negligence than to that of the plaintiff; for he well houses to the Calibo Institute for the price agreed
knew on planting them in 1925, 1926 and 1927 that upon by them and said entity. The record shows
the plaintiff maintained therein, with his (Joaquin that they lost nothing because the Calibo Institute
Azarraga's) approval, livestock which might is at present occupying a portion of said house and
destroy them, and he did not take the necessary they may, if they so desire, sell it even now to the
precautions against such occurrence. This is, of occupant. It does not appear, on the other hand,
course, upon the supposition that his coconut that the latter desisted from buying it on finding a
plantations died by reason of the devastation better building.
caused by the animals of the plaintiff. The
preponderance of the evidence, however, has As to the second error assigned by the
shown that they died on account of the drought plaintiff, it su ces to recall that the established facts
alone. do not show that the tenants of the defendants
were responsible for the killing and wounding of
the animals belonging to him or that said tenants
acted upon the instigation of the defendants.
Consequently, the plaintiff's claim to this effect is The plaintiff absolved from defendants'
entirely without merit. counterclaims and the writ of preliminary injunction
issued by the lower court on February 7, 1931, is
In view of all the foregoing and in resume, we hereby dissolved. There is no special
hold that the plaintiff alone has the right (1) to pronouncement as to costs. So ordered.
recover from the defendants Azarraga, by virtue of
the assignment and sale made to him by Attorney Avanceña, C. J., Villa-Real, Abad Santos,
Leodegario Azarraga of the latter's credit P2,700 Imperial and Concepcion, JJ., concur.
against the said defendants, the aforesaid sum
plus interest at the rate of 12 per cent per annum EN BANC
from August 30, 1924; (2) to recover from the
defendant Joaquin Azarraga, in particular, the sum [G.R. No. L-6313. May 14, 1954.]
of P4,000 plus interest at the rate of 12 per cent
per annum from April 26, 1926. We also hold that THE ROYAL SHIRT FACTORY,
the defendants are not entitled to anything under INC., plaintiff-appellee, vs. CO BON
their counterclaims. TIC, defendant-appellant.

Wherefore, reversing the appealed judgment, Quisumbing, Sycip, Quisumbing & Salazar for
appellant.
(a) All the defendants are hereby sentenced
to pay jointly the sum of P2,700 to the plaintiff, with Ramirez & Ortigas for appellee.
12 per cent annual interest from August 30, 1924
until said sum is fully paid; and
SYLLABUS
(b) The defendant Joaquin Azarraga is
sentenced to pay the plaintiff the sum of P4,000 1. APPEALS; APPEAL FROM
plus interest at the rate of 12 per cent per annum INFERIOR COURTS TO COURTS OF FIRST
from April 26, 1926, until fully paid. INSTANCE; ALL ISSUES WHETHER OR NOT
APPEALED UPON MAY BE PASSED UPON BY
THE LATTER COURT. — An appeal from justice
of the peace or municipal courts to Courts of First DECISION
Instance serves to vacate the judgment appealed
from and the action will stand for trial de novo upon
its merits as though the same had never been tried
before and had been originally commenced in the MONTEMAYOR, J p:
Court of First Instance (Section 9, Rule 40, of the
Rules of Court). Any and all issues involved in the The present appeal involves an action
case, whether or not passed upon by the inferior originally brought in the Municipal Court of Manila
court and whether or not appealed upon by any or by the plaintiff, the ROYAL SHIRT FACTORY,
both parties, are thrown open and may be passed INC., to recover from defendant CO BON TIC the
upon by the appellate court. sum of P1,422 said to represent the balance of the
purchase price of 350 pairs of "Balleteenas" shoes
2. ID.; APPEALS FROM JUDGMENTS at P7 a pair, with interest at 12 per cent per annum
OF COURTS OF FIRST INSTANCE TO from August 27, 1948, and 25 per cent of said sum
SUPERIOR COURTS; ONLY ISSUES DECIDED as attorney's fees, and costs.
AGAINST APPELLANT MAY BE REVIEWED;
EXCEPTIONS. — The rule that an appeal brings The principal issues in the Municipal Court was the
up for review only that which was decided against nature of the sale of the 350 pairs of shoes by
the appellant so that part of the judgment favorable plaintiff to defendant — whether it was an outright
to him is not reviewable if the other party does not sale as contended by the plaintiff, or a sale merely
appeal applies only to appeals from judgments of on consignment as claimed by the defendant who
Courts of First Instance to the Court of Appeals or wanted to return the shoes not yet sold by him.
to the Supreme Court, unless the appellate court There was also involved the question of the
motu proprio takes cognizance of palpable errors amount already paid by the defendant to the
committed by the trial court and proceeds to plaintiff. The Municipal Court held that the contract
correct the same even if the correction favors the was of sale on consignment; that of the 350 pairs
appellee (Section 5, Rule 53, Rules of Court). of shoes consigned, 207 pairs were sold at the rate
of P8 a pair, amounting to a total of P1,656; and expiration of the 9 days stipulated, failed to return
that defendant had paid the sum of P1,028 to the shoes, and actually began making partial
plaintiff on account of the purchase price of the payments on account of the purchase price agreed
shoes sold, excluding the amount of P420, value upon, the transaction in the nature of a straight
of Check No. 790264 issued by defendant as sale, was considered closed. The court also found
payment but returned to him by the plaintiff and not as did the Municipal Court that the amount of P420
replaced with cash. Judgment was rendered represented by Check No. 790624 was never
sentencing the defendant to pay plaintiff the sum replaced or exchanged for cash by the defendant
of P628 with interest thereon at the legal rate from upon its return to him, and consequently, it may not
the date of the ling of the complaint, and to return be considered as part payment.
to plaintiff the 143 pairs of shoes still unsold,
unless he preferred to retain and pay for them at Judgment was rendered in favor of the
the rate of P8 a pair within a period of fteen days plaintiff and against the defendant and the latter
from receipt of a copy of the decision. was ordered to pay to the former the sum of
P1,422, the unpaid balance of the sales price of
The defendant appealed from the judgment 350 pairs of shoes in question, with interest on the
to the Court of First Instance of Manila, and after amount due at the rate of 12 per cent per annum
trial, the appellate court held that the transaction from August 27, 1948 until nal payment, plus the
involved was one of outright sale at P7 per pair of amount of 25 per cent of the same sum for
shoes, sales tax included, the court accepting the attorney's fees as stipulated, and costs. After
version given by the plaintiff to the effect that on failing to get a reconsideration of the judgment, the
the basis of the order slip (Exhibit A), the defendant defendant appealed the case to the Court of
had 9 days from delivery of the shoes to make his Appeals which Tribunal after submission of the
choice of the two alternatives, that is to consider briefs for both parties, and acting upon a motion
the sale of the 350 pairs of shoes closed at the at led by counsel for the appellant that the case be
rate of P7 per pair, sales tax included, or, at the certi ed to the Supreme Court for the reason that
expiration of 9 days to pay for the shoes sold at P8 the question raised in his rst and second
per pair, and to return the remaining unsold ones assignment of errors involved the jurisdiction of the
to plaintiff; and that, inasmuch as defendant, at the trial court, granted the same and certi ed the
appeal to us for nal determination pursuant to originally commenced there, an appeal brings up
Section 17, par. 2(3) of Republic Act 296. for review only that part of the judgment favorable
to him is not reviewable if the other party does not
Under the rst and second assignment of errors, the appeal; that a party who has not appealed a
defendant raises the question of jurisdiction of the judgment cannot assail it, neither can he ask for a
Court of First Instance of Manila in reviewing and judgment more favorable to him than that rendered
passing upon the issues already passed upon and in the court below; that the party who has not
decided by the Municipal Court but not appealed appealed a judgment signi es his acceptance of
from by plaintiff. It is the theory of the appellant that the correctness of the said judgment, and that in
as for instance, when the Municipal Court found the appeal his position is merely defensive and he
that the transaction between plaintiff and may only refute appellant's assignment of errors
defendant was a sale on consignment and plaintiff and sustain the judgment of the trial court.
failed to appeal from that decision, that part of the
judgment became nal as to him (plaintiff), and The above contention of appellant might
should be regarded as res adjudicata, and that the possibly hold with regards to appeals from
Court of First Instance in the exercise of its judgments of Courts of First Instance to the Court
appellate not original jurisdiction may not review of Appeals or to the Supreme Court in that one
and pass upon the same question or issue, and the cannot seek further remedy or relief in the appeal
in so doing it exceeded its appellate jurisdiction. not taken by him than that granted him by the trial
Defendant further contends and cites authorities in court, unless of course, the appellate court motu
support of his contention that regardless of the proprio takes cognizance of palpable errors
provisions of Rule 40, section 9, of the Rules of committed by the trial court and proceeds to
Court whose provisions are to the effect that a correct the same even if the correction favors the
perfected appeal from a decision of the justice of appellee (Section 5, Rule 53, Rules of Court).
the peace or the municipal court shall operate to However, we have a special legal provision
vacate the said judgment and shall stand for trial governing an appeal from justice of the peace or
de novo upon its merits in accordance with the municipal courts to Courts of First Instance, the
regular procedure in that court as though the same very Rule 40, section 9, of the Rules of Court cited
had never been tried before and had been by defendant-appellant. Such appeal serves to
 vacate the judgment appealed from and the action open and may be passed upon by the Court of
will stand for trial de novo upon its merits as though Instance when the case is appealed to it.
the same had never been tried before and had Consequently, the Court of First Instance of Manila
been originally commenced in the Court of First had jurisdiction and authority to rule on the issue as
Instance. The Court of First Instance will try the to the nature of the transaction between plaintiff and
case without regard to the proof presented in the defendant as to the sale of the shoes. Now, was it an
Justice of the Peace or Municipal Court or the absolute sale or a sale on consignment?
conclusions arrived by said court. The Court of
First Instance will not a rm, or modify the rulings or Exhibit A of the plaintiff which was accepted,
the judgment appealed from for the simple reason admitted and considered by the Court of First
that there is no ruling or judgment to Instance of Manila is an order slip which lists down
and classi es the 350 shoes in question according
3. rm, reverse or modify because all the to color, and contains the following condition of the
proceedings had in the justice of the peace or sale in the hand writing of Mr. Chebat, the agent of
municipal court, including the judgment, do not in the plaintiff who sold the shoes to the defendant —
contemplation of law exist, having been vacated; and
the only instance when said judgment appealed from
is revived is when the appeal is withdrawn or CONDICION (Terms)
dismissed (Crisostomo vs. Director of Prisons. 41
Phil., 368; Colegio de San Jose vs. Sison, 56 Phil., "Al cabo de 9 dias, pagar todo a
344, 351; Lizo vs. Carandang, 2 Off. Gaz., 302, razon de P7 al par, o pagar lo vendido
March 1943; Co Tiamco vs. Diaz. * 42 Off. Gaz., a P8 el par".
1169, 1231; Lichauco vs. Guash, 42 Off. Gaz., 1863,
1865; Rule 40, Sec. 9, Rules of Court). From all this Explaining said condition, Mr. Chebat testifying,
it is evident that the contention of the appellant is said that it meant that the defendant could either
untenable; and that any and all issues involved in a consider the sale as one on consignment, sell as
case originating in an inferior court, whether or not many shoes as he could at any price, pay for them
passed upon by said court and whether or not at P8 a pair and at the end of nine days return the
appealed upon by any or both parties, are, thrown shoes unsold to the plaintiff, or, consider the sale
of the 350 shoes as absolute at P7 a pair; and that payment. For instance, after paying P500 on
since the defendant did not return any of the shoes account, he put P1,950 as balance, and after
at the expiration of 9 days he must be held to have paying another P528, he put down as balance
chosen the second alternative, namely, that he P1,422. In other words, he obviously accepted the
bought the whole stock of shoes at P7 a pair. It will straight sale to him on credit of the whole 350 pairs
be noted, however, that Exhibit "A" was never of shoes for P2,450 and made partial payments on
accepted, much less signed by the defendant or account thereof. In making said partial payments,
his sales manager Mr. Bernardo Geronimo, and he made no mention whatsoever of the number of
therefore, cannot bind the defendant and so is but shoes sold by him and the number of shoes
a self-serving evidence which should not have remaining unsold, which he should have done had
been admitted and considered by the trial court. the sale been on the assignment basis. On the
other hand, he merely mentioned the balance of
Disregarding Exhibit "A", the nature of the the purchase price after deducting the several
transaction must be judged by other evidence, partial payments made by him. Furthermore, if the
including the conduct of the parties at the time of sale had been on consignment, a stipulation as to
making the contract and subsequent thereto (Art. the period of time for the return of the unsold shoes
1282 of the old Civil Code and Art. 1371 of the new should have been made; but evidently that had not
Civil Code). Exhibit "B" of the plaintiff is an invoice been done and defendant kept the shoes unsold
of the same 350 pairs of shoes whose price more or less inde nitely, but giving the same
including sales tax is listed as P2,450. It was excuse that he could not return them to the plaintiff
evidently not only accepted by the defendant but because he did not know where to return them.
on it he noted down in his own handwriting the The plaintiff Royal Shirt Factory, Inc., is quite well-
different partial payments of P500, P528 and lastly known. It has a store at the Escolta and according
of the controversial P420 by check. It will also be to the invoice (Exhibit B), it is an importer,
noticed that the defendant in making said notations wholesaler and manufacturer, and it could not
of payment considered the full purchase price of have been hard, much less impossible for the
the 350 pairs of shoes at P7.00 or P2,450, and it defendant to return the shoes unsold by him had
was against said total that he had been making the the transaction really been a sale on consignment.
payments, putting down the balance after each So, on this issue of the nature of the transaction
between the parties, we agree with the trial court also printed provide for 20 per cent only as
that it was a straight sale at the rate of P7 per pair attorney's fees and no rate of interest in case of
of shoes. litigation. Had the defendant signed Exhibit "A",
which he did not, he would have been bound by it
As regards Check No. 790264 of the China and would be liable to 20 per cent of any amount
Banking Corporation, Exhibit F, in the amount of due from him, but because of the absence of
P420 with which defendant attempted to make stipulation as to the rate of interest he would be
another partial payment as appears in Exhibit 'B', paying only the legal rate of 6 per cent per annum.
both parties agree that since the check was There is no explanation of this difference in
postdated, it was returned by the plaintiff to the conditions of sale about rate of interest and
defendant who however claims that he replaced it attorney's fees found in the order slip (Exhibit "A")
with cash. This was stoutly denied by plaintiff. After and the invoice (Exhibit "B") both of the plaintiff.
a careful review of the evidence, we agree with the Anyway, neither did the defendant sign Exhibit "B".
trial court that the preponderance thereof is to the If we hold defendant bound by Exhibit "B" at all, it
effect that the amount of said check of P420 was is because of his tacit acceptance of the total value
never replaced by the defendant. It is also of 350 pairs of shoes and by his notation against if
interesting to note that the Municipal Court of of his partial payments. We do not think it fair for
Manila where this issue was rst considered, came him to be bound also by the printed terms of the
to the same conclusion that the defendant never conditions of sale. Moreover, we nd under said
replaced the amount of this check in cash. printed form the clause in pencil: "as agreed with
Mr. Chebat." We may even say that said clause in
The decision appealed from sentences the handwriting may be considered as having
defendant to pay to the plaintiff P1,422 with overruled what was printed as to the rate of interest
interest at 12 per cent per annum from August 27, and the attorney's fees. We therefore hold that the
1948, plus 25 per cent of the same sum for defendant should only pay 6 per cent interest on
attorney's fees, besides costs. This rate of interest the amount due him from the date of the ling of the
and the 25 per cent for attorney's fees appears in complaint, with costs, and nothing for attorney's
Exhibit "B" in printed form as terms or conditions. fees. It is also interesting to note that this was the
In Exhibit "A", the order slip, the conditions of sale same ruling of the Municipal Court on this point.
 [G.R. No. L-33582. March 30, 1982.]
With the above modi cation, the decision appealed
from is hereby affirmed, with costs. THE OVERSEAS BANK OF MANILA,
petitioner, vs. VICENTE CORDERO
Paras, C. J., Pablo, Bengzon, Reyes, Jugo, and COURT OF APPEALS,
Bautista Angelo, Labrador and Concepcion, JJ., concur. respondents.

SYNOPSIS

Private respondent instituted an action in the Court of

First Instance of Manila to enforce payment on his
time deposit with petitioner's bank together with
interest, which due to the latter's distressed financial
condition, it was unable to pay. Petitioner contends
that the suit filed by private respondent is barred by
the state of insolvency of petitioner as found by the
Monetary Board of the Central Bank which in its
Resolution of August 1,1968, then pending review in
the Supreme Court, authorized petitioner to suspend
all its operation and that a judgment in favor of
respondent would create a preference in his favor to
the prejudice of the other creditors of the bank. The
Court of First Instance rendered a decision in favor of
the petitioner which was affirmed by the Court of
Appeals.

SECOND DIVISION
On review by certiorari, the principal claim of private was closed by the Central Bank was answered in the
respondent became moot and academic upon full negative in line with the doctrine laid down in the
payment of his time deposit both by the Philippine recent case of Overseas Bank of Manila vs. Court of
Deposit Insurance and by the Commercial Bank of Appeals, wherein it was explicitly and categorically
Manila, the successor of petitioner bank but the stated: "that . . . it should be deemed read into every
Supreme Court ruled against the payment of interest contract of deposit with a bank that the obligation to
which ceases the moment the operation of the bank pay interest on the deposit ceases the moment the
is completely suspended in line with the decision in operation of the bank is completely suspended by the
Overseas Bank of Manila vs. Court of Appeals (105 duly constituted authority, the Central Bank."
SCRA 49) and against the recovery of attorney's fees
as petitioner's refusal to pay was due to restrictions 2. LEGAL ETHICS; ATTORNEY'S FEES; NOT
imposed by the Central Bank. RECOVERABLE WHERE THE BANK'S

Petition dismissed. INABILITY WAS DUE TO RESTRICTIONS IMPOSED

BY THE CENTRAL BANK; CASE AT BAR.

SYLLABUS — Respondent Cordero is not entitled to recover

attorney's fees; where the trial court found that
1. COMMERCIAL LAW; BANKS; THE petitioner Overseas Bank of Manila's refusal to pay
OBLIGATION TO PAY INTEREST ON DEPOSIT respondent Cordero's deposit together with interest
CEASES WHEN THE OPERATION OF A thereof was not due to a willful and dishonest refusal to
COMMERCIAL BANK IS STOPPED BY THE comply with its obligation but to restrictions imposed by
CENTRAL BANK; DOCTRINE LAID DOWN IN the Central Bank. Since respondent did not appeal
OVERSEAS BANK OF MANILA VS. COURT OF from this decision, he is now barred from contesting the
APPEALS (105 SCRA 49) APPLIED IN CASE AT same.
BAR. — Respondent's principal claim for recovery of
his time deposit having been satisfied, the issue as to
whether or not he is entitled to interest thereon during
the period that petitioner Overseas Bank of Manila DECISION
 Petitioner, in its answer, raised as special defense
the finding by the Monetary Board of its state of
insolvency. It cited the Resolution of August 1, 1968
ESCOLIN, J p: of the Monetary Board which authorized petitioner's
board of directors to suspend all its operations, and
Again, We are confronted with another case involving the Resolution of August 13, 1968 of the same
the Overseas Bank of Manila, filed by one of its Board, ordering the Superintendent of Banks to take
depositors. over the assets of petitioner for purposes of
liquidation.
This is a petition for review on certiorari of the
decision of the Court of Appeals which affirmed the Petitioner contended that although the Resolution of
judgment of the Court of First Instance of Manila, August 13, 1968 was then pending review before the
holding petitioner bank liable to respondent Vicente Supreme Court, 1 it effectively barred or abated the
Cordero in the amount of P80,000.00 representing action of respondent for even if judgment be ultimately
the latter's time deposit with petitioner, plus interest rendered in favor of Cordero, satisfaction thereof
thereon at 6% per annum until fully paid, and costs. would not be possible in view of the restriction
LLphil imposed by the Monetary Board, prohibiting petitioner
from issuing manager's and cashier's checks and the
provisions of Section 85 of Rep. Act 337, otherwise
On July 20, 1967, private respondent opened a one- known as the General Banking Act, forbidding its
year time deposit with petitioner bank in the amount directors and officers from making any payment out of
of P80,000.00 to mature on July 20, 1968 with its funds after the bank had become insolvent. It was
interest at the rate of 6% per annum. However, due further claimed that a judgment in favor of respondent
to its distressed financial condition, petitioner was would create a preference in favor of a particular
unable to pay Cordero his said time deposit together creditor to the prejudice of other creditors and/or
with the interest. To enforce payment, Cordero depositors of petitioner bank.
instituted an action in the Court of First Instance of
Manila. After pre-trial, petitioner filed on November 29, 1968,
a motion to dismiss, reiterating the same defenses
raised in its answer. Finding the same unmeritorious, the Philippine Deposit Insurance Company the
the lower court denied the motions and proceeded amount of P10,000.00.
with the trial on the merits. In due time, the lower
court rendered the aforesaid decision. Dissatisfied, The second is a Manifestation by the same Julian
petitioner appealed to the Court of Appeals, which Cordero dated July 3, 1981, acknowledging receipt
affirmed the decision of the lower court. of the sum of P73,840.00. Said Manifestation is in
the nature of a quitclaim, pertinent portions of which
Hence, this petition for review on certiorari. We quote:

The issues raised in this petition are quite novel. "I, the undersigned acting for and in
Petitioner stands firm on its contentions that the suit behalf of my brother Vicente R. Cordero
filed by respondent Cordero for recovery of his time who resides in Canada and by virtue of
deposit is barred or abated by the state of insolvency a Special Power of Attorney issued by
of petitioner as found by the Monetary Board of the Vicente Romero, our Consul General in
Central Bank of the Philippines; and that the judgment Vancouver, Canada, xerox copy
rendered in favor of respondent would in effect create attached, do hereby manifest to this
a preference in his favor to the prejudice of other honorable court that we have decided to
creditors of the bank. waive all and any damages that may be
awarded to the abovementioned case
Certain supervening events, however, have rendered and we hereby also agree to accept the
these issues moot and academic. The first of these amount of Seventy Three Thousand
supervening events is the letter of Julian Cordero, Eight Hundred Forty Pesos
brother and attorney-in-fact of respondent Vicente (P73,840.00) representing the principal
Cordero, addressed to the Commercial Bank of and interest as computed by the
Manila (Combank), successor of petitioner Overseas Commercial Bank of Manila. We also
Bank of Manila. In this letter dated February 13, agree to hold free and harmless the
1981, copy of which was furnished this Court, it Commercial Bank of Manila against any
appears that respondent Cordero had received from claim by any third party or any suit that
 may arise against this agreement of same, Julian Cordero submitted the following
payment. explanatory Comment, to which was attached the
special power of attorney executed by respondent
". . . We also confirm receipt of Vicente Cordero:
Seventy Three Thousand Eight
Hundred Forty Pesos (P73,840.00) "3. This manifestation (referring to the
with our full satisfaction. . . ." Manifestation of July 3, 1981) applies
only to third party claims, suit and other
When asked to comment on this Manifestation, damages. It does not mean waiving the
counsel for Combank filed on August 12, interest it should earn while the bank is
closed and also the attorney's fees as
1981 a Comment confirming and ratifying the same, decided by the lower court. It is very
particularly the portions which state: clear. I did not waive the attorney's fees
because it belongs to our attorney and
"We also agree to hold free and interest because it belongs to us and
harmless the Commercial Bank any we are entitled to it."
third party or any suit that may arise
against this agreement of payment," Thus, with the principal claim of respondent having
and been satisfied, the only remaining issue to be
determined is whether respondent is entitled to (1)
"We also confirm receipt of Seventy interest on his time deposit during the period that
Three Thousand Eight Hundred Forty petitioner was closed and (2) attorney's fees.
Pesos (P73,840.00) with our full
satisfaction." We find the answer to be in the negative.

However, upon further examination, this Court The pronouncement made by this Court, per Justice
noted the absence of the alleged special power of Barredo in the recent case of Overseas Bank of Manila
attorney executed by private respondent in favor of versus Court of Appeals 2 is explicit and categorical.
Julian Cordero. When directed to produce the WE quote:
 operations by the Central Bank has
"It is a matter of common knowledge been subsequently declared illegal by
which we take judicial notice of, that the Supreme Court, for before the
what enables a bank to pay stipulated Court's order, the bank had no
interest on money deposited with it is alternative under the law than to obey
that thru the other aspects of its the orders of the Central Bank.
operation, it is able to generate funds Whatever be the juridical significance of
to cover the payment of such interest. the subsequent action of the Supreme
Unless a bank can lend money, Court, the stubborn fact remained that
engage in international transactions, the petitioner was totally crippled from
acquire foreclosed mortgaged then on from earning the income
properties or their proceeds and needed to meet its obligations to its
generally engage in other banking and depositors. If such a situation cannot,
financing activities, from which it can strictly speaking be legally
derive income, it is inconceivable how denominated as 'force majeure' as
it can carry on as a depository maintained by private respondent, We
obligated to pay stipulated interest. . . . hold it is a matter of simple equity that it
Consequently, it should be deemed be treated as such."
read into every contract of deposit with
a bank that the obligation to pay And concluding, this Court stated:
interest on the deposit ceases the
moment the operation of the bank is "Parenthetically, We may add for the
completely suspended by the duly guidance of those who might be
constituted authority, the Central Bank. concerned and so that unnecessary
litigations may be avoided from further
clogging the dockets of the courts that
in the light of the consideration
"We consider it of trivial consequence expounded in the above opinion, the
that the stoppage of the bank's same formula that exempts petitioner
 from the payment of interest to its Barredo (Chairman), Aquino, Concepcion Jr., De Castro
depositors during the whole period of and Ericta, JJ., concur.
factual stoppage of its operations by
orders of the Central Bank, modified in
effect by the decision as well as the
approval of a formula of rehabilitation by
this Court, should be, as a matter of
consistency, applicable or followed in
respect to all other obligations of
petitioner which could not be paid
during the period of its actual complete
closure."

Neither can respondent Cordero recover attorney's

fees. The trial court found that herein petitioner's
refusal to pay was not due to a wilful and dishonest
refusal to comply with its obligation but to
restrictions imposed by the Central Bank. 3 Since
respondent did not appeal from this decision, he is EN BANC
now barred from contesting the same.
[G.R. No. L-29352. July 22, 1985.]
WHEREFORE, that portion of the lower court's
decision ordering petitioner to pay interest on EMERITO M. RAMOS, et al., petitioners, vs.
Cordero's time deposit is set aside. It appearing that CENTRAL BANK OF THE PHILIPPINES,
the amount of the latter's time deposit had been fully respondents, COMMERCIAL BANK OF
paid, this case is hereby dismissed. No costs. prLL MANILA, intervenor.

SO ORDERED.
 RESOLUTION from the payment of interest to its depositors during
the whole period of factual stoppage of its operations
by orders of the Central Bank, modified in effect by
the decision as well as the approval of a formula of
TEEHANKEE, J p: rehabilitation by this Court, should be, as a matter of
consistency, applicable or followed in respect to all
Pending final determination is respondent Central other obligations of petitioner which could not be paid
Bank's motion for reconsideration dated December during the period of its actual complete closure."
28, 1982 of the Court's Resolution of October 19,
1982 which ruled "applying the Tapia ruling as
reaffirmed by the Court in the subsequent cases cited The parties have been extensively heard on the
above [OBM vs. Vicente Cordero, 113 SCRA 303 pending incident through their various pleadings and
(March 30, 1982), per Escolin, J.; OBM vs. Julian in oral argument on October 23, 1984 as well as in
Cordero, 113 SCRA 778 (April 27, 1982), per their memoranda in amplification of oral argument.
Barredo, J.] that the bank is not liable for interest on prcd
the Central Bank loans and advances during the
period of its closure from August 2, 1968 to January Respondents have failed to adduce any cogent
8, 1981." argument to persuade the Court to reconsider its
Resolution at bar that the Tapia ruling as reaffirmed
In the Tapia ruling (105 SCRA 49, June 11, 1981), the by the aforecited cases is fully applicable to the non-
Court held that "the obligation to pay interest on the payment of interest, during the period of the bank's
deposit ceases the moment the operation of the bank forcible closure, on loans and advances made by
is completely suspended by the duly constituted respondent Central Bank. Respondent Central Bank
authority, the Central Bank," and that "for the itself when it was then managing the Overseas Bank
guidance of those who might be concerned, and so of Manila (now Commercial Bank of Manila) under a
that unnecessary litigations may be avoided from holding trust agreement, held the same position in
further clogging the dockets of the courts, that in the Idelfonso D. Yap vs. OBM and CB (CA-G.R. No.
light of the considerations expounded in the above 48887-R) wherein it argued in its brief that "(I)n a suit
opinion, the same formula that exempts petitioner against the receiver of a national bank for money
loaned to the Bank while it was a going concern, it raised in respondent Central Bank's motion for
was error to permit plaintiff to recover interest on the reconsideration of the Resolution of October 19, 1982
loan after the bank's suspension" (citing Zollman, that "applying the Tapia ruling as reaffirmed by the
Banks and Banking). In Pablo R. Roman, et al. vs. Court in subsequent cases, COMBANK is not liable for
Central Bank (CA-G.R. No. 49144-R, October 18, interest on CB loans and advances during the period
1973, per then Court of Appeals Justice Hermogenes of its closure from August 2, 1968 to January 8, 1981"
Concepcion, Jr.), the appellate court by final judgment (Record, Vol. V, p. 2261). In his earlier petition for early
affirmed the trial court's judgment ordering appellant resolution, Government Corporate Counsel Manuel M.
Central Bank to condone all interests on Central Bank Lazaro had likewise urged that "(T)he raison d'etre of
loans to the Republic Bank, as well as penalties the Honorable Court's Resolution of October 19, 1982
imposed on it which would be tantamount "to force the is but a re-affirmation of the ruling laid down and firmly
Republic Bank to liquidate as an insolvent." It should established in previous decisions that have long
be further noted that the respondent Central Bank become final, notably OBM vs. Tapia, 105 SCRA 49
when called upon to deal with commercial banks and (June 11, 1981), OBM vs. Vicente Cordero and Court
extend to them emergency loans and advances, deals of Appeals, 113 SCRA 303 (Mar. 30, 1982), and OBM
with them not as an ordinary creditor engaged in vs. Court of Appeals and Julian R. Cordero, 113 SCRA
business, but as the ultimate monetary authority of 778 (April 27, 1982)" (idem, p. 2242). Government
government charged with the supervision and Corporate Counsel Lazaro in his aforecited
preservation of the banking system. manifestation removes any and all doubts as to the
propriety of the Court having rendered its Resolution of
October 19, 1982 pursuant to the bank's motion for a
A significant development of the case also is set forth clarificatory ruling in the present case made pursuant
in the manifestation dated October 19, 1984 of to the express agreement between the bank and the
Government Corporate Counsel and general counsel respondent Central Bank then under Governor Jaime
of the COMBANK Manuel M. Lazaro confirming inter Laya. As stated in the Resolution itself, "the bank's
alia that "(T)he Government Service Insurance System letter of July 1, 1981 invoking the Tapia ruling was
(GSIS) has acquired ownership of 99.93% of the precisely the subject of the Central Bank's reply of
outstanding capital stock of COMBANK," and urging November 12, 1981 above quoted, agreeing anew that
resolution at the earliest time possible of the sole issue the Central Bank and the Combank seek a clarificatory
ruling from the Supreme Court on the applicability of October 4, 1971 was rendered against the Central
the Tapia ruling to the case at bar with both parties Bank, as succinctly stated by the now Chief Justice in
ultimately agreeing to `abide by any clarificatory ruling his "[concurrence] in the result primarily on the ground
which the Supreme Court may render on the matter" that respondent's arbitrary and improvident exercise
(Record, Vol. IV, pp. 1993-1994). The COMBANK in its of its asserted power in the premises is violative of
said manifestation makes of record that it has likewise due process" (Ramos vs. Central Bank, 41 SCRA
entered into an agreement with its sister government 565).
banking institution, the Philippine National Bank, that
"both banks have agreed to abide by the final ACCORDINGLY, the Court Resolved to DENY with
resolution of this Honorable Court on the CB's pending finality respondent Central Bank's motion for
Motion for Reconsideration," and that "COMBANK is reconsideration, for lack of necessary votes.
represented in the above-captioned case by its
General Counsel, the Government Corporate Counsel Fernando, C.J., Concepcion, Jr., De la Fuente and
who is also the legal counsel for the PNB and whose Alampay, JJ., concur.
services were recently retained by CB in connection
with the controversy involving Banco Filipino and Makasiar, Escolin and Cuevas, JJ., took no part.
Governor Jose B. Fernandez, Jr." This certainly makes
moot any previous doubts raised during the oral Abad Santos, J., on official leave.
argument that then Central Bank Governor Jaime Laya
may not have had the authority to enter into such
agreement. prcd

The Court's Resolution of October 19, 1982

manifestly redounds to the benefit of another
government institution, the GSIS, which has acquired
99.93% of the outstanding capital stock of the
COMBANK and to the preservation of the banking
system. It is time to write finis to this case which had
its beginnings long ago when the original judgment of
 preferred shares on the respective
scheduled dates to be an a
does not depend upon the nancial ability of petitioner
corporation. This absolute obligation on the part of
petitioner corporation is made manifest by the fact
that a surety was required to see to it that the
obligation is ful lled in the event of the principal
debtor's inability to do so. The unconditional
undertaking of petitioner corporation to redeem the
THIRD DIVISION preferred shares at the speci ed dates constitutes a
debt which is de ned "as an obligation to pay money
[G.R. No. L-33205. August 31, 1987.] at some xed future time, or at a time which becomes
de nite and xed by acts of either party and which they
LIRAG TEXTILE MILLS, INC. and expressly or impliedly, agree to perform in the
BASILIO L. LIRAG, petitioners, vs. contract. The Purchase Agreement provided that
SOCIAL SECURITY SYSTEM and failure on the part of petitioner to repurchase the
HON. PACIFICO DE CASTRO , preferred shares on the scheduled due dates renders
respondents. the entire obligation due and demandable, with
petitioner in such eventuality liable to pay 12% of the
SYLLABUS then outstanding obligation as liquidated damages.
These features of the Purchase Agreement, taken
1 REMEDIAL LAW; EVIDENCE; FINDINGS OF collectively, clearly show the intent of the parties to be
THE LOWER COURT THAT THE PURCHASE bound therein as debtor and creditor, and not as
AGREEMENT IS A DEBT INSTRUMENT, BINDING corporation and stockholder.
ON APPEAL. — We uphold the
lower court's nding that the Purchase Agreement is, indeed,3 a debt
CIVIL
instrument.
LAW;Its OBLIGATIONS AND
terms CONTRACTS; CONTRACT ENTERED INTO
and conditions unmistakably show that the parties intended CONSTITUTES
the repurchase ofLAW
the BETWEEN PARTIES; CASE
AT BAR. — The Purchase Agreement constitutes the
law between the parties and obligations arising ex sure and xed earnings on the principal loan. The fact
contractu must be ful lled in accordance with the that the dividends were supposed to be paid out of net
stipulations. Besides, it was precisely this eventuality pro ts and earned surplus, of which there were none,
that was sought to be avoided when respondent SSS does not excuse petitioners from the payment thereof,
required a surety for the obligation. Thus, it follows again for the reason that the undertaking of petitioner
that petitioner Basilio L. Lirag cannot deny liability for Basilio L. Lirag as surety, included the payment of
petitioner corporation's default. dividends and other obligations then outstanding.

3 ID.; ID.; OBLIGATION OF SURETY 5. ID.; ID.; GRANT OF LIQUIDATED DAMAGES

DISTINGUISHED FROM GUARANTOR'S EXPRESSLY PROVIDED FOR. — The award of the
OBLIGATION. — As surely, Basilio L. Lirag is bound sum of P146,400.00 in liquidated damages
immediately to pay respondent SSS the amount then representing 12% of the amount then outstanding is
outstanding. "The obligation of a surety differs from correct, considering that petitioners in the stipulation
that of a guarantor in that the surety insures the debt, of facts admitted having failed to ful ll their obligations
whereas the guarantor merely insures solvency of the under the Purchase Agreement. The grant of
debtor; and the surety undertakes to pay if the liquidated damages in the amount stated is expressly
principal does not pay, whereas a guarantor merely provided for in the Purchase Agreement in case of
binds itself to pay if the principal is unable to pay." contractual breach.

CIVIL LAW; OBLIGATIONS AND CONTRACTS; 6. REMEDIAL LAW; CIVIL ACTIONS; ACTION
CONTRACT ENTERED INTO CLEARLY INDICATES INVOLVING SUMS OF MONEY EARN LEGAL
INTENTION TO PAY INTEREST. — On the liability of INTEREST FROM DATE OF FILING. — The
petitioners to pay 8% cumulative dividend, We agree pronouncement of the lower court for the payment of
with the observation of the lower court that the interests on both the unredeemed shares and unpaid
dividends stipulated by the parties served evidently as dividends is also in order. Per stipulation of facts,
interests. The amount thereof was affixed at 8% per petitioners did not deny the fact of non-payment of
annum and was not made to depend upon or to dividends nor their failure to purchase the preferred
uctuate with the amount of pro ts or surplus realized, shares. Since these involve sums of money which are
a clear indication that the parties intended to give a overdue, they are bound to earn legal interest from
the time of demand, in this case, judicial, i.e., the time
of filing the action.

7. CIVIL LAW; ESTOPPEL; PARTY FERNAN, J p:

PRECLUDED FROM DENYING HIS FIRM
REPRESENTATION TO PAY IMMEDIATELY THE This is an appeal by certiorari involving purely
AMOUNTS THEN OUTSTANDING. — Petitioner questions of law from the decision rendered by
Basilio L. Lirag is precluded from denying his liability respondent judge in Civil Case No. Q-12275 entitled
under the Purchase "Social Security System versus Lirag Textile Mills, Inc.
and Basilio L. Lirag."
Agreement. After his rm representation to "pay
immediately to the VENDEE the amounts then The antecedent facts, as stipulated by the parties
outstanding" evidencing his commitment as SURETY, during the trial, are as follows:
he is estopped from denying the same. His signature
in the agreement carries with it the of cial imprimatur "1. That on September 4, 1961, the
as petitioner corporation's president, in his personal plaintiff [herein respondent Social
capacity as majority stockholder, as surety and as Security System] and the defendants
solidary obligor. The essence of his obligation as [herein petitioners] Lirag Textile Mills,
surety is to pay immediately without quali cation Inc. and Basilio Lirag entered into a
whatsoever if petitioner corporation does not pay. To Purchase Agreement under which the
have another interpretation of petitioner Lirag's plaintiff agreed to purchase from the
liability as surety would violate the integrity of the said defendant preferred shares of
Purchase Agreement as well as the clear and stock worth ONE MILLION PESOS
unmistakable intent of the parties to the same. [P1,000,000.00] subject to the
conditions set forth in such agreement;
...
"2. That pursuant to the Purchase
Agreement of September 4, 1961, the
DECISION plaintiff, on January 31, 1962, paid the
defendant Lirag Textile Mills, Inc. the 139 were to be repurchased by the Lirag
sum of FIVE HUNDRED THOUSAND Textile Mills, Inc. thus:
PESOS [P500,000.00] for which the
said defendant issued to plaintiff 5,000 CERT. NO. AMOUNT DATE OF
preferred shares with a par value of one REDEMPTION
hundred pesos [P100.00] per share as
evidenced by stock Certificate No. 128; JJ. P100,000.00February 14, 1965
...
100,000.00February 14, 1966
"3. That further in pursuance of the
Purchase Agreement of September 4, 100,000.00February 14, 1967
1961, the plaintiff paid to the Lirag
Textile Mills, Inc. the sum of FIVE 100,000.00February 14, 1968
HUNDRED THOUSAND PESOS
[P500,000.00] for which the said 100,000.00February 14, 1969
defendant issued to plaintiff 5,000
preferred shares with a par value of one July 3,
hundred pesos [P100.00] per share as 139 P 100,000.00 1966
evidenced by Stock Certificate No. 139; 100,000.0
... 0 July 3, 1967
100,000.0
"4. That in accordance with paragraph 3 0 July 3, 1968
of the Purchase Agreement of 100,000.0
September 4, 1961 which provides for 0 July 3, 1969
the repurchase by the Lirag Textile 100,000.0
Mills, Inc. of the shares of stock at 0 July 3, 1970
regular intervals of one year beginning
with the 4th year following the date of "5. That to guarantee the redemption of
issue, Stock Certi cates Nos. 128 and the stocks purchased by the plaintiff, the
payment of dividends, as well as the "6. That defendant corporation failed to
other obligations of the Lirag Textile redeem certificates of Stock Nos. 128
Mills, Inc., defendants Basilio L. Lirag and 139 by payment of the amounts
signed the Purchase Agreement of mentioned in paragraph 4 above;
September 4, 1961 not only as
president of the defendant corporation, "7. That the Lirag Textile Mills, Inc. has
but also as surety so that should the not paid dividends in the amounts and
Lirag Textile Mills, Inc. fail to perform within the period set forth in paragraph
any of its obligations in the said 10 of the complaint; *
Purchase Agreement, the surety shall "8. That letters of demands have been
immediately pay to the vendee the sent by the plaintiff to the defendant to
amounts then outstanding pursuant to redeem the foregoing stock certi cates
Condition No. 4, to wit: and pay the dividends set forth in
paragraph 10 of the complaint, but the
'To guarantee the Lirag Textile Mills, Inc. has not made
redemption of the stocks such redemption nor made such
herein purchased, the dividend payments;
payment of the dividends, as "9. That defendant Basilio L. Lirag
well as other obligations of the likewise received letters of demand from
VENDOR herein, the SURETY the plaintiff requiring him to make good
hereby binds himself jointly his obligation as surety;
and severally liable with the
VENDOR so that should the "10. That notwithstanding such letters of
VENDOR fail to perform any of demand to the defendant Basilio L.
its obligations hereunder, the Lirag, Stock Certi cates Nos. 128 and
SURETY shall immediately 139 issued to plaintiff are still
pay to the VENDEE the unredeemed and no dividends have
amounts then outstanding.' been paid on said stock certificates;
"11. That paragraph 5 of the Purchase of domestic produce to the
Agreement provides that should the disadvantage and economic
Lirag Textile Mills, Inc. fail to effect any prejudice of the latter;
of the redemptions stipulated therein,
the entire obligation shall immediately [c] Scarcity of money and the
become due and demandable and the unavailability of nancing
Lirag Textile Mills, Inc., shall,
furthermore, be liable to the plaintiff in facilities;
an amount equivalent to twelve per cent
[12%] of the amount then outstanding [d] Payment of
as liquidated damages; interest on matured loans
extended to defendant
"12. That the failure of the Lirag Textile Mills, corporation:
Inc. to redeem the foregoing
[e] Construction of
certi cates of stock and pay dividends the Montalban plant of the
thereon were due to nancial reverses, defendant corporation
to wit: financed largely through
reparation benefits;

[f] Labor problems

[a] Unrestrained occasioned by the fact that the
smuggling into the country of defendant company is nancial
textiles from the United States (sic) unable to improve, in a
and other countries; substantial way, the economic
plight of its workers as a result
[b] Unrestricted of which two costly strikes had
entry of supposed remnants occurred, one in 1965 and
which competed with textiles another in 1968; and
 were each issued one common share of
[g] The occurrence of stock as a qualifying share to their
a re which destroyed more election to the Board of Directors of the
than P1 million worth of raw Lirag Textiles Mills, Inc.;
cotton, paralyzed operations
partially, increased overhead "15. That Messrs. Rene Espina,
costs and wiped out any Bernardino Abes and Heber Catalan,
expected profits that year; during their respective tenure as
member of the Board of Directors of the
"13. That it has been the policy of the Lirag Textile Mills, Inc. attended the
plaintiff to be represented in the board meetings of the said Board, received
of directors of the corporation or entity per diems for their attendance therein in
which has obtained nancial assistance the same manner and in the same
from the System be it in terms of loans, amount as any other member of the
mortgages or equity investments. Thus, Board of Directors, participated in the
pursuant to paragraph 6 of the deliberations therein and freely
Purchase Agreement of September 4, exercised their right to vote in such
1961 which provides as follows: meetings. However, the per diems
received by the SSS representative do
'The VENDEE shall be not go to the coffers of the System but
allowed to have a personally to the representative in the
representative in the Board of said board of directors." 1
Directors of the VENDOR with For failure of Lirag Textile Mills, Inc. and Basilio L.
the right to participate in the Lirag to comply with the terms of the Purchase
discussions and to vote Agreement, the SSS led an action for speci c
therein;' performance and damages before the then Court of
First Instance of Rizal, Quezon City, praying that
"14. That Messrs. Rene Espina, therein defendants Lirag Textile Mills, Inc. and Basilio
Bernardino Abes and Heber Catalan L. Lirag be adjudged liable for [1] the entire obligation
of P1M which became due and demandable upon
defendants' failure to repurchase the stocks as
scheduled; [2] dividends in the amount of After entering into the Stipulation of Facts above-
P220,000.00; [3] liquidated damages in an amount quoted, the parties led their respective memoranda
equivalent to twelve percent (12%) of the amount then and submitted the case for decision.
outstanding; [4] exemplary damages in the amount of
P100,000.00 and [5] attorney's fees of P20,000.00. The lower court, ruling that the purchase agreement
LLjur was a debt instrument, decided in favor of SSS and
sentenced Lirag Textile Mills, Inc. and Basilio L. Lirag
to pay SSS jointly and severally P1,000,000.00 plus
Lirag Textile Mills, Inc. and Basilio L. Lirag moved for legal interest until the said amount is fully paid;
the dismissal of the complaint, but were denied the P220,000.00 representing the 8% per annum
relief sought. Thus, they led their answer with dividends on the preferred shares plus legal interest
counterclaim, denying the existence of any obligation up to the time of actual payment; P146,400.00 as
on their part to redeem the preferred stocks, on the liquidated damages; and P10,000.00 as attorney's
ground that the SSS became and still is a preferred fees. The counterclaim of Lirag Textile Mills, Inc. and
stockholder of the corporation so that redemption of Basilio L. Lirag was dismissed.
the shares purchased depended upon the nancial
ability of said corporation. Insofar as defendant Basilio Hence, this petition.
Lirag is concerned, it was alleged that his liability
arises only if the corporation is liable and does not Petitioners assign the following errors:
perform its obligations under the Purchase
Agreement. They further contended that no liability on 1. The trial court erred in deciding
their part has arisen because of the financial condition that the Purchase Agreement is a debt
of the corporation upon which such liability was made instrument;
to depend, particularly the non-realization of any pro t 2. Respondent judge erred in
or earned surplus. Thus, the other claims for holding petitioner corporation liable for
dividends, liquidated damages and exemplary the payment of the 8% preferred and
damages are allegedly without basis. cumulative dividends on the preferred
shares since the purchase agreement preferred shares purchased by
provides that said dividends shall be respondent SSS from petitioner
paid from the net pro ts and earned corporation and the 8% cumulative
surplus of petitioner corporation and dividend, it appearing that Lirag was
respondent SSS has admitted that due merely a surety and not an insurer of the
to losses sustained since 1964, no obligation;
dividends had been and can be
declared by petitioner corporation; 7. Respondent judge erred in dismissing the
counterclaim of petitioners.
3. Respondent judge erred in
sentencing petitioners to pay The fundamental issue in this case is whether or not
P146,400.00 in liquidated damages; the Purchase Agreement entered into by petitioners
and respondent SSS is a debt instrument.
4. Respondent judge erred in
sentencing petitioners to pay Petitioners claim that respondent SSS merely
P10,000.00 by way of attorney's fees; became and still is a preferred stockholder of the
petitioner corporation, the redemption of the shares
5. Respondent judge erred in purchased by said respondent being dependent upon
sentencing petitioners to pay interest the nancial ability of petitioner corporation. Petitioner
from the time of ling the complaint up to corporation, thus, has no obligation to redeem the
the time of full payment both on the preferred stocks.
P1,000,000.00 invested by respondent
SSS in petitioner's corporation and on On the other hand, respondent SSS claims that the
the P220,000.00 which the SSS claims Purchase Agreement is a debt instrument, imposing
as dividends due on its investments; upon the petitioners the obligation to pay the amount
owed, and creating as between them the relation of
6. Respondent judge erred in creditor and debtor, not that of a stockholder and a
holding that petitioner Lirag is liable to corporation. cdll
redeem the P1,000,000.00 worth of
We uphold the lower court's nding that the Purchase 139 were issued in its name as the preferred certi
Agreement is, indeed, a debt instrument. Its terms cates contained all the rights of a stockholder as well
and conditions unmistakably show that the parties as certain obligations on the part of petitioner
intended the repurchase of the preferred shares on corporation. However, the parties did in fact execute
the respective scheduled dates to be an absolute the Purchase Agreement, at the same time that the
obligation which does not depend upon the nancial petitioner corporation issued its preferred stock to the
ability of petitioner corporation. This absolute respondent The Purchase Agreement serves to de ne
obligation on the part of petitioner corporation is made the rights and obligations of the parties and to
manifest by the fact that a surety was required to see establish rmly the liability of petitioners in case of
to it that the obligation is ful lled in the event of the breach of contract. The Certi cates of Preferred Stock
principal debtor's inability to do so. The unconditional serve as additional evidence of the agreement
undertaking of petitioner corporation to redeem the between the parties, though the precise terms and
preferred shares at the speci ed dates constitutes a conditions thereof must be read together with, and
debt which is de ned "as an obligation to pay money regarded as qualified by the terms and conditions of
at some xed future time, or at a time which becomes the Purchase Agreement.
de nite and xed by acts of either party and which they
expressly or impliedly, agree to perform in the The rights given by the Purchase Agreement to
contract. 2 respondent SSS are rights not enjoyed by ordinary
stockholders. This fact could only lead to the
A stockholder sinks or swims with the corporation and conclusion made by the trial court that:
there is no obligation to return the value of his shares
by means of repurchase if the corporation incurs "The aforementioned rights specially
losses and nancial reverses, much less guarantee stipulated for the bene t of the plaintiff
such repurchase through a surety. [respondent SSS] suggest eloquently
an intention on the part of the plaintiff
SSS. As private respondent rightly contends, if [respondent SSS] to facilitate a loan to
the parties intended it [SSS] to be merely a the defendant corporation upon the
stockholder of petitioner corporation, it would have latter's request. In order to afford
been suf cient that Preferred Certi cates Nos. 128 and protection to the plaintiff which
 otherwise is provided by means of then outstanding obligation as liquidated damages.
collaterals, as the plaintiff exacts in its These features of the Purchase Agreement, taken
grants of loans in its ordinary collectively, clearly show the intent of the parties to be
transactions of this kind, as it is looked bound therein as debtor and creditor, and not as
upon more as a lending institution rather corporation and stockholder.
than as in investing agency, the
purchase agreement supplied these Petitioners' contention that it is beyond the power and
protective rights which would otherwise competence of petitioner corporation to redeem the
be furnished by collaterals to the loan. preferred shares or pay the accrued dividends due to
Thus, the membership in the board is to nancial reverses can not serve as legal justi cation for
have a watchdog in the operation of the their failure to perform under the Purchase
business of the corporation, so as to Agreement. The Purchase Agreement constitutes the
insure against mismanagement which law between the parties and obligations arising ex
may result in losses not entirely contractu must be ful lled in accordance with the
unavoidable since payment for stipulations. 4 Besides, it was precisely this
purposes of redemption as well as the eventuality that was sought to be avoided when
dividends is expressly stipulated to respondent SSS required a surety for the obligation.
come from pro ts and or surplus. Such a LibLex
right is never exacted by an ordinary
stockholder merely investing in the Thus, it follows that petitioner Basilio L. Lirag cannot
corporation." 3 deny liability for petitioner corporation's default. As
surety, Basilio L. Lirag is bound immediately to pay
respondent SSS the amount then outstanding.

Moreover, the Purchase Agreement provided that "The obligation of a surety differs from
failure on the part of petitioner to repurchase the that of a guarantor in that the surety
preferred shares on the scheduled due dates renders insures the debt, whereas the guarantor
the entire obligation due and demandable, with merely insures solvency of the debtor;
petitioner in such eventuality liable to pay 12% of the and the surety undertakes to pay if the
 principal does not pay, whereas a The pronouncement of the lower court for the
guarantor merely binds itself to pay if payment of interests on both the unredeemed shares
the principal is unable to pay." 5 and unpaid dividends is also in order. Per stipulation
of facts, petitioners did not deny the fact of non-
On the liability of petitioners to pay 8% cumulative payment of dividends nor their failure to purchase the
dividend, We agree with the observation of the lower preferred shares. Since these involve sums of money
court that the dividends stipulated by the parties which are overdue, they are bound to earn legal
served evidently as interests. 6 The amount thereof interest from the time of demand, in this case, judicial,
was xed at 8% per annum and was not made to i.e., the time of filing the action.
depend upon or to uctuate with the amount of pro ts
or surplus realized, a clear indication that the parties Petitioner Basilio L. Lirag is precluded from denying
intended to give a sure and xed earnings on the his liability under the Purchase Agreement. After his
principal loan. The fact that the dividends were rm representation to "pay immediately to the VENDEE
supposed to be paid out of net pro ts and earned the amounts then outstanding" evidencing his
surplus, of which there were none, does not excuse commitment as SURETY, he is estopped from
petitioners from the payment thereof, again for the denying the same. His signature in the agreement
reason that the undertaking of petitioner Basilio L. carries with it the of cial imprimatur as petitioner
Lirag as surety, included the payment of dividends corporation's president, in his personal capacity as
and other obligations then outstanding. majority stockholder, as surety and as solidary
obligor. The essence of his obligation as surety is to
The award of the sum of P146,400.00 in liquidated pay immediately without quali cation whatsoever if
damages representing 12% of the amount then petitioner corporation does not pay. To have another
outstanding is correct, considering that petitioners in interpretation of petitioner Lirag's liability as surety
the stipulation of facts admitted having failed to ful ll would violate the integrity of the Purchase Agreement
their obligations under the Purchase Agreement. The as well as the clear and unmistakable intent of the
grant of liquidated damages in the amount stated is parties to the same. LLpr
expressly provided for in the Purchase Agreement in
case of contractual breach.
WHEREFORE, the decision in Civil Case No. Q-
12275 entitled "Social Security System vs. Lirag
Textile Mills, Inc. and Basilio L. Lirag" is hereby af
rmed in toto. Costs against petitioners.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., EN BANC

concur.
[G.R. No. L-25704. April 24, 1968.]

ANGEL JOSE WAREHOUSING CO.,

INC., plaintiff-appellee, vs. CHELDA
ENTERPRISES and DAVID
SYJUECO, defendants-appellants.

Burgos and Sarte for appellants.

Luis Ma. Guerrero for appellee.

SYLLABUS

1. CONTRACTS; LOANS; CONTRACT WITH

USURIOUS INTEREST; LOAN IS VALID BUT
USURIOUS INTEREST VOID. — A contract of loan
with usurious interest is valid as to the loan but void
as to the usurious interest (Lopez vs. El Hogar
Filipino, 47 Phil., 249).
 that the same can be recovered "with interest
2. ID.; ID.; ID.; DIVISIBLE CONTRACT;. VOID thereon from the date of payment."
TERM. — In case of a divisible contract, if the
illegal terms can be separated from the legal ones, 4. ID.; ID.; RECOVERY OF PRINCIPAL;
the latter may be enforced. In simple loan with REMEDY OF CREDITOR. — The principal debt
stipulation of usurious interest, the prestation of the remaining with stipulation for payment of interest can
debtor to pay the principal debt, which is the cause thus be recovered by judicial action. And in case of
of the contract (Article 1350, Civil Code), is not such demand, and the debtor incurs in delay, the
illegal. The illegality lies only as to the prestation to debt earns interest from the date of the demand (in
pay the stipulated interest; hence, being separable, this case from the filing of the complaint). Such
the latter only should be deemed void, since it is interest is not due to stipulation, for there was none,
the only one that is illegal. the same being void. Rather, it is due to the general
provision of law that in obligations to pay money,
3. ID.; ID.; ID.; ID.; ARTICLE 1413 OF THE NEW where the debtor incurs in delay, he has to pay
CIVIL CODE CONSTRUED. — Article 1413, in interest by way of damages (Art. 2209, Civil Code)
speaking of "interest paid in excess of the interest The court a quo therefore, did not err in ordering
allowed by the usury laws" means the whole defendants to pay the principal debt with interest
usurious interest; that is, in a loan of P1,000 with thereon at the legal rate, from the date of filing of the
interest of 20% per annum or P200 for one year, if complaint.
the borrower pays said P200, the whole P200 is the
usurious interest, not just that part thereof in excess ATTORNEY'S FEES; WHEN AWARD
of the interest allowed by law. It is in this case that RECOVERABLE. — The rule as to attorney's fees is
the law does not allow division. The whole stipulation that the same are not recoverable, in the absence of
as to interest is void, since payment of said interest stipulation. Several exceptions to this rule are provided
is the cause or object and said interest is illegal. The (Art. 2208, Civil Code). Unless shown to fall under an
only change effected, therefore, by Article 1413, exception, the act of plaintiff in engaging counsel's
New Civil Code, is not to provide for the recovery of services due to refusal of defendants to pay his
the interest paid in excess of that allowed by law, demand, does not justify award of attorney's fees
which the Usury Law already provided for, but to add
(Estate of Buan vs. Camaganacan, L- 21569, Feb. 28, amount of P26,500.00, of which P5,620.00 had
1966). been paid, leaving a balance of

P20,880.00; that plaintiff charged and deducted from

the loan usurious interest thereon, at rates of 2% and
DECISION 2.5% per month, and, consequently, plaintiff has no
cause of action against defendants and should not be
permitted to recover under the law. A counterclaim for
P2,000.00 attorney's fees was interposed.
BENGZON, J.P., J p:
Plaintiff filed on June 25, 1964 an answer to the
Plaintiff corporation filed suit in the Court of First counterclaim, specifically denying under oath the
Instance of Manila on May 29, 1964 against the allegations of usury.
partnership Chelda Enterprises and David Syjueco,
its capitalist partner, for recovery of alleged unpaid After trial, decision was rendered on November 10,
loans in the total amount of P20,880.00, with legal 1965. The court found that there remained due from
interest from the filing of the complaint, plus attorney's defendants an unpaid principal amount of
fees of P5,000.00. Alleging that post dated checks P20,287.50; that plaintiff charged usurious interests,
issued by defendants to pay said account were of which P1,048.15 had actually been deducted in
dishonored, that defendants' industrial partner, advance by plaintiff from the loan; that said amount of
Chellaram I. Mohinani, had left the country, and that P1,048.15 should therefore be deducted from the
defendants have removed or disposed of their unpaid principal of P20,287.50, leaving a balance of
property, or are about to do so, with intent to defraud P19,247.35 1 still payable to the plaintiff. Said court
their creditors, preliminary attachment was also held that notwithstanding the usurious interest
sought. charged, plaintiff is not barred from collecting the
principal of the loan or its balance of P19,247.35.
Answering, defendants averred that they Accordingly, it stated in the dispositive portion of the
obtained four loans from plaintiff in the total decision, thus:
 "WHEREFORE, judgment is hereby case decided by the Court of Appeals in Sebastian v.
rendered ordering the defendant Bautista, 58 O.G. No. 15, p. 3146.
partnership to pay to the plaintiff the
amount of P19,247.35, with legal The Sebastian case was an action for recovery of a
interest thereon from May 29, 1964 parcel of land. The Court of First Instance therein
until paid, plus an additional sum of decided in plaintiff's favor, on the ground that the so-
P2,000.00 as damages for attorney's called sale with pacto de retro of said land was in
fee; and, in case the assets of fact only an equitable mortgage. In affirming the trial
defendant partnership be insufficient to court, the writer of the opinion of the Court of
satisfy this judgment in full, ordering Appeals went further to state the view that the loan
the defendant David Syjueco to pay to secured by said mortgage was usurious in nature,
the plaintiff one-half (1/2) of the and, thus, totally void. Such reasoning of the latter,
unsatisfied portion of this judgment. however, was not concurred in by the other
members of the Court, who concurred in the result
With costs against the defendants." and voted for affirmance on the grounds stated by
the trial court. Furthermore, the affirmance of the
Appealing directly to Us, defendants raise two existence of equitable mortgage necessarily implies
questions of law: (1) In a loan with usurious interest, the existence of a valid contract of loan, because the
may the creditor recover the principal of the loan? (2) former is an accessory contract to the latter.
Should attorney's fees be awarded in plaintiff's favor?
Great reliance is made by appellants on Art. 1411 of
To refute the lower court's decision which is based the New Civil Code which states:
on the doctrine laid down by this Court in Lopez v. El
Hogar Filipino, 47 Phil. 249, holding that a contract of "ART. 1411. When the nullity proceeds
loan with usurious interest is valid as to the loan but from the illegality of the cause or object
void as to the usurious interest, appellants argue that of the contract, and the act constitutes
in light of the New Civil Code provisions said doctrine a criminal offense, both parties being in
no longer applies. In support thereof, they cite the pari delicto, they shall have no action
against each other, and both shall be
 prosecuted. Moreover, the provisions they are not inconsistent with this Code."
of the Penal Code relative to the (Emphasis supplied).
disposal of effects or instruments of a
crime shall be applicable to the things We do not agree with such reasoning. Article 1411 of
or the price of the contract. the New Civil Code is not new; it is the same as Article
1305 of the Old Civil Code. Therefore, said provision
"This rule shall be applicable when is no warrant for departing from previous
only one of the parties is guilty; but interpretation that, as provided in the Usury Law (Act
the innocent one may claim what he No. 2655, as amended), a loan with usurious interest
has given, and shall not be bound to is not totally void but void only as to the interest.
comply with his promise."
True, as stated in Article 1411 of the New Civil Code,
Since, according to the appellants, a usurious loan the rule of pari delicto applies where a contract's
is void due to illegality of cause or object the rule nullity proceeds from illegality of the cause or object
of pari delicto expressed in Article 1411, supra, of said contract.
applies, so that neither party can bring action
against each other. Said rule, however, appellants However, appellants fail to consider that a contract
add, is modi ed as to the borrower, by express of loan with usurious interest consists of principal and
provision of the law (Art. 1413, New Civil Code), accessory stipulations; the principal one is to pay the
allowing the borrower to recover interest paid in debt; the accessory stipulation is to pay interest
excess of the interest allowed by the usury law. As thereon. 2
to the lender, no exception is made to the rule;
hence, he cannot recover on the contract. So — And said two stipulations are divisible in the sense that
they continue — the New Civil Code provisions the former can still stand without the latter. Article 1273,
must be upheld as against the Usury Law, under Civil Code, attests to this: "The renunciation of the
which a loan with usurious interest is not totally principal debt shall extinguish the accessory
void, because of Article 1961 of the New Civil obligations; but the waiver of the latter shall leave the
Code, that: "Usurious contracts shall be governed former in force."
by the Usury Law and other special laws, so far as
The question therefore to resolve is whether the of P1,000, with interest of 20% per annum or P200 for
illegal terms as to payment of interest likewise one year, if the borrower pays said P200, the whole
renders a nullity the legal terms as to payments of the P200 is the usurious interest, not just that part thereof
principal debt. Article 1420 of the New Civil Code in excess of the interest allowed by law. It is in this
provides in this regard: "In case of a divisible case that the law does not allow division. The whole
contract, if the illegal terms can be separated from stipulation as to interest is void, since payment of said
the legal ones, the latter may be enforced." interest is the cause or object and said interest is
illegal. The only change effected, therefore, by Article
1413, New Civil Code, is not to provide for the
recovery of the interest paid in excess of that allowed
In simple loan with stipulation of usurious interest, by law, which the Usury law already provided for, but
the prestation of the debtor to pay the principal debt, to add that the same can be recovered "with interest
which is the cause of the contract (Article 1350, Civil thereon from the date of payment."
Code), is not illegal. The illegality lies only as to the
prestation to pay the stipulated interest; hence, The foregoing interpretation is reached with the
being separable, the latter only should be deemed philosophy of usury legislation in mind; to discourage
void, since it is the only one that is illegal. stipulations on usurious interest, said stipulations are
treated as wholly void, so that the loan becomes one
Neither is there a conflict between the New Civil Code without stipulation as to payment of interest. It should
and the Usury Law. Under the latter, in Sec. 6, any not, however, be interpreted to mean forfeiture even
person who for a loan shall have paid a higher rate or of the principal, for this would unjustly enrich the
greater sum or value than is allowed in said law, may borrower at the expense of the lender. Furthermore,
recover the whole interest paid. The New Civil Code, penal sanctions are available against a usurious
in Article 1413 states: "Interest paid in excess of the lender, as a further deterrence to usury.
interest allowed by the usury laws may be recovered
by the debtor, with interest thereon from the date of The principal debt remaining without stipulation for
payment." Article 1413, in speaking of "interest paid payment of interest can thus be recovered by judicial
in excess of the interest allowed by the usury laws" action. And in case of such demand, and the debtor
means the whole usurious interest; that is, in a loan incurs in delay, the debt earns interest from the date
of the demand (in this case from the filing of the light of the New Civil Code. Said award should
complaint). Such interest is not due to stipulation, for therefore be deleted.
there was none, the same being void. Rather, it is due
to the general provision of law that in obligations to WHEREFORE, with the modification that the award
pay money, where the debtor incurs in delay, he has of attorney's fees in plaintiff's favor is deleted
to pay interest by way of damages (Art. 2209, Civil therefrom, and the correction of the clerical error as
Code). The court a quo therefore, did not err in to the principal still recoverable from P19,247.35 to
ordering defendants to pay the principal debt with P19,239.35, the appealed judgment is hereby
interest thereon at the legal rate, from the date of filing affirmed. No costs.
of the complaint.
SO ORDERED.
As regards, however, the attorney's fees, the
court a quo stated no basis for its award, beyond Reyes, J.B.L., (Acting C.J.), Dizon, Makalintal,
saying that as a result of defendants' refusal to Zaldivar, Sanchez, Ruiz Castro, Angeles and
pay the amount of P19,247.35 notwithstanding Fernando, JJ., concur.
repeated demands, plaintiff was obliged to
retain the services of counsel. The rule as to
attorney's fees is that the same are not
recoverable, in the absence of stipulation.
Several exceptions to this rule are provided (Art. EN BANC
2208, Civil Code). Unless shown to fall under an
exception, the act of plaintiff in engaging [G.R. No. 32644. October 4, 1930.]
counsel's services due to refusal of defendants
to pay his demand, does not justify award of CU UNJIENG E HIJOS, plaintiff-
attorney's fees (Estate of Buan v. appellee, vs. THE MABALACAT
Camaganacan, L-21569, Feb. 28, 1966). SUGAR CO., ET AL., defendants.
Defendants, moreover, had reason to resist the THE MABALACAT SUGAR CO.,
claim, since there was yet no definite ruling of appellant.
this Court on the point of law involved herein in
 Romeo Mercado, for appellant. DECISION

Araneta & Zaragoza, for plaintiff-appellee.

Duran & Lim for defendant-appellee Siuliong & STREET, J p:

Co.
This action was instituted in the Court of First
Instance of Pampanga by Cu Unjieng e Hijos, for
SYLLABUS the purpose of recovering from the Mabalacat
Sugar Company an indebtedness amounting to
1. INTEREST; COMPOUND more than P163,000, with interest, and to foreclose
INTEREST; STIPULATION FOR PAYMENT a mortgage given by the debtor to secure the
OF INTEREST AT STATED INTERVALS same, as well as to recover stipulated attorney's
DURING YEAR. — A stipulation to the effect fee and the sum of P1,206, paid by the plaintiff for
that interest shall be at the rate of 12 per insurance upon the mortgaged property, with
centum per annum payable at the end of each incidental relief. In the complaint Siuliong & Co.,
month upon the unpaid capital of the loan, Inc., was joined as defendant, as a surety of the
does not authorize the compounding of Mabalacat Sugar Company, and as having a third
interest payments at intervals of one month. mortgage on the mortgaged property. The
Philippine National Bank was also joined by reason
2. USURY; INTEREST IN EXCESS OF of its interest as second mortgagee of the land
LEGAL RATE; VOLUNTARY PAYMENT NOT covered by the mortgage to the plaintiff. After the
BINDING ON DEBTOR. — Where interest is cause had been brought to issue by the answers
charged at an unlawful rate, in excess of the limit of the several defendants, the cause was heard
allowed by the Usury Law, the mere voluntary and judgment rendered, the dispositive portion of
payment of it to the creditor by the debtor is not the decision being as follows:
binding.
"Por las consideraciones expuestas, el
Juzgado condena a The Mabalacat
Sugar Company a pagar la "Se condena ademas a The
demandante la suma de P163,534.73, Mabalacat Sugar Company al pago de
con sus intereses de 12 por ciento al la suma de P3,205.78 reclamada por
año, compuestos mensualmente Siuliong & Co., con sus intereses de 9
desde el 1.° de mayo de 1929. por ciento al año desde el 29 de julio de
Tambien se le condena a pagar a dicha 1926 hasta su completo pago,
demandante la suma de P2,412 por las ordenandola que rinda cuentas del
primas de seguros abonadas por esta, azucar por ella producido y pague la
con sus intereses de 12 por ciento al comision correspondeniente bajo la
año, compuestos tambien base de 5 por ciento de su valor,
mensualmente desde el 15 de mayo de descontandose, desde luego, las
1928, mas la de P7,500 por honorarios cantidades ya pagadas.
de abogados y las costas del juicio. Y
si esta deuda no se pagare dentro del "Se absuelve de la demanda de Cu
plazo de tres meses, se ejecutaran los Unjieng e Hijos a Siuliong & Co., Inc."
bienes hipotecados de acuerdo con la
ley. From this judgment the defendant, the
Mabalacat Sugar Company, appealed.
"Si del producto de la venta
hubiese algun remanente, este, se The rst point assigned as error has relation
destinara al pago del credito del Banco to the question whether the action was prematurely
Nacional, o sea de P32,704.69, con started. In this connection we note that the
sus intereses de 9 por ciento al año mortgage executed by the Mabalacat Sugar
desde el 7 de junio de 1929, sin Company contains, in paragraph 5, a provision to
perjuicio de la orden de ejecucion que the effect that non-compliance on the part of the
pudiera expedirse en el asunto No. mortgage debtor with any of the obligations
26435 del Juzgado de Primera assumed in virtue of this contract will cause the
Instancia de Manila. entire debt to become due and give occasion for
the foreclosure of the mortgage. The debtor party
failed to comply with the obligation, imposed upon without consideration so far as the creditor is
it in the mortgage, to pay the mortgage debt in the concerned; and the failure of the debtor to comply
stipulated instalments at the time speci ed in the with the terms of the extension justi ed the creditor
contract. It results that the creditor was justi ed in in treating it as of no effect. The first error is
treating the entire mortgage debt as having been therefore without merit.
accelerated by such failure of the debtor in paying
the instalments. The second error is directed to the propriety of the
interest charges made by the plaintiff in estimating
It appears, however, that on or about the amount of the indebtedness. In this connection
October 20, 1928, the mortgage creditor, Cu we note that, under the second clause of the
Unjieng e Hijos, agreed to extend the time for mortgage, interest should be calculated upon the
payment of the mortgage indebtedness until June indebtedness at the rate of 12 per cent per annum.
30, 1929, with certain interim payments to be made In the same clause, but in a separate paragraph,
upon speci ed dates prior to the contemplated nal there is another provision with respect to the
liquidation of the whole indebtedness. But the payment of interest expressed in Spanish in the
debtor party failed to make the interim payments following words:
due on February 25, 1929, March 25, 1929, and
April 25, 1929, and failed altogether to pay the "Los intereses seran
balance due, according to the terms of this pagados mensualmente a fin
extension, on June 30, 1929. Notwithstanding the de cada mes, computados
failure of the debtor to comply with the terms of this teniendo en cuenta el capital
extension, it is insisted for the appellant that this de prestano aun no pagado."
agreement for the extension of the time of payment Translated into English this
had the effect of abrogating the stipulation of the provision reads substantially
original contract with respect to the acceleration of as follows:
the maturity of the debt by non-compliance with the
terms of the mortgage. As the trial court pointed "Interest, to be computed upon
out, this contention is untenable. The agreement to the still unpaid capital of the loan, shall
extend the time of payment was voluntary and
 be paid monthly, at the end of each would have to pay out ( a) to maintain insurance
month." upon the mortgaged property, ( b) to pay the land
tax upon the same property, and (c) upon
It is well settled that, under article 1109 of the disbursements that might be made by the
Civil Code, as well as under section 5 of the Usury mortgagee to maintain the property in good
Law (Act No. 2655), the parties may stipulate that condition. But the chief thing is that interest cannot
interest shall be compounded; and rests for the be thus accumulated on unpaid interest accruing
computation of compound interest can certainly be upon the capital of the debt.
made monthly, as well as quarterly, semiannually,
or annually. But in the absence of express The trial court was of the opinion that interest
stipulation for the accumulation of compound could be so charged, because of the Exhibit 1 of
interest, no interest can be collected upon interest the Mabalacat Sugar Company, which the court
until the debt is judicially claimed, and then the rate considered as an interpretation by the parties to
at which interest upon accrued interest must be the contract and a recognition by the debtor of the
computed is fixed at 6 per cent per annum. propriety of compounding the interest earned by
the capital. But the exhibit referred to is merely a
In the present case, however, the language receipt showing that the sum of P256.28 was, on
which we have quoted above does not justify the March 19, 1928, paid by the debtor to the plaintiff
charging of interest upon interest, so far as interest as interest upon interest. But where interest is
on the capital is concerned. The provision quoted improperly charged, at an unlawful rate, the mere
merely requires the debtor to pay interest monthly voluntary payment of it to the creditor by the debtor
at the end of each month, such interest to be is not binding. Such payment, in the case before
computed upon the capital of the loan not already us, was usurious, being in excess of 12 per cent
paid. Clearly this provision does not justify the which is allowed to be charged, under section 2 of
charging of compound interest upon the interest the Usury Law, when a debt is secured by
accruing upon the capital monthly. It is true that in mortgage upon real property. The Exhibit 1
subsections (a), (b) and (c) of article IV of the therefore adds no support to the contention of the
mortgage, it is stipulated that the interest can be plaintiff that interest upon interest can be
thus computed upon sums which the creditor accumulated in the manner adopted by the creditor
in this case. The point here ruled is in exact interest will be permitted at monthly intervals, as
conformity with the decision of this court in regards the capital of the debt, but such unpaid
Bachrach Garage and Taxicab Co. vs. Golingco interest shall draw interest at the rate of 6 per cent
(39 Phil., 912), where this court held that interest from the date of the institution of the action.
cannot be allowed in the absence of stipulation, or In the third assignment of error the appellant
in default thereof, except when the debt is judicially complains, as excessive, of the attorney's fees
claimed; and when the debt is judicially claimed, allowed by the court in accordance with stipulation
the interest upon the interest can only be in the mortgage. The allowance made on the
computed at the rate of 6 per cent per annum. principal debt was around 4 per cent, and about
the same upon the fee allowed to the bank. Under
It results that the appellant's second assignment of the circumstances we think the debtor has no just
error is well taken, and the compound interest must cause for complaint upon this score.
be eliminated from the judgment. With respect to
the amount improperly charged, we accept the The fourth assignment of error complains of
estimate submitted by the president and manager the failure of the trial court to permit an amendment
of the Mabalacat Sugar Company, who says that to be led by the debtor to its answer, the
the amount improperly included in the computation application therefor having been made on the day
made by the plaintiff's bookkeeper is P879.84, in when the cause had been set for trial, with notice
addition to the amount of P256.28 covered by that the period was non- extendible. The point was
Exhibit 1 of the Mabalacat Sugar Company. But a matter in the discretion of the court, and no
the plaintiff creditor had the right to charge interest, abuse of discretion is shown.
in the manner adopted by it, upon insurance
premiums which it had paid out; and if any From what has been stated, it follows that
discrepancy of importance is discoverable by the the appealed judgment must be modi ed by
plaintiff in the result here reached, it will be at deducting the sum of P1,136.12 from the principal
liberty to submit a revised computation in this debt, so that the amount of said indebtedness shall
court, upon motion for reconsideration, wherein be P162,398.61, with interest at 12 per cent per
interest shall be computed in accordance with this annum, from May 1, 1929. In other respects the
opinion, that is to say, that no accumulation of
judgment will be af rmed, and it is so ordered, with
costs against the appellant. SECOND DIVISION

Avanceña, C.J., Malcolm, Villamor, Ostrand, [G.R. No. 115821. October 13, 1999.]
Johns, Romualdez and Villa-Real, JJ., concur.
JESUS T. DAVID , petitioner, vs. THE
COURT OF APPEALS, HON.
EDGARDO P. CRUZ, MELCHOR P.
PEÑA, and VALENTIN AFABLE, JR. ,
respondents.

Antonio F. Navarro for petitioner.

Velasco Viloria & Tria for private respondent.

SYNOPSIS

Petitioner led an action in the RTC against

respondent Afable based on a promissory note which
the latter executed in favor of petitioner. In the
complaint, petitioner prayed that defendant be
ordered to pay the sum of P66,500.00, the amount of
the promissory note, with interest thereon at the legal
rate from the date of the ling of the complaint.
Judgment was rendered in favor of petitioner whereby
Afable was ordered to pay petitioner the amount of the
promissory note of P66,500.00 plus interest. The
decision reached the Supreme Court, which
subsequently remanded the case to the trial court for or reason arises which renders the decision no longer
nal execution. Upon petitioner's motion for the enforceable. Thus, the trial court correctly increased
issuance of an alias writ of execution, Afable's the rate of legal interest from 6% to 12% per annum.
attached properties were sold at public auction.
Petitioner contested respondent Sheriff's computation
of simple legal interest, instead of compounded SYLLABUS
interest, on the judgment award. Meanwhile Central
Bank Circular No. 416 increasing the legal rate of 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
interest from 6% to 12% per annum was issued. COMPOUNDED INTEREST PROVIDED IN
Petitioner moved that respondent sheriff be directed ARTICLE 2212 OF THE CIVIL CODE;
to prepare and execute a certi cate of sale in favor of STIPULATED PAYMENT OF SIMPLE
petitioner in the amount of the award with INTEREST, A PREREQUISITE. — This Court
compounded interest. The trial court denied the has already interpreted Article 2212 and defined
motion, the standards for its application in Philippine
American Accident Insurance vs. Flores, 97
a rmed the computation of respondent Sheriff and SCRA 811. As therein held, Article 2212
increased the rate of legal interest from 6% to 12% contemplates the presence of stipulated or
per annum. Petitioner elevated the issue to the Court conventional interest which has accrued when
of Appeals which dismissed the petition. Hence, this demand was judicially made. In cases where no
petition. interest had been stipulated by the parties, as in
the case of Philippine American Accident
The Supreme Court, reiterating the doctrine in Insurance, no accrued conventional interest
Philippine American Accident Insurance vs. Flores, 97 could further earn interest upon judicial demand.
SCRA 811, held that no accrued conventional interest
can be recovered where no stipulation to that effect 2. ID.; ID.; ID.; ID.; CASE AT BAR. — Note that in
was agreed upon between the parties; that the rule the case now before us, the Court of Appeals
that once a judgment has become nal and executory made the factual nding that ". . . no interest was
is the ministerial duty of courts to order its execution stipulated by the parties. In the promissory note
is subject to exceptions, as where supervening cause denominated as `Compromise Agreement' signed
 by the private respondent which was duly modification or alteration transpired after the
accepted by petitioner no interest was mentioned. judgment has become final and executory.
In his complaint, petitioner merely prayed that
defendant be ordered to pay plaintiff the sum of 4. ID.; ID.; ID.; ID.; CASE AT BAR. — We earlier
P66,500.00 with interest thereon at the legal rate held that a case, in which an execution order has
from the date of the ling of the complaint until fully been issued, is still pending, so that all
paid." Clearly here the Philippine American proceedings on the execution are still
Accident Insurance ruling applies. proceedings in the suit. In the present case, after
the case was remanded to the lower court,
3. REMEDIAL LAW; ACTIONS; MINISTERIAL petitioner led a motion for the issuance of an
DUTY OF COURT TO ORDER EXECUTION alias Writ of Execution. The motion was only
ONCE JUDGMENT HAS BECOME FINAL AND nally resolved on July 5, 1993. When Central
EXECUTORY; SUPERVENING EVENT, AN Bank Circular No. 416 took effect on July 29,
EXCEPTION. — But the rule that once a 1974, the suit was still pending. Hence, when
judgment has become nal and executory, it is the respondent Judge ordered the computation of
ministerial duty of the courts to order its legal interest for the execution of the amended
execution is not absolute. It admits of certain October 31, 1979 order, he correctly took judicial
exceptions. One exception is that where facts notice of the Court's pronouncement in
and/or events transpire after a decision has Reformina vs. Tomol, Jr., 139 SCRA 260. In
become executory, which facts and/or events Reformina, the Court applied Central Bank
present a supervening cause or reason which Circular No. 416 which took effect on July 29,
renders the nal and executory decision of the 1974, pursuant to P.D. 116, amending Act. 2655
court no longer enforceable. Under the law, the (Usury Law) and raising the legal rate of interest
court may modify or alter a judgment even after from 6% to 12% per annum. Respondent Judge
the same has become executory whenever followed Reformina and did not err in modifying
circumstances transpire rendering its execution the Order of October 31, 1979. The passage of
unjust and inequitable, as where certain facts the Central Bank Circular No. 416 was a
and circumstances justifying or requiring such supervening event which happened after the
decision had become executory. Had
 respondent Judge failed to order the assailed private respondent Afable to pay petitioner
amendment, the result would have been P66,500.00 plus interest from July 24, 1974, until fully
iniquitous. Hence, here, no error nor grave abuse paid, plus P5,000.00 as attorney's fees, and to pay the
of discretion could be ascribed to respondent costs of suit.
Judge's order dated June 30, 1980. Likewise,
respondent appellate court could not be faulted On June 20, 1980, however, Judge Diaz issued
for a rming said order of respondent Judge. an Order amending said Decision, so that the legal
rate of interest should be computed from January 4,
DECISION 1966, instead of from July 24, 1974. The amended
Decision in the decretal portion reads: cdtai

"WHEREFORE, judgment is
QUISUMBING, J p: hereby rendered against the defendant,
Valentin Afable Jr., ordering him to pay
This is a petition for review, under Rule 45 of the to the plaintiff the sum of P66,500.00
Rules of Court, seeking the reversal of the Decision plus the legal rate of interest thereon
dated May 30, 1994, of the Court of Appeals, Ninth from January 4, 1966 up to the time the
Division, in CA-G.R. SP No. 32782. same is fully paid plus the amount of
The parties do not dispute the facts in this P5,000.00 as and for attorney's fees and
case. The dispute concerns only the execution of the to pay the costs of the suit." ordering the
Decision of the Regional Trial Court of Manila, Branch private respondent Afable to pay the
27, in Civil Case No. 94781, dated October 31, 1979, petitioner the sum of P66,500.00 plus
as amended by an Order dated June 20, 1980. the legal rate of interest thereon from
July 24, 1974, plus the amount of
The Regional Trial Court of Manila, Branch 27, P5,000.00 as attorney's fees and to pay
with Judge Ricardo Diaz, then presiding, issued a writ the costs of suit" 1 (Emphasis ours.)
of attachment over real properties covered by TCT
Nos. 80718 and 10289 of private respondents. In his Respondent Afable appealed to the Court of
Decision dated October 31, 1979, Judge Diaz ordered Appeals and then to the Supreme Court. In both
instances, the decision of the lower court was a rmed. directing respondent Sheriff Peña to prepare and
Entries of judgment were made and the record of the execute a certi cate of sale in favor of the petitioner,
case was remanded to Branch 27, presided at that placing therein the amount of the judgment as
time by respondent Judge Edgardo P. Cruz, for the P3,027,238.50, the amount he bid during the auction
nal execution of the Decision dated October 31, 1979, which he won. His reason is that compound interest,
as amended by the Order dated June 20, 1980. which is allowed by Article 2212 of the Civil Code,
should apply in this case.
Upon petitioner's motion, respondent Judge
issued an Alias Writ of Execution by virtue of which On July 5, 1993, respondent Judge issued an
respondent Sheriff Melchor P. Peña conducted a Order denying petitioner's Motion dated May 18,
public auction. Sheriff Peña informed the petitioner 1993, which pertinently states: LibLex
that the total amount of the judgment is P270,940.52.
The amount included a computation of simple "In accordance with CB Circular No. 416
interest. Petitioner, however, claimed that the and as construed in Reformina vs.
judgment award should be P3,027,238.50, because Tomol (139 SCRA 260), legal interest
the amount due ought to be based on compounded on P66,500.00 corresponds to 6% per
interest. LLpr annum for the period January 4, 1966 to
July 28, 1974 and 12% per annum from
Although the auctioned properties were sold to July 29, 1974 up to April 26, 1993,
the petitioner, Sheriff Peña did not issue the Certi cate amounting to P34,180.92 and
of Sale because there was an excess in the bid price P149,582.32, respectively, or a grand
in the amount of P2,941,524.47, which the petitioner total
Principal P 66,500.00
failed to pay despite notice. This excess was
Interest 183,763.24
computed by the Sheriff on the basis of petitioner's bid
Attorney's fees 5,000.00
price of P3,027,238.50 minus the amount of
Publication expenses 15,500.00
P270,940.52 computed in the judgment award.
Costs of suit 276.60
—————
On May 18, 1993, petitioner led a Motion
Total P271,039.84
praying that respondent Judge Cruz issue an order
—————
 of P183,763.24.
Petitioner elevated said Orders to the Court of
Conformably with the Sheriff's Appeals in a petition for certiorari, prohibition and
Computation of Interest dated April 26, mandamus. However, respondent appellate court
1993 and Supplemental Report dated dismissed the petition in a Decision dated May 30,
June 14, 1993, the judgment as of April 1994. Pertinent portions of said decision reads:
26, 1993 amounted to P271,039.84,
broken down as follows: 1 . . . In this case, the records
show that no interest was stipulated by
the parties. In the promissory note
Considering that plaintiff's denominated as "Compromise
P3,027,238.50 bid exceeds the amount Agreement" signed by private
of his judgment, then he is not entitled respondent which was duly accepted by
to a certi cate of sale without paying the petitioner, no interest was mentioned. In
'excess' in the sum of P2,756,198.66 his complaint, petitioner merely prayed
(Secs. 22 and 23 Rule 39, Rules of that defendant be ordered to pay
Court). And since plaintiff did not pay plaintiff the sum of P66,500.00 with
the 'excess', then the sale did not interest thereon at the legal rate
materialize and the sheriff 'may again from the date of ling of the complaint
sell the property to the highest bidder' until fully paid." Clearly, there was no
(Sec. 22, Rule 39, id.)." 2 llcd accrued conventional interest which
could further earn interest when plaintiff-
On August 11, 1993, petitioner moved for appellant made his judicial demand,
reconsideration of the Order dated July 5, 1993, thus, the respondent court awarded '. . .
reiterating his Motion dated May 18, 1993. the sum of P66,500.00 plus the legal
rate of interest thereon . . . ." LLpr
On November 17, 1993, respondent Judge
issued his Order denying the petitioner's motion for "Further the Supreme Court in the
reconsideration. same case [Referring to Philippine
American Accident Insurance Petitioner now comes before the Court,
Company, Inc. vs. the Hon. Jose P. claiming the appellate court committed the following
Flores and Concordia G. Navalta, 97 errors in the abovecited decision:
SCRA 811; Rollo, p. 9.] stressed that
when the judgment ordered payment of First Assigned Error
simple legal interest only and nothing
said about payment of compound THE RESPONDENT COURT OF
interest, said interest should not be APPEALS ERRED IN RULING THAT
compounded. In this case, the decretal ARTICLE 2212 OF THE CIVIL CODE
portion is clearly worded, that is, the APPLIES ONLY WHERE THE
legal rate of interest thereon from PARTIES TO AN OBLIGATION
January 4, 1966. No mention or STIPULATED OR AGREED TO PAY
reference was made regarding COMPOUNDED INTEREST. LLjur
compound interest. Ergo, the
judgment award must be computed Second Assigned Error
as simple legal interest only.
(Emphasis ours.) THE RESPONDENT COURT OF
APPEALS ERRED IN CONFUSING
"Foregoing considered, We find no grave LEGAL INTEREST (AS
abuse of discretion amounting to lack or excess DISTINGUISHED FROM
of jurisdiction committed by public respondent CONSENSUAL INTEREST) WITH
judge in issuing the assailed orders” SIMPLE INTEREST, JUST AS IT ALSO
"WHEREFORE, the petition is DENIED ERRED IN CONFUSING THE
due course and is hereby DISMISSED. INTEREST ON THE PRINCIPAL WITH
INTEREST ON THE INTEREST.
"SO ORDERED. " 3
Third Assigned Error
 THE RESPONDENT COURT OF However, this Court has already interpreted
APPEALS ERRED IN REFUSING TO Article 2212, and de ned the standards for its
APPLY THE SIMPLE MANDATE OF application in Philippine American Accident Insurance
ARTICLE 2212 OF THE CIVIL CODE vs. Flores, 97 SCRA 811. As therein held, Article 2212
TO THE CASE AT BAR. contemplates the presence of stipulated or
conventional interest which has accrued when
Fourth Assigned Error demand was judicially made. In cases where no
interest had been stipulated by the parties, as in the
THE RESPONDENT COURT OF case of Philippine American Accident Insurance, no
APPEALS ERRED IN accrued conventional interest could further earn
PROMULGATING ITS DECISION interest upon judicial demand. 5
WHICH IS CLEARLY CONTRARY TO
LAW. In the said case, we further held that when the
judgment sought to be executed ordered the payment
Essentially, we nd that the issue here is of simple "legal interest" only and said nothing about
whether respondent appellate court erred in a rming payment of compound interest, but the respondent
respondent Judge's order for the payment of simple judge orders payment of compound interest, then, he
interest only rather than compounded interest. cda goes beyond the confines of a judgment which had
become final. Thus:
Petitioner insists that in computing the interest
due of the P66,500.00, interest should be computed "The judgment which was sought to be
at 6% on the principal sum of P66,500.00 pursuant to executed ordered the payment of simple
Article 2209 and then "interest on the legal interest" "legal interest" only. It said nothing
should also be computed in accordance with the about the payment of compound
language of Article 2212 of the Civil Code. 4 In his interest. Accordingly, when the
view, said article meant "compound interest". respondent judge ordered the payment
of compound interest he went beyond
the con nes of his own judgment which
had been a rmed by the Court of
Appeals and which had become nal. [1919]; Robinson vs. Sackermann, 46
Fundamental is the rule that execution Phil. 539 [1924]; Philippine Engineering
must conform to that ordained or Co. vs. Green, 48 Phil. 466 [1925]; and
decreed in the dispositive part of the Cu Unjieng vs. Mabalacat Sugar Co., 54
decision. Likewise, a court can not, Phil. 916 [1930].) . . . In other words,
except for clerical errors or omissions there was no accrued conventional
amend a judgment that has become nal interests which could further earn
( Jabon et. al. vs. Alo, et al., 91 Phil. 750 interest upon judicial demand."
[1952]; Robles vs. Timario, et al., 107
Phil. 809 [1960]; Collector of Internal Note that in the case now before us, the Court
Revenue vs. Gutierrez, et al., 108 Phil of Appeals made the factual nding that ". . . no interest
215 [1960]; Ablaza vs. Sycip, et al., 110 was stipulated by the parties. In the promissory note
Phil 4 [1060].) cdphil denominated as 'Compromise Agreement' signed by
the private respondent which was duly accepted by
"Private respondent invokes Sec. petitioner no interest was mentioned. In his complaint,
5 of the Usury Law . . . as well as Art. petitioner merely prayed that defendant be ordered to
2212 of the Civil Code which pay plaintiff the sum of P66,500.00 with interest
stipulates: 'Interest due shall earn legal thereon at the legal rate from the date of the ling of
interest from the time it is judicially the complaint until fully paid." 6 Clearly here the
demanded, although the obligation may Philippine American Accident Insurance ruling
be silent upon this point.' Both legal applies.
provisions are in applicable (sic) for they
contemplate the presence of Petitioner also alleges that when the case was
stipulated or conventional interest remanded to the trial court, respondent Judge,
which has accrued when demand abused his discretion when he modi ed the Decision
was judicially made. (Sunico v. and amended its dispositive portion. He argues that
Ramirez, 14 Phil. 500 [1909]; Salvador when a decision has become nal and executory, the
vs. Palencia, 25 Phil. 661 [1913]; court may no longer amend, revoke, nor alter the
Bachrach vs. Golingco, 39 Phil. 912
dispositive portion, and the only power of the court is computation of legal interest for the execution of the
to order its execution. prLL amended October 31, 1979 order, he correctly took
judicial notice of the Court's pronouncement in
But the rule that once a judgment has become Reformina vs. Tomol, Jr., 139 SCRA 260.
nal and executory, it is the ministerial duty of the In Reformina, the Court applied Central Bank
courts to order its execution is not absolute. It admits Circular No. 416 which took effect on July 29, 1974,
of certain exceptions. 7 One exception is that where pursuant to P.D. 116, amending Act 2655 (Usury Law)
facts and/or events transpire after a decision has and raising the legal rate of interest from 6% to 12%
become executory, which facts and/or events present per annum. Respondent Judge followed Reformina
a supervening cause or reason which renders the nal and did not err in modifying the Order of October 31,
and executory decision of the court no longer 1979. The passage of the Central Bank Circular No.
enforceable. 8 Under the law, the court may modify or 416 was a supervening event which happened after
alter a judgment even after the same has become the decision had become executory. Had respondent
executory whenever circumstances transpire Judge failed to order the assailed amendment, the
rendering its execution unjust and inequitable, as result would have been iniquitous. Hence, here, no
where certain facts and circumstances justifying or error nor grave abuse of discretion could be ascribed
requiring such modification or alteration transpired to respondent Judge's order dated June 30, 1980.
after the judgment has become final and executory. 9 Likewise, respondent appellate court could not be
faulted for affirming said order of respondent Judge.
We earlier held that a case, in which an dctai
execution order has been issued, is still pending , so
that all proceedings on the execution are still WHEREFORE, the instant petition is DENIED.
proceedings in the suit. 10 In the present case, after The Decision of the Court of Appeals dated May 30,
the case was remanded to the lower court, petitioner 1994, in CA- G.R. SP NO. 32782 is hereby
led a motion for the issuance of an alias Writ of AFFIRMED. The records of the case are ordered
Execution. The motion was only nally resolved on July remanded to the Regional Trial Court of Manila,
5, 1993. When Central Bank Circular No. 416 took Branch 27, for execution of the Decision in due
effect on July 29, 1974, the suit was still pending. course.
Hence, when respondent Judge ordered the
Costs against petitioner. CLEOFE VELEZ, plaintiff-
appellant, vs. MAXIMO
SO ORDERED. BALZARZA and FLAVIA
MABILIN, defendants-
Mendoza, Buena and De Leon Jr., JJ., concur. appellees.

Bellosillo, J., is on official leave. Mariano H. de Joya, Domingo Veloso and

Teogenes Velez, for appellant.

Jose M. Espina and Eufrosino Limbaco, for

appellees.

SYLLABUS

1. CONTRACT OF LOAN;
OBLIGATION OF LENDER TO RETURN
EXCESS PAYMENTS; ARTICLE 1895 OF THE
CIVIL CODE. — The liability of plaintiff to return the
excess payments is in keeping with article 1895 of
the Civil Code which provides that, "When
something is received which there is no right to
collect, and which by mistake has been unduly
delivered, the obligation to restore it arises." The
EN BANC two requisites are present: (1) there is no right to
collect these excess sums; and (2) the amounts
[G.R. No. 48389. July 27, 1942.] have been paid through mistake by defendants.
Such mistake is shown by the fact that the parties
in their contracts never intended that either rents
or interest should be paid, and by the further fact have not hesitated to apply it when the exigencies
that when these payments were made, they were of right and equity demanded its assertion. It is a
intended by defendants to be applied to the part of that a uent reservoir of justice upon which
principal, but they overpaid the amounts loaned to judicial discretion draws whenever the statutory
them. laws are inadequate because they do not speak or
do so with a confused voice.
2. ID.; ID.; ID.; QUASI-CONTRACT OF
"SOLUTIO INDEBITI"; ENRICHMENT OF ONE AT 3. ID.; PAYMENT OF INTEREST MUST
THE EXPENSE OF ANOTHER. — Article 1895 of BE EXPRESSLY STIPULATED. — No interest is
the Civil Code, which determines the quasi- due unless it is expressly stipulated (article 1755,
contract of solutio indebiti, is one of the concrete Civil Code). As under the contract the lender took
manifestations of the ancient principle that no one possession of the lands and reaped the fruits
shall enrich himself unjustly at the expense of thereof, it must have been thought by the parties
another. In the Roman Law Digest the maxim was that it was unfair to make the borrower pay interest
formulated thus: "Jure naturae acquum est, in addition.
neminem cum alterius detrimento et injuria eri
locupletiorem." And the Partidas declared:
"Ninguno non deue enriquecerse tortizeramente DECISION
con daño de otro." Such axiom has grown through BOCOBO, J p:
the centuries in legislation, in the science of law
and in court decisions. The lawmaker has found it On November 16, 1937, plaintiff in an
one of the helpful guides in framing statutes and amended complaint prayed for the return of certain
codes. Thus, it is unfolded in many articles parcels of land which she alleged had been sold
scattered in the Spanish Civil Code. (See for by defendants to plaintiff's deceased husband,
example, articles 360, 361, 464, 647, 648, 797, Ramon Neri San Jose, with right of repurchase.
1158, 1163, 1295, 1303, 1304, 1893 and 1895, She further alleged that defendants had remained
Civil Code.) This time-honored aphorism has also in possession of said land under a contract of
been adopted by jurists in their study of the con ict lease, but that for over two years defendants had
of rights. It has been accepted by the courts, which not paid the agreed rentals. In paragraph 4 of the
complaint, she stated that "in the distribution of the Neri and P432.63 by plaintiff; that these payments
estate of the deceased Ramon Neri San Jose who were not made by way of interests or rents, but as
died on November 7, 1932, duly approved by this payments for the principal; that defendants
Honorable Court, the said lands were adjudicated overpaid the amount of P1,362.88. The court
as share of the herein plaintiff." In their amended below exonerated defendants from the complaint
answer, defendants alleged that the real and ordered plaintiff to return to defendants the
agreement was a loan secured by a mortgage of sum of P432.63 which she, plaintiff, had received
those lands; and that whereas the amount from defendants although said amount was not
borrowed was only P2,400, defendants had due, applying article 1895 of the Civil Code. As for
however already paid P4,420.88. Defendants the amount received by deceased Neri, the court
therefore prayed for the return of the excess, or held that the same not having been presented
P2,029.88. before the committee on appraisal and claims
during the administration of the estate of said Neri,
At the trial, the parties agreed to the defendants are not entitled to its return. Plaintiff
following stipulation of facts: that plaintiff has a appealed from the judgment.
right to bring this suit; that the real question
involved is the collection of a debt; that defendants It is necessary to inquire into the contractual
admit having executed Exhibits A to E; that plaintiff relations between Neri and defendants. Exhibit A,
admits defendants have made the payments dated December 24, 1927, purports to be a sale of
according to the receipts marked as Exhibits 1 to four parcels of land for the price of P600, with a
22; and that the lands described in the above - right of repurchase within three years. Exhibit D,
mentioned documents have been given as a dated March 16, 1928, likewise purports to be a
security for the payment of the obligation of sale of three parcels of land for P400, with a right
defendants. of repurchase within three years. Each of these
two contracts has the following stipulation: "El
The trial court found that the total amount comprador Ramon Neri San Jose toma posesión
loaned on various dates by the deceased Neri to de las ncas vendidas, y él será quien cosechará
the defendants, was P3,067; that defendants paid todos los productos que dán o puedan dar las
P4,429.88, of which P3,997.25 was received by
 ncas aquí vendidas durante el plazo de retracto y The payments could not have been intended
puede hacer y ejercitar todos los actos de dominio as rents because in accordance with a clause in
con tal que no esté en pugna con el derecho de the contract, Neri took possession of the lands and
recompra de los vendedores." (In Exhibit D the last collected the fruits thereof. The creditor having
words of this clause are "del vendedor" because enjoyed the bene cial use of the lands delivered as
only defendant Balzarza signed the contract.) security for the loan, it appears to have been the
Exhibits B, C, and E are contracts of loan, dated intention of the parties that the creditor should be
respectively, December 24, 1927; February 2, compensated thereby. Furthermore, in none of the
1928; and February 6, 1930, for various amounts, contracts offered in evidence is there any promise
from Neri to defendants. Each of these three made by defendants to pay rents. It would have
documents recites that defendants received a been strange for such a clause to appear in
certain amount from Neri; that on November 23, Exhibits A and D wherein it was stipulated that the
1927, defendants sold three parcels of land to Neri; creditor took possession of the lands and would
and that defendants have promised to Neri that reap the fruits of the same. It is true that in the
upon return of the amount mentioned in said receipts signed by Neri and by plaintiff these
document of November 23, 1927, defendants will payments are called rents. But these receipts have
return the sum borrowed by means of the present been prepared by Neri and by plaintiff, and
contract. defendants in their ignorance did not look into the
wording, being merely satisfied that they were
Evidently all these ve loans appearing in Exhibits proofs of payment.
A to E were secured by the mortgage of the seven
parcels of land mentioned in Exhibits A and D. If these payments were not rents, plaintiff-
These transactions being loans, according to the appellant maintains they must have been interests.
stipulation of facts, the question is whether the Neither is this contention tenable because no
payments were intended to be applied to the interest is due unless it is expressly stipulated.
principal, as contended by defendants, or were (Article 1755, Civil Code.) Moreover, as under the
considered as either rents or interests, upon the contract the lender took possession of the lands
theory advanced by plaintiff. and reaped the fruits thereof, it must have been
thought by the parties that it was unfair to make the
borrower pay interest in addition. It is also signi "If the debtor Pascual Balarag is
cant that the borrower paid a total of P1,143.50 up only under the obligation to pay the
to August 5, 1929 (a period of 1 year, 8 months creditor, Guzman, the 1,500 pesos
and 13 days from the initial loan) when the debt up received as a loan, without interest,
to that date was only P2,100. If such amount of upon permitting the latter to collect the
P1,143.50 was collected as interest, then out and rent of property owned by the debtor
out usury was committed by the lender, which and keep the amounts so collected, it
cannot be presumed. must be assumed that it was in order to
provide for the refund of the debt arising
Counsel for appellant argues that as the from the loan. It is not possible to apply
deceased Ramon Neri San Jose "was publicly the money except in settlement of the
known as a money lender" the parties must have debt, unless the allegations of the
had in mind the payment of interests. However, the debtor be disproven; the record does
alleged occupation of said Neri does not appear in not contain any proof of the contrary
the stipulation of facts or anywhere else in the allegation to the effect that it was
evidence. But even if that fact appeared in the stipulated that the rent collected should
record, it would not constitute su cient compliance be applied to the payment of interest,
with the requisite of article 1755 of the Civil Code and the allegation of the defendant
that interest must be expressly stipulated. debtor is all the more convincing and
irrefutable, inasmuch as it has not in any
In Guzman vs. Balarag (11 Phil., 503, 508- way been demonstrated that interest on
509 [year 1908]), the plaintiff therein loaned the loan was stipulated."
P1,500 to defendant who mortgaged his house
and lot. Plaintiff took possession of the premises Therefore, the trial court was right in nding that
and collected rents from third persons. It was these payments were applied to the principal.
claimed by the plaintiff that these rents received by
him should be applied to the payment of interest. At this juncture, article 1756 of the Civil Code
But this Court held otherwise, saying: comes into view. It provides that, "The borrower
who has paid interests without their being
stipulated, cannot recover them nor apply them to be paid, and by the further fact that when these
the principal." It seems plausible to argue that payments were made, they were intended by
although the parties originally intended no interest defendants to be applied to the principal, but they
when the loans were made, nevertheless if overpaid the amounts loaned to them.
defendants wished to pay and did pay interest,
according to said article 1756 they can neither Article 1895 of the Civil Code above quoted,
recover the amounts nor apply them to the is therefore applicable. This legal provision, which
principal. However, the trial court found as a fact determines the quasi-contract of solutio indebiti, is
that "los pagos hechos no fueron ni en concepto one of the concrete manifestations of the ancient
de intereses ni de alquileres, sino como pagos del principle that no one shall enrich himself unjustly
capital." ("the payments made were not either by at the expense of another. In the Roman Law
way of interests nor of rents but as payments for Digest the maxim was formulated thus: "Jure
the principal.") The court further found that "the naturae acquum est, neminem cum alterius
question would have been different if the detrimento et injuria eri locupletiorem." And the
defendants had admitted, or if it had been proved Partidas declared: "Ninguno non deue
that the payments made by the defendants were enriquecerse tortizeramente con daño de otro."
by way of interest." Such axiom has grown through the centuries in
legislation, in the science of law and in court
The liability of plaintiff to return the excess decisions. The lawmaker has found it one of the
payments is in keeping with article 1895 of the Civil helpful guides in framing statutes and codes. Thus,
Code which provides that, "when something is it is unfolded in many articles scattered in the
received which there is no right to collect, and Spanish Civil Code. (See for example, articles 360,
which by mistake has been unduly delivered, the 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303,
obligation to restore it arises." The two requisites 1304, 1893 and 1895, Civil Code.) This time-
are present: (1) there is no right to collect these honored aphorism has also been adopted by
excess sums; and (2) the amounts have been paid jurists in their study of the con ict of rights. It has
through mistake by defendants. Such mistake is been accepted by the courts, which have not
shown by the fact that the parties in their contracts hesitated to apply it when the exigencies of right
never intended that either rents or interest should and equity demanded its assertion. It is a part of
that a uent reservoir of justice upon which judicial
discretion draws whenever the statutory laws are
inadequate because they do not speak or do so
with a confused voice.

As for the amount to be returned by plaintiff,

the trial court held that plaintiff should return only
the excess sum she actually received (P432.63)
but not the overpayment made to the deceased
Neri. If the defendants had appealed from the latter
phase of the judgment, perhaps the application of
section 749 of the Code of Civil Procedure (now
Rule 89, section 5 of the new Rules of Court) might
have been studied. Under that provision,
contingent claims which become absolute after the SECOND DIVISION
settlement of the estate of a deceased person may
be enforced proportionately against the [G.R. No. L-52478. October 30, 1986.]
distributees of the estate, and in the instant case
this claim against Neri did not become absolute till THE GOVERNMENT SERVICE
the discovery of the mistake, after the distribution INSURANCE SYSTEM,
of his estate. But defendants not having appealed, petitioner-appellant , vs.
this aspect of the case will not be passed upon. HONORABLE COURT OF
APPEALS, NEMENCIO R.
Wherefore, the judgment appealed from is a MEDINA and JOSEFINA G.
rmed, with costs against the appellant. So ordered. MEDINA, respondents-
appellants.
Yulo, C.J., Moran, Ozaeta and Paras, JJ.,
concur. Coronel Law Office for private respondents.
Alberto C. Lerma collaborating counsel for private Trustees, in its Resolution of December 20, 1961,
respondents. approved under Resolution No, 5041 only the amount
of P350,000.00, subject to the following conditions:
that the rate of interest shall be 9% per annum
compounded monthly; repayable in ten (10) years at
DECISION a monthly amortization of P4,433.65 including
principal and interest, and that any installment or
amortization that remains due and unpaid shall bear
interest at the rate of 9%/12% per month. The Office
PARAS, J p: of the Economic Coordinator, in a 2nd Indorsement
dated March 26, 1962, further reduced the approved
This is a petition for review on certiorari of the amount to P295,000.00. On April 4, 1962, the
decision of the Court of Appeals in CA-G.R. No. Medinas accepting the reduced amount, executed a
62541-R (Nemencio R. Medina and Josefina G. promissory note and a real estate mortgage in favor
Medina, Plaintiffs-Appellants vs. The Government of GSIS. On May 29, 1962, the GSIS, and on June 6,
Service Insurance System, Defendant-Appellant) 1962, the Office of the Economic Coordinator, upon
affirming the January 21, 1977 Decision of the trial request of the Medinas, both approved the restoration
court, and at the same time ordering the GSIS to of the amount of P350,000.00 (P295,000.00 +
reimburse the amount of P9,580.00 as over- P55,000.00) originally approved by the GSIS. This
payment and to pay the spouses Nemencio R. P350,000.00 loan was denominated by the GSIS as
Medina and Josefina G. Medina P3,000.00 and Account No. 31055.
P1,000.00 as attorney's fees and litigation
expenses. On July 6, 1962, the Medinas executed in favor of
the GSIS an Amendment of Real Estate Mortgage,
In 1961, herein private respondents spouses the pertinent portion of which reads:
Nemencio R. Medina and Josefina G. Medina
(Medinas for short) applied with the herein petitioner "WHEREAS, on the 4th day of April
Government Service Insurance System (GSIS for 1962, the Mortgagor executed, signed
short) for a loan of P600,000.00. The GSIS Board of and delivered a real estate mortgage to
and in favor of the Mortgagee on real (P350,000.00) subject to this additional
estate properties located in the City of condition.
Manila, . . . to secure payment to the
mortgages of a loan of Two Hundred "(1) That the mortgagor shall pay to the
Ninety Five Thousand Pesos system P4,433.65 monthly including
(P295,000.00) Philippine Currency, principal and interest.
granted by the mortgagee to the
Mortgagors, . . . ; "It is hereby expressly understood that
"WHEREAS, the parties herein have with the foregoing amendment, all other
agreed as they hereby agree to terms and conditions of the said real
increase the aforementioned loan estate mortgage dated April 4, 1962
from Two Hundred Ninety Five insofar as they are not inconsistent
Thousand Pesos herewith are hereby confirmed, ratified
and continued in full force and effect
(P295,000.00) to Three Hundred Fifty and that the parties thereto agree that
Thousand Pesos (P350,000.00), this amendment be an integral part of
Philippine Currency; said real estate mortgage." (Rollo, p.
153-154).
"NOW, THEREFORE, for and in
consideration of the foregoing Upon application by the Medinas, the GSIS Board of
premises, the aforementioned parties Trustees adopted Resolution No. 121 on January 18,
have amended and by these presents 1963, as amended by Resolution No. 348 dated
do hereby amend the said mortgage February 25, 1963, approving an additional loan of
dated April 4, 1962, mentioned in the P230,000.00 in favor of the Medinas on the security
second paragraph hereof by increasing of the same mortgaged properties and the additional
the loan from Two Hundred Ninety Five properties covered by TCT Nos. 49234, 49235 and
Thousand Pesos (P295,000.00) to 49236, to bear interest at 9% per annum
Three Hundred Fifty Thousand Pesos compounded monthly and repayable in ten years.
This additional loan of P230,000.00 was preliminary injunction be issued to prevent the GSIS
denominated by the GSIS as Account No. 31442. and the Sheriff of the City of Manila from proceeding
with the extra-judicial foreclosure of their mortgaged
On March 18, 1963, the Economic Coordinator properties (CFI Decision, p. 121; Rollo, p. 79).
thru the Auditor General interposed no objection However, in view of Section 2 of Presidential Decree
thereto, subject to the conditions of Resolution No. 385, no restraining order or writ of preliminary
No. 121 as amended by Resolution No. 348 of injunction was issued by the trial court (CFI Decision,
the GSIS. p. 212; Rollo, p. 79). On April 25, 1975, the Medinas
made a last partial payment in the amount of
Beginning 1965, the Medinas having defaulted in the P209,662.80.
payment of the monthly amortization on their loan,
the GSIS imposed 9%/12% interest on all Under a Notice of Sale on Extra-Judicial
installments due and unpaid. In 1967, the Medinas Foreclosure dated June 18, 1975, the real
began defaulting in the payment of fire insurance properties of the Medinas covered by Transfer
premiums. Certificates of Title Nos. 32231, 43527, 51394,
58626, 60534, 63304, 67550, 67551 and 67552 of
On May 3, 1974, the GSIS notified the Medinas that the Registry of Property of the City of Manila were
they had arrearages in the aggregate amount of sold at public auction to the GSIS as the highest
P575,652.42 as of April 18, 1974 (Exhibit "9," p. 149, bidder for the total amount of P440,080.00 on
Joint Record on Appeal, Rollo, p. 79), and demanded January 12, 1976, and the corresponding
payment within seven (7) days from notice thereof, Certificate of Sale was executed by the Sheriff of
otherwise, it would foreclose the mortgage. Manila on January 27, 1976 (CFI Decision, pp.
212-213; Rollo, p. 79).
On April 21, 1975, the GSIS filed an Application for
Foreclosure of Mortgage with the Sheriff of the City of On January 30, 1976, the Medinas filed an Amended
Manila (Exhibit "22," pp. 63 and 149; Rollo, p. 79). On Complaint with the trial court, praying for (a) the
June 30, 1975, the Medinas filed with the Court of declaration of nullity of their two real estate mortgage
First Instance of Manila a complaint, praying, among contracts with the GSIS as well as of the extra-
other things, that a restraining order or writ of judicial foreclosure proceedings; and (b) the refund
of excess payments, plus damages and attorney's The Court of Appeals, in a Decision promulgated on
fees (CFI Decision, p. 213; Rollo, p. 79). LLpr January 18, 1980 (Record, pp. 72-77), ruled in favor
of the Medinas —
On March 19, 1976, the GSIS filed its Amended
Answer (Joint Record on Appeal, pp. 99-105; "WHEREFORE, the defendant GSIS is
Rollo, p. 79) . After trial, the trial court rendered a ordered to reimburse the amount of
Decision dated January 21, 1977 (Joint Record on P9,580.00 as overpayment and to pay
Appeal, pp. 210-232), the pertinent dispositive plaintiffs P3,000.00 and P1,000.00 as
portion of which reads: attorney's fees and litigation expenses,
respectively. With these modifications,
"WHEREFORE, judgment is hereby the judgment appealed from is
rendered declaring the extra-judicial AFFIRMED in all other respects, with
foreclosure conducted by the Sheriff of costs against defendant GSIS."
Manila of real estate mortgage
contracts executed by plaintiffs on April Hence this petition.
4, 1962, as amended on July 6, 1962,
and February 17, 1963, null and void The Second Division of this Court, in a
and the Sheriff's Certificate of Sale Resolution dated April 25, 1980 (Rollo, p. 88),
dated January 27, 1976, in favor of the resolved to deny the petition for lack of merit.
GSIS of no legal force and effect; and
directing plaintiffs to pay the GSIS the Petitioner filed on June 26, 1980 a Motion for
sum of P1,611.12 in full payment of their Reconsideration dated June 17, 1980 (Rollo,
obligation to the latter with interest of
9% per annum from December 11, a 95-103), of the abovestated Resolution and
1975, until fully paid." respondents in a Resolution dated July 9, 1980
(Rollo, p. 105), were required to comment thereon
Dissatisfied with the said judgment, both parties which comment they filed on August 6, 1980. (Rollo,
appealed with the Court of Appeals. pp. 106-116).
The petition was given due course in the
Resolution dated July 6, 1981 (Rollo, p. 128). INTEREST RATES ON THE LOAN ACCOUNTS OF
Petitioner filed its brief on November 26, 1981 RESPONDENT-APPELLEE SPOUSES ARE
(Rollo, pp. 147-177); while private respondents USURIOUS;
filed their brief on January 27, 1982 (Rollo, pp.
181-224), and the case was considered submitted 8. WHETHER OR NOT THE COURT
for decision in the Resolution of July 19, 1982 OF APPEALS ERRED IN AFFIRMING THE
(Rollo, p. 229). ANNULMENT OF THE SUBJECT
EXTRAJUDICIAL FORECLOSURE AND
The issues in this case are: SHERIFF'S CERTIFICATE OF SALE; AND

2. WHETHER OR NOT THE COURT OF 9. WHETHER OR NOT THE COURT OF

APPEALS ERRED IN HOLDING THAT THE APPEALS ERRED IN HOLDING THE GSIS LIABLE
AMENDMENT OF REAL ESTATE MORTGAGE FOR ATTORNEY'S FEES, EXPENSES OF
DATED JULY 6, 1962 SUPERSEDED THE LITIGATION AND COSTS.
MORTGAGE CONTRACT DATED APRIL 4,
1962, PARTICULARLY WITH RESPECT TO The petition is impressed with merit.
COMPOUNDING OF INTEREST;
There is no dispute as to the facts of the case. By
WHETHER OR NOT THE COURT OF APPEALS agreement of the parties the issues in this case are
ERRED IN SUSTAINING THE RESPONDENT- limited to the loan of P350,000.00 denominated as
APPELLEE SPOUSES MEDINA'S CLAIM OR Account No. 31065 (Rollo, p. 79; Joint Record on
OVERPAYMENT, BY CREDITING THE FIRE Appeal, p. 129) subject of the Amendment of Real
INSURANCE PROCEEDS IN THE SUM OF Mortgage dated July 6, 1962, the interpretation of
P11,152.02 TO THE TOTAL PAYMENT MADE BY which is the major issue in this case.
SAID SPOUSES AS OF DECEMBER 11, 1975;

7. WHETHER OR NOT THE COURT OF

APPEALS ERRED IN HOLDING THAT THE
GSIS claims that the amendment of the real estate Hence the Medinas claim an overpayment in
mortgage did not supersede the original mortgage Account No. 31055. The application of their total
contract dated April 4, 1962 which was being payment in the amount of P991,845.53 as
amended only with respect to the amount secured computed by the trial court and by the Court of
thereby, and the amount of monthly amortizations. All Appeals is as follows:
other provisions of aforesaid mortgage contract
including that on compounding of interest were 1 . . . It appearing and so the
deemed rewritten and thus binding on and parties admit in their own exhibits
enforceable against the respondent spouses. (Rollo, that as of December 11, 1975,
pp. 162-166). plaintiffs had paid a total of
P991,241.17 excluding fire
Accordingly, payments made by the Medinas in insurance, P532,038.00 of said
the total amount of P991,845.53 was applied as amount should have been applied
follows: the amount of P600,495.31 to Account to the full payment of Acct. No.
No. 31055, P466,965.31 of which to interest and 31055 and the balance of
P133,530.20 to principal and P390,845.66 to P459,203.17 applied to the
Account No. 31442, P230,774.29 to interest and payment of Acct. No. 31442.
P159,971.37 to principal. (Joint Record on Appeal,
p. 216; Rollo, p. 79). "According to the computation of the
GSIS (Exhibit C, also Exhibit 38) the
On the other hand the Medinas maintain that there total amounts, collected on Acct. No.
is no express stipulation on compounded interest in 31442 as of December 11, 1975 total
the amendment of mortgage contract of July 6, 1962 P390,745.66 thus leaving an unpaid
so that the compounded interest stipulation in the balance of P70,028.63. The total
original mortgage contract of April 4, 1962 which amount plaintiffs should pay on said
has been superseded cannot be enforced in the account should therefore be
later mortgage. (Rollo, p. 185). cdphil P460,774.29. Deduct this amount from
P459,163.17 which has been shown to
be the difference between the total
 payments made by plaintiffs to the There appears no ambiguity whatsoever in the terms
G.S.I.S. as of December 11, 1975 and and conditions of the amendment of the mortgage
the amount said plaintiffs should pay contract herein quoted earlier. On the contrary, an
under their Acct. No. 31055, there opposite conclusion cannot be otherwise but absurd.
remains an outstanding balance of
P1,611.12. This amount represents the As correctly stated by the GSIS in its brief (Rollo, pp.
balance of the obligation of the plaintiffs 162-166), a careful perusal of the title, preamble and
to the G.S.I.S. on Acct. No. 31442 as of body of the Amendment of Real Estate Mortgage
December 11, 1975." (Decision, Civil dated July 6, 1962, taking into account the prior,
Case No. 98390; Joint Record on contemporaneous, and subsequent acts of the
Appeal pp. 227-228; Rollo, p. 79). parties, ineluctably shows that said Amendment was
never intended to completely supersede the mortgage
To recapitulate, the difference in the computation contract dated April 4, 1962. prcd
lies in the inclusion of the compounded interest as
demanded by the GSIS on the one hand and the First, the title "Amendment of Real Estate Mortgage"
exclusion thereof, as insisted by the Medinas on the recognizes the existence and effectivity of the
other. previous mortgage contract. Second, nowhere in the
aforesaid Amendment did the parties manifest their
It is a basic and fundamental rule in the interpretation intention to supersede the original contract. On the
of contract that if the terms thereof are clear and contrary in the WHEREAS clauses, the existence of
leave no doubt as to the intention of the contracting the previous mortgage contract was fully recognized
parties, the literal meaning of the stipulations shall and the fact that the same was just being amended
control but when the words appear contrary to the as to amount and amortization is fully established as
evident intention of the parties, the latter shall prevail to obviate any doubt. Third, the Amendment of Real
over the former. In order to judge the intention of the Estate Mortgage dated July 6, 1962 does not embody
parties, their contemporaneous and subsequent acts the act of conveyancing the subject properties by way
shall be principally considered. (Sy v. Court of of mortgage. In fact the intention of the parties to be
Appeals, 131 SCRA 116; July 31, 1984). bound by the unaffected provisions of the mortgage
contract of April 4, 1962 expressed in unmistakable
language is clearly evident in the last provision of the terms and conditions as the real estate
Amendment of Real Estate Mortgage dated July 6, mortgage of April 4, 1962 except as to amount
1962 which reads: and amortization.

"It is hereby expressly understood that Furthermore, it would be contrary to human

with the foregoing amendment, all other experience and to ordinary practice for the
terms and conditions of the said real mortgagee to impose less onerous conditions on
estate mortgage dated April 4, 1962, an increased loan by the deletion of compound
insofar as they are not inconsistent interest exacted on a lesser loan.
herewith, are hereby confirmed ratified
and continued to be in full force and II.
effect and that the parties hereto agree
that the amendment be an integral part There is an obvious error in the ruling of the Court of
of said real estate mortgage." Appeals in its Decision dated January 18, 1980,
(Emphasis supplied). which reads: LexLib

A review of prior, contemporaneous, and 3 . . . We agree that plaintiff should

subsequent acts supports the conclusion that be credited with P11,152.02 of the
both contracts are fully subsisting insofar as the fire insurance proceeds as the same
latter is not inconsistent with the former, The is admitted in paragraph (4) of its
fact is the GSIS, as a matter of policy, imposes Answer and should be added to their
uniform terms and conditions for all its real payments." (par. 13).
estate loans, particularly with respect to
compounding of interest. As shown in the case Contrary thereto, paragraph 4 of the Answer of the
at bar, the original mortgage contract embodies GSIS states:
the same terms and conditions as in the
additional loan denominated as Account No. "That they (GSIS) specifically deny the
31442 while the amendment carries the allegations in Paragraph 11, the truth
provision that it shall be subject to the same being that plaintiffs are not entitled to a
 credit of P19,381.07 as fire insurance "Art. 2209. If the obligation consists in
proceeds since they were only entitled the payment of a sum of money, and
to, and were credited with, the amount the debtor incurs in delay, the
of P11,152.02 as proceeds of their fire indemnity for damages, there being
insurance policy." (par. 4, Amended no stipulation to the contrary, shall be
Answer). the payment of the interest agreed
upon, . . . "
As can be gleaned from the foregoing, petitioner-
appellant GSIS had already credited the amount of In the Bachrach case (supra) the Supreme Court
P11,152.02. Thus, when the Court of Appeals made ruled that the Civil Code permits the agreement upon
the aforequoted ruling, it was actually doubly a penalty apart from the interest, Should there be
crediting the amount of P11,152.02 which had been such an agreement, the penalty does not include the
previously credited by petitioner-appellant GSIS interest, and as such the two are different and
(Rollo, pp. 170-171). distinct things which may be demanded separately.
Reiterating the same principle in the later case of
III. Equitable Banking Corp. (supra), where this Court
held that the stipulation about payment of such
As to whether or not the interest rates on the loan additional rate partakes of the nature of a penalty
accounts of the Medinas are usurious, it has already clause, which is sanctioned by law.
been settled that the Usury Law applies only to
interest by way of compensation for the use or IV.
forbearance of money (Lopez v. Hernaez, 32 Phil.
631; Bachrach Motor Co. v. Espiritu, 52 Phil. 346; Based on the finding that the GSIS had the legal right
Equitable Banking Corporation v. Liwanag, 32 SCRA to impose an interest 9% per annum, compounded
293, March 30, 1970). Interest by way of damages is monthly, on the loans of the Medinas and an interest of
governed by Article 2209 of the Civil Code of the 9%/12% per annum on all due and unpaid
Philippines which provides: amortizations or installments, there is no question that
the Medinas failed to settle their accounts with the
GSIS which as computed by the latter reached an
outstanding balance of P630,130.55 as of April 12, new one is hereby RENDERED, affirming the validity
1975 and that the GSIS had a perfect right to foreclose of the extra-judicial foreclosure of the real estate
the mortgage. mortgages of the respondent-appellee spouses
Medina dated April 4, 1962, as amended on July 6,
In the same manner, there is obvious error in 1962, and February 17, 1963.
invalidating the extra-judicial foreclosure on the
basis of a typographical error in the Sheriff's SO ORDERED.
Certificate of Sale which stated that the mortgage
was foreclosed on May 17, 1963 instead of Feria, Fernan, Alampay and Gutierrez, Jr., JJ ., concur.
February 17, 1963. LexLib

There is merit in GSIS' contention that the Sheriff's

Certificate of Sale is merely provisional in character
and is not intended to operate as an absolute transfer
of the subject property, but merely to identify the
property, to show the price paid and the date when
the right of redemption expires (Section 27, Rule 39,
Rules of Court, Francisco, The Revised Rules of
Court, 1972 Vol., IV-13, Part I, p. 681). Hence the
date of the foreclosed mortgage is not even a
material content of the said Certificate. (Rollo, p.
174).

V.

PREMISES CONSIDERED, the decision of the

Court of Appeals, in CA-G.R. No. 62541-R Medina,
et al. v. Government Service Insurance System, et
al. is hereby REVERSED and SET ASIDE, and a
 for decision without petitioners presenting their
evidence, petitioners led a motion for reconsideration
of the order declaring them as having waived their
THIRD DIVISION right to present evidence and prayed that they be
allowed to prove their case. The motion was denied
[G.R. No. 138677. February 12, 2002.] by the trial court which eventually rendered a decision
in favor of respondent bank ordering petitioners to pay
TOLOMEO LIGUTAN and LEONIDAS DE LA the amount due with the agreed interest rate of
LLANA , petitioners, vs. 15.189%, 5% penalty charge and 10% attorney's
fees. The decision was a rmed on appeal by the Court
HON. COURT OF APPEALS & of Appeals. On reconsideration, the appellate court
SECURITY BANK & TRUST reduced the penalty interest from 5% to 3%.
COMPANY , respondents. Petitioners led a second motion for reconsideration
and to admit newly discovered evidence that the real
Florimundo C. Rous for petitioners. estate mortgage they executed novated the contract
of loan. The mortgage, however, did not contain an
Castro Biñas Samillano & Mangrobang for express stipulation that the parties intended to
private respondent. supersede the existing loan agreement but was an
accessory contract to secure the loan. The Court of
Appeals denied the same. Hence, this recourse, with
SYNOPSIS petitioners raising for the first time the
reasonableness of the interest rate.
Petitioners obtained a loan from respondent
bank in the amount of P120,000.00 at 15.189% A penalty clause is an accessory undertaking to
interest per annum with a 5% penalty per month in strengthen the coercive force of the obligation and
case of default and 10% attorney's fees if a suit were that the 3% penalty interest rate considering the
instituted for collection. When petitioners defaulted in repeated acts of breach of petitioners' contractual
payment, respondent bank sued for recovery of the obligations is not iniquitous.
amount due. Two years after the case was submitted
 The issue of reasonableness of interest rate unconscionable or if the principal obligation has
cannot be raised for the rst time on appeal. In any been partly or irregularly complied with.
event, the Court held that the stipulated interest of
15.189% per annum is not excessive. 2. ID.; ID.; ID.; 3% PENALTY INTEREST A MONTH,
REASONABLE; CASE AT BAR.
An obligation to pay a sum of money is not
extinctively novated by a new instrument which — The question of whether a penalty is reasonable or
merely supplements the old contract. iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors
SYLLABUS as, but not necessarily con ned to, the type, extent
and purpose of the penalty, the nature of the
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; obligation, the mode of breach and its consequences,
PENALTY CLAUSE, CONSTRUED. — A penalty the supervening realities, the standing and
clause, expressly recognized by law, is an relationship of the parties, and the like, the application
accessory undertaking to assume greater liability of which, by and large, is addressed to the sound
on the part of an obligor in case of breach of an discretion of the court. The Court of Appeals,
obligation. It functions to strengthen the coercive exercising its good judgment in the instant case, has
force of the obligation and to provide, in effect, for reduced the penalty interest from 5% a month to 3%
what could be the liquidated damages resulting a month which petitioner still disputes. Given the
from such a breach. The obligor would then be circumstances, not to mention the repeated acts of
bound to pay the stipulated indemnity without the breach by petitioners of their contractual obligation,
necessity of proof on the existence and on the the Court sees no cogent ground to modify the ruling
measure of damages caused by the breach. of the appellate court. HEcaIC
Although a court may not at liberty ignore the
freedom of the parties to agree on such terms and 3. ID.; ID.; ID.; INTEREST STIPULATION,
conditions as they see t that contravene neither law FUNDAMENTAL PART OF THE BANKING
nor morals, good customs, public order or public BUSINESS AND THE CORE OF A BANK'S
policy, a stipulated penalty, nevertheless, may be EXISTENCE. — Anent the stipulated interest of
equitably reduced by the courts if it is iniquitous or 15.189% per annum, petitioners, for the rst time,
 question its reasonableness and prays that the been agreed to by the parties and intended to
Court reduce the amount. This contention is a fresh answer not only for litigation expenses but also for
issue that has not been raised and ventilated collection efforts as well, the Court, like the
before the courts below. In any event, the interest appellate court, deems the award of 10%
stipulation, on its face, does not appear as being attorney's fees to be reasonable.
that excessive. The essence or rationale for the 5. REMEDIAL LAW; CIVIL PROCEDURE; NEW
payment of interest, quite often referred to as cost TRIAL; NEWLY DISCOVERED EVIDENCE;
of money, is not exactly the same as that of a MUST NOT BE EXISTING AT TIME WHEN
surcharge or a penalty. A penalty stipulation is not APPEAL OR FIRST MOTION FOR
necessarily preclusive of interest, if there is an RECONSIDERATION WAS FILED; CASE AT
agreement to that effect, the two being distinct BAR. — Neither can the appellate court be held to
concepts which may separately be demanded. have erred in rejecting petitioners' call for a new
What may justify a court in not allowing the creditor trial or to admit newly discovered evidence. As the
to impose full surcharges and penalties, despite an appellate court so held in its resolution of 14 May
express stipulation therefor in a valid agreement, 1999 — "Under Section 2, Rule 52 of the 1997
may not equally justify the non-payment or Rules of Civil Procedure, no second motion for
reduction of interest. Indeed, the interest reconsideration of a judgment or nal resolution by
prescribed in loan nancing arrangements is a the same party shall be entertained. Considering
fundamental part of the banking business and the that the instant motion is already a second motion
core of a bank's existence. for reconsideration, the same must therefore be
4. ID.; DAMAGES; PAYMENT OF 10% denied. "Furthermore, it would appear from the
ATTORNEY'S FEES, REASONABLE IN CASE AT records available to this court that the newly-
BAR. — Petitioners next assail the award of 10% discovered evidence being invoked by defendants-
of the total amount of indebtedness by way of appellants have actually been existent when the
attorney's fees for being grossly excessive, case was brought on appeal to this court as well as
exorbitant and unconscionable vis-a-vis the time when the rst motion for reconsideration was led.
spent and the extent of services rendered by Hence, it is quite surprising why defendants-
counsel for the bank and the nature of the case. appellants raised the alleged newly-discovered
Bearing in mind that the rate of attorney's fees has evidence only at this stage, when they could have
 done so in the earlier pleadings filed before this to antichresis, or from a sale to one of loan; (2) the
court. object or principal conditions, such as a change of
6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; the nature of the prestation; or (3) the subjects,
EXTINCTIVE NOVATION; REQUISITES. — such as the substitution of a debtor or the
Extinctive novation requires, first, a previous valid subrogation of the creditor. Extinctive novation
obligation; second, the agreement of all the parties does not necessarily imply that the new agreement
to the new contract; third, the extinguishment of the should be complete by itself; certain terms and
obligation; and fourth, the validity of the new one. conditions may be carried, expressly or by
In order that an obligation may be extinguished by implication, over to the new obligation.
another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that DECISION
the old and the new obligation be on every point
incompatible with each other.
7. ID.; ID.; ID.; MUST PRODUCE INCOMPATIBILITY
IN ANY OF THE ESSENTIAL ELEMENTS OF THE VITUG, J p:
OBLIGATION. — An obligation to pay a sum of
money is not extinctively novated by a new Before the Court is a petition for review on
instrument which merely changes the terms of certiorari under Rule 45 of the Rules of Court,
payment or adding compatible covenants or where assailing the decision and resolutions of the Court of
the old contract is merely supplemented by the Appeals in CA-G.R. CV No. 34594, entitled "Security
new one. When not expressed, incompatibility is Bank and Trust Co. vs. Tolomeo Ligutan, et al."
required so as to ensure that the parties have
indeed intended such novation despite their failure Petitioners Tolomeo Ligutan and Leonidas dela
to express it in categorical terms. The Llana obtained on 11 May 1981 a loan in the amount
incompatibility, to be sure, should take place in any of P120,000.00 from respondent Security Bank and
of the essential elements of the obligation, i.e., (1) Trust Company. Petitioners executed a promissory
the juridical relation or tie, such as from a mere note binding themselves, jointly and severally, to pay
commodatum to lease of things, or from the sum borrowed with an interest of 15.189% per
negotiorum gestio to agency, or from a mortgage annum upon maturity and to pay a penalty of 5%
every month on the outstanding principal and interest Two years later, or on 23 October 1987,
in case of default. In addition, petitioners agreed to petitioners led a motion for reconsideration of the
pay 10% of the total amount due by way of attorney's order of the trial court declaring them as having
fees if the matter were indorsed to a lawyer for waived their right to present evidence and prayed that
collection or if a suit were instituted to enforce they be allowed to prove their case. The court a quo
payment. The obligation matured on 8 September denied the motion in an order, dated 5 September
1981; the bank, however, granted an extension but 1988, and on 20 October 1989, it rendered its
only up until 29 December 1981. decision, 1 the dispositive portion of which read:

Despite several demands from the bank, petitioners "WHEREFORE, judgment is

failed to settle the debt which, as of 20 May 1982, hereby rendered in favor of the plaintiff
amounted to P114,416.10. On 30 September 1982, and against the defendants, ordering
the bank sent a nal demand letter to petitioners the latter to pay, jointly and severally, to
informing them that they had five days within which to the plaintiff, as follows:
make full payment. Since petitioners still defaulted on
their obligation, the bank led on 3 November 1982, "1. The sum of P114,416.00
with the Regional Trial Court of Makati, Branch 143, with interest thereon at the
a complaint for recovery of the due amount. rate of 15.189% per annum,
2% service charge and 5%
After petitioners had led a joint answer to the per month penalty charge,
complaint, the bank presented its evidence and, on 27 commencing on 20 May
March 1985, rested its case. Petitioners, instead of 1982 until fully paid;
introducing their own evidence, had the hearing of the
case reset on two consecutive occasions. In view of "2. To pay the further sum
the absence of petitioners and their counsel on 28 equivalent to 10% of the
August 1985, the third hearing date, the bank moved, total amount of
and the trial court resolved, to consider the case indebtedness for and as
submitted for decision. attorney's fees; and
 "3. To pay the costs of the suit." 2 complaint as we have previously held in
our decision but on the date when the
Petitioners interposed an appeal with the Court obligation became due.
of Appeals, questioning the rejection by the trial court
of their motion to present evidence and assailing the "Default generally begins from the
imposition of the 2% service charge, the 5% per moment the creditor demands the
month penalty charge and 10% attorney's fees. In its performance of the obligation. However,
decision 3 of 7 March 1996, the appellate court a rmed demand is not necessary to render the
the judgment of the trial court except on the matter of obligor in default when the obligation or
the 2% service charge which was deleted pursuant to the law so provides.
Central Bank Circular No. "In the case at bar, defendants-
appellants executed a promissory note
[h] Not fully satis ed with the decision of the where they undertook to pay the
appellate court, both parties led their respective obligation on its maturity date 'without
motions for reconsideration. 4 Petitioners prayed for necessity of demand.' They also agreed
the reduction of the 5% stipulated penalty for being to pay the interest in case of non-
unconscionable. The bank, on the other hand, asked payment from the date of default.
that the payment of interest and penalty be "xxx xxx xxx
commenced not from the date of ling of complaint but
from the time of default as so stipulated in the contract "While we maintain that
of the parties. defendants-appellants must be bound
by the contract which they
On 28 October 1998, the Court of Appeals acknowledged and signed, we take
resolved the two motions thusly: cognizance of their plea for the
application of the provisions of Article
"We nd merit in plaintiff-appellee's 1229 . . . .
claim that the principal sum of
P114,416.00 with interest thereon must "Considering that defendants-
commence not on the date of ling of the appellants partially complied with their
 obligation under the promissory note by On 16 November 1998, petitioners led an
the reduction of the original amount of omnibus motion for reconsideration and to admit
P120,000.00 to P114,416.00 and in newly discovered evidence, 6 alleging that while the
order that they will nally settle their case was pending before the trial court, petitioner
obligation, it is our view and we so hold Tolomeo Ligutan and his wife Bienvenida Ligutan
that in the interest of justice and public executed a real estate mortgage on 18 January 1984
policy, a penalty of 3% per month or to secure the existing indebtedness of petitioners
36% per annum would suffice. Ligutan and dela Llana with the bank. Petitioners
contended that the execution of the real estate
"xxx xxx xxx mortgage had the effect of novating the contract
between them and the bank. Petitioners further
"WHEREFORE, the decision averred that the mortgage was extrajudicially
sought to be reconsidered is hereby foreclosed on 26 August 1986, that they were not
MODIFIED. The defendants-appellants informed about it, and the bank did not credit them
Tolomeo Ligutan and Leonidas dela with the proceeds of the sale. The appellate court
Llana are hereby ordered to pay the denied the omnibus motion for reconsideration and to
plaintiff-appellee Security Bank and admit newly discovered evidence, ratiocinating that
Trust Company the following: such a second motion for reconsideration cannot be
entertained under Section 2, Rule 52, of the 1997
"1. The sum of P114,416.00 Rules of Civil Procedure. Furthermore, the appellate
with interest thereon at the court said, the newly-discovered evidence being
rate of 15.189% per annum invoked by petitioners had actually been known to
and 3% per month penalty them when the case was brought on appeal and when
charge commencing May the first motion for reconsideration was filed. 7
20, 1982 until fully paid;
"2. The sum equivalent to 10% Aggrieved by the decision and resolutions of the
of the total amount of the Court of Appeals, petitioners elevated their case to
indebtedness as and for this Court on 9 July 1999 via a petition for review on
attorney's fees." 5
certiorari under Rule 45 of the Rules of Court, discovered evidence which could
submitting thusly — not have been timely produced
during the trial of this case.
"I. The respondent Court of Appeals
seriously erred in not holding that the "IV. The respondent Court of Appeals
seriously erred in not holding that there
15.189% interest and the penalty of three
(3%) percent per month or thirty- was a novation of the cause of action of
private respondent's complaint in
six (36%) percent per annum imposed by
private respondent bank on the instant case due to the subsequent
execution of the real estate
petitioners' loan obligation are still
manifestly exorbitant, iniquitous and mortgage during the pendency of this
case and the subsequent foreclosure
unconscionable.
of the mortgage." 8
"II. The respondent Court of Appeals
gravely erred in not reducing to a Respondent bank, which did not take an appeal,
would, however, have it that the penalty sought to be
reasonable level the ten (10%) deleted by petitioners was even insu cient to fully
percent award of attorney's fees cover and compensate for the cost of money brought
which is highly and grossly about by the radical devaluation and decrease in the
excessive, unreasonable and purchasing power of the peso, particularly vis-a-vis
unconscionable. the U.S. dollar, taking into account the time frame of
its occurrence. The Bank would stress that only the
"III. The respondent Court amount of P5,584.00 had been remitted out of the
of Appeals gravely erred in not entire loan of P120,000.00. 9
admitting petitioners' newly
 A penalty clause, expressly recognized by law, discretion of the court. In Rizal Commercial Banking
10 is an accessory undertaking to assume greater Corp. vs. Court of Appeals, 14 just an example, the
liability on the part of an obligor in case of breach of Court has tempered the penalty charges after taking
an obligation. It functions to strengthen the coercive into account the debtor's pitiful situation and its offer
force of the obligation 11 and to provide, in effect, for to settle the entire obligation with the creditor bank.
what could be the liquidated damages resulting from The stipulated penalty might likewise be reduced
such a breach. The obligor would then be bound to when a partial or irregular performance is made by the
pay the stipulated indemnity without the necessity of debtor. 15 The stipulated penalty might even be
proof on the existence and on the measure of deleted such as when there has been substantial
damages caused by the breach. 12 Although a court performance in good faith by the obligor, 16 when the
may not at liberty ignore the freedom of the parties to penalty clause itself suffers from fatal in rmity, or when
agree on such terms and conditions as they see t that exceptional circumstances so exist as to warrant it. 17
contravene neither law nor morals, good customs,
public order or public policy, a stipulated penalty, The Court of Appeals, exercising its good
nevertheless, may be equitably reduced by the courts judgment in the instant case, has reduced the penalty
if it is iniquitous or unconscionable or if the principal interest from 5% a month to 3% a month which
obligation has been partly or irregularly complied with. petitioner still disputes. Given the circumstances, not
13 to mention the repeated acts of breach by petitioners
of their contractual obligation, the Court sees no
cogent ground to modify the ruling of the appellate
The question of whether a penalty is reasonable court.
or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors Anent the stipulated interest of 15.189% per annum,
as, but not necessarily con ned to, the type, extent petitioners, for the rst time, question its
and purpose of the penalty, the nature of the reasonableness and prays that the Court reduce the
obligation, the mode of breach and its consequences, amount. This contention is a fresh issue that has not
the supervening realities, the standing and been raised and ventilated before the courts below. In
relationship of the parties, and the like, the application any event, the interest stipulation, on its face, does
of which, by and large, is addressed to the sound not appear as being that excessive. The essence or
rationale for the payment of interest, quite often admit newly discovered evidence. As the appellate
referred to as cost of money, is not exactly the same court so held in its resolution of 14 May 1999 —
as that of a surcharge or a penalty. A penalty
stipulation is not necessarily preclusive of interest, if "Under Section 2, Rule 52 of the
there is an agreement to that effect, the two being 1997 Rules of Civil Procedure, no
distinct concepts which may separately be second motion for reconsideration of a
demanded. 18 What may justify a court in not allowing judgment or nal resolution by the same
the creditor to impose full surcharges and penalties, party shall be entertained. Considering
despite an express stipulation therefor in a valid that the instant motion is already a
agreement, may not equally justify the nonpayment or second motion for reconsideration, the
reduction of interest. Indeed, the interest prescribed same must therefore be denied.
in loan nancing arrangements is a fundamental part of
the banking business and the core of a bank's "Furthermore, it would appear
existence. 19 from the records available to this court
that the newly-discovered evidence
Petitioners next assail the award of 10% of the being invoked by defendants-appellants
total amount of indebtedness by way of attorney's have actually been existent when the
fees for being grossly excessive, exorbitant and case was brought on appeal to this court
unconscionable vis-a-vis the time spent and the as well as when the rst motion for
extent of services rendered by counsel for the bank reconsideration was led. Hence, it is
and the nature of the case. Bearing in mind that the quite surprising why defendants-
rate of attorney's fees has been agreed to by the appellants raised the alleged newly-
parties and intended to answer not only for litigation discovered evidence only at this stage
expenses but also for collection efforts as well, the when they could have done so in the
Court, like the appellate court, deems the award of earlier pleadings led before this court.
10% attorney's fees to be reasonable.
"The propriety or acceptability of
Neither can the appellate court be held to have such a second motion for
erred in rejecting petitioners' call for a new trial or to reconsideration is not contingent upon
 the averment of 'new' grounds to assail obligation; and fourth, the validity of the new one. 22
the judgment, i.e., grounds other than In order that an obligation may be extinguished by
those theretofore presented and another which substitutes the same, it is imperative
rejected. Otherwise, attainment of nality that it be so declared in unequivocal terms, or that the
of a judgment might be stayed off inde old and the new obligation be on every point
nitely, depending on the party's incompatible with each other. 23 An obligation to pay
ingeniousness or cleverness in a sum of money is not extinctively novated by a new
conceiving and formulating 'additional instrument which merely changes the terms of
aws' or 'newly discovered errors' payment or adding compatible covenants or where
therein, or thinking up some injury or the old contract is merely supplemented by the new
prejudice to the rights of the movant for one. 24 When not expressed, incompatibility is
reconsideration." 20 required so as to ensure that the parties have indeed
intended such novation despite their failure to express
At any rate, the subsequent execution of the real it in categorical terms. The incompatibility, to be sure,
estate mortgage as security for the existing loan should take place in any of the essential elements of
would not have resulted in the extinguishment of the obligation, i.e., (1) the juridical relation or tie, such
the original contract of loan because of novation. as from a mere commodatum to lease of things, or
Petitioners acknowledge that the real estate from negotiorum gestio to agency, or from a mortgage
mortgage contract does not contain any express to antichresis, 25 or from a sale to one of loan; 26 (2)
stipulation by the parties intending it to supersede the object or principal conditions, such as a change of
the existing loan agreement between the the nature of the prestation; or (3) the subjects, such
petitioners and the bank. 21 Respondent bank has as the substitution of a debtor 27 or the subrogation
correctly postulated that the mortgage is but an of the creditor. Extinctive novation does not
accessory contract to secure the loan in the necessarily imply that the new agreement should be
promissory note. SAHEIc complete by itself; certain terms and conditions may
be carried, expressly or by implication, over to the new
Extinctive novation requires, first, a previous valid obligation.
obligation; second, the agreement of all the parties to
the new contract; third, the extinguishment of the
WHEREFORE, the petition is DENIED. SYLLABUS

SO ORDERED. 3. CIVIL LAW; COMMON CARRIERS;

TIME FRAME WITHIN WHICH DILIGENCE
Melo, Panganiban, Sandoval-Gutierrez and REQUIRED IN SHIPMENT OF GOODS LAST. —
Carpio, JJ., concur. The common carrier's duty to observe the requisite
diligence in the shipment of goods lasts from the
time the articles are surrendered to or
unconditionally placed in the possession of, and
received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time
for their acceptance, by the person entitled to
receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui
Bai vs. Dollar Steamship Lines, 52 Phil. 863).

4. ID.; ID.; ID.; PRESUMPTION OF

CARRIER'S FAULT ON LOST OR DAMAGED
GOODS SHIPPED; CASE AT BAR NOT AN
EN BANC EXCEPTION. — When the goods shipped either
are lost or arrive in damaged condition, a
[G.R. No. 97412. July 12, 1994.] presumption arises against the carrier of its failure
to observe that diligence, and there need not be an
EASTERN SHIPPING LINES, INC., express nding of negligence to hold it liable (Art.
petitioner, vs. HON. COURT OF 1735, Civil Code; Philippine National Railways vs.
APPEALS AND MERCANTILE Court of Appeals, 139 SCRA 87; Metro Port
INSURANCE COMPANY, INC. , Service vs. Court of Appeals, 131 SCRA 365).
respondents. There are, of course, exceptional cases when such
presumption of fault is not observed but these
cases, enumerated in Article 1734 of the Civil where the demand is established with reasonable
Code, are exclusive, not one of which can be certainty, the interest shall begin to run from the
applied to this case. time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such certainty
5. ID.; DAMAGES; INTEREST cannot be so reasonably established at the time
AWARDED AS A CONCEPT THEREOF; RATE the demand is made, the interest shall begin to run
AND ACCRUAL THEREOF, HOW DETERMINED. only from the date of the judgment of the court is
— With regard particularly to an award of interest made (at which time the quanti cation of damages
in the concept of actual and compensatory may be deemed to have been reasonably
damages, the rate of interest, as well as the ascertained). The actual base for the computation
accrual thereof, is imposed, as follows: 1. When of legal interest shall, in any case, be on the
the obligation is breached, and it consists in the amount of
payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be nally adjudged. 3. When the judgment of the court
that which may have been stipulated in writing. awarding a sum of money becomes nal and
Furthermore, the interest due shall itself earn legal executory, the rate of legal interest, whether the
interest from the time it is judicially demanded. In case falls under paragraph 1 or paragraph 2,
the absence of stipulation, the rate of interest shall above, shall be 12% per annum from such nality
be 12% per annum to be computed from default, until its satisfaction, this interim period being
i.e., from judicial or extrajudicial demand under and deemed to be by then an equivalent to a
subject to the provisions of Article 1169 of the Civil forbearance of credit.
Code. 2. When a obligation, not constituting a loan
or forbearance of money, is breached, an interest
on the amount of damages awarded may be DECISION
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 VITUG, J p:
established with reasonable certainty. Accordingly,
 The issues, albeit not completely novel, are: `SS EASTERN COMET' owned by
(a) whether or not a claim for damage sustained on defendant Eastern Shipping Lines
a shipment of goods can be a solidary, or joint and under Bill of Lading No. YMA-8 (Exh. B).
several, liability of the common carrier, the arrastre The shipment was insured under
operator and the customs broker; (b) whether the plaintiff's Marine Insurance Policy No.
payment of legal interest on an award of loss or 81/01177 for P36,382,466.38.
damage is to be computed from the time the
complaint is led or from the date the decision "Upon arrival of the shipment in
appealed from is rendered; and (c) whether the Manila on December 12, 1981, it was
applicable rate of interest, referred to above, is discharged unto the custody of
twelve percent (12%) or six percent (6%). llcd defendant Metro Port Services, Inc. The
latter excepted to one drum, said to be
The ndings of the court a quo, adopted by in bad order, which damage was
the Court of Appeals, on the antecedent and unknown to plaintiff.
undisputed facts that have led to the controversy
are hereunder reproduced: "On January 7, 1982 defendant
Allied Brokerage Corporation received
"This is an action against the shipment from defendant Metro Port
defendants shipping company, arrastre Service, Inc., one drum opened and
operator and broker-forwarded for without seal (per 'Request for Bad Order
damages sustained by a shipment while Survey.' (Exh. D).
in defendants' custody, led by the
insurer-subrogee who paid the "On January 8 and 14, 1982,
consignee the value of such defendant Allied Brokerage Corporation
losses/damages. made deliveries of the shipment to the
consignees' warehouse. The latter
"On December 4, 1981, two ber excepted to one drum which contained
drums of ribo avin were shipped from spillages, while the rest of the contents
Yokohama, Japan for delivery vessel
 was adulterated/fake (per 'Bad Order it alleged that the shipment was
Waybill' No. 10649, Exh. E). discharged in good order from the
vessel unto the custody of Metro Port
"Plaintiff contended that due to Service so that any damage/losses
the losses/damage sustained by said incurred after the shipment was incurred
drum, the consignee suffered losses after the shipment was turned over to
totaling P19,032.95, due to the fault and the latter, is no longer its liability (p. 17,
negligence of defendants. Claims were Record); Metroport averred that
presented against defendants who although subject shipment was
failed and refused to pay the same discharged unto its custody, portion of
(Exhs. H, I, J, K, L). Cdpr the same was already in bad order (p.
11, Record); Allied Brokerage alleged
"As a consequence of the losses sustained, that plaintiff has no cause of action
plaintiff was compelled to pay the consignee against it, not having negligent or at fault
P19,032.95 under the aforestated marine for the shipment was already in damage
insurance policy, so that it became subrogated and bad order condition when received
to all the rights of action of said consignee by it, but nonetheless, it still exercised
against defendants (per 'Form of Subrogation,' extra ordinary care and diligence in the
'Release' and Philbanking check, Exhs. M, N, handling/delivery of the cargo to
and O)." (pp. 85-86, Rollo.) consignee in the same condition
shipment was received by it.
There were, to be sure, other factual issues
that confronted both courts. Here, the appellate "From the evidence that court found the
court said: following:

"Defendants led their respective "'The issues are:

answers, traversing the material
allegations of the compliant contending '1. Whether or
that: As for defendant Eastern Shipping not the shipment
 sustained indicate any damages drum that
losses/damages; was shipped (Exhs. B and

'2. Whether or SSS. . But when on December

not these 12, 1981 the shipment was
losses/damages were delivered to defendant Metro Port
sustained while in the Service, Inc., it excepted to one
custody of defendants drum in bad order.
(in whose respective
custody, if 'Correspondingly, as to the
determinable); prLL second issue, it follows that the
losses/damages were sustained
'3. Whether or while in the respective and/or
not defendant(s) successive custody and
should be held liable possession of defendants carrier
for the losses/damages (Eastern), arrastre operator
(see plaintiff's pre-Trial (Metro Port) and broker (Allied
Brief, Records, p. 34; Brokerage). This becomes
Allied's pre-Trial Brief, evident when the Marine Cargo
adopting plaintiff's Survey Report (Exh. G), with its
Records, p. 38).' 'Additional Survey Notes,' are
considered. In the latter notes, it is
'As to the rst issue, there can be stated that when the shipment
no doubt that the shipment was 'landed on vessel' to dock of
sustained losses/damages. The Pier # 15, South Harbor, Manila
two drums were shipped in good on December 12, 1981,' it was
order and condition, as clearly observed that 'one (1) ber drum
shown by the Bill of Lading and (was) in damaged condition,
Commercial Invoice which do not covered by the vessel's Agent's
Bad order Tally Sheet No. 86427.' has been advised and has had
The report further states that reasonable opportunity to remove
when defendant Allied Brokerage or dispose of the goods (Art. 1738,
withdrew the shipment, from NCC). Defendant Eastern
defendant arrastre operator's Shipping's own exhibit, the 'Turn-
custody on January 7, 1982, one Over Survey of Bad Order
drum was found opened without Cargoes' (Exhs. 3-Eastern) states
seal, cello bag partly torn but that on December 12, 1981 one
contents intact. Net unrecovered drum was found 'open.'
spillages was 15 kgs. The report
went on to state that when the "and thus held:
drums reached the consignee,
one drum was found with 'WHEREFORE,
adulterated/faked contents. It is PREMISES CONSIDERED,
obvious, therefore, that these judgment is hereby rendered:
losses/damages occurred before
the shipment reached the A. Ordering defendants
consignee while under the to pay plaintiff, jointly
successive custodies of and
defendants. Under Art. 1737 of
the New Civil Code, the common severally:
carrier's duty to observe
extraordinary diligence in the 1. The
vigilance of goods remains in full amount of
force and effect even if the goods P19,032.95 with
are temporarily unloaded and the present legal
stored in transit in the warehouse interest of 12%
of the carrier at the place of per annum from
destination, until the consignee October 1, 1982,
the date of ling of
this complaints, LexLib
until fully paid
(the liability of 2. P3,000.00 as
defendant attorney's fees,
Eastern and
Shipping, Inc.
shall not exceed 3. Costs.
US$500 per case
or the CIF value B. Dismissing
of the loss, the counterclaims and
whichever is crossclaim of
lesser, while the defendant/cross-
liability of claimant Allied
defendant Metro Brokerage
Port Service, Inc. Corporation.
shall be to the
extent of the SO ORDERED.' (p. 207, Record).
actual invoice
value of each "Dissatisfied, defendant's recourse to
package, crate US.
box or container
in no case to "The appeal is devoid of merit.
exceed
P5,000.00 each, "After a careful scrutiny of the
pursuant to evidence on record. We nd that the
Section 6.01 of conclusion drawn therefrom is correct.
the Management As there is su cient evidence that the
Contract); shipment sustained damage while in the
 successive possession of appellants, OF FROM THE DATE OF THE
and therefore they are liable to the DECISION OF THE TRIAL COURT
appellee, as subrogee for the amount it AND ONLY AT THE RATE OF SIX
paid to the consignee." (pp. 87-89, PERCENT PER ANNUM, PRIVATE
Rollo.) RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The Court of Appeal thus affirmed in toto the
judgment of the court a quo. The petition is, in part, granted.

In this petition, Eastern Shipping Lines, Inc., In this decision, we have begun by saying
the common carrier, attributes error and grave that the questions raised by petitioner carrier are
abuse of discretion on the part of the appellate not all that novel. Indeed, we do have a fairly good
court when — number of previous decisions this Court can
merely tack to. Cdpr
I. IT HELD PETITIONER CARRIER
JOINTLY AND SEVERALLY LIABLE The common carrier's duty to observe the
WITH THE ARRASTRE requisite diligence in the shipment of goods lasts
OPERATOR AND CUSTOMS from the time the articles are surrendered to or
BROKER FOR THE CLAIM OF unconditionally placed in the possession of, and
PRIVATE RESPONDENT AS received by, the carrier for transportation until
GRANTED IN THE QUESTIONED delivered to, or until the lapse of a reasonable time
DECISION; for their acceptance, by the person entitled to
II. IT HELD THAT THE GRANT OF receive them (Arts. 1736-1738, Civil Code;
INTEREST ON THE CLAIM OF Ganzon vs. Court of Appeals, 161 SCRA 646; Kui
PRIVATE RESPONDENT SHOULD Bai vs. Dollar Steamship Lines, 52 Phil. 863).When
COMMENCE FROM THE DATE OF the goods shipped either are lost or arrive in
THE FILING OF THE COMPLAINT damaged condition, a presumption arises against
AT THE RATE OF TWELVE the carrier of its failure to observe that diligence,
PERCENT PER ANNUM INSTEAD and there need not be an express nding of
negligence to hold it liable (Art. 1735, Civil Code; care of the goods that are in its custody
Philippine National Railways vs. Court of Appeals, and to deliver them in good condition to
139 SCRA 87; Metro Port Service vs. Court of the consignee, such responsibility also
Appeals, 131 SCRA 365). There are, of course, devolves upon the CARRIER. Both the
exceptional cases when such presumption of fault ARRASTRE and the CARRIER are
is not observed but these cases, enumerated in therefore charged with the obligation to
Article 1734 1 of the Civil Code, are exclusive, not deliver the goods in goods condition to
one of which can be applied to this case. the consignee."

The question of charging both the carrier and We do not, of course, imply by the above
the arrastre operator with the obligation of properly pronouncement that the arrastre operator and the
delivering the goods to the consignee has, too, customs broker are themselves always and
been passed upon by the Court. In Fireman's Fund necessarily liable solidarily with the carrier, or vice-
Insurance vs. Metro Port Services (182 SCRA versa, nor that attendant facts in a given case may
455), we have explained in holding the carrier and not vary the rule. The instant petition has been
the arrastre operator liable in solidum, thus: Cdpr brought solely by Eastern Shipping Lines which,
being the carrier and not having been able to rebut
the presumption of fault, is, in any event, to be held
"The legal relationship between liable in this particular case. A factual nding of both
the consignee and the arrastre operator the court a quo and the appellate court, we take
is akin to that of a depositor and note, is that "there is su cient evidence that the
warehouseman (Lua Kian v. Manila shipment sustained damage while in the
Railroad Co., 19 SCRA 5 [1967]. The successive possession of appellants" (the herein
relationship between the consignee and petitioner among them). Accordingly, the liability
the common carrier is similar to that of imposed on Eastern Shipping Lines, Inc., the sole
the consignee and the arrastre operator petitioner in this case, is inevitable regardless of
(Northern Motors, Inc. v. Prince Line, et whether there are others solidarily liable with it. llcd
al., 107 Phil. 253 [1960]). Since it is the
duty of the ARRASTRE to take good
 It is over the issue of legal interest adjudged by the "Interest upon an obligation which
appellate court that deserves more than just a passing calls for the payment of money, absent
remark. a stipulation, is the legal rate. Such
Let us first see a chronological recitation of interest normally is allowable from the
the major rulings of this Court: date of demand, judicial or extrajudicial.
The trial court opted for judicial demand
The early case of Malayan Insurance Co., as the starting point.
Inc., vs. Manila Port Service, 2 decided 3 on 15
May 1969, involved a suit for recovery of money "But then upon the provisions of
arising out of short deliveries and pilferage of Article 2213 of the Civil Code, interest
goods. In this case, appellee Malayan Insurance 'cannot be recovered upon unliquidated
(the plaintiff in the lower court) averred in its claims or damages, except when the
complaint that the total amount of its claim for the demand can be established with
value of the undelivered goods amounted to reasonable certainty.' And as was held
P3,947.20. This demand, however, was neither by this Court in Rivera vs. Perez 4 , L-
established in its totality nor de nitely ascertained. 6998, February 29, 1956, if the suit were
In the stipulation of facts later entered into by the for damages, 'unliquidated and not
parties, in lieu of proof, the amount of P1,447.51 known until de nitely ascertained,
was agreed upon. The trial court rendered assessed and determined by the courts
judgment ordering the appellants (defendants) after proof (Montilla c. Corporacion de
Manila Port Service and Manila Railroad Company P. P. Agustinos, 25 Phil. 447; Lichauco
to pay appellee Malayan Insurance the sum of v. Guzman, 38 Phil. 302),' then, interest
P1,447.51 with legal interest thereon from the date 'should be from the date of the
the complaint was led on 28 December 1962 until decision.'" (Emphasis supplied). Cdpr
full payment thereof. The appellants then assailed,
inter alia, the award of legal interest. In sustaining The case of Reformina vs. Tomol, 5
the appellants, this Court ruled: rendered on 11 October 1985, was for "Recovery
of Damages for Injury to Person and Loss of
Property." After trial, the lower court decreed:
 of June 4, 1972 with legal interest from
"WHEREFORE, judgment is the ling of the complaint until paid and to
hereby rendered in favor of the plaintiffs pay attorney's fees of P5,000.00 with
and third party defendants and against costs against defendants and third party
the defendants and third party plaintiffs plaintiffs." (Emphasis supplied.)
as follows:
On appeal of the Court of Appeals, the latter modi
"Ordering defendants and third ed the amount of damages awarded but sustained
party plaintiffs Shell and Michael, the trial court in adjudging legal interest from the
Incorporated to pay jointly and severally ling of the complaint until fully paid. When the
the following persons: appellate court's decision became nal, the case
was remanded to the lower court for execution,
"(a) ... and this was when the trial court issued its assailed
resolution which applied the 6% interest per
"xxx xxx xxx annum prescribed in Article 2209 of the Civil Code.
In their petition for review on certiorari, the
"(g) Plaintiffs Pacita F. Reformina and petitioners contended that Central Bank Circular
Francisco Reformina the sum No. 416, providing thus — Cdpr

of P131,084.00 which is the value of the "By virtue of the authority granted
boat F B Pacita III together with its to it under Section 1 of Act 2655, as
accessories, shing gear and equipment amended, Monetary Board in its
minus P80,000.00 which is the value of Resolution No. 1622 dated July 29,
the insurance recovered and the 1974, has prescribed that the rate of
amount of P10,000.00 a month as the interest for the loan, or forbearance of
estimated monthly loss suffered by any money, goods, or credits and the
them as a result of the re of May 6, 1969 rate allowed in judgments, in the
up to the time they are actually paid or absence of express contract as to such
already the total sum of P370,000.00 as rate of interest, shall be twelve (12%)
 percent per annum. This Circular shall argued by the private respondents,
take effect immediately." (Emphasis the law applicable to the said case
found in the text) — is Article 2209 of the New Civil
Code which reads —
should have, instead, been applied. This Court 6
ruled: 'ARTICLE 2209. If the
obligation consists in the payment
"The judgments spoken of and of a sum of money, and the debtor
referred to are judgments in litigations incurs in delay, the indemnity for
involving loans or forbearance of any damages, there being no
money, goods or credits. any other kind stipulation to the contrary, shall be
of monetary judgment which has the payment of interest agreed
nothing to do with, nor involving loans or upon, and in the absence of
forbearance of any money, goods or stipulation, the legal interest
credits does not fall within the coverage which is six percent per annum.'"
of the said law for it is not within the
ambit of the authority granted to the The above rule was reiterated in Philippine
Central Bank. Rabbit Bus Lines, Inc., v. Cruz , 7 promulgated on
28 July 1986. The case was for damages
"xxx xxx xxx occasioned by an injury to person and loss of
property. The trial court awarded private
"Coming to the case at bar, respondent Pedro Manabat actual and
the decision herein sought to be compensatory damages in the amount of
executed is one rendered in an P72,500.00 with legal interest thereon from the ling
Action for Damages for injury to of the complaint until fully paid . Relying on the
persons and loss of property and Reformina v. Tomol case, this Court 8 modi ed the
does not involve any loan, much interest award from 12% to 6% interest per annum
less forbearances of any money, but sustained the time computation thereof, i.e.,
goods or credits. As correctly from the ling of the complaint until fully paid. Cdpr
 damages (with the exception of
I n Nakpil and Sons vs. Court of Appeals, 9 attorney's fees) occasioned by the loss
the trial court, in an action for the recovery of of the building and an additional ONE
damages arising from the collapse of a building, HUNDRED THOUSAND (P100,000.00)
ordered inter alia, the "defendant United Pesos as and for attorney's fees, the
Construction Co., Inc. (one of the petitioners) . . . total sum being payable upon the nality
to pay the plaintiff, . of this decision.

. ., the sum of P989,335.68 with interest at the legal Upon failure to pay on such nality,
rate from November 29, 1968, the twelve (12%) per cent interest per
annum shall be imposed upon
date of the ling of the complaint until full payment . . . ." aforementioned amounts from nality
Save from the modi cation of the amount granted by the until paid . Solidary costs against the
lower court, the Court of Appeals sustained the trial defendant and third-party defendants
court's decision. When taken to this Court for review, the (except Roman Ozaeta)." (Emphasis
case, on 03 October 1986, was decided, thus: supplied).
"WHEREFORE, the decision
appealed from is hereby MODIFIED and A motion for reconsideration was led by United
considering the special and Construction, contending that "the interest of
environmental circumstances of this twelve (12%) per cent per annum imposed on the
case, we deem it reasonable to render total amount of the monetary award was in
a decision imposing, as We do hereby contravention of law." The Court 10 ruled out the
impose, upon the defendant and the applicability of the Reformina and Philippine
third-party defendants (with the Rabbit Bus Lines cases and, in its resolution of 15
exception of Roman Ozaeta) a solidary April 1988, it explained: LLphil
(Art. 1723, Civil Code, Supra. p. 10)
indemnity in favor of the Philippine Bar "There should be no dispute that
Association of FIVE MILLION the imposition of 12% interest pursuant
(P5,000,000.00) Pesos to cover all to Central Bank Circular No. 416 . . . is
 applicable only in the following: (1) 11 was a petition for review on certiorari from the
loans; (2) forbearance of any money, decision, dated 27 February 1985, of the then
goods or credit; and (3) rate allowed in Intermediate Appellate Court reducing the amount
judgments (judgments spoken of refer of moral and exemplary damages awarded by the
to judgments involving loans or trial court, to P240,000.00 and P100,000.00,
forbearance of any money, goods or respectively, and its resolution, dated 29 April
credits. (Philippine Rabbit Bus Lines 1985, restoring the amount of damages awarded
Inc. v. Cruz, 143 SCRA 160-161 [1986]; by the trial court, i.e., P2,000,000,00 as moral
Reformina v. Tomol, Jr., 139 SCRA 260 damages and P400,000.00 as exemplary
[1985]). It is true that in the instant case, damages with interest thereon at 12% per annum
there is neither a loan or a forbearance, from notice of judgment, plus costs of suit. In a
but then no interest is actually imposed decision of 09 November 1988, this Court, while
provided the sums referred to in the recognizing the right of the private respondent to
judgment are paid upon the finality of recover damages, held the award, however, for
the judgment. It is delay in the payment moral damages by the trial court, later sustained by
of such final judgment, that will cause the IAC, to be inconceivably large. The Court 12
the imposition of the interest. thus set aside the decision of the appellate court
and rendered a new one, "ordering the petitioner to
"It will be noted that in the cases pay private respondent the sum of One Hundred
already adverted to, the rate of interest Thousand (P100,000.00) Pesos as moral
is imposed on the total sum, from the damages, with six (6%) percent interest thereon
ling of the complaint until paid; in other computed from the finality of this decision until
words, as part of the judgment for paid." (Emphasis supplied). Cdpr
damages. Clearly, they are not
applicable to the instant case." Reformina came into fore again in the 21 February
(Emphasis supplied) 1989 case of Florendo v. Ruiz 13 which arose from
a breach of employment contract. For having been
The subsequent case of American Express illegally dismissed, the petitioner was awarded by
International, Inc., vs. International Appellate Court the trial court moral and exemplary damages
without, however, providing any legal interest
thereon. When the decision was appealed to the ". . ., it is to be noted that the Court
Court of Appeals, the latter held: of Appeals ordered the payment of
interest 'at the legal rate' from the time
"WHEREFORE, except as modi of the ling of the complaint. . . . Said
ed hereinabove the decision of the CFI circular [Central Bank Circular No. 416]
of Negros Oriental dated October 31, does not apply to actions based on a
1972 is a rmed in all respects, with the breach of employment contract like the
modi cation that defendants-appellants, case at bar." (Emphasis supplied)
except defendant-appellant Merton
Munn, are ordered to pay, jointly and The Court reiterated that the 6% interest per
severally, the amounts stated in the annum on the damages should be computed from
dispositive portion of the decision, the time the complaint was filed until the amount is
including the sum of P1,400.00 in fully paid.
concept of compensatory damages,
with interest at the legal rate from the Quite recently, the Court had another
date of the ling of the complaint until occasion to rule on the matter. National Power
fully paid." (Emphasis supplied) Corporation vs. Angas, 14 decided on 08 May
1992, involved the expropriation of certain parcels
The petition for review to this Court was denied. of land. After conducting a hearing on the
The records were thereupon transmitted to the trial complaints for eminent domain, the trial court
court, and an entry of judgment was made. The ordered the petitioner to pay the private
writ of execution issued by the trial court directed respondents certain sums of money as just
that only compensatory damages should earn compensation for their lands so expropriated "with
interest at 6% per annum from the date of the ling legal interest thereon . . . until fully paid." Again, in
of the complaint. Ascribing grave abuse of applying the 6% legal interest per annum under the
discretion on the part of the trial judge, a petition Civil Code, the Court 15 declared: LLpr
for certiorari assailed the said order. This court
said:
 ". . ., (T)he transaction involved is Power Corporation v. Angas (1992). In the "second
clearly not a loan or forbearance of group" would be Malayan Insurance Company v.
money, goods or credits but Manila Port Service (1969), Nakpil and Sons v.
expropriation of certain parcels of land Court of Appeals (1988), and American Express
for a public purpose, the payment of International v. Intermediate Appellate Court
which is without stipulation regarding (1988). LLpr
interest, and the interest adjudged by In the "first group," the basic issue focus on
the trial court is in the nature of the application of either the 6% (under the Civil
indemnity for damages. The legal Code) or 12% (under the Central Bank Circular)
interest required to be paid on the interest per annum. It is easily discernible in these
amount of just compensation for the cases that there has been a consistent holding that
properties expropriated is manifestly in the Central Bank Circular imposing the 12%
the form of indemnity for damages for interest per annum applies only to loans or
the delay in the payment thereof. forbearance 16 of money, goods or credits, as well
Therefore, since the kind of interest as to judgments involving such loan or forbearance
involved in the joint judgment of the of money, goods or credits, and that the 6%
lower court sought to be enforced in this interest under the Civil Code governs when the
case is interest by way of damages, and transaction involves the payment of indemnities in
not by way of earnings from loans, etc. the concept of damage arising from the breach of
Art. 2209 of the Civil Code shall apply." a delay in the performance of obligations in
general. Observe, too, that in these cases, a
Concededly, there have been seeming common time frame in the computation of the 6%
variances in the above holdings. The cases can interest per annum has been applied, i.e., from the
perhaps be classi ed into two groups according to time the complaint is led until the adjudged amount
the similarity of the issues involved and the is fully paid.
corresponding rulings rendered by the court. The "
rst group" would consist of the cases of Reformina The "second group," did not alter the
v. Tomol (1985), Philippine Rabbit Bus Lines v. pronounced rule on the application of the 6% or
Cruz (1986), Florendo v. Ruiz (1989) and National 12% interest per annum, 17 depending on whether
or not the amount involved is a loan or depending on the equities of each case, on the
forbearance, on the one hand, or one of indemnity award of interest. Nonetheless, it may not be
for damage, on the other hand. Unlike, however, unwise, by way of clari cation and reconciliation, to
the " rst group" which remained consistent in suggest the following rules of thumb for future
holding that the running of the legal interest should guidance.
be from the time of the ling of the complaint until
fully paid, the "second group" varied on the I. When an obligation, regardless of its
commencement of the running of the legal interest. source, i.e., law, contracts, quasi-contracts, delicts
cdll or quasi-delicts 18 is breached, the contravenor
can be held liable for damages. 19 The provisions
Malayan held that the amount awarded under Title XVIII on "Damages" of the Civil Code
should bear legal interest from the date of the govern in determining the measure of recoverable
decision of the court a quo, explaining that "if the damages. 20
suit were for damages, 'unliquidated and not
known until de nitely ascertained, assessed and II. With regard particularly to an award of
determined by the courts after proof,' then, interest interest in the concept of actual and compensatory
'should be from the date of the decision.'" damages, the rate of interest, as well as the
American Express International v. IAC, introduced accrual thereof, is imposed, as follows: LibLex
a different time frame for reckoning the 6% interest
by ordering it to be "computed from the nality of 1. When the obligation is breached, and
(the) decision until paid." The Nakpil and Sons it consists in the payment of a sum of money, i.e.,
case ruled that 12% interest per annum should be a loan or forbearance of money, the interest due
imposed from the finality of the decision until the should be that which may have been stipulated in
judgment amount is paid. writing. 21 Furthermore, the interest due shall itself
earn legal interest from the time it is judicially
The ostensible discord is not di cult to demanded. 22 In the absence of stipulation, the
explain. The factual circumstances may have rate of interest shall be 12% per annum to be
called for different applications, guided by the rule computed from default, i.e., from judicial or
that the courts are vested with discretion,
extrajudicial demand under and subject to the this interim period being deemed to be by then an
provisions of Article 1169 23 of the Civil Code. equivalent to a forbearance of credit.
When a obligation, not constituting a loan or
forbearance of money, is breached, an interest on WHEREFORE, the petition is partly
the amount of damages awarded may be imposed GRANTED. The appealed decision is AFFIRMED
at the discretion of the court 24 at the rate of 6% with the MODIFICATION that the legal interest to
per annum. 25 No interest, however, shall be be paid is SIX PERCENT(6%) on the amount due
adjudged on unliquidated claims or damages computed from the decision, dated 03 February
except when or until the demand can be 1988, of the court a quo. A TWELVE PERCENT
established with reasonable certainty. 26 (12%) interest, in lieu of SIX PERCENT (6%), shall
Accordingly, where the demand is established with be imposed on such amount upon nality of this
reasonable certainty, the interest shall begin to run decision until the payment thereof. cdll
from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when SO ORDERED.
such certainty cannot be so reasonably
established at the time the demand is made, the Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin,
interest shall begin to run only from the date of the Regalado, Davide, Jr., Romero, Bellosillo, Melo,
judgment of the court is made (at which time the Quiason, Puno and Kapunan, JJ., concur.
quanti cation of damages may be deemed to have
been reasonably ascertained). The actual base for 2. Mendoza, J., took no part.
the computation of legal interest shall, in any case,
be on the amount of finally adjudged. LLjur

3. When the judgment of the court awarding

a sum of money becomes nal 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 nality until its satisfaction, EN BANC
 [G.R. No. 189871. August 13, 2013.]
On October 15, 1998, the Labor Arbiter
DARIO NACAR, petitioner, vs. rendered a Decision 3 in favor of petitioner and
GALLERY FRAMES and/or found that he was dismissed from employment
FELIPE BORDEY, JR., without a valid or just cause. Thus, petitioner was
respondents. awarded backwages and separation pay in lieu of
reinstatement in the amount of P158,919.92. The
dispositive portion of the decision, reads:
DECISION
With the foregoing, we find and so rule that
respondents failed to discharge the burden
of showing that complainant was dismissed
PERALTA, J p: from employment for a just or valid cause. All
the more, it is clear from the records that
This is a petition for review on certiorari complainant was never afforded due
assailing the Decision 1 dated September 23, 2008 process before he was terminated. As such,
of the Court of Appeals (CA) in CA-G.R. SP No. we are perforce constrained to grant
98591, and the Resolution 2 dated October 9, complainant's prayer for the payments of
2009 denying petitioner's motion for separation pay in lieu of reinstatement to his
reconsideration. former position, considering the strained
relationship between the parties, and his
The factual antecedents are undisputed. apparent reluctance to be reinstated,
computed only up to promulgation of this
Petitioner Dario Nacar led a complaint for decision as follows:
constructive dismissal before the Arbitration SEPARATION PAY
Branch of the National Labor Relations August
Commission (NLRC) against respondents Gallery Date Hired = 1990
Frames (GF) and/or Felipe Bordey, Jr., docketed Rate = P198/day
as NLRC NCR Case No. 01-00519-97.
 Aug. 18, respondents guilty of
Date of Decision = 1998 constructive dismissal and are
8 yrs. & 1 therefore, ordered:
Length of Service = month
P198.00 x 26 days x 8 1. To pay jointly and severally
months = P41,184.00 the complainant the amount
of sixty-two thousand nine
BACKWAGES
hundred eighty-six pesos
January 24,
and 56/100 (P62,986.56)
Date Dismissed = 1997
Pesos representing his
Rate per day = P196.00
separation pay;
Aug. 18,
2. To pay jointly and severally
Date of Decisions = 1998
the complainant the amount
a) 1/24/97 to 2/5/98 = 12.36 mos.
of nine (sic) five thousand
P196.00/day x 12.36 mos. = P62,986.56
nine hundred thirty-three
b) 2/6/98 to 8/18/98 = 6.4 months
and 36/100 (P95,933.36)
Prevailing Rate per day =
representing his
P62,986.00
backwages; and
P198.00 x 26 days x 6.4mos. = P32,
3. All other claims are hereby
947.20
dismissed for lack of merit.
TOTAL = P95,933.76
==========
SO ORDERED. 4
xxx xxx xxx
Respondents appealed to the NLRC, but it was
dismissed for lack of merit in the Resolution 5 dated
February 29, 2000. Accordingly, the NLRC sustained
WHEREFORE, premises
the decision of the Labor Arbiter. Respondents filed a
considered, judgment is
motion for reconsideration, but it was denied. 6
hereby rendered finding
 Dissatisfied, respondents led a Petition for Writ of Execution, arguing, among other things, that
Review on Certiorari before the CA. On August 24, since the Labor Arbiter awarded separation pay of
2000, the CA issued a Resolution dismissing the P62,986.56 and limited backwages of P95,933.36, no
petition. Respondents led a Motion for more recomputation is required to be made of the said
Reconsideration, but it was likewise denied in a awards. They claimed that after the decision becomes
Resolution dated May 8, 2001. 7 nal and executory, the same cannot be altered or
Respondents then sought relief before the amended anymore. On January 13, 2003, the Labor
Supreme Court, docketed as G.R. No. 151332. Arbiter issued an Order 15 denying the motion. Thus,
Finding no reversible error on the part of the CA, this an Alias Writ of Execution 16 was issued on January
Court denied the petition in the Resolution dated April 14, 2003.
17, 2002. 8 Respondents again appealed before the NLRC,
An Entry of Judgment was later issued certifying which on June 30, 2003 issued a Resolution granting
that the resolution became nal and executory on May the appeal in favor of the respondents and ordered
27, 2002. 9 The case was, thereafter, referred back to the recomputation of the judgment award.
the Labor Arbiter. A pre-execution conference was On August 20, 2003, an Entry of Judgment was
consequently scheduled, but respondents failed to issued declaring the Resolution of the NLRC to be nal
appear. 10 and executory. Consequently, another pre-execution
On November 5, 2002, petitioner led a Motion conference was held, but respondents failed to
for Correct Computation, praying that his backwages appear on time. Meanwhile, petitioner moved that an
be computed from the date of his dismissal on Alias Writ of Execution be issued to enforce the earlier
January 24, 1997 up to the nality of the Resolution of recomputed judgment award in the sum of
the Supreme Court on May 27, 2002. 11 Upon P471,320.31. 18
recomputation, the Computation and Examination The records of the case were again forwarded to
Unit of the NLRC arrived at an updated amount in the the Computation and Examination Unit for
sum of P471,320.31. 12 DSCIEa recomputation, where the judgment award of
On December 2, 2002, a Writ of Execution 13 petitioner was reassessed to be in the total amount of
was issued by the Labor Arbiter ordering the Sheriff only P147,560.19.
to collect from respondents the total amount of Petitioner then moved that a writ of execution be
P471,320.31. Respondents led a Motion to Quash issued ordering respondents to pay him the original
amount as determined by the Labor Arbiter in his Aggrieved, petitioner then sought recourse before
Decision dated October 15, 1998, pending the final the CA, docketed as CA-G.R. SP No.
computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued 98591.
an Alias Writ of Execution to satisfy the judgment
award that was due to petitioner in the amount of On September 23, 2008, the CA rendered a
P147,560.19, which petitioner eventually received. Decision 24 denying the petition. The CA opined that
Petitioner then led a Manifestation and Motion since petitioner no longer appealed the October 15,
praying for the re-computation of the monetary award 1998 Decision of the Labor Arbiter, which already
to include the appropriate interests. 19 became nal and executory, a belated correction
On May 10, 2005, the Labor Arbiter issued an thereof is no longer allowed. The CA stated that there
Order 20 granting the motion, but only up to the is nothing left to be done except to enforce the said
amount of P11,459.73. The Labor Arbiter reasoned judgment. Consequently, it can no longer be modi ed
that it is the October 15, 1998 Decision that should be in any respect, except to correct clerical errors or
enforced considering that it was the one that became mistakes.
nal and executory. However, the Labor Arbiter Petitioner filed a Motion for Reconsideration,
reasoned that since the decision states that the but it was denied in the Resolution 25 dated
separation pay and backwages are computed only up October 9, 2009.
to the promulgation of the said decision, it is the
amount of P158,919.92 that should be executed. Hence, the petition assigning the lone error:
Thus, since petitioner already received P147,560.19, ScaATD
he is only entitled to the balance of P11,459.73.
Petitioner then appealed before the NLRC, 21 I
which appeal was denied by the NLRC in its
Resolution 22 dated September 27, 2006. Petitioner WITH DUE RESPECT, THE
led a Motion for Reconsideration, but it was likewise HONORABLE COURT OF APPEALS
denied in the Resolution 23 dated January 31, 2007. SERIOUSLY ERRED, COMMITTED
GRAVE ABUSE OF DISCRETION
AND DECIDED CONTRARY TO LAW
 IN UPHOLDING THE QUESTIONED On their part, respondents assert that since only
RESOLUTIONS OF THE NLRC separation pay and limited backwages were awarded
WHICH, IN TURN, SUSTAINED THE to petitioner by the October 15, 1998 decision of the
MAY 10, 2005 ORDER OF LABOR Labor Arbiter, no more recomputation is required to
ARBITER MAGAT MAKING THE be made of said awards. Respondents insist that
DISPOSITIVE PORTION OF THE since the decision clearly stated that the separation
OCTOBER 15, 1998 DECISION OF pay and backwages are "computed only up to [the]
LABOR ARBITER LUSTRIA promulgation of this decision," and considering that
SUBSERVIENT TO AN OPINION petitioner no longer appealed the decision, petitioner
EXPRESSED IN THE BODY OF THE is only entitled to the award as computed by the Labor
SAME DECISION. 26 Arbiter in the total amount of P158,919.92.
Respondents added that it was only during the
Petitioner argues that notwithstanding the fact execution proceedings that the petitioner questioned
that there was a computation of backwages in the the award, long after the decision had become
Labor Arbiter's decision, the same is not nal until
reinstatement is made or until nality of the decision, in nal and executory. Respondents contend that to
case of an award of separation pay. Petitioner allow the further recomputation of the backwages to
maintains that considering that the October 15, 1998 be awarded to petitioner at this point of the
decision of the Labor Arbiter did not become nal and proceedings would substantially vary the decision of
executory until the April 17, 2002 Resolution of the the Labor Arbiter as it violates the rule on immutability
Supreme Court in G.R. No. 151332 was entered in the of judgments.
Book of Entries on May 27, 2002, the reckoning point
for the computation of the backwages and separation
pay should be on May 27, 2002 and not when the The petition is meritorious.
decision of the Labor Arbiter was rendered on
October 15, 1998. Further, petitioner posits that he is The instant case is similar to the case of Session
also entitled to the payment of interest from the nality Delights Ice Cream and Fast Foods v. Court of
of the decision until full payment by the respondents. Appeals (Sixth Division), 27 wherein the issue
submitted to the Court for resolution was the propriety
of the computation of the awards made, and whether case proceeds from the way the original
this violated the principle of immutability of judgment. labor arbiter framed his decision. The
Like in the present case, it was a distinct feature of the decision consists essentially of two
judgment of the Labor Arbiter in the above-cited case parts.
that the decision already provided for the computation
of the payable separation pay and backwages due The rst is that part of the decision that
and did not further order the computation of the cannot now be disputed because it has
monetary awards up to the time of the nality of the been con rmed with nality. This is the
judgment. Also in Session Delights, the dismissed nding of the illegality of the dismissal
employee failed to appeal the decision of the labor and the awards of separation pay in lieu
arbiter. The Court clarified, thus: of reinstatement, backwages, attorney's
fees, and legal interests. TaISEH
In concrete terms, the question is
whether a re-computation in the course T h e second part is the computation of
of execution of the labor arbiter's the awards made. On its face, the
original computation of the awards computation the labor arbiter made
made, pegged as of the time the shows that it was time-bound as can be
decision was rendered and con rmed seen from the gures used in the
with modi cation by a final CA decision, computation. This part, being merely a
is legally proper. The question is posed, computation of what the rst part of the
given that the petitioner did not decision established and declared, can,
immediately pay the awards stated in by its nature, be re-computed. This is
the original labor arbiter's decision; it the part, too, that the petitioner now
delayed payment because it continued posits should no longer be re-computed
with the litigation until nal judgment at because the computation is already in
the CA level. the labor arbiter's decision that the CA
had af rmed. The public and private
A source of misunderstanding in respondents, on the other hand, posit
implementing the nal decision in this that a re-computation is necessary
because the relief in an illegal dismissal computation itself, and no question
decision goes all the way up to would have arisen had the parties
reinstatement if reinstatement is to be terminated the case and implemented
made, or up to the nality of the decision, the decision at that point.
if separation pay is to be given in lieu
reinstatement. However, the petitioner disagreed with
the labor arbiter's ndings on all counts
That the labor arbiter's decision, at the — i.e., on the nding of illegality as well
same time that it found that an illegal as on all the consequent awards made.
dismissal had taken place, also made a Hence, the petitioner appealed the case
computation of the award, is to the NLRC which, in turn, af rmed the
understandable in light of Section 3, labor arbiter's decision. By law, the
Rule VIII of the then NLRC Rules of NLRC decision is nal, reviewable only
Procedure which requires that a by the CA on jurisdictional grounds.
computation be made. This Section in
part states: The petitioner appropriately sought to
nullify the NLRC decision on
[T]he Labor Arbiter of origin, in jurisdictional grounds through a timely
cases involving monetary awards led Rule 65 petition for certiorari. The
and at all events, as far as CA decision, nding that NLRC
practicable, shall embody in any exceeded its authority in af rming the
such decision or order the payment of 13th month pay and
detailed and full amount awarded. indemnity, lapsed to finality and was
subsequently returned to the labor
Clearly implied from this original arbiter of origin for execution.
computation is its currency up to the
nality of the labor arbiter's decision. As It was at this point that the present case
we noted above, this implication is arose. Focusing on the core illegal
apparent from the terms of the dismissal portion of the original labor
arbiter's decision, the implementing of illegality and its monetary
labor arbiter ordered the award re- consequences; the second part is the
computed; he apparently read the gures computation of the awards or monetary
originally ordered to be paid to be the consequences of the illegal dismissal,
computation due had the case been computed as of the time of the labor
terminated and implemented at the arbiter's original decision. 28 ESaITA
labor arbiter's level. Thus, the labor
arbiter re-computed the award to Consequently, from the above disquisitions, under the
include the separation pay and the terms of the decision which is sought to be executed
backwages due up to the nality of the by the petitioner, no essential change is made by a
CA decision that fully terminated the recomputation as this step is a necessary
case on the merits. Unfortunately, the consequence that ows from the nature of the illegality
labor arbiter's approved computation of dismissal declared by the Labor Arbiter in that
went beyond the nality of the CA decision. 29 A recomputation (or an original
decision (July 29, 2003) and included as computation, if no previous computation has been
well the payment for awards the nal CA made) is a part of the law — specifically, Article 279
decision had deleted — speci cally, the of the Labor Code and the established jurisprudence
proportionate 13th month pay and the on this provision — that is read into the decision. By
indemnity awards. Hence, the CA the nature of an illegal dismissal case, the reliefs
issued the decision now questioned in continue to add up until full satisfaction, as expressed
the present petition. under Article 279 of the Labor Code. The
recomputation of the consequences of illegal
We see no error in the CA decision con dismissal upon execution of the decision does not
rming that a re-computation is constitute an alteration or amendment of the nal
necessary as it essentially considered decision being implemented. The illegal dismissal
the labor arbiter's original decision in ruling stands; only the computation of monetary
accordance with its basic component consequences of this dismissal is affected, and this is
parts as we discussed above. To not a violation of the principle of immutability of nal
reiterate, the rst part contains the nding judgments. 30
 1. When the obligation is breached, and it
That the amount respondents shall now pay has consists in the payment of a sum of money,
greatly increased is a consequence that it cannot i.e., a loan or forbearance of money, the
avoid as it is the risk that it ran when it continued to interest due should be that which may have
seek recourses against the Labor Arbiter's decision. been stipulated in writing. Furthermore, the
Article 279 provides for the consequences of illegal interest due shall itself earn legal interest from
dismissal in no uncertain terms, quali ed only by the time it is judicially demanded. In the
jurisprudence in its interpretation of when separation absence of stipulation, the rate of interest
pay in lieu of reinstatement is allowed. When that shall be 12% per annum to be computed from
happens, the nality of the illegal dismissal decision default, i.e., from judicial or extrajudicial
becomes the reckoning point instead of the demand under and subject to the provisions
reinstatement that the law decrees. In allowing of Article 1169 of the Civil Code.
separation pay, the nal decision effectively declares 2. When an obligation, not constituting a
that the employment relationship ended so that loan or forbearance of money, is
separation pay and backwages are to be computed breached, an interest on the amount of
up to that point. 31 damages awarded may be imposed at
the discretion of the court at the rate of
Finally, anent the payment of legal interest. In the 6% per annum. No interest, however,
landmark case of Eastern Shipping Lines, Inc. v. shall be adjudged on unliquidated
Court of Appeals, 32 the Court laid down the claims or damages except when or until
guidelines regarding the manner of computing legal the demand can be established with
interest, to wit: reasonable certainty. Accordingly,
where the demand is established with
II. With regard particularly to an award of reasonable certainty, the interest shall
interest in the concept of actual and begin to run from the time the claim is
compensatory damages, the rate of made judicially or extrajudicially (Art.
interest, as well as the accrual thereof, 1169, Civil Code) but when such
is imposed, as follows: certainty cannot be so reasonably
established at the time the demand is
 made, the interest shall begin to run 2013, effective July 1, 2013, the pertinent portion of
only from the date the judgment of the which reads: AHcaDC
court is made (at which time the quanti
cation of damages may be deemed to The Monetary Board, in its Resolution
have been reasonably ascertained). No. 796 dated 16 May 2013, approved
The actual base for the computation of the following revisions governing the
legal interest shall, in any case, be on rate of interest in the absence of
the amount finally adjudged. stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905,
3. When the judgment of the court Series of 1982:
awarding a sum of money becomes nal
and executory, the rate of legal interest, Section 1. The rate of interest for
whether the case falls under the loan or forbearance of any
money, goods or credits and the
paragraph 1 or paragraph 2, rate allowed in judgments, in the
above, shall be 12% per annum absence of an express contract as
from such nality until its to such rate of interest, shall be six
satisfaction, this interim period percent (6%) per annum.
being deemed to be by then

an equivalent to a forbearance of credit. Section 2. In view of the above,

33 Subsection X305.1 36 of the
Manual of Regulations for Banks
Recently, however, the Bangko Sentral ng Pilipinas and Sections 4305Q.1, 37
Monetary Board (BSP-MB), in its Resolution No. 796 4305S.3 38 and 4303P.1 39 of the
dated May 16, 2013, approved the amendment of Manual of Regulations for Non-
Section 2 34 of Circular No. 905, Series of 1982 and, Bank Financial Institutions are
accordingly, issued Circular No. 799, 35 Series of hereby amended accordingly.
 This Circular shall take effect on 1 July forbearance of any money, goods or credits, including
2013. those for loans of low priority such as consumer loans,
as well as such loans made by pawnshops, nance
Thus, from the foregoing, in the absence of an companies and similar credit institutions. It even
express stipulation as to the rate of interest that would authorizes the BSP-MB to prescribe different
govern the parties, the rate of legal interest for loans maximum rate or rates for different types of
or forbearance of any money, goods or credits and the borrowings, including deposits and deposit
rate allowed in judgments shall no longer be twelve substitutes, or loans of financial intermediaries."
percent (12%) per annum — as re ected in the case
of Eastern Shipping Lines 40 and Subsection X305.1 Nonetheless, with regard to those judgments that
of the Manual of Regulations for Banks and Sections have become final and executory prior to July 1,
4305Q.1, 4305S.3 and 4303P.1 of the Manual of 2013, said judgments shall not be disturbed and
Regulations for Non-Bank Financial Institutions, shall continue to be implemented applying the rate
before its amendment by BSP-MB Circular No. 799 — of interest fixed therein.
but will now be six percent (6%) per annum effective
July 1, 2013. It should be noted, nonetheless, that the To recapitulate and for future guidance, the
new rate could only be applied prospectively and not guidelines laid down in the case of Eastern
retroactively. Consequently, the twelve percent (12%) Shipping Lines 42 are accordingly modi ed to
per annum legal interest shall apply only until June 30, embody BSP-MB Circular No. 799, as follows:
2013. Come July 1, 2013 the new rate of six percent
(6%) per annum shall be the prevailing rate of interest I. When an obligation, regardless of its
when applicable. source, i.e., law, contracts, quasi-
Corollarily, in the recent case of Advocates for Truth contracts, delicts or quasi-delicts is
in Lending, Inc. and Eduardo B. Olaguer v. Bangko breached, the contravenor can be held
Sentral Monetary Board, 41 this Court af rmed the liable for damages. The provisions
authority of the BSP- MB to set interest rates and to under Title XVIII on "Damages" of the
issue and enforce Circulars when it ruled that "the Civil Code govern in determining the
BSP-MB may prescribe the maximum rate or rates of measure of recoverable damages.
interest for all loans or renewals thereof or the
II. With regard particularly to an award of however, shall be adjudged on
interest in the concept of actual and unliquidated claims or damages,
compensatory damages, the rate of except when or until the demand
interest, as well as the accrual thereof, can be established with
is imposed, as follows: HcSaTI reasonable certainty. Accordingly,
1. When the obligation is breached, where the demand is established
and it consists in the payment of a with reasonable certainty, the
sum of money, i.e., a loan or interest shall begin to run from the
forbearance of money, the time the claim is made judicially or
interest due should be that which extrajudicially (Art. 1169, Civil
may have been stipulated in Code), but when such certainty
writing. Furthermore, the interest cannot be so reasonably
due shall itself earn legal interest established at the time the
from the time it is judicially demand is made, the interest shall
demanded. In the absence of begin to run only from the date the
stipulation, the rate of interest judgment of the court is made (at
shall be 6% per annum to be which time the quanti cation of
computed from default, i.e ., from damages may be deemed to have
judicial or extrajudicial demand been reasonably ascertained).
under and subject to the The actual base for the
provisions of Article 1169 of the computation of legal interest shall,
Civil Code. in any case, be on the amount
2. When an obligation, not finally adjudged.
constituting a loan or forbearance J. When the judgment of the court
of money, is breached, an interest awarding a sum of money
on the amount of damages
awarded may be imposed at the becomes nal and
discretion of the court at the rate executory, the rate of legal
of 6% per annum. No interest, interest, whether the case
 falls under paragraph 1 or 3. interest of twelve percent (12%) per annum of the
paragraph 2, above, shall total monetary awards, computed from May 27,
be 6% per annum from such 2002 to June 30, 2013 and six percent (6%) per
nality until its satisfaction, annum from July 1, 2013 until their full satisfaction.
this interim period being
deemed to be by then an The Labor Arbiter is hereby ORDERED to make
equivalent to a forbearance another recomputation of the total monetary benefits
of credit. awarded and due to petitioner in accordance with
this Decision.
And, in addition to the above, judgments that have
become nal and executory prior to July 1, 2013, shall SO ORDERED. TSIIaAc
not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein. Sereno, C.J., Carpio, Velasco, Jr., Leonardo-de
Castro, Brion, Bersamin, Del Castillo, Abad,
WHEREFORE, premises considered, the Decision Villarama, Jr., Perez, Mendoza, Reyes, Perlas-
dated September 23, 2008 of the Court of Appeals in Bernabe and Leonen, JJ., concur.
CA-G.R. SP No. 98591, and the Resolution dated
October 9, 2009 are REVERSED and SET ASIDE.
Respondents are ORDERED to PAY petitioner:

1. backwages computed from the time petitioner was

illegally dismissed on January 24, 1997 up to May THIRD DIVISION
27, 2002, when the Resolution of this Court in G.R.
No. 151332 became final and executory; [G.R. NO. 123498. November 23, 2007.]

BPI FAMILY BANK, petitioner, vs.

2. separation pay computed from August 1990 up to
AMADO FRANCO and COURT OF
May 27, 2002 at the rate of one month pay per
APPEALS, respondents.
year of service; and
 DECISION
Subsequently, on August 31, 1989, Franco
opened three accounts, namely, a current, 4 savings, 5
and time deposit, 6 with BPI- FB. The current and
NACHURA, J : p
savings accounts were respectively funded with an
initial deposit of P500,000.00 each, while the time
Banks are exhorted to treat the accounts of their deposit account had P1,000,000.00 with a maturity
depositors with meticulous care and utmost fidelity. date of August 31, 1990. The total amount of
We reiterate this exhortation in the case at bench. P2,000,000.00 used to open these accounts is
traceable to a check issued by Tevesteco allegedly in
Before us is a Petition for Review on Certiorari consideration of Franco's introduction of Eladio Teves,
seeking the reversal of the Court of Appeals (CA) 7 who was looking for a conduit bank to facilitate
Decision 1 in CA-G.R. CV No. 43424 which a rmed with Tevesteco's business transactions, to Jaime
modi cation the judgment 2 of the Regional Trial Court, Sebastian, who was then BPI-FB SFDM's Branch
Branch 55, Manila (Manila RTC), in Civil Case No. 90- Manager. In turn, the funding for the P2,000,000.00
53295. check was part of the P80,000,000.00 debited by BPI-
FB from FMIC's time deposit account and credited to
This case has its genesis in an ostensible fraud
Tevesteco's current account pursuant to an Authority
perpetrated on the petitioner BPI Family Bank (BPI-
to Debit purportedly signed by FMIC's officers.
FB) allegedly by respondent Amado Franco (Franco)
in conspiracy with other individuals, 3 some of whom It appears, however, that the signatures of
opened and maintained separate accounts with BPI- FMIC's o cers on the Authority to Debit were forged. 8
FB, San Francisco del Monte (SFDM) branch, in a On September 4, 1989, Antonio Ong, 9 upon being
series of transactions. shown the Authority to Debit, personally declared his
signature therein to be a forgery. Unfortunately,
On August 15, 1989, Tevesteco Arrastre-
Tevesteco had already effected several withdrawals
Stevedoring Co., Inc. (Tevesteco) opened a savings
from its current account (to which had been credited
and current account with BPI-FB. Soon thereafter, or
the P80,000,000.00 covered by the forged Authority to
on August 25, 1989, First Metro Investment
Debit) amounting to P37,455,410.54, including the
Corporation (FMIC) also opened a time deposit
P2,000,000.00 paid to Franco.
account with the same branch of BPI-FB with a deposit
of P100,000,000.00, to mature one year thence.
On September 8, 1989, impelled by the need to Makati case. 16 Immediately, upon receipt of such
protect its interests in light of FMIC's forgery claim, copy, Franco led a Motion to Discharge Attachment
BPI-FB, thru its Senior Vice-President, Severino which the Makati RTC granted on May 16, 1990. The
Coronacion, instructed Jesus Arangorin 10 to debit Order Lifting the Order of Attachment was served on
Franco's savings and current accounts for the BPI-FB on even date, with Franco demanding the
amounts remaining therein. 11 However, Franco's time release to him of the funds in his savings and current
deposit account could not be debited due to the accounts. Jesus Arangorin, BPI-FB's new manager,
capacity limitations of BPI-FB's computer. 12 could not forthwith comply with the demand as the
funds, as previously stated, had already been debited
In the meantime, two checks 13 drawn by Franco because of FMIC's forgery claim. As such, BPI-FB's
against his BPI-FB current account were dishonored computer at the SFDM Branch indicated that the
upon presentment for payment, and stamped with a current account record was "not on file."
notation "account under garnishment." Apparently,
Franco's current account was garnished by virtue of an With respect to Franco's savings account, it
Order of Attachment issued by the Regional Trial Court appears that Franco agreed to an arrangement, as a
of Makati (Makati RTC) in Civil Case No. 89-4996 favor to Sebastian, whereby P400,000.00 from his
(Makati Case), which had been led by BPI-FB against savings account was temporarily transferred to
Franco et al., 14 to recover the P37,455,410.54 Domingo Quiaoit's savings account, subject to its
representing Tevesteco's total withdrawals from its immediate return upon issuance of a certi cate of
account. deposit which Quiaoit needed in connection with his
visa application at the Taiwan Embassy. As part of the
Notably, the dishonored checks were issued by arrangement, Sebastian retained custody of Quiaoit's
Franco and presented for payment at BPI -FB prior to savings account passbook to ensure that no
Franco's receipt of notice that his accounts were under withdrawal would be effected therefrom, and to
garnishment. 15 In fact, at the time the Notice of preserve Franco's deposits.
Garnishment dated September 27, 1989 was served
on BPI-FB, Franco had yet to be impleaded in the On May 17, 1990, Franco pre-terminated his
Makati case where the writ of attachment was issued. time deposit account. BPI-FB deducted the amount of
P63,189.00 from the remaining balance of the time
It was only on May 15, 1990, through the service deposit account representing advance interest paid to
of a copy of the Second Amended Complaint in Civil him.
Case No. 89- 4996, that Franco was impleaded in the
 These transactions spawned a number of Meanwhile, BPI-FB led separate civil and
cases, some of which we had already resolved. FMIC criminal cases against those believed to be the
led a complaint against BPI-FB for the recovery of the perpetrators of the multi-million peso scam. 22 In the
amount of P80,000,000.00 debited from its account. 17 criminal case, Franco, along with the other accused,
The case eventually reached this Court, and in BPI except for Manuel Bienvenida who was still at large,
Family Savings Bank, Inc. v. First Metro Investment were acquitted of the crime of Estafa as defined and
Corporation, 18 we upheld the finding of the courts penalized under Article 351, par. 2 (a) of the Revised
below that BPI -FB failed to exercise the degree of Penal Code. 23 However, the civil case 24 remains
diligence required by the nature of its obligation to treat under litigation and the respective rights and liabilities
the accounts of its depositors with meticulous care. of the parties have yet to be adjudicated.
Thus, BPI-FB was found liable to FMIC for the debited
amount in its time deposit. It was ordered to pay Consequently, in light of BPI-FB's refusal to
P65,332,321.99 plus interest at 17% per annum from heed Franco's demands to unfreeze his accounts and
August 29, 1989 until fully restored. In turn, the 17% release his deposits therein, the latter led on June 4,
shall itself earn interest at 12% from October 4, 1989 1990 with the Manila RTC the subject suit. In his
until fully paid. complaint, Franco prayed for the following reliefs: (1)
In a related case, Edgardo Buenaventura, the interest on the remaining balance 25 of his current
Myrna Lizardo and Yolanda Tica (Buenaventura, et al.) account which was eventually released to him on
, 19 recipients of a P500,000.00 check proceeding from October 31, 1991; (2) the balance 26 on his savings
the P80,000,000.00 mistakenly credited to Tevesteco, account, plus interest thereon; (3) the advance interest
likewise led suit. Buenaventura et al., as in the case of 27 paid to him which had been deducted when he pre-

Franco, were also prevented from effecting terminated his time deposit account; and (4) the
withdrawals 20 from their current account with BPI-FB, payment of actual, moral and exemplary damages, as
Bonifacio Market, Edsa, Caloocan City Branch. well as attorney's fees.
Likewise, when the case was elevated to this Court
BPI-FB traversed this complaint, insisting that it
docketed as BPI Family Bank v. Buenaventura, 21 we
was correct in freezing the accounts of Franco and
ruled that BPI -FB had no right to freeze Buenaventura,
refusing to release his deposits, claiming that it had a
et al.'s accounts and adjudged BPI-FB liable therefor,
better right to the amounts which consisted of part of
in addition to damages.
the money allegedly fraudulently withdrawn from it by
Tevesteco and ending up in Franco's accounts. BPI-
FB asseverated that the claimed consideration of
P2,000,000.00 for the introduction facilitated by The counterclaim of the defendant is
Franco between George Daantos and Eladio Teves, DISMISSED for lack of factual and legal
on the one hand, and Jaime Sebastian, on the other, anchor.
spoke volumes of Franco's participation in the Costs against [BPI-FB].
fraudulent transaction. SO ORDERED. 28

On August 4, 1993, the Manila RTC rendered Unsatisfied with the decision, both parties led
judgment, the dispositive portion of which reads as their respective appeals before the CA. Franco con
follows: ned his appeal to the Manila RTC's denial of his claim
for moral and exemplary damages, and the diminutive
WHEREFORE, in view of all the award of attorney's fees. In a rming with modification
foregoing, judgment is hereby rendered in the lower court's decision, the appellate court decreed,
favor of [Franco] and against [BPI-FB], to wit:
ordering the latter to pay to the former the
following sums: WHEREFORE, foregoing considered,
the appealed decision is hereby AFFIRMED
3. P76,500.00 representing the legal with modi cation ordering [BPI-FB] to pay
rate of interest on the amount of [Franco] P63,189.00 representing the
P450,000.00 from May 18, 1990 to October interest deducted from the time deposit of
31, 1991; plaintiff-appellant. P200,000.00 as moral
damages and P100,000.00 as exemplary
4. P498,973.23 representing the damages, deleting the award of nominal
balance on [Franco's] savings account as of damages (in view of the award of moral and
May 18, 1990, together with the interest exemplary damages) and increasing the
thereon in accordance with the bank's award of attorney's fees from P30,000.00 to
guidelines on the payment therefor; P75,000.00.

5. P30,000.00 by way of attorney's fees; and Cost against [BPI-FB].

6. P10,000.00 as nominal damages. SO ORDERED. 29

In this recourse, BPI-FB ascribes error to the CA

when it ruled that: (1) Franco had a better right to the
deposits in the subject accounts which are part of the BPI-FB gives the following example: where X's
proceeds of a forged Authority to Debit; (2) Franco is television set is stolen by Y who thereafter sells it to Z,
entitled to interest on his current account; (3) Franco and where Z unwittingly entrusts possession of the TV
can recover the P400,000.00 deposit in Quiaoit's set to X, the latter would have the right to keep
savings account; (4) the dishonor of Franco's checks possession of the property and preclude Z from
was not legally in order; (5) BPI-FB is liable for interest recovering possession thereof. To bolster its position,
on Franco's time deposit, and for moral and exemplary BPI-FB cites Article 559 of the Civil Code, which
damages; and (6) BPI-FB's counter-claim has no provides:
factual and legal anchor.
Article 559. The possession of
The petition is partly meritorious. movable property acquired in good faith is
equivalent to a title. Nevertheless, one who
We are in full accord with the common ruling of has lost any movable or has been unlawfully
the lower courts that BPI-FB cannot unilaterally freeze deprived thereof, may recover it from the
Franco's accounts and preclude him from withdrawing person in possession of the same.
his deposits. However, contrary to the appellate court's
ruling, we hold that Franco is not entitled to unearned If the possessor of a movable lost or of which the
interest on the time deposit as well as to moral and owner has been unlawfully deprived, has acquired it
exemplary damages. in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid
First. On the issue of who has a better right to therefor.
the deposits in Franco's accounts, BPI-FB urges us
BPI-FB's argument is unsound. To begin with,
that the legal consequence of FMIC's forgery claim is
the movable property mentioned in Article 559 of the
that the money transferred by BPI- FB to Tevesteco is
Civil Code pertains to a speci c or determinate thing.
its own, and considering that it was able to recover
30 A determinate or speci c thing is one that is
possession of the same when the money was
individualized and can be identi ed or distinguished
redeposited by Franco, it had the right to set up its
from others of the same kind. 31
ownership thereon and freeze Franco's accounts.
In this case, the deposit in Franco's accounts
BPI-FB contends that its position is not unlike
consists of money which, albeit characterized as a
that of an owner of personal property who regains
movable, is generic and fungible. 32 The quality of
possession after it is stolen, and to illustrate this point,
being fungible depends upon the possibility of the Thus, inasmuch as what is involved is not a
property, because of its nature or the will of the parties, speci c or determinate personal property, BPI- FB's
being substituted by others of the same kind, not illustrative example, ostensibly based on Article 559,
having a distinct individuality. is inapplicable to the instant case.

33 There is no doubt that BPI-FB owns the

deposited monies in the accounts of Franco, but not as
Signi cantly, while Article 559 permits an owner
a legal consequence of its unauthorized transfer of
who has lost or has been unlawfully deprived of a
FMIC's deposits to Tevesteco's account. BPI-FB
movable to recover the exact same thing from the
conveniently forgets that the deposit of money in
current possessor, BPI-FB simply claims ownership of
banks is governed by the Civil Code provisions on
the equivalent amount of money, i.e., the value
simple loan or mutuum. 36 As there is a debtor-creditor
thereof, which it had mistakenly debited from FMIC's
relationship between a bank and its depositor, BPI-FB
account and credited to Tevesteco's, and
ultimately acquired ownership of Franco's deposits,
subsequently traced to Franco's account. In fact, this
but such ownership is coupled with a corresponding
is what BPI-FB did in ling the Makati Case against
obligation to pay him an equal amount on demand. 37
Franco, et al. It staked its claim on the money itself
Although BPI-FB owns the deposits in Franco's
which passed from one account to another,
accounts, it cannot prevent him from demanding
commencing with the forged Authority to Debit.
payment of BPI-FB's obligation by drawing checks
It bears emphasizing that money bears no against his current account, or asking for the release
earmarks of peculiar ownership, 34 and this of the funds in his savings account. Thus, when Franco
characteristic is all the more manifest in the instant issued checks drawn against his current account, he
case which involves money in a banking transaction had every right as creditor to expect that those checks
gone awry. Its primary function is to pass from hand to would be honored by BPI-FB as debtor.
hand as a medium of exchange, without other
More importantly, BPI-FB does not have a
evidence of its title. 35 Money, which had passed
unilateral right to freeze the accounts of Franco based
through various transactions in the general course of
on its mere suspicion that the funds therein were
banking business, even if of traceable origin, is no
proceeds of the multi-million peso scam Franco was
exception.
allegedly involved in. To grant BPI-FB, or any bank for
that matter, the right to take whatever action it pleases
on deposits which it supposes are derived from shady
transactions, would open the oodgates of public to re ect at any given time the amount of
distrust in the banking industry. money the depositor can dispose of as he sees
Our pronouncement in Simex International t, con dent that the bank will deliver it as and to
(Manila), Inc. v. Court of Appeals 38 continues to whomever directs. A blunder on the part of the
bank, such as the dishonor of the check
resonate, thus:
without good reason, can cause the depositor
The banking system is an
not a little embarrassment if not also nancial
indispensable institution in the modern world
loss and perhaps even civil and criminal
and plays a vital role in the economic life of
litigation.
every civilized nation. Whether as mere
passive entities for the safekeeping and The point is that as a business
saving of money or as active instruments of affected with public interest and because of
business and commerce, banks have the nature of its functions, the bank is under
become an ubiquitous presence among the obligation to treat the accounts of its
people, who have come to regard them with depositors with meticulous care, always
respect and even gratitude and, most of all, having in mind the duciary nature of their
confidence. Thus, even the humble wage- relationship. . . . .
earner has not hesitated to entrust his life's
savings to the bank of his choice, knowing Ineluctably, BPI -FB, as the trustee in the
that they will be safe in its custody and will duciary relationship, is duty bound to know the
even earn some interest for him. The signatures of its customers. Having failed to detect the
ordinary person, with equal faith, usually forgery in the Authority to Debit and in the process
maintains a modest checking account for inadvertently facilitate the FMIC -Tevesteco transfer,
security and convenience in the settling of BPI-FB cannot now shift liability thereon to Franco and
his monthly bills and the payment of ordinary the other payees of checks issued by Tevesteco, or
expenses. . . . . prevent withdrawals from their respective accounts
In every case, the depositor expects the
without the appropriate court writ or a favorable final
bank to treat his account with the utmost delity, judgment.
whether such account consists only of a few
hundred pesos or of millions. The bank must
Further, it boggles the mind why BPI-FB, even
record every single transaction accurately, without delving into the authenticity of the signature in
down to the last centavo, and as promptly as the Authority to Debit, effected the transfer of
possible. This has to be done if the account is P80,000,000.00 from FMIC's to Tevesteco's account,
when FMIC's account was a time deposit and it had liability to Franco for payment of interest based on its
already paid advance interest to FMIC. Considering continued and unjusti ed refusal to perform a
that there is as yet no indubitable evidence contractual obligation upon demand. After all, this was
establishing Franco's participation in the forgery, he the core issue raised by Franco in his complaint before
remains an innocent party. As between him and BPI- the Manila RTC.
FB, the latter, which made possible the present
predicament, must bear the resulting loss or Third. As to the award to Franco of the deposits
inconvenience. in Quiaoit's account, we nd no reason to depart from
the factual findings of both the Manila RTC and the
Second. With respect to its liability for interest CA.
on Franco's current account, BPI-FB argues that its
non-compliance with the Makati RTC's Order Lifting Noteworthy is the fact that Quiaoit himself testi
the Order of Attachment and the legal consequences ed that the deposits in his account are actually owned
thereof, is a matter that ought to be taken up in that by Franco who simply accommodated Jaime
court. Sebastian's request to temporarily transfer
P400,000.00 from Franco's savings account to
The argument is tenuous. We agree with the Quiaoit's account. 40 His testimony cannot be
succinct holding of the appellate court in this respect. characterized as hearsay as the records reveal that he
The Manila RTC's order to pay interests on Franco's had personal knowledge of the arrangement made
current account arose from BPI- FB's unjusti ed refusal between Franco, Sebastian and himself. 41
to comply with its obligation to pay Franco pursuant to
their contract of mutuum. In other words, from the time BPI-FB makes capital of Franco's belated
BPI-FB refused Franco's demand for the release of the allegation relative to this particular arrangement. It
deposits in his current account, specifically, from May insists that the transaction with Quiaoit was not speci
17, 1990, interest at the rate of 12% began to accrue cally alleged in Franco's complaint before the Manila
thereon. 39 RTC. However, it appears that BPI-FB had impliedly
consented to the trial of this issue given its extensive
Undeniably, the Makati RTC is vested with the cross-examination of Quiaoit.
authority to determine the legal consequences of BPI-
FB's non-compliance with the Order Lifting the Order Section 5, Rule 10 of the Rules of Court provides:
of Attachment. However, such authority does not
preclude the Manila RTC from ruling on BPI-FB's
 Section 5. Amendment to conform to
or authorize presentation of evidence. — Fourth. Notwithstanding all the foregoing, BPI-
When issues not raised by the pleadings FB continues to insist that the dishonor of Franco's
are tried with the express or implied checks respectively dated September 11 and 18, 1989
consent of the parties, they shall be was legally in order in view of the Makati RTC's
treated in all respects as if they had been supplemental writ of attachment issued on September
raised in the pleadings. Such amendment 14, 1989. It posits that as the party that applied for the
of the pleadings as may be necessary to writ of attachment before the Makati RTC, it need not
cause them to conform to the evidence be served with the Notice of Garnishment before it
and to raise these issues may be made could place Franco's accounts under garnishment.
upon motion of any party at any time,
even after judgment; but failure to amend The argument is specious. In this argument, we
does not affect the result of the trial of perceive BPI-FB's clever but transparent ploy to
these issues. If evidence is objected to at circumvent Section 4, 42 Rule 13 of the Rules of Court.
the trial on the ground that it is now within the It should be noted that the strict requirement on
issues made by the pleadings, the court may service of court papers upon the parties affected is
allow the pleadings to be amended and shall designed to comply with the elementary requisites of
do so with liberality if the presentation of the due process. Franco was entitled, as a matter of right,
merits of the action and the ends of to notice, if the requirements of due process are to be
substantial justice will be subserved thereby. observed. Yet, he received a copy of the Notice of
The court may grant a continuance to enable Garnishment only on September 27, 1989, several
the amendment to be made. (Emphasis
days after the two checks he issued were dishonored
supplied)
by BPI-FB on September 20 and 21, 1989. Verily, it
In all, BPI-FB's argument that this case is not was premature for BPI-FB to freeze Franco's accounts
the right forum for Franco to recover the P400,000.00 without even awaiting service of the Makati RTC's
begs the issue. To reiterate, Quiaoit, testifying during Notice of Garnishment on Franco.
the trial, unequivocally disclaimed ownership of the
Additionally, it should be remembered that the
funds in his account, and pointed to Franco as the
enforcement of a writ of attachment cannot be made
actual owner thereof. Clearly, Franco's action for the
without including in the main suit the owner of the
recovery of his deposits appropriately covers the
property attached by virtue thereof. Section 5, Rule 13
deposits in Quiaoit's account.
of the Rules of Court speci cally provides that "no levy
or attachment pursuant to the writ issued . . . shall be the ostensible owner, Quiaoit, wanted the amount
enforced unless it is preceded, or contemporaneously returned to Franco.
accompanied, by service of summons, together with a
copy of the complaint, the application for attachment, In this regard, we are guided by Article 2201 of
on the defendant within the Philippines." the Civil Code which provides:

Franco was impleaded as party-defendant only Article 2201. In contracts and quasi-
on May 15, 1990. The Makati RTC had yet to acquire contracts, the damages for which the obligor
jurisdiction over the person of Franco when BPI-FB who acted in good faith is liable shall be
those that are the natural and probable
garnished his accounts. 43 Effectively, therefore, the
consequences of the breach of the
Makati RTC had no authority yet to bind the deposits
obligation, and which the parties have
of Franco through the writ of attachment, and
foreseen or could have reasonable foreseen
consequently, there was no legal basis for BPI-FB to
at the time the obligation was constituted.
dishonor the checks issued by Franco.
In case of fraud, bad faith, malice or
Fifth. Anent the CA's nding that BPI-FB was in
wanton attitude, the obligor shall be
bad faith and as such liable for the advance interest it responsible for all damages which may
deducted from Franco's time deposit account, and for be reasonably attributed to the non-
moral as well as exemplary damages, we nd it proper performance of the obligation. (Emphasis
to reinstate the ruling of the trial court, and allow only supplied.)
the recovery of nominal damages in the amount of
P10,000.00. However, we retain the CA's award of We nd, as the trial court did, that BPI- FB acted
P75,000.00 as attorney's fees. out of the impetus of self-protection and not out of
malevolence or ill will. BPI-FB was not in the corrupt
In granting Franco's prayer for interest on his state of mind contemplated in Article 2201 and should
time deposit account and for moral and exemplary not be held liable for all damages now being imputed
damages, the CA attributed bad faith to BPI-FB to it for its breach of obligation. For the same reason,
because it (1) completely disregarded its obligation to it is not liable for the unearned interest on the time
Franco; (2) misleadingly claimed that Franco's deposit.
deposits were under garnishment; (3) misrepresented
that Franco's current account was not on le; and (4) Bad faith does not simply connote bad judgment or
refused to return the P400,000.00 despite the fact that negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it on any of the cases stated in Article 2219 of the Civil
partakes of the nature of fraud. 44 We have held that it Code. 49
is a breach of a known duty through some motive of
interest or ill will. 45 In the instant case, we cannot Franco could not point to, or identify any
attribute to BPI-FB fraud or even a motive of self - particular circumstance in Article 2219 of the Civil
enrichment. As the trial court found, there was no Code, 50 upon which to base his claim for moral
denial whatsoever by BPI-FB of the existence of the damages.
accounts. The computer-generated document which
Thus, not having acted in bad faith, BPI-FB
indicated that the current account was "not on le"
cannot be held liable for moral damages under Article
resulted from the prior debit by BPI-FB of the deposits.
2220 of the Civil Code for breach of contract. 51
The remedy of freezing the account, or the
garnishment, or even the outright refusal to honor any We also deny the claim for exemplary damages.
transaction thereon was resorted to solely for the Franco should show that he is entitled to moral,
purpose of holding on to the funds as a security for its temperate, or compensatory damages before the court
intended court action, 46 and with no other goal but to may even consider the question of whether exemplary
ensure the integrity of the accounts. damages should be awarded to him. 52 As there is no
basis for the award of moral damages, neither can
We have had occasion to hold that in the
exemplary damages be granted.
absence of fraud or bad faith, 47 moral damages
cannot be awarded; and that the adverse result of an While it is a sound policy not to set a premium
action does not per se make the action wrongful, or the on the right to litigate, 53 we, however, nd that Franco
party liable for it. One may err, but error alone is not a is entitled to reasonable attorney's fees for having
ground for granting such damages. 48 been compelled to go to court in order to assert his
right. Thus, we a rm the CA's grant of P75,000.00 as
An award of moral damages contemplates the
attorney's fees.
existence of the following requisites: (1) there must be
an injury clearly sustained by the claimant, whether Attorney's fees may be awarded when a party is
physical, mental or psychological; (2) there must be a compelled to litigate or incur expenses to protect his
culpable act or omission factually established; (3) the interest, 54 or when the court deems it just and
wrongful act or omission of the defendant is the equitable. 55 In the case at bench, BPI-FB refused to
proximate cause of the injury sustained by the unfreeze the deposits of Franco despite the Makati
claimant; and (4) the award for damages is predicated
 RTC's Order Lifting the Order of Attachment and
Quiaoit's unwavering assertion that the P400,000.00
was part of Franco's savings account. This refusal
constrained Franco to incur expenses and litigate for
almost two (2) decades in order to protect his interests
and recover his deposits. Therefore, this Court deems
it just and equitable to grant Franco P75,000.00 as
attorney's fees. The award is reasonable in view of the
complexity of the issues and the time it has taken for
this case to be resolved. 56

Sixth. As for the dismissal of BPI-FB's counter-

claim, we uphold the Manila RTC's ruling, as a rmed
by the CA, that BPI-FB is not entitled to recover
P3,800,000.00 as actual damages. BPI-FB's alleged
loss of pro t as a result of Franco's suit is, as already
pointed out, of its own making. Accordingly, the denial THIRD DIVISION
of its counter-claim is in order.
[G.R. Nos. 173654-765. August 28, 2008.]
WHEREFORE, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision dated
PEOPLE OF THE PHILIPPINES,
November 29, 1995 is AFFIRMED with the
petitioners, vs. TERESITA PUIG and
MODIFICATION that the award of unearned interest
ROMEO PORRAS, respondent.
on the time deposit and of moral and exemplary
damages is DELETED.
DECISION
No pronouncement as to costs.
SO ORDERED.

Ynares-Santiago, Austria-Martinez, Chico-Nazario

CHICO-NAZARIO, J :p

and Reyes, JJ., concur.

 This is a Petition for Review under Rule 45 of within the jurisdiction of this Honorable
the Revised Rules of Court with petitioner People of Court, above-named [respondents],
the Philippines, represented by the Of ce of the conspiring, confederating, and helping one
Solicitor General, praying for the reversal of the Orders another, with grave abuse of con dence ,
dated 30 January 2006 and 9 June 2006 of the being the Cashier and Bookkeeper of the
Regional Trial Court (RTC) of the 6th Judicial Region, Rural Bank of Pototan, Inc., Pototan, Iloilo,
Branch 68, Dumangas, Iloilo, dismissing the 112 cases without the knowledge and/or consent of
of Quali ed Theft led against respondents Teresita the management of the Bank and with
Puig and Romeo Porras, and denying petitioner's intent of gain, did then and there willfully,
unlawfully and feloniously take, steal and
Motion for Reconsideration, in Criminal Cases No. 05-
carry away the sum of FIFTEEN
3054 to 05-3165. IDAaCc

THOUSAND PESOS (P15,000.00),

Philippine Currency, to the damage and
The following are the factual antecedents:
prejudice of the said bank in the aforesaid
amount.
On 7 November 2005, the Iloilo Provincial
Prosecutor's Of ce led before Branch 68 of the RTC in
After perusing the Informations in these cases,
Dumangas, Iloilo, 112 cases of Quali ed Theft against
the trial court did not nd the existence of probable
respondents Teresita Puig (Puig) and Romeo Porras
cause that would have necessitated the issuance of a
(Porras) who were the Cashier and Bookkeeper,
warrant of arrest based on the following grounds:
respectively, of private complainant Rural Bank of
Pototan, Inc. The cases were docketed as Criminal
1. the element of 'taking without the consent of
Cases No. 05-3054 to 05-3165. the owners' was missing on the ground that it is
the depositors-clients, and not the Bank, which
The allegations in the Informations 1 led before led the complaint in these cases, who are the
the RTC were uniform and pro-forma, except for the owners of the money allegedly taken by
amounts, date and time of commission, to wit: respondents and hence, are the real parties-in-
interest; and
INFORMATION 2. the Informations are bereft of the phrase alleging
"dependence, guardianship or vigilance
That on or about the 1st day of between the respondents and the offended
August, 2002, in the Municipality of party that would have created a high degree
Pototan, Province of Iloilo, Philippines, and
 of con dence between them which the WHETHER OR NOT THE 112
respondents could have abused." ADECcII INFORMATIONS FOR QUALIFIED
THEFT SUFFICIENTLY ALLEGE THE
ELEMENT OF TAKING WITHOUT THE
It added that allowing the 112 cases for Quali ed Theft CONSENT OF THE OWNER, AND THE
led against the respondents to push through would be QUALIFYING CIRCUMSTANCE OF
violative of the right of the respondents under Section GRAVE ABUSE OF CONFIDENCE.
14 (2), Article III of the 1987 Constitution which states
that in all criminal prosecutions, the accused shall Petitioner prays that judgment be rendered
enjoy the right to be informed of the nature and cause annulling and setting aside the Orders dated 30
of the accusation against him. Following Section 6, January 2006 and 9 June 2006 issued by the trial
Rule 112 of the Revised Rules of Criminal Procedure, court, and that it be directed to proceed with Criminal
the RTC dismissed the cases on 30 January 2006 and Cases No. 05-3054 to 05-3165.
refused to issue a warrant of arrest against Puig and
Porras. Petitioner explains that under Article 1980 of the
A Motion for Reconsideration 2 was filed on 17 April New Civil Code, " xed, savings, and current deposits
2006, by the petitioner. of money in banks and similar institutions shall be
governed by the provisions concerning simple loans."
On 9 June 2006, an Order 3 denying Corollary thereto, Article 1953 of the same Code
petitioner's Motion for Reconsideration was issued by provides that "a person who receives a loan of money
the RTC, finding as follows: or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal
Accordingly, the prosecution's Motion amount of the same kind and quality." Thus, it posits
for Reconsideration should be, as it hereby,
that the depositors who place their money with the
DENIED. The Order dated January 30,
bank are considered creditors of the bank. The bank
2006 STANDS in all respects.
acquires ownership of the money deposited by its
Petitioner went directly to this Court via Petition clients, making the money taken by respondents as
for Review on Certiorari under belonging to the bank. aSEHDA

Rule 45, raising the sole legal issue of: Petitioner also insists that the Informations suf
ciently allege all the elements of the crime of quali ed
theft, citing that a perusal of the Informations will show
that they speci cally allege that the respondents were to gain and without the consent of the owner, which is
the Cashier and Bookkeeper of the Rural Bank of the Bank.
Pototan, Inc., respectively, and that they took various
amounts of money with grave abuse of con dence, and In determining the existence of probable cause
without the knowledge and consent of the bank, to the to issue a warrant of arrest, the RTC judge found the
damage and prejudice of the bank. allegations in the Information inadequate. He ruled that
the Information failed to state facts constituting the
Parenthetically, respondents raise procedural qualifying circumstance of grave abuse of con dence
issues. They challenge the petition on the ground that and the element of taking without the consent of the
a Petition for Review on Certiorari via Rule 45 is the owner, since the owner of the money is not the Bank,
wrong mode of appeal because a nding of probable but the depositors therein. He also cites People v. Koc
cause for the issuance of a warrant of arrest Song, 4 in which this Court held:
presupposes evaluation of facts and circumstances,
which is not proper under said Rule. There must be allegation in the
information and proof of a relation, by
Respondents further claim that the Department of reason of dependence, guardianship or
Justice (DOJ), through the Secretary of Justice, is the vigilance, between the respondents and
principal party to le a Petition for Review on Certiorari, the offended party that has created a high
considering that the incident was indorsed by the DOJ. degree of con dence between them, which
HECTaA
the respondents abused.
We find merit in the petition.
At this point, it needs stressing that the RTC Judge
The dismissal by the RTC of the criminal cases based his conclusion that there was no probable cause
was allegedly due to insuf ciency of the Informations simply on the insuf ciency of the allegations in the
and, therefore, because of this defect, there is no basis Informations concerning the facts constitutive of the
for the existence of probable cause which will justify elements of the offense charged. This, therefore,
the issuance of the warrant of arrest. Petitioner assails makes the issue of suf ciency of the allegations in the
the dismissal contending that the Informations for Informations the focal point of discussion.
Quali ed Theft suf ciently state facts which constitute
Quali ed Theft, as de ned and punished under
(a) the qualifying circumstance of grave abuse of
Article 310 of the Revised Penal Code, is committed
confidence; and (b) the element of taking, with intent
as follows, viz.:
 To fall under the crime of Qualified Theft, the
ART. 310. Qualified Theft. — The following elements must concur:
crime of theft shall be punished by the
penalties next higher by two degrees than 1. Taking of personal property;
those respectively speci ed in the next 2. That the said property belongs to another;
preceding article, if committed by a 3. That the said taking be done with intent to
domestic servant, or with grave abuse of gain;
con dence , or if the property stolen is
motor vehicle, mail matter or large cattle or 4. That it be done without the owner's consent;
consists of coconuts taken from the
premises of a plantation, fish taken from a 5. That it be accomplished without the
shpond or shery or if property is taken on use of violence or intimidation
the occasion of re, earthquake, typhoon, against persons, nor of force upon
volcanic eruption, or any other calamity, things;
vehicular accident or civil disturbance.
(Emphasis supplied.) HcaDIA 6. That it be done with grave abuse of
confidence.
Theft, as de ned in Article 308 of the Revised
Penal Code, requires the physical taking of another's On the suf ciency of the Information, Section 6,
property without violence or intimidation against Rule 110 of the Rules of Court requires, inter alia, that
persons or force upon things. The elements of the the information must state the acts or omissions
crime under this Article are: complained of as constitutive of the offense.

1. Intent to gain; On the manner of how the Information should

be worded, Section 9, Rule 110 of the Rules of Court,
2. Unlawful taking; is enlightening:

3. Personal property belonging to Section 9. Cause of the accusation.

another; — The acts or omissions complained of as
constituting the offense and the qualifying
4. Absence of violence or intimidation and aggravating circumstances must be
against persons or force upon things. stated in ordinary and concise language
and not necessarily in the language used in
 the statute but in terms suf cient to enable law, but from established jurisprudence. The
a person of common understanding to relationship between banks and depositors has been
know what offense is being charged as well held to be that of creditor and debtor. Articles 1953 and
as its qualifying and aggravating 1980 of the New Civil Code, as appropriately pointed
circumstances and for the court to out by petitioner, provide as follows:
pronounce judgment.
Article 1953. A person who receives
It is evident that the Information need not use a loan of money or any other fungible thing
the exact language of the statute in alleging the acts or acquires the ownership thereof, and is
omissions complained of as constituting the offense. bound to pay to the creditor an equal
The test is whether it enables a person of common amount of the same kind and quality.
understanding to know the charge against him, and the
court to render judgment properly. 5 Article 1980. Fixed, savings, and
current deposits of money in banks and
The portion of the Information relevant to this similar institutions shall be governed by the
discussion reads: HcTSDa
provisions concerning loan.

[A]bove-named [respondents], In a long line of cases involving Quali ed Theft, this

conspiring, confederating, and helping one Court has rmly established the nature of possession
another, with grave abuse of con dence, by the Bank of the money deposits therein, and the
being the Cashier and Bookkeeper of the duties being performed by its employees who have
Rural Bank of Pototan, Inc., Pototan, Iloilo, custody of the money or have come into possession
without the knowledge and/or consent of of it. The Court has consistently considered the
the management of the Bank . . . . allegations in the Information that such employees
acted with grave abuse of con dence, to the damage
It is beyond doubt that tellers, Cashiers,
and prejudice of the Bank, without particularly
Bookkeepers and other employees of a Bank who
referring to it as owner of the money deposits, as suf
come into possession of the monies deposited therein
cient to make out a case of Quali ed Theft. For a
enjoy the con dence reposed in them by their graphic illustration we cite Roque v. People , 6
employer. Banks, on the other hand, where monies are
where the accused teller was convicted for Quali ed
deposited, are considered the owners thereof. This is
Theft based on this Information:
very clear not only from the express provisions of the
 That on or about the 16th day of In convicting the therein appellant, the Court held
November, 1989, in the municipality of that:
Floridablanca, province of Pampanga,
Philippines and within the jurisdiction of his [S]ince the teller occupies a position
Honorable Court, the above-named of con dence, and the bank places money
accused ASUNCION GALANG ROQUE, in the teller's possession due to the con
being then employed as teller of the Basa dence reposed on the teller, the felony of
Air Base Savings and Loan Association Inc. qualified theft would be committed. 7
(BABSLA) with of ce address at Basa Air
Base, Floridablanca, Pampanga, and as Also in People v. Sison, 8 the Branch
such was authorized and reposed with the Operations Of cer was convicted of the crime of
responsibility to receive and collect capital Qualified Theft based on the Information as herein
contributions from its member/contributors cited:
of said corporation, and having collected
and received in her capacity as teller of the That in or about and during the
BABSLA the sum of TEN THOUSAND period compressed between January 24,
PESOS (P10,000.00), said accused, with 1992 and February 13, 1992, both dates
intent of gain, with grave abuse of con inclusive, in the City of Manila, Philippines,
dence and without the knowledge and the said accused did then and there wilfully,
consent of said corporation, did then and unlawfully and feloniously, with intent of
there willfully, unlawfully and feloniously gain and without the knowledge and
take, steal and carry away the amount of consent of the owner thereof, take, steal
P10,000.00, Philippine currency, by making and carry away the following, to wit:
it appear that a certain depositor by the
Cash money amounting to
name of Antonio Salazar withdrew from his
P6,000,000.00 in different denominations
Savings Account No. 1359, when in truth
belonging to the PHILIPPINE
and in fact said Antonio Salazar did not
COMMERCIAL INTERNATIONAL BANK
withdr[a]w the said amount of P10,000.00
(PCIBank for brevity), Luneta Branch,
to the damage and prejudice of BABSLA in
Manila represented by its Branch Manager,
the total amount of P10,000.00, Philippine
HELEN U. FARGAS, to the damage and
currency. aEcHCD

prejudice of the said owner in the aforesaid

 amount of P6,000,000.00, Philippine of the bank, and the possession of the defendant was
Currency. the possession of the Bank. The Court held therein that
when the defendant, with grave abuse of con dence,
That in the commission of the said removed the money and appropriated it to his own use
offense, herein accused acted with grave
without the consent of the Bank, there was taking as
abuse of con dence and unfaithfulness, he
contemplated in the crime of Qualified Theft. 11
being the Branch Operation Of cer of the
said complainant and as such he had free Conspicuously, in all of the foregoing cases,
access to the place where the said amount where the Informations merely alleged the positions of
of money was kept. the respondents; that the crime was committed with
grave abuse of con dence, with intent to gain and
The judgment of conviction elaborated thus:
without the knowledge and consent of the Bank,
The crime perpetuated by appellant without necessarily stating the phrase being
against his employer, the Philippine assiduously insisted upon by respondents, "of a
Commercial and Industrial Bank (PCIB), is relation by reason of dependence, guardianship or
Quali ed Theft. Appellant could not have vigilance, between the respondents and the
committed the crime had he not been holding offended party that has created a high degree of
the position of Luneta Branch Operation Of con dence between them, which respondents
cer which gave him not only sole access to abused," 12 and without employing the word "owner"
the bank vault
in lieu of the "Bank" were considered to have satisfied
KK. . . . The management of the the test of sufficiency of allegations.
PCIB reposed its trust and con dence in the
As regards the respondents who were
appellant as its Luneta Branch Operation
employed as Cashier and Bookkeeper of the Bank in
Of cer, and it was this trust and con dence
this case, there is even no reason to quibble on the
which he exploited to enrich himself to the
damage and prejudice of PCIB . . . . 9cCTAIE
allegation in the Informations that they acted with
grave abuse of con dence. In fact, the Information
From another end, People v. Locson, 10 in addition which alleged grave abuse of con dence by accused
to People v. Sison, described the nature of herein is even more precise, as this is exactly the
possession by the Bank. The money in this case was requirement of the law in qualifying the crime of Theft.
in the possession of the defendant as receiving teller
 In summary, the Bank acquires ownership of the of Court, only errors of law may be raised, 14 and
money deposited by its clients; and the employees of herein petitioner certainly raised a question of law.
the Bank, who are entrusted with the possession of
money of the Bank due to the con dence reposed in As an aside, even if we go beyond the allegations of the
them, occupy positions of con dence. The Informations in these cases, a closer look at the records
Informations, therefore, suf ciently allege all the of the preliminary investigation conducted will show that,
essential elements constituting the crime of Qualified indeed, probable cause exists for the indictment of
Theft. herein respondents. Pursuant to Section 6, Rule 112 of
the Rules of Court, the judge shall issue a warrant of
On the theory of the defense that the DOJ is the arrest only upon a nding of probable cause after
principal party who may le the instant petition, the personally evaluating the resolution of the prosecutor
ruling in Mobilia Products, Inc. v. Hajime Umezawa 13 and its supporting evidence. Soliven v. Makasiar , 15 as
is instructive. The Court thus enunciated: CacTIE reiterated in Allado v. Driokno , 16 explained that
probable cause for the issuance of a warrant of arrest is
In a criminal case in which the the existence of such facts and circumstances that
offended party is the State, the interest of would lead a reasonably discreet and prudent person to
the private complainant or the offended believe that an offense has been committed by the
party is limited to the civil liability arising
person sought to be arrested. 17 The records reasonably
therefrom. Hence, if a criminal case is
indicate that the respondents may have, indeed,
dismissed by the trial court or if there is an
committed the offense charged.
acquittal, a reconsideration of the order of
dismissal or acquittal may be undertaken, Before closing, let it be stated that while it is truly
whenever legally feasible, insofar as the imperative upon the scal or the judge, as the case may
criminal aspect thereof is concerned and
be, to relieve the respondents from the pain of going
may be made only by the public
through a trial once it is ascertained that no probable
prosecutor; or in the case of an appeal, by
cause exists to form a suf cient belief as to the guilt of
the State only, through the OSG. . . . .
the respondents, conversely, it is also equally
On the alleged wrong mode of appeal by imperative upon the judge to proceed with the case
petitioner, suffice it to state that the rule is well-settled upon a showing that there is a prima facie case against
that in appeals by certiorari under Rule 45 of the Rules the respondents.
 WHEREFORE, premises considered, the
Petition for Review on Certiorari is hereby GRANTED.
The Orders dated 30 January 2006 and 9 June 2006 THIRD DIVISION
of the RTC dismissing Criminal Cases No. 05- 3054 to
05-3165 are REVERSED and SET ASIDE. Let the [G.R. No. 133877. November 14, 2001.]
corresponding Warrants of Arrest issue against herein
respondents TERESITA PUIG and ROMEO PORRAS. RIZAL COMMERCIAL BANKING
The RTC Judge of Branch 68, in Dumangas, Iloilo, is CORPORATION , petitioner, vs. ALFA
directed to proceed with the trial of Criminal Cases No.
05-3054 to 05-3165, inclusive, with reasonable RTW MANUFACTURING
dispatch. No pronouncement as to costs. CDEaAI
CORPORATION, BA FINANCE
CORPORATION, NORTH AMERICAN
SO ORDERED. GARMENTS CORPORATION, JOHNNY
TENG, RAMON LEE, ANTONIO
Ynares-Santiago, Austria-Martinez, Reyes and Leonardo- LACDAO, RAMON LUY and ALFA
de Castro, * JJ., concur. INTEGRATED TEXTILE MILLS,
respondents.

The Legal Services Division (RCBC) for petitioner.

Cayanga Zuñiga & Angel Law Offices for private

respondents.

Pelaez Gregorio Sipin Bala & Robles for North

American Garments Corp.

Cortez & Cortez Law Offices for BA Finance Corp.

SYNOPSIS
 Upon a complaint led by the RCBC for a sum of are conclusive, except in a number of instances. In Siguan
money against the respondents, the RTC ordered the vs. Lim, this Court enumerated those instances when
respondents to pay RCBC the amount of P18,961,372.43. the factual ndings of the Court of Appeals are not
On appeal, the CA affirmed with modification the RTC deemed conclusive, to wit: (1) when the conclusion is
decision. RCBC now questioned the CA decision insofar a nding grounded entirely on speculations, surmises or
as it decreased the amount awarded by the RTC in its conjectures; (2) when the inference made is manifestly
favor from P18,961,372.43 to P3,060,406.25. mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is
The Supreme Court held that while as a general based on a misapprehension of facts; (5) when the
rule, factual ndings of the CA are conclusive, the CA in ndings of facts are con icting; (6) when the Court of
this case committed reversible error because it made Appeals, in making its ndings, went beyond the issues
ndings "contrary to the admissions" of the parties. The CA of the case and the same is contrary to the admissions
disregarded the parties' stipulations in their contracts of of both the appellant and appellee; (7) when the ndings
loan, more speci cally those pertaining to the agreed are contrary to those of the trial court; (8) when the
interest rates, service charges and penalties in case of findings are conclusions without citation of speci c
breach thereof. Terms and conditions of contracts which evidence on which they are based; (9) when the facts
are not contrary to law, morals, good customs, public set forth in the petition as well as in the petitioner's
order and public policy become the law between the main and reply briefs are not disputed by the
parties. The CA's award of P3,060,406.25 was set aside respondent; and (10) when the ndings of fact are
and substituted with an amount to be computed by the trial premised on the supposed absence of evidence and
court. contradicted by the evidence on record. In the case at
bar, exception No. 6 is present. Here, the Court of
Appeals made ndings "contrary to the admissions" of
SYLLABUS the parties. We refer to the terms and conditions
agreed upon by petitioner RCBC and respondent
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF
borrowers in the Trust Receipts and the
THE COURT OF APPEALS ARE GENERALLY
Comprehensive Surety Agreements.
CONCLUSIVE; EXCEPTIONS; CASE AT BAR. — The rule
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUST
is well settled that the jurisdiction of this Court in cases
RECEIPTS; STIPULATIONS THEREIN WHICH ARE
brought before it from the Court of Appeals via Rule 45 of
NOT CONTRARY TO LAW, MORALS OR PUBLIC
the 1997 Rules of Civil Procedure, as amended, is limited
to reviewing errors of law. Findings of fact of the latter court ORDER BECOME THE LAW BETWEEN THE PARTIES;
 CASE AT BAR. — The case now before us involves an
obligation arising from a letter of credit-trust receipt On March 12, 1982, Rizal Banking Corporation
transaction. Under this arrangement, a bank extends to (RCBC) led with the Regional Trial Court of Makati,
a borrower a loan covered by the letter of credit, with the Branch 145, Civil Case No. 2624 for a sum of money
trust receipt as security of the loan. A trust receipt is "a against Alfa RTW Manufacturing Corporation, Johnny
security transaction intended to Teng, Ramon Lee, Antonio Lacdao, Ramon Luy and Alfa
Integrated Textile Mills. Asserting a superior right over the
aid in nancing importers and retail dealers who do not property involved in the suit, North Atlantic Garments
have su cient funds or resources to nance the importation Corporation led a complaint in intervention. BA Finance
or purchase of merchandise, and who may not be able to
acquire credit except thru utilization, as collateral, of the Corporation, claiming as mortgagee of the same
merchandise imported or purchased." In contracts property,
contained in trust receipts, the contracting parties may
establish agreements, terms and conditions they may led an answer in intervention.
deem advisable, provided they are not contrary to law,
morals or public order. In the case at bar, there are speci After hearing, the trial court rendered judgment on August
c amounts of interest, service charges and penalties 19, 1991, the dispositive portion
agreed upon by the parties . . . . The validity of the
3 of which reads:
contracts is not being questioned. It follows that the very
terms and conditions of the same contracts become the "WHEREFORE, judgment is rendered in favor of plaintiff as
law between the parties. ADEacC
follows:

Ordering all defendants to pay, jointly and severally, to

plaintiff the amount of Eighteen Million Nine Hundred
DECISION
Sixty-one Thousand Three Hundred Seventy-two
Pesos and Forty-three Centavos (P18, 961,372.43),
Philippine Currency, (inclusive of interest, service
SANDOVAL-GUTIERREZ, J : p charges, litigation expenses and attorney's fees), with
interest thereon at the legal rate from February 15,
Petition for review on certiorari assailing the 1988 until fully paid. The proceeds from the sale of
decision of the Court of Appeals in CA-G.R. C.V. No. defendant Alfa's ready to wear apparel, in the sum of
42293.
 P73,133.70, should be deducted from the principal In this petition, RCBC questions the Court of
obligation of P18,961,372.43; Appeals decision insofar as it modi ed the RTC decision
by decreasing the award in its favor from P18,961,372.43
II. Declaring that the respective
to P3,060,406.25. In assailing the Court of Appeals
liens of intervenors BA Finance Corporation
decision, petitioner RCBC raises a question of law, that is,
and North American Garments Corporation
whether or not the Court of Appeals can deviate from the
over the properties attached by the sheriff
provisions of the contract between the parties, which
are inferior to that of plaintiff.
contract is the law between them.
JJ. Ordering defendants and
The facts as summarized by the Court of Appeals
intervenors to pay the proportionate
are:
costs. "SO ORDERED."
"From the records of the case, it
On appeal, the Court of Appeals affirmed with
appears that defendant Alfa RTW
modification 2 the RTC decision, thus: Manufacturing Corporation (Alfa RTW), on
separate instances, had applied for and was
"WHEREFORE, premises
granted by the plaintiff Rizal Commercial
considered, the decision appealed from is
Banking Corporation (RCBC) four Letters of
hereby AFFIRMED, with the modi cation that
Credit (RO -80/2487, RO -80/2789, RO-
instead of P18,961,372.43, all the
80/D-1795 and RO-81/D-1800 marked as
defendants are hereby ordered to pay, jointly
Exhibits "A", "D", "G", and "J", respectively)
and severally to plaintiff the amount of
to facilitate its purchase of raw materials for
P3,060,406.25, Philippine Currency,
its garments business. Upon such letters of
inclusive of stipulated interest, service
credit, corresponding bills of exchange
charges, litigation expenses and attorney's
(Exhibits "B", "E", "H", and "K") of various
fees, with interest thereon at the legal rate
amounts were drawn, and charged to the
from February 15, 1988, until fully paid.
account of said defendants.
"All other disquisitions of the trial court are
The defendant Alfa RTW, in turn, had
hereby AFFIRMED.
executed four Trust Receipts (Exhibits "C",
"SO ORDERED." "F", "I" and "L") stipulating that it had
received in trust for the plaintiff bank the
goods and merchandise described therein, however, that the liability of individual
and which were purchased with the drawings defendants and defendant Alfa Integrated
upon the letters of credit. Textile Mills, Inc. thereunder shall not exceed
the sum of P4,000,000.00 and
When the obligations upon the said P7,500,000.00 and such interest as may
commercial documents became due, the accrue thereon and expenses as may be
plaintiff demanded payment of the incurred by plaintiff bank. (p. 4, Complaint)"
defendants' undertakings, citing two
documents allegedly executed by the Petitioner RCBC contends that the Court of
individual defendants Johnny Teng, Ramon Appeals erred in awarding to it the minimal sum of
Lee, Antonio D. Lacdao and Ramon Uy and P3,060,406.25 instead of P18,961,372.43 granted by the
Alfa Integrated Textile Mills Inc. (Alfa ITM), trial court.
labeled Comprehensive Surety Agreements
(Exhibits "N" and "M") dated September 8, The rule is well settled that the jurisdiction of this
1978 and October 10, 1979. Court in cases brought before it from the Court of Appeals
Under such Comprehensive Surety via Rule 45 of the 1997 Rules of Civil Procedure, as
Agreements, it was essentially agreed that for amended, is limited to reviewing errors of law. Findings of
and in consideration of any existing fact of the latter court are conclusive, except in a number
indebtedness to plaintiff bank of defendant Alfa of instances. In Siguan vs. Lim 3 this Court enumerated
RTW and/or in order to induce the plaintiff bank
those instances when the factual findings of the Court of
at any time thereafter to make loans or
Appeals are not deemed conclusive, to wit: (1) when the
advances or increases thereof or to extend
credit in any other manner to or for the account
conclusion is a nding grounded entirely on speculations,
of defendant, Alfa ITM and the signatory surmises or conjectures; (2) when the inference made is
officers agreed to guarantee in joint and manifestly mistaken, absurd or impossible; (3) when there
several capacity the punctual payment at is grave abuse of discretion; (4) when the judgment is
maturity to plaintiff bank of any and all such based on a misapprehension of facts; (5) when the ndings
indebtedness and/or other obligations and of facts are con icting; (6) when the Court of Appeals, in
also any and all indebtedness of every kind making its findings, went beyond the issues of the case
which was then or may thereafter become and the same is contrary to the admissions of both the
due or owing to plaintiff bank by the appellant and appellee; (7) when the ndings are contrary
defendant Alfa RTW, together with any and to those of the trial court; (8) when the ndings are
all expenses of collection, etc., provided, conclusions without citation of speci c evidence on which
they are based; (9) when the facts set forth in the petition force of law between the contracting parties
as well as in the petitioner's main and reply briefs are not and should be complied with in good faith." 7
disputed by the respondent; and (10) when the ndings of
fact are premised on the supposed absence of evidence "The Court cannot vary the terms and
conditions therein stipulated unless such
and contradicted by the evidence on record.
stipulation is contrary to law, morals, good
In the case at bar, exception No. 6 is present. Here,
customs, public order or public policy." 8
the Court of Appeals made findings "contrary to the
admissions" of the parties. We refer to the terms and In relation to the determination and computation of
conditions agreed upon by petitioner RCBC and interest payments, this Court, in Eastern Shipping Lines,
respondent borrowers in the Trust Receipts 4 and the Inc. vs. Court of Appeals, 9 through Mr. Justice Jose C.
Vitug, held:
Comprehensive Surety Agreements. 5
"The ostensible discord is not di cult to
Significantly, the validity of those contracts is not
explain. The factual circumstances may have
being questioned. It follows that the very terms and called for different applications, guided by the
conditions of the same contracts become the law rule that the courts are vested with discretion,
between the parties. depending on the equities of each case, on the
award of interest. Nonetheless, it may not be
Herein lies the reversible error on the part of the unwise, by way of clari cation and
Court of Appeals. When it ruled that only P3,060,406.25 reconciliation, to suggest the following rules of
should be awarded to petitioner RCBC, the Appellate thumb for future guidance.
Court disregarded the parties' stipulations in their
contracts of loan, more speci cally, those pertaining to the I. When an obligation, regardless of its
agreed (1) interest rates, (2) service charges and (3) source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is
penalties in case of any breach thereof. 6 Indeed, the
breached, the contravenor can be held
Court of Appeals failed to apply this time-honored
liable for damages. The provisions
doctrine:
under Title XVIII on "Damages" of the
Civil Code govern in determining the
"That which is agreed to in a contract
measure of recoverable damages.
is the law between the parties. Thus,
II. With regard particularly to an award of
obligations arising from contracts have the
interest, in the concept of actual and
compensatory damages, the rate of
interest, as well as the accrual when or until the demand can
thereof, is imposed, as follows: be established with reasonable
certainty. Accordingly, where
1. When the obligation is the demand is established with
breached, and it consists in the reasonable certainty, the
payment of a sum of money, interest shall begin to run from
i.e., a loan or forbearance of the time the claim is made
money, the interest due should judicially or extrajudicially (Art.
be that which may have been 1169, Civil Code) but when
stipulated in writing. such certainty cannot be so
Furthermore, the interest due reasonably established at the
shall itself earn legal interest time the demand is made, the
from the time it is judicially interest shall begin to run only
demanded. In the absence of from the date the judgment of
stipulation, the rate of interest the court is made (at which
shall be 12% per annum to be time the quanti cation of
computed from default, i.e., damages may be deemed to
from judicial or extrajudicial have been reasonably
demand under and subject to ascertained). The actual base
the provisions of Article 1169 of for the computation of legal
the Civil Code. interest shall, in any case, be
2. When an obligation, not on the amount finally
constituting a loan or adjudged.
forbearance of money, is
breached, an interest on the 3. When the judgment of the
amount of damages awarded court awarding a sum of
may be imposed at the money becomes nal and
discretion of the court at the executory, the rate of legal
rate of 6% per annum. No interest whether the case falls
interest, however, shall be
under paragraph 1 or
adjudged on unliquidated
paragraph 2, above, shall be
claims or damages except
12% per annum from such
 nality until its satisfaction, this centum (2%) per annum from the date of the
interim period being deemed execution of this Trust Receipt until paid. It is
to be by then an equivalent to expressly agreed and understood that
a forbearance of credit." regardless of the maturity date hereof, I/we
(Emphasis supplied). hereby authorize the said Bank to
correspondingly increase the interest of this
The case now before us involves an obligation arising Trust Receipt to the extent allowed by law
from a letter of credit-trust receipt transaction. Under this without notice to me/us whenever the Central
arrangement, a bank extends to a borrower a loan Bank of the Philippines raises the interest on
covered by the letter of credit, with the trust receipt as borrowings of Banks or the interest provided
security of the loan. 10 A trust receipt is "a security for in the Usury Law, or whenever, in the sole
transaction intended to aid in nancing importers and retail judgment of the holder of this Trust Receipt
dealers who do not have su cient funds or resources to is warranted by the increase in money
nance the importation or purchase of merchandise, and market rates or by similar events.
who may not be able to acquire credit except thru
Without prejudice to the criminal
utilization, as collateral, of the merchandise imported or
action that may be brought by the Bank
purchased." 11
against the entrustee by reason of default or
In contracts contained in trust receipts, the breach of this Trust Receipt, I/we agree to
contracting parties may establish agreements, terms and pay a penalty and/or liquidated damages
conditions they may deem advisable, provided they are equivalent to six per centum (6%) per annum
of the amount due and unpaid.
not contrary to law, morals or public order. 12 In the case
at bar, there are speci c amounts of interest, service In the event of the bringing of any
charges and penalties agreed upon by the parties. action or suit by you or any default of the
Pertinent provisions in the four (4) trust receipts (TR. No. undersigned hereunder: I/we shall on
1909, TR. No. 1932, TR. No. 1732, and TR No. 2065) 13 demand pay you reasonable attorney's and
read: other fees and cost of collection, which shall
in no case be less than ten per centum (10%)
"All obligations of the undersigned
of the value of the property and the amount
under this Trust Receipt shall bear interest at
involved by the action or suit.
the rate of sixteen per centum (16 %) per
annum plus service charge of two per
 If there are two or more signatories on The interest on the interest could not have been computed
this Trust Receipt, our obligations hereunder then since the nality of judgment could not yet be
shall in all cases be joint and several." ascertained. Signi cantly, from the ling of the complaint on
March 12, 1982 up to the time the Appellate Court's
Applying the above- quoted rules of thumb in the decision was promulgated, on May 14, 1998, there had
computation of interest, as enunciated by this Court in been a lapse of sixteen years. The computed interest in
Eastern Shipping Lines, Inc., 14 the principal amount of 1982 would no longer be true in 1998. What the Appellate
loans corresponding to each trust receipt must earn an Court should have done then was to compute the total
interest at the rate of sixteen percent (16%) per annum 15 amount due in accordance with the rules of thumb laid
with the stipulated service charge of two percent (2%) per down by this Court in Eastern Shipping Lines, Inc., 21 the
annum on the loan principal or the outstanding balance resulting formula of which is as follows:
thereof, 16 from the date of execution until
TOTAL AMOUNT DUE = principal + interest
nality of this Decision. 17 A penalty of six percent (6%) + service charge + penalty + interest
per annum of the amount due and unpaid must also be on interest
imposed computed from the date of demand (in this case
on March 9, 1982), 18 until nality of Judgment. 19 The Interest = principal x 16 % per annum x no.
interest of 16% percent per annum, as long as unpaid, of years from date of execution until
also earns interest, computed from the date of the ling of finality of judgment
the complaint (March 12, 1982) until nality of this Court's
Service charge = principal x 2% per annum
Decision. 20 From such date of nality, the total unpaid
x no. of years from date of execution
amount (principal + interest + service charge + penalty +
until finality of judgment
interest on the interest) computed shall earn interest of
12% per annum until satisfied. Penalty = principal x 6% per annum x no. of
years from demand (March 9, 1982)
The Court of Appeals awarded only the sum of
until finality of judgment
P3,060,406.25 as it was the amount prayed for in the
complaint. The Appellate Court, however, failed to Interest on interest = Interest computed as
consider that the complaint was led on March 12, 1982, or of the ling of the complaint (March
just a year after the execution of the trust receipts. The 12, 1982) x 12% x no. of years until
computed interests then, the service charge, the penalty finality of judgment
and the attorney's fees corresponded only to one year.
 Attorney's fees is 10% of the total amount computed
as of finality of judgment

Total amount due as of the date of nality of

judgment will earn an interest of 12%
per annum until fully paid.

The total amount due corresponding to each of the

four (4) contracts of loan may be easily determined by the
trial court through a simple mathematical computation
based on the formula speci ed above. Mathematics is an FIRST DIVISION
exact science, the application of which needs no further
proof from the parties. [G.R. No. 175139. April 18, 2012.]

WHEREFORE, the petition is hereby GRANTED. HERMOJINA ESTORES, petitioner, vs.

The assailed decision of the Court of Appeals is SPOUSES ARTURO and LAURA
MODIFIED in the sense that the award to petitioner RCBC SUPANGAN, respondents.
of P3,060,406.25 is SET ASIDE and substituted with an
amount to be computed by the trial court, upon nality of
this Decision, in accordance with the formula indicated DECISION
above.

SO ORDERED.
DEL CASTILLO, J : p

Melo, Vitug, Panganiban and Carpio, JJ., concur.

The only issue posed before us is the propriety of the
imposition of interest and attorney's

fees. acIASE

Assailed in this Petition for Review 1 led under Rule 45 of

the Rules of Court is the May 12, 2006 Decision 2 of the
Court of Appeals (CA) in CA-G.R. CV No. 83123, the xxx xxx
dispositive portion of which reads: 1) Vendor will secure approved clearance
from DAR requirements of which are
WHEREFORE, the appealed decision is (sic):
MODIFIED. The rate of interest shall be six
percent (6%) per annum, computed from a. Letter request
September 27, 2000 until its full payment
before nality of the judgment. If the adjudged b. Title
principal and the interest (or any part thereof)
remain unpaid thereafter, the interest rate shall c. Tax Declaration
be adjusted to twelve percent (12%) per
annum, computed from the time the judgment d. Affidavit of Aggregate Landholding —
becomes final and executory until it is fully
Vendor/Vendee
satisfied. The award of attorney's fees is
hereby reduced to P100,000.00. Costs against
e. Certification from the Prov'l.
the defendants-appellants.
Assessor's as to Landholdings of
Vendor/Vendee
SO ORDERED. 3

f. Affidavit of Non-Tenancy
Also assailed is the August 31, 2006 Resolution 4 denying
the motion for reconsideration.
g. Deed of Absolute Sale
xxx xxx
Factual Antecedents
4) Vendee shall be informed as to the
status of DAR clearance within 10 days
On October 3, 1993, petitioner Hermojina Estores and
upon signing of the documents. aSAHCE

respondent- spouses Arturo and Laura Supangan

entered into a Conditional Deed of Sale 5 whereby
xxx xxx
petitioner offered to sell, and respondent-spouses
offered to buy, a parcel of land covered by Transfer 5) Regarding the house located
Certificate of Title No. TCT No. 98720 located at Naic, within the perimeter of the subject
Cavite for the sum of P4.7 million. The parties likewise [lot] owned by spouses
stipulated, among others, to wit: [Magbago], said house shall be
moved outside the perimeter of
 this subject property to the 300 sq. on the part of respondent-spouses, petitioner still failed to
m. area allocated for [it]. Vendor comply with her obligation as expressly provided in
hereby accepts the responsibility paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a
of seeing to it that such agreement letter 7 dated September 27, 2000, respondent-spouses
is carried out before full payment
demanded the return of the amount of P3.5 million within
of the sale is made by vendee.
15 days from receipt of the letter. In reply, 8 petitioner
6) If and after the vendor has
acknowledged receipt of the P3.5 million and promised to
completed all necessary
return the same within 120 days. Respondent-spouses
documents for registration of the
were amenable to the proposal provided an interest of
title and the vendee fails to
complete payment as per 12% compounded annually shall be imposed on the P3.5
agreement, a forfeiture fee of million. 9 When petitioner still failed to return the amount
25% or downpayment, shall be despite demand, respondent-spouses were constrained
applied. However, if the vendor to le a Complaint 10 for sum of money before the Regional
fails to complete necessary Trial Court (RTC) of Malabon against herein petitioner as
documents within thirty days well as Roberto U. Arias (Arias) who allegedly acted as
without any suf cient reason, or petitioner's agent. The case was docketed as Civil Case
without informing the vendee of No. 3201-MN and raf ed off to Branch 170. In their
its status, vendee has the right to complaint, respondent-spouses prayed that petitioner and
demand return of full amount of Arias be ordered to:
down payment.
xxx xxx
9) As to the boundaries and partition I. Pay the principal amount of
of the lots (15,018 sq. m. and 300 sq. P3,500,000.00 plus interest of 12%
m.) Vendee shall be informed compounded annually starting
immediately of its approval by the LRC. October 1, 1993 or an estimated
10) The vendor assures the vendee of a amount of P8,558,591.65;
peaceful transfer of ownership.
II. Pay the following items of damages:
xxx xxx 6
A) Moral damages in the amount of
After almost seven years from the time of the execution of P100,000.00;
the contract and notwithstanding payment of P3.5 million
 B) Actual damages in the amount of hence they were deemed to have waived the presentation
P100,000.00; of their evidence. Consequently, the case was deemed
C) Exemplary damages in the amount submitted for decision. 18
of P100,000.00;
D) [Attorney's] fee in the amount of Ruling of the Regional Trial Court
P50,000.00 plus 20% of
recoverable amount from the On May 7, 2004, the RTC rendered its Decision 19 nding
[petitioner]. respondent-spouses entitled to interest but only at the
E) [C]ost of suit. 11 rate of 6% per annum and not 12% as prayed by them. 20
It also found respondent-spouses entitled to attorney's
In their Answer with Counterclaim, 12 petitioner and Arias fees as they were compelled to litigate to protect their
averred that they are willing to return the principal amount interest. 21
of P3.5 million but without any interest as the same was
not agreed upon. In their Pre-Trial Brief, 13 they reiterated The dispositive portion of the RTC Decision reads:
that the only remaining issue between the parties is the
imposition of interest. They argued that since the WHEREFORE, premises considered,
Conditional Deed of Sale provided only for the return of judgment is hereby rendered in favor of the
the downpayment in case of breach, they cannot be held [respondent-spouses] and ordering the
liable to pay legal interest as well. 14
TIcEDC [petitioner and Roberto Arias] to jointly and
severally:
In its Pre-Trial Order 15 dated June 29, 2001, the RTC
noted that "the parties agreed that the principal amount of 1. Pay [respondent-spouses] the principal
3.5 million pesos should be returned to the [respondent- amount of Three Million Five Hundred
spouses] by the [petitioner] and the issue remaining [is] Thousand pesos (P3,500,000.00) with an
whether . . . [respondent-spouses] are entitled to legal interest of 6% compounded annually
interest thereon, damages and attorney's fees." 16 starting October 1, 1993 and attorney's
fee in the amount of Fifty Thousand
Trial ensued thereafter. After the presentation of the pesos (P50,000.00) plus 20% of the
respondent-spouses' evidence, the trial court set the recoverable amount from the defendants
presentation of Arias and petitioner's evidence on and cost of the suit.
September 3, 2003. 17 However, despite several
postponements, petitioner and Arias failed to appear
 The Compulsory Counter Claim is hereby the recoverable amount) excessive 27 and thus
dismissed for lack of factual evidence. SO reduced the same to P100,000.00. 28 The
AcSHCD

ORDERED. 22 dispositive portion of the CA Decision reads:

Ruling of the Court of Appeals WHEREFORE, the appealed decision is

MODIFIED. The rate of interest shall be six
Aggrieved, petitioner and Arias led their notice of appeal. 23 percent (6%) per annum, computed from
The CA noted that the only issue submitted for its September 27, 2000 until its full payment
resolution is "whether it is proper to impose interest for an before nality of the judgment. If the
obligation that does not involve a loan or forbearance of adjudged principal and the interest (or any
part thereof) remain[s] unpaid thereafter,
money in the absence of stipulation of the parties." 24
the interest rate shall be adjusted to twelve
On May 12, 2006, the CA rendered the assailed Decision
percent (12%) per annum, computed from
af rming the ruling of the RTC nding the imposition of 6%
the time the judgment becomes final and
interest proper. 25 However, the same shall start to run
executory until it is fully satisfied. The award
only from September 27, 2000 when respondent-
of attorney's fees is hereby reduced to
spouses formally demanded the return of their money
P100,000.00. Costs against the [petitioner].
and not from October 1993 when the contract was
executed as held by the RTC. The CA also modi ed the SO ORDERED. 29
RTC's ruling as regards the liability of Arias. It held that
Arias could not be held solidarily liable with petitioner Petitioner moved for reconsideration which was denied
because he merely acted as agent of the latter. in the August 31, 2006 Resolution of the CA.
Moreover, there was no showing that he expressly
bound himself to be personally liable or that he exceeded Hence, this petition raising the sole issue of
the limits of his authority. More importantly, there was whether the imposition of interest and attorney's
even no showing that Arias was authorized to act as fees is proper.
agent of petitioner. 26 Anent the award of attorney's fees,
Petitioner's Arguments
the CA found the award by the trial court (P50,000.00
plus 20% of Petitioner insists that she is not bound to pay interest on
the P3.5 million because the Conditional Deed of Sale
only provided for the return of the downpayment in case
of failure to comply with her obligations. Petitioner also
 argues that the award of attorney's fees in favor of the expressly provides that "[i]nterest may, in the discretion of
respondent-spouses is unwarranted because it cannot be the court, be allowed upon damages awarded for breach
said that the latter won over the former since the CA even of contract." In this case, there is no question that
sustained her contention that the imposition of 12% petitioner is legally obligated to return the P3.5 million
interest compounded annually is totally uncalled for. because of her failure to ful ll the obligation under the
Conditional Deed of Sale, despite demand. She has in fact
Respondent-spouses' Arguments admitted that the conditions were not ful lled and that she
was willing to return the full amount of P3.5 million but has
Respondent-spouses aver that it is only fair that interest
not actually done so. Petitioner enjoyed the use of the
be imposed on the amount they paid considering that
money from the time it was given to her 30 until now. Thus,
petitioner failed to return the amount upon demand and
she is already in default of her obligation from the date of
had been using the P3.5 million for her bene t. Moreover,
demand, i.e., on September 27, 2000.
it is undisputed that petitioner failed to perform her
obligations to relocate the house outside the perimeter of The interest at the rate of 12% is
the subject property and to complete the necessary
documents. As regards the attorney's fees, they claim that applicable in the instant case.
they are entitled to the same because they were forced to
litigate when petitioner unjustly withheld the amount. Anent the interest rate, the general rule is that the
Besides, the amount awarded by the CA is even smaller applicable rate of interest "shall be computed in
compared to the filing fees they paid. accordance with the stipulation of the parties." 31 Absent
any stipulation, the applicable rate of interest shall be 12%
Our Ruling per annum "when the obligation arises out of a loan or a
forbearance of money, goods or credits. In other cases, it
The petition lacks merit. shall be six percent (6%)." 32 In this case, the parties did
not stipulate as to the applicable rate of interest. The only
Interest may be imposed even in
question remaining therefore is whether the 6% as
the absence of stipulation in the
provided under Article 2209 of the Civil Code, or 12%
contract. under Central Bank Circular No. 416, is due. cACDaH

We sustain the ruling of both the RTC and the CA that it The contract involved in this case is admittedly not a loan
is proper to impose interest notwithstanding the absence but a Conditional Deed of Sale. However, the contract
of stipulation in the contract. Article 2210 of the Civil Code provides that the seller (petitioner) must return the
payment made by the buyer (respondent-spouses) if the with their money even before the conditions were ful lled.
conditions are not ful lled. There is no question that they They have therefore allowed or granted forbearance to
have in fact, not been ful lled as the seller (petitioner) has the seller (petitioner) to use their money pending ful llment
admitted this. Notwithstanding demand by the buyer of the conditions. They were deprived of the use of their
(respondent -spouses), the seller (petitioner) has failed to money for the period pending ful llment of the conditions
return the money and should be considered in default from and when those conditions were breached, they are
the time that demand was made on September 27, 2000. entitled not only to the return of the principal amount paid,
but also to compensation for the use of their money. And
Even if the transaction involved a Conditional Deed of the compensation for the use of their money, absent any
Sale, can the stipulation governing the return of the stipulation, should be the same rate of legal interest
money be considered as a forbearance of money which applicable to a loan since the use or deprivation of funds
required payment of interest at the rate of 12%? We is similar to a loan.
believe so.
Petitioner's unwarranted withholding of the money which
I n Crismina Garments, Inc. v. Court of Appeals, 33 rightfully pertains to respondent-spouses amounts to
"forbearance" was de ned as a "contractual obligation of forbearance of money which can be considered as an
lender or creditor to refrain during a given period of time, involuntary loan. Thus, the applicable rate of interest is
from requiring the borrower or debtor to repay a loan or 12% per annum. In Eastern Shipping Lines, Inc. v. Court
debt then due and payable." This de nition describes a of Appeals, 35 cited in Crismina Garments, Inc. v. Court of
loan where a debtor is given a period within which to pay Appeals, 36 the Court suggested the following guidelines:
a loan or debt. In such case, "forbearance of money,
goods or credits" will have no distinct de nition from a loan. I. When an obligation, regardless of its source,
We believe however, that the phrase "forbearance of i.e., law, contracts, quasi-contracts, delicts or
money, goods or credits" is meant to have a separate quasi-delicts is breached, the contravenor can
meaning from a loan, otherwise there would have been be held liable for damages. The provisions
under Title XVIII on 'Damages' of the Civil
no need to add that phrase as a loan is already suf ciently
Code govern in determining the measure of
de ned in the Civil Code. 34 Forbearance of money, goods
recoverable damages.
or credits should therefore refer to arrangements other
II. With regard particularly to an award of
than loan agreements, where a person acquiesces to the
interest in the concept of actual and
temporary use of his money, goods or credits pending compensatory damages, the rate of
happening of certain events or ful llment of certain
conditions. In this case, the respondent-spouses parted
interest, as well as the accrual thereof, is interest, however, shall be
imposed, as follows: adjudged on unliquidated
claims or damages except
1. When the obligation is when or until the demand can
breached, and it consists in be established with reasonable
the payment of a sum of certainty. Accordingly, where
money, i.e., a loan or the demand is established with
forbearance of money, the reasonable certainty, the
interest due should be that interest shall begin to run from
which may have been the time the claim is made
stipulated in writing. judicially or extrajudicially (Art.
Furthermore, the interest 1169, Civil Code) but when
due shall itself earn legal such certainty cannot be so
interest from the time it is reasonably established at the
judicially demanded. In the time the demand is made, the
absence of stipulation, the interest shall begin to run only
rate of interest shall be 12% from the date the judgment of
per annum to be computed the court is made (at which
from default, i.e., from time the quanti cation of
judicial or extrajudicial damages may be deemed to
demand under and subject to have been reasonably
the provisions of Article 1169 ascertained). The actual base
of the Civil Code. for the computation of legal
interest shall, in any case, be
2. When an obligation, not on the amount finally
constituting a loan or adjudged. DSTCIa

forbearance of money, is
breached, an interest on the 3. When the judgment of the
amount of damages awarded court awarding a sum of
may be imposed at the money becomes nal and
discretion of the court at the executory, the rate of legal
rate of 6% per annum. No interest, whether the case falls
under paragraph 1 or
 paragraph 2, above, shall be to litigate with third persons or to
12% per annum from such incur expenses to protect his interest;
nality until its satisfaction, this
interim period being deemed xxx xxx xxx
to be by then an equivalent to
a forbearance of credit. 37 (11) In any other case where the court
deems it just and equitable that
Eastern Shipping Lines, Inc. v. Court of Appeals 38 and its attorney's fees and expenses of
predecessor case, Reformina v. Tongol 39 both involved litigation should be recovered.
torts cases and hence, there was no forbearance of
money, goods, or credits. Further, the amount claimed In all cases, the attorney's fees and expenses of
(i.e., damages) could not be established with reasonable litigation must be reasonable.
certainty at the time the claim was made. Hence, we
Considering the circumstances of the instant case, we nd
arrived at a different ruling in those cases.
respondent-spouses entitled to recover attorney's fees.
Since the date of demand which is September 27, 2000 There is no doubt that they were forced to litigate to
was satisfactorily established during trial, then the interest protect their interest, i.e., to recover their money.
rate of 12% should be reckoned from said date of demand However, we nd the amount of P50,000.00 more
until the principal amount and the interest thereon is fully appropriate in line with the policy enunciated in Article
satisfied. 2208 of the Civil Code that the award of attorney's fees
must always be reasonable.
The award of attorney's fees is
WHEREFORE, the Petition for Review is DENIED. The
warranted. May 12, 2006 Decision of the Court of Appeals in CA-G.R.
CV No. 83123 is AFFIRMED with MODIFICATIONS that
Under Article 2208 of the Civil Code, attorney's fees may the rate of interest shall be twelve percent (12%) per
be recovered: annum, computed from September 27, 2000 until fully
satisfied. The award of attorney's fees is further reduced
xxx xxx
to P50,000.00.
(2) When the defendant's act or
SO ORDERED. SCADIT

omission has compelled the plaintiff

Corona, C.J., Leonardo-de Castro, Bersamin and be mutually agreed upon; otherwise, it has no binding
Villarama, Jr., JJ., concur. effect. Moreover, the Court cannot consider a stipulation
granting a party the option to prepay the loan if said party
is not agreeable to the arbitrary interest rates imposed.
Premium may not be placed upon a stipulation in a
contract which grants one party the right to choose
whether to continue with or withdraw from the agreement
if it discovers that what the other party has been doing all
along is improper or illegal.ADEHTS

This Petition for Review on Certiorari 1 questions

the May 8, 2007 Decision 2 of the Court of Appeals (CA)
in CA-G.R. CV No. 79650, which a rmed with modi cations
the February 28, 2003 Decision 3 and the June 4, 2003
SECOND DIVISION Order 4 of the Regional Trial Court (RTC), Branch 6 of
Kalibo, Aklan in Civil Case No. 5975.
[G.R. No. 181045. July 2, 2014.]
Factual Antecedents
SPOUSES EDUARDO and LYDIA SILOS
, petitioners, vs. PHILIPPINE NATIONAL Spouses Eduardo and Lydia Silos (petitioners)
BANK, respondent. have been in business for about two decades of operating
a department store and buying and selling of ready-to-
wear apparel. Respondent Philippine National Bank
DECISION (PNB) is a banking corporation organized and existing
under Philippine laws.

To secure a one-year revolving credit line of

DEL CASTILLO, J : p
P150,000.00 obtained from PNB, petitioners constituted
in August 1987 a Real Estate Mortgage 5 over a 370-
In loan agreements, it cannot be denied that the square meter lot in Kalibo, Aklan covered by Transfer
rate of interest is a principal condition, if not the most Certificate of Title No. (TCT) T-14250. In July 1988, the
important component. Thus, any modi cation thereof must
credit line was increased to P1.8 million and the mortgage may adopt in the future. 10 (Emphases
was correspondingly increased to P1.8 million. 6 And in supplied)
July 1989, a Supplement to the Existing Real Estate
Mortgage 7 was executed to cover the same credit line, The eight Promissory Notes, on the other hand,
which was increased to P2.5 million, and additional contained a stipulation granting PNB the right to increase
security was given in the form of a 134-square meter lot or reduce interest rates "within the limits allowed by law or
covered by TCT T-16208. In addition, petitioners issued by the Monetary Board." 11 The Real Estate Mortgage
eight Promissory Notes 8 and signed a Credit agreement provided the same right to increase or reduce
Agreement. 9 This July 1989 Credit Agreement contained interest rates "at any time depending on whatever policy
a stipulation on interest which provides as follows: EHScCA
PNB may adopt in the future." 12

Petitioners religiously paid interest on the notes at

1.03.Interest (a) The Loan shall be
the following rates:
subject to interest at the rate of 19.5% per
annum. Interest shall be payable in advance
1. 1st Promissory Note dated July 24, 1989 —
every one hundred twenty days at the rate
19.5%;
prevailing at the time of the renewal.

2. 2nd Promissory Note dated November 22,

(b) The Borrower agrees that
the Bank may modify the interest rate in 1989 — 23%;
the Loan depending on whatever policy
the Bank may adopt in 3. 3rd Promissory Note dated March 21, 1990
the future, including without limitation, the — 22%;
shifting from the oating interest rate system
to the xed interest rate system, or vice versa. 4. 4th Promissory Note dated July 19, 1990 —
Where the Bank has imposed on the Loan 24%;
interest at a rate per annum, which is equal
to the Bank's spread over the current oating 5. 5th Promissory Note dated December 17,
interest rate, the Borrower hereby agrees 1990 — 28%;
that the Bank may, without need of notice
to the Borrower, increase or decrease its 6. 6th Promissory Note dated February 14,
spread over the floating interest rate at 1991 — 32%;
any time depending on whatever policy it
 7. 7th Promissory Note dated March 1, 1991 3. 11th Promissory Note dated July 11, 1992
— 30%; and — 23%;

8. 8th Promissory Note dated July 11, 1991 — 4. 12th Promissory Note dated November 10,
24%. 13 1992 — 21%;

In August 1991, an Amendment to Credit 5. 13th Promissory Note dated March 15,
Agreement 14 was executed by the parties, with the 1993 — 21%;
following stipulation regarding interest:
6. 14th Promissory Note dated July 12, 1993
1.03.Interest on Line Availments. (a)
— 17.5%;
The Borrowers agree to pay interest on
each Availment from date of each Availment
7. 15th Promissory Note dated November 17,
up to but not including the date of full
payment thereof at the rate per annum 1993 — 21%;
which is determined by the Bank to be
prime rate plus applicable spread in effect 8. 16th Promissory Note dated March 28,
as of the date of each Availment. 15 1994 — 21%;
(Emphases supplied) SAHIaD

9. 17th Promissory Note dated July 13, 1994

Under this Amendment to Credit Agreement, — 21%;
petitioners issued in favor of PNB the following 18
Promissory Notes, which petitioners settled — except 10. 18th Promissory Note dated November
the last (the note covering the principal) — at the following 16, 1994 — 16%;
interest rates:
11. 19th Promissory Note dated April 10, 1995
1. 9th Promissory Note dated November 8, — 21%;
1991 — 26%;
12. 20th Promissory Note dated July 19, 1995
2. 10th Promissory Note dated March 19, — 18.5%;
1992 — 25%;
 13. 21st Promissory Note dated December changes in interest rate prescribed by
18, 1995 — 18.75%; law or the Monetary Board of the Central
Bank of the Philippines, or in the Bank's
14. 22nd Promissory Note dated April 22, overall cost of funds. I/We hereby
1996 — 18.5%;
agree that in the event I/we are not
agreeable to the interest rate xed for any
15. 23rd Promissory Note dated July 22, 1996
Interest Period, I/we shall have the
— 18.5%;
option to prepay the loan or credit
facility without penalty within ten (10)
16. 24th Promissory Note dated November
calendar days from the Interest Setting
25, 1996 — 18%; Date. 18 (Emphasis supplied)

17. 25th Promissory Note dated May 30, 1997 Respondent regularly renewed the line from 1990
— 17.5%; and up to 1997, and petitioners made good on the promissory
notes, religiously paying the interests without objection or
18. 26th Promissory Note (PN 9707237) fail. But in 1997, petitioners faltered when the interest
dated July 30, 1997 — 25%. rates soared due to the Asian nancial crisis. Petitioners'
sole outstanding promissory note for P2.5 million — PN
16
9707237 executed in July 1997 and due 120 days later or
The 9th up to the 17th promissory notes provide for on October 28, 1997 — became past due, and despite
the payment of interest at the "rate the Bank may at any repeated demands, petitioners failed to make good on the
time without notice, raise within the limits allowed by law . note.
. . ." 17 On the other hand, the 18th up to the 26th
promissory notes — including PN 9707237, which is the Incidentally, PN 9707237 provided for the penalty
26th promissory note — carried the following provision: equivalent to 24% per annum in case of default, as
follows:
. . . For this purpose, I/We agree that the
rate of interest herein stipulated may be Without need for notice or demand,
increased or decreased for the failure to pay this note or any installment
subsequent Interest Periods, with prior thereon, when due, shall constitute default
notice to the Borrower in the event of and in such cases or in case of garnishment,
receivership or bankruptcy or suit of any kind
 led against me/us by the Bank, the P4,324,172.96. 21 The sheriff's certi cate of sale was
outstanding principal of this note, at the registered on March 11, 1999. SDIaCT

option of the Bank and without prior notice of

demand, shall immediately become due and More than a year later, or on March 24, 2000,
payable and shall be subject to a penalty petitioners led Civil Case No. 5975, seeking annulment of
charge of twenty four percent (24%) per the foreclosure sale and an accounting of the PNB credit.
annum based on the defaulted principal Petitioners theorized that after the rst promissory note
amount. . . . 19 (Emphasis supplied) where they agreed to pay 19.5% interest, the succeeding
stipulations for the payment of interest in their loan
PNB prepared a Statement of Account 20 as of October agreements with PNB — which allegedly left to the latter
12, 1998, detailing the amount due and demandable from the sole will to determine the interest rate — became null
petitioners in the total amount of P3,620,541.60, broken and void. Petitioners added that because the interest rates
down as follows: were xed by respondent without their prior consent or
agreement, these rates are void, and as a result,
Principal
petitioners should only be made liable for interest at the
P2,500,000.00
legal rate of 12%. They claimed further that they overpaid
Interest interests on the credit, and concluded that due to this
538,874.94 overpayment of steep interest charges, their debt should
now be deemed paid, and the foreclosure and sale of
Penalties TCTs T-14250 and T-16208 became unnecessary and
581,666.66 wrongful. As for the imposed penalty of P581,666.66,
petitioners alleged that since the Real Estate Mortgage
–––––––––––––
and the Supplement thereto did not include penalties as
Total
part of the secured amount, the same should be excluded
P3,620,541.60
from the foreclosure amount or bid price, even if such
============ penalties are provided for in the final Promissory Note, or
PN 9707237. 22
Despite demand, petitioners failed to pay the
foregoing amount. Thus, PNB foreclosed on the In addition, petitioners sought to be reimbursed an
mortgage, and on January 14, 1999, TCTs T-14250 and alleged overpayment of P848,285.00 made during the
T- 16208 were sold to it at auction for the amount of period August 21, 1991 to March 5, 1998, resulting from
respondent's imposition of the alleged illegal and steep
interest rates. They also prayed to be awarded was told by PNB that the latter alone would determine the
P200,000.00 by way of attorney's fees. 23 interest rate; that as to the Amendment to Credit
Agreement, she was told that PNB would ll up the interest
In its Answer, 24 PNB denied that it unilaterally rate portion thereof; that at the time the parties executed
imposed or xed interest rates; that petitioners agreed that the said Credit Agreement, she was not informed about
without prior notice, PNB may modify interest rates the applicable spread that PNB would impose on her
depending on future policy adopted by it; and that the account; that the interest rate portion of all Promissory
imposition of penalties was agreed upon in the Credit Notes she and Eduardo issued were always left in blank
Agreement. It added that the imposition of penalties is when they executed them, with respondent's mere
supported by the all-inclusive clause in the Real Estate assurance that it would be the one to enter or indicate
Mortgage agreement which provides that the mortgage thereon the prevailing interest rate at the time of
shall stand as security for any and all other obligations of availment; and that they agreed to such arrangement. She
whatever kind and nature owing to respondent, which thus further testi ed that the two Real Estate Mortgage
includes penalties imposed upon default or non-payment agreements she signed did not stipulate the payment of
of the principal and interest on due date. penalties; that she and Eduardo consulted with a lawyer,
and were told that PNB's actions were improper, and so
On pre-trial, the parties mutually agreed to the
on March 20, 2000, they wrote to the latter seeking a
following material facts, among others:
recomputation of their outstanding obligation; and when
a) That since 1991 up to 1998, PNB did not oblige, they instituted Civil Case No. 5975. 27
petitioners had paid PNB the total
amount of P3,484,287.00; 25 and On cross-examination, Lydia testi ed that she has
been in business for 20 years; that she also borrowed
b) That PNB sent, and petitioners from other individuals and another bank; that it was only
received, a March 10, 2000 demand with banks that she was asked to sign loan documents
letter. 26 with no indicated interest rate; that she did not bother to
read the terms of the loan documents which she signed;
During trial, petitioner Lydia Silos (Lydia) testi ed that the
and that she received several PNB statements of account
Credit Agreement, the Amendment to Credit Agreement,
detailing their outstanding obligations, but she did not
Real Estate Mortgage and the Supplement thereto were
complain; that she assumed instead that what was written
all prepared by respondent PNB and were presented to
therein is correct. 28
her and her husband Eduardo only for signature; that she
 For his part, PNB Kalibo Branch Manager Diosdado increase and decrease of interest
Aspa, Jr. (Aspa), the sole witness for respondent, stated rates as may be applicable is valid,
on cross-examination that as a practice, the determination 31 as was held in Consolidated Bank
of the prime rates of interest was the responsibility solely and Trust Corporation
of PNB's Treasury Department which is based in Manila; (SOLIDBANK) v. Court of Appeals;
that these prime rates were simply communicated to all 32

PNB branches for implementation; that there are a

multitude of considerations which determine the interest 2. Banks are allowed to stipulate that
rate, such as the cost of money, foreign currency values, interest rates on loans need not be
PNB's spread, bank administrative costs, pro tability, and fixed and instead be made
the practice in the banking industry; that in every repricing dependent on prevailing rates upon
of each loan availment, the borrower has the right to which
question the rates, but that this was not done by the
to peg such variable interest rates; 33
petitioners; and that anything that is not found in the
Promissory Note may be supplemented by the Credit The Promissory Note, as the
Agreement. 29 principal contract evidencing
petitioners' loan, prevails over the
Ruling of the Regional Trial Court
Credit Agreement and the Real
On February 28, 2003, the trial court rendered Estate Mortgage. As such, the rate
judgment dismissing Civil Case No. of interest, penalties and attorney's
fees stipulated in the Promissory
5975. 30 It ruled that: Note prevail over those mentioned in
the Credit Agreement and the Real
1. While the Credit Agreement allows Estate Mortgage agreements; 34 aTSEcA

PNB to unilaterally increase its

spread over the oating interest rate 4. Roughly, PNB's computation of the
at any time depending on whatever total amount of petitioners'
policy it may adopt in the future, it obligation is correct; 35
likewise allows for the decrease at
any time of the same. Thus, such
stipulation authorizing both the
 5. Because the loan was admittedly respondent is directed to refund to the
due and demandable, the petitioner the amount of P356,589.90
foreclosure was regularly made; 36 representing the excess interest charged
against the latter.
6. By the admission of petitioners
No pronouncement as to costs.
during pre-trial, all payments made
to PNB were properly applied to the SO ORDERED. 40
principal, interest and penalties. 37 Ruling of the Court of Appeals
The dispositive portion of the trial court's Decision Petitioners appealed to the CA, which issued the
reads: questioned Decision with the following decretal portion:
IN VIEW OF THE FOREGOING, WHEREFORE, in view of the
judgment is hereby rendered in favor of the foregoing, the instant appeal is PARTLY
respondent and against the petitioners by GRANTED. The modi ed Decision of the
DISMISSING the latter's petition. Regional Trial Court per Order dated June 4,
2003 is hereby AFFIRMED with
Costs against the petitioners.
MODIFICATIONS, to wit:
SO ORDERED. 38
1. [T]hat the interest rate to be applied
Petitioners moved for reconsideration. In an Order after the expiration of
39 dated June 4, 2003, the trial court granted only a modi
the rst
cation in the award of attorney's fees, reducing the same
30-day interest period for PN. No. 9707237 should
from 10% to 1%. Thus, PNB was ordered to refund to be 12% per annum;
petitioner the excess in attorney's fees in the amount of
P356,589.90, viz.: 2. [T]hat the attorney's fees of 10% is
valid and binding; and IDEHCa

WHEREFORE, judgment is hereby

rendered upholding the validity of the interest 3. [T]hat [PNB] is hereby ordered
rate charged by the respondent as well as to reimburse [petitioners] the excess in the
the extra-judicial foreclosure proceedings bid price of P377,505.99 which is the
and the Certi cate of Sale. However,
 difference between the total amount due while, petitioners did not complain nor object to the
[PNB] and the amount of its bid price. imposition of interest; they in fact paid the same religiously
and without fail for seven years. The appellate court ruled
SO ORDERED. 41 that petitioners are thus estopped from questioning the
same.
On the other hand, respondent did not appeal the June
4, 2003 Order of the trial court which reduced its award The CA nevertheless noted that for the period July
of attorney's fees. It simply raised the issue in its 30, 1997 to August 14, 1997, PNB wrongly applied an
appellee's brief in the CA, and included a prayer for the interest rate of 25.72% instead of the agreed 25%; thus it
reversal of said Order. overcharged petitioners, and the latter paid, an excess of
P736.56 in interest.
In effect, the CA limited petitioners' appeal to the
following issues: On the issue of penalties, the CA ruled that the
express tenor of the Real Estate Mortgage agreements
1) Whether . . . the interest rates on
contemplated the inclusion of the PN 9707237-stipulated
petitioners' outstanding obligation
24% penalty in the amount to be secured by the
were unilaterally and arbitrarily
mortgaged property, thus —
imposed by PNB;
For and in consideration of certain
2) Whether . . . the penalty charges loans, overdrafts and other credit
were secured by the real estate accommodations obtained from the
mortgage; and MORTGAGEE and to secure the payment of
the same and those others that the
3) Whether . . . the extrajudicial foreclosure MORTGAGEE may extend to the
and sale are valid. 42
MORTGAGOR, including interest and
The CA noted that, based on receipts presented by expenses, and other obligations owing by
petitioners during trial, the latter dutifully paid a total of the MORTGAGOR to the MORTGAGEE,
P3,027,324.60 in interest for the period August 7, 1991 to whether direct or indirect, principal or
August 6, 1997, over and above the P2.5 million principal secondary, as appearing in the accounts,
obligation. And this is exclusive of payments for insurance books and records of the MORTGAGEE, the
premiums, documentary stamp taxes, and penalty. All the MORTGAGOR does hereby transfer and
 convey by way of mortgage unto the PROVISION IN THE CREDIT
MORTGAGEE . . . 43 (Emphasis supplied) AGREEMENT DATED JULY 24, 1989 . .
. AND IN THE AMENDMENT TO
The CA believes that the 24% penalty is covered by CREDIT AGREEMENT DATED
the phrase "and other obligations owing by the AUGUST 21, 1991 . . . WHICH LEFT TO
THE SOLE UNILATERAL
mortgagor to the mortgagee" and should thus be
DETERMINATION OF THE
added to the amount secured by the mortgages. 44
RESPONDENT PNB THE ORIGINAL
FIXING OF INTEREST RATE AND ITS
The CA then proceeded to declare valid the
INCREASE, WHICH AGREEMENT IS
foreclosure and sale of properties covered by TCTs T- CONTRARY TO LAW, ART. 1308 OF
14250 and T-16208, which came as a necessary result of THE [NEW CIVIL CODE], AS
petitioners' failure to pay the outstanding obligation upon ENUNCIATED IN PONCIANO ALMEIDA
demand. 45 The CA saw t to increase the trial court's V. COURT OF APPEALS, G.R. [NO.]
award of 1% to 10%, nding the latter rate to be reasonable 113412, APRIL 17, 1996, AND
and citing the Real Estate Mortgage agreement which CONTRARY TO PUBLIC POLICY AND
PUBLIC INTEREST, AND IN APPLYING
authorized the collection of the higher rate. 46SaCIAE

THE PRINCIPLE OF ESTOPPEL

ARISING FROM THE ALLEGED
Finally, the CA ruled that petitioners are entitled to
DELAYED COMPLAINT OF
P377,505.09 surplus, which is the difference between
PETITIONER[S], AND [THEIR]
PNB's bid price of P4,324,172.96 and petitioners' total PAYMENT OF THE INTEREST
computed obligation as of January 14, 1999, or the date CHARGED.
of the auction sale, in the amount of P3,946,667.87. 47
B. CONSEQUENTLY, THE COURT OF
Hence, the present Petition. APPEALS AND THE LOWER COURT
ERRED IN NOT DECLARING THAT
Issues PNB IS NOT AT ALL ENTITLED TO
The following issues are raised in this Petition: ANY INTEREST EXCEPT THE LEGAL
RATE FROM DATE OF DEMAND,
I AND IN NOT APPLYING THE EXCESS
OVER THE LEGAL RATE OF THE
A. THE COURT OF APPEALS AS WELL AS
ADMITTED PAYMENTS MADE BY
THE LOWER COURT ERRED IN NOT
PETITIONER[S] FROM 1991-1998 IN
NULLIFYING THE INTEREST RATE
THE ADMITTED TOTAL AMOUNT OF
 P3,484,287.00, TO PAYMENT OF THE 49 Petitioners insist that the interest rate provision in the
PRINCIPAL OF P2,500,000.[00] Credit Agreement and the Amendment to Credit
LEAVING AN OVERPAYMENT OF Agreement should be declared null and void, for they
P984,287.00 REFUNDABLE BY relegated to PNB the sole power to x interest rates
RESPONDENT TO PETITIONER[S]
based on arbitrary criteria or factors such as bank
WITH INTEREST OF 12% PER
policy, pro tability, cost of money, foreign currency
ANNUM.
values, and bank administrative costs; spaces for
II interest rates in the two Credit Agreements and the
promissory notes were left blank for PNB to unilaterally
THE COURT OF APPEALS AND THE ll, and their consent or agreement to the interest rates
LOWER COURT ERRED IN HOLDING imposed thereafter was not obtained; the interest rate,
THAT PENALTIES ARE INCLUDED IN THE which consists of the prime rate plus the bank spread,
SECURED AMOUNT, SUBJECT TO is determined not by agreement of the parties but by
FORECLOSURE, WHEN NO PENALTIES
PNB's Treasury Department in Manila. Petitioners
ARE MENTIONED [NOR] PROVIDED FOR
conclude that by this method of xing the interest rates,
IN THE REAL ESTATE MORTGAGE AS A
SECURED AMOUNT AND THEREFORE
the principle of mutuality of contracts is violated, and
THE AMOUNT OF PENALTIES SHOULD public policy as well as Circular 905 of the then Central
HAVE BEEN EXCLUDED FROM [THE] Bank had been breached.
FORECLOSURE AMOUNT. IHEDAT

Petitioners question the CA's application of the

III principle of estoppel, saying that no estoppel can proceed
from an illegal act. Though they failed to timely question
THE COURT OF APPEALS ERRED IN the imposition of the alleged illegal interest rates and
REVERSING THE RULING OF THE LOWER
continued to pay the loan on the basis of these rates, they
COURT, WHICH REDUCED THE
cannot be deemed to have acquiesced, and hence could
ATTORNEY'S FEES OF 10% OF THE TOTAL
INDEBTEDNESS CHARGED IN THE . . . recover what they erroneously paid. 50
EXTRAJUDICIAL FORECLOSURE TO ONLY
1%, AND [AWARDING] 10% ATTORNEY'S Petitioners argue that if the interest rates were nulli
FEES. 48 ed, then their obligation to PNB is deemed extinguished
as of July 1997; moreover, it would appear that they even
Petitioners' Arguments made an overpayment to the bank in the amount of
P984,287.00.
 proceedings for the collection of its credit." 55 And because
Next, petitioners suggest that since the Real Estate the instant case involves a simple extrajudicial
Mortgage agreements did not include nor specify, as part foreclosure, attorney's fees may be equitably tempered.
of the secured amount, the penalty of 24% authorized in
PN 9707237, such amount of P581,666.66 could not be Respondent's Arguments
made answerable by or collected from the mortgages
covering TCTs T-14250 and T- 16208. Claiming support For its part, respondent disputes petitioners' claim
from Philippine Bank of Communications [PBCom] v. that interest rates were unilaterally xed by it, taking relief
Court of Appeals, 51 petitioners insist that the phrase "and in the CA pronouncement that petitioners are deemed
other obligations owing by the mortgagor to the estopped by their failure to question the imposed rates
mortgagee" 52 in the mortgage agreements cannot and their continued payment thereof without opposition. It
embrace the P581,666.66 penalty, because, as held in the adds that because the Credit Agreement and promissory
PB Com case, "[a] penalty charge does not belong to the notes contained both an escalation clause and a de-
species of obligations enumerated in the mortgage, escalation clause, it may not be said that the bank violated
hence, the said contract cannot be understood to secure the principle of mutuality. Besides, the increase or
the penalty"; 53 while the mortgages are the accessory decrease in interest rates have been mutually agreed
contracts, what items are secured may only be upon by the parties, as shown by petitioners' continuous
determined from the provisions of the mortgage contracts, payment without protest. Respondent adds that the
and not from the Credit Agreement or the promissory alleged unilateral imposition of interest rates is not a
notes. proper subject for review by the Court because the issue
was never raised in the lower court.
Finally, petitioners submit that the trial court's
award of 1% attorney's fees should be maintained, given As for petitioners' claim that interest rates imposed by it
that in foreclosures, a lawyer's work consists merely in the are null and void for the reasons that 1) the Credit
preparation and ling of the petition, and involves minimal Agreements and the promissory notes were signed in
study. 54 To allow the imposition of a staggering blank; 2) interest rates were at short periods; 3) no
P396,211.00 for such work would be contrary to equity. interest rates could be charged where no agreement on
Petitioners state that the purpose of attorney's fees in interest rates was made in writing; 4) PNB xed interest
cases of this nature "is not to give respondent a larger rates on the basis of arbitrary policies and standards left
compensation for the loan than the law already allows, but to its choosing; and 5) interest rates based on prime rate
to protect it against any future loss or damage by being plus applicable spread are indeterminate and arbitrary —
compelled to retain counsel . . . to institute judicial PNB counters:
 imposed during the interim, or the period after the
a. That Credit Agreements and loan became due and while it remains unpaid, and
promissory notes were signed by petitioner[s] in not the legal interest of 12% as claimed by
blank — Respondent claims that this issue was petitioners. 59
never raised in the lower court. Besides,
documentary evidence prevails over testimonial d. That PNB xed interest rates on the basis
evidence; Lydia Silos' testimony in this regard is self- of arbitrary policies and
serving, unsupported and uncorroborated, and for
being the lone evidence on this issue. The fact standards left to its choosing —
remains that these documents are in proper form, According to respondent, interest
presumed regular, and endure, against arbitrary rates were xed taking into
claims by Silos — who is an experienced business consideration increases or
person — that she signed questionable loan decreases as provided by law or by
documents whose provisions for interest rates were the Monetary Board, the bank's
left blank, and yet she continued to pay the interests overall costs of funds, and upon
without protest for a number of years. 56 agreement of the parties. 60

b. That interest rates were at short e. That interest rates based on prime
periods — Respondent argues that the law which rate plus applicable spread are
governs and prohibits changes in interest rates indeterminate and arbitrary — On
made more than once every twelve months has this score, respondent submits there
been removed 57 with the issuance of Presidential are various factors that in uence
Decree No. 858. 58 interest rates, from political

events to economic developments,

c. That no interest rates could be
etc.; the cost of money, pro tability
charged where no agreement on interest rates was
and foreign currency transactions
made in writing in violation of Article 1956 of the Civil
may not be discounted.
Code, which provides that no interest shall be due
unless it has been expressly stipulated in writing — 61 ATHCac

Respondent insists that the stipulated 25% per

annum as embodied in PN 9707237 should be On the issue of penalties, respondent reiterates the trial
court's nding that during pre-trial, petitioners admitted that
the Statement of Account as of October 12, 1998 — which 2. That PNB should reimburse
detailed and included penalty charges as part of the total petitioners the excess in the bid price
outstanding obligation owing to the bank — was correct. of P377,505.99 which is the
Respondent justi es the imposition and collection of a difference between the total amount
penalty as a normal banking practice, and the standard due to PNB and the amount of its bid
rate per annum for all commercial banks, at the time, was price.
24%. Respondent adds that the purpose of the penalty or a
penal clause for that matter is to ensure the performance of Our Ruling
the obligation and substitute for damages and the payment
The Court grants the Petition.
of interest in the event of non-compliance. 62 And the
promissory note — being the principal agreement as Before anything else, it must be said that it is not
opposed to the mortgage, which is a mere accessory — the function of the Court to re-examine or re-evaluate
should prevail. This being the case, its inclusion as part of evidence adduced by the parties in the proceedings
the secured amount in the mortgage agreements is valid below. The rule admits of certain well-recognized
and necessary. exceptions, though, as when the lower courts' ndings are
not supported by the evidence on record or are based on
Regarding the foreclosure of the mortgages, a misapprehension of facts, or when certain relevant and
respondent accuses petitioners of pre-empting undisputed facts were manifestly overlooked that, if
consolidation of its ownership over TCTs T-14250 and T- properly considered, would justify a different conclusion.
16208; that petitioners led Civil Case No. 5975 This case falls within such exceptions.
ostensibly to question the foreclosure and sale of
properties covered by TCTs T-14250 and T-16208 in a The Court notes that on March 5, 2008, a
desperate move to retain ownership over these Resolution was issued by the Court's First Division
properties, because they failed to timely redeem them. denying respondent's petition in G.R. No. 181046, due to
late ling, failure to attach the required a davit of service of
Respondent directs the attention of the Court to its the petition on the trial court and the petitioners, and
petition in G.R. No. 181046, 63 where the propriety of the submission of a defective veri cation and certi cation of
CA's ruling on the following issues is squarely raised: non-forum shopping. On June 25, 2008, the Court issued
another Resolution denying with nality respondent's
1. That the interest rate to be applied after the expiration of the rst 30-
motion for reconsideration of the March 5, 2008
day interest period for PN 9707237 should be 12% per annum; and
Resolution. And on August 15, 2008, entry of judgment
was made. This thus settles the issues, as above-stated, accommodation shall be
covering a) the interest rate — or 12% per annum — that correspondingly decreased in the
applies upon expiration of the rst 30 days interest period event that the applicable maximum
provided under PN 9707237, and b) the CA's decree that interest is reduced by law or by the
PNB should reimburse petitioner the excess in the bid Monetary Board. In either case, the
price of P377,505.09. adjustment in the interest rate agreed
upon shall take effect on the effectivity
It appears that respondent's practice, more than date of the increase or decrease in the
once proscribed by the Court, has been carried over once maximum interest rate.
more to the petitioners. In a number of decided cases, the
The Promissory Note, in turn,
Court struck down provisions in credit documents issued
authorized the PNB to raise the rate of
by PNB to, or required of, its borrowers which allow the
interest, at any time without notice,
bank to increase or decrease interest rates "within the
beyond the stipulated rate of 12% but
limits allowed by law at any time depending on whatever
only "within the limits allowed by law."
policy it may adopt in the future." Thus, in Philippine
National Bank v. Court of Appeals, 64 such stipulation and The Real Estate Mortgage contract likewise
similar ones were declared in violation of Article 1308 65 provided that —
of the Civil Code. In a second case, Philippine National
Bank v. Court of Appeals, 66 the very same stipulations (k) INCREASE OF
found in the credit agreement and the promissory notes INTEREST RATE: The rate of
prepared and issued by the respondent were again interest charged on the obligation
invalidated. The Court therein said: secured by this mortgage as well as
the interest on the amount which may
The Credit Agreement provided inter alia, have been advanced by the
that — MORTGAGEE, in accordance with
the provision hereof, shall be subject
The BANK reserves the right to during the life of this contract to
increase the interest rate within the such an increase within the rate
limits allowed by law at any time allowed by law, as the Board of
depending on whatever policy it Directors of the MORTGAGEE may
may adopt in the future; Provided, prescribe for its debtors.
that the interest rate on this
 xxx xxx xxx Sec. 7-a. Parties to an
agreement pertaining to a loan
In making the unilateral increases in or forbearance of money,
interest rates, petitioner bank relied on the goods or credits may stipulate
escalation clause contained in their credit that the rate of interest agreed
agreement which provides, as follows: TDaAHS
upon may be increased in the
event that the applicable
The Bank reserves the right to
maximum rate of interest is
increase the interest rate within the
increased by law or by the
limits allowed by law at any time
Monetary Board; Provided,
depending on whatever policy it may
That such stipulation shall be
adopt in the future and provided,
valid only if there is also a
that, the interest rate on this
stipulation in the agreement
accommodation shall be
that the rate of interest agreed
correspondingly decreased in the
upon shall be reduced in the
event that the applicable maximum
event that the applicable
interest rate is reduced by law or by
maximum rate of interest is
the Monetary Board. In either case,
reduced by law or by the
the adjustment in the interest rate
Monetary Board; Provided
agreed upon shall take effect on the
further, That the adjustment in
effectivity date of the increase or
the rate of interest agreed upon
decrease in maximum interest rate.
shall take effect on or after the
effectivity of the increase or
This clause is authorized by Section 2 of
decrease in the maximum rate
Presidential Decree (P.D.) No.
of interest.
1684 which further amended Act No. 2655 ("The
Usury Law"), as amended, thus: Section 1 of P.D. No. 1684 also
empowered the Central Bank's
Section 2. The same Act is Monetary Board to prescribe the
hereby amended by adding a new maximum rates of interest for loans
section after Section 7, to read as and certain forbearances. Pursuant to
follows: such authority, the Monetary Board
 issued Centralrate on this
accommodation shall be xxx xxx xxx
correspondingly decreased in the
event that the applicable maximum In making the unilateral increases in
interest is reduced by law or by the interest rates, petitioner bank relied on the
Monetary Board. In either case, the escalation clause contained in their credit
adjustment in the interest rate agreed agreement which provides, as follows: TDaAHS

upon shall take effect on the effectivity

The Bank reserves the right to
date of the increase or decrease in the
increase the interest rate within the
maximum interest rate.
limits allowed by law at any time
The Promissory Note, in turn, depending on whatever policy it may
authorized the PNB to raise the rate of adopt in the future and provided,
interest, at any time without notice, that, the interest rate on this
beyond the stipulated rate of 12% but accommodation shall be
only "within the limits allowed by law." correspondingly decreased in the
event that the applicable maximum
The Real Estate Mortgage contract likewise interest rate is reduced by law or by
provided that — the Monetary Board. In either case,
the adjustment in the interest rate
(k) INCREASE OF agreed upon shall take effect on the
INTEREST RATE: The rate of effectivity date of the increase or
interest charged on the obligation decrease in maximum interest rate.
secured by this mortgage as well as
the interest on the amount which may This clause is authorized by Section 2 of
have been advanced by the Presidential Decree (P.D.) No.
MORTGAGEE, in accordance with
the provision hereof, shall be subject 1684 which further amended Act No. 2655 ("The
during the life of this contract to Usury Law"), as amended, thus:
such an increase within the rate
Section 2. The same Act is
allowed by law, as the Board of
hereby amended by adding a new
Directors of the MORTGAGEE may
prescribe for its debtors.
 section after Section 7, to read as Monetary Board issued Central Bank (C.B.) Circular
follows: No. 905, series of 1982, Section 5 of which
provides:
Sec. 7-a. Parties to an
agreement pertaining to a loan Sec. 5. Section 1303 of the
or forbearance of money, Manual of Regulations (for Banks
goods or credits may stipulate and Other Financial Intermediaries) is
that the rate of interest agreed hereby amended to read as follows:
upon may be increased in the
event that the applicable Sec. 1303. Interest and
maximum rate of interest is Other Charges. — The rate of
increased by law or by the interest, including
Monetary Board; Provided, commissions, premiums, fees
That such stipulation shall be and other charges, on any loan,
valid only if there is also a or forbearance of any money,
stipulation in the agreement goods or credits, regardless of
that the rate of interest agreed maturity and whether secured
upon shall be reduced in the or unsecured, shall not be
event that the applicable subject to any ceiling
maximum rate of interest is prescribed under or pursuant to
reduced by law or by the the Usury Law, as amended.
Monetary Board; Provided
P.D. No. 1684 and C.B. Circular No.
further, That the adjustment in
905 no more than allow contracting parties to
the rate of interest agreed upon
stipulate freely regarding any subsequent
shall take effect on or after the
adjustment in the interest rate that shall accrue
effectivity of the increase or
on a loan or forbearance of money, goods or
decrease in the maximum rate
credits. In ne, they can agree to adjust, upward
of interest. or downward, the interest previously
stipulated.
Section 1 of P.D. No. 1684 also empowered the
Central Bank's Monetary Board to prescribe the However, contrary to the stubborn
maximum rates of interest for loans and certain insistence of petitioner bank, the said law
forbearances. Pursuant to such authority, the
and circular did not authorize either party important modi cation in their agreement,
to unilaterally raise the interest rate and would negate the element of
without the other's consent. mutuality in contracts. In Philippine
National Bank v. Court of Appeals, et al., 196
It is basic that there can be no SCRA 536, 544-545 (1991) we held —
contract in the true sense in the absence
of the element of agreement, or of mutual . . . The unilateral action of
assent of the parties. If this assent is the PNB in increasing the interest
wanting on the part of the one who rate on the private respondent's
contracts, his act has no more e cacy loan violated the mutuality of
than if it had been done under duress or contracts ordained in Article 1308
by a person of unsound mind. of the Civil Code:

Similarly, contract changes must be Art. 1308. The contract

made with the consent of the contracting must bind both contracting
parties. The minds of all the parties must parties; its validity or
meet as to the proposed modi cation, compliance cannot be left to
especially when it affects an important the will of one of them.
aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that
In order that obligations arising from
the rate of interest is always a vital
contracts may have the force of law
component, for it can make or break a
between the parties, there must be
capital venture. Thus, any change must be
mutuality between the parties based on
mutually agreed upon, otherwise, it is bereft
their essential equality. A contract
of any binding effect. containing a condition which makes its
ful llment dependent exclusively upon
We cannot countenance petitioner
the uncontrolled will of one of the
bank's posturing that the escalation
contracting parties, is void . . . . Hence,
clause at bench gives it unbridled right to
even assuming that the . . . loan
unilaterally upwardly adjust the interest
agreement between the PNB and the
on private respondents' loan. That would private respondent gave the PNB a
completely take away from private license (although in fact there was
respondents the right to assent to an none) to increase the interest rate at
 will during the term of the loan, that contract which is left solely to the will of one
license would have been null and void of the parties, is likewise, invalid.
for being violative of the principle of
mutuality essential in contracts. It It is plainly obvious, therefore, from
would have invested the loan the undisputed facts of the case that
agreement with the character of a respondent bank unilaterally altered the
contract of adhesion, where the terms of its contract with petitioners by
parties do not bargain on equal increasing the interest rates on the loan
footing, the weaker party's (the without the prior assent of the latter. In
debtor) participation being reduced to fact, the manner of agreement is itself
the alternative "to take it or leave it" . . explicitly stipulated by the Civil Code when it
. . Such a contract is a veritable trap provides, in Article 1956 that "No interest
for the weaker party whom the courts shall be due unless it has been expressly
of justice must protect against abuse stipulated in writing." What has been
and imposition. 67 (Emphases "stipulated in writing" from a perusal of
supplied) interest rate provision of the credit
agreement signed between the parties is
Then again, in a third case, Spouses Almeda v. that petitioners were bound merely to pay
Court of Appeals, 68 the Court invalidated the very same 21% interest, subject to a possible
provisions in the respondent's prepared Credit escalation or de-escalation, when 1) the
Agreement, declaring thus: circumstances warrant such escalation or
de-escalation; 2) within the limits allowed
The binding effect of any agreement by law; and 3) upon agreement.
between parties to a contract is premised on
two settled principles: (1) that any obligation
arising from contract has the force of law Indeed, the interest rate which
between the parties; and (2) that there must appears to have been agreed upon by the
be mutuality between the parties based on parties to the contract in this case was
their essential equality. Any contract which the 21% rate stipulated in the interest
appears to be heavily weighed in favor of one provision. Any doubt about this is in fact
of the parties so as to lead to an readily resolved by a careful reading of
unconscionable result is void. Any stipulation the credit agreement because the same
regarding the validity or compliance of the plainly uses the phrase "interest rate
 agreed upon," in reference to the original In the face of the unequivocal interest
21% interest rate. . . . rate provisions in the credit agreement and
in the law requiring the parties to agree to
xxx xxx xxx changes in the interest rate in writing, we
hold that the unilateral and progressive
Petitioners never agreed in writing to pay the
increases imposed by respondent PNB were
increased interest rates demanded by respondent bank
null and void. Their effect was to increase the
in contravention to the tenor of their credit agreement.
total obligation on an eighteen million peso
That an increase in interest rates from 18% to as much
loan to an amount way over three times that
as 68% is excessive and unconscionable is
which was originally granted to the
indisputable. Between 1981 and 1984, petitioners
borrowers. That these increases,
had paid an amount equivalent to virtually half of
occasioned by crafty manipulations in the
the entire principal (P7,735,004.66) which was
interest rates is unconscionable and
applied to interest alone. By the time the spouses
neutralizes the salutary policies of extending
tendered the amount of P40,142,518.00 in
loans to spur business cannot be disputed.
settlement of their obligations; respondent bank
69 (Emphases supplied)
was demanding P58,377,487.00 over and above
those amounts already previously paid by the Still, in a fourth case, Philippine National Bank v.
spouses. Court of Appeals, 70 the above doctrine was reiterated:
Escalation clauses are not basically
wrong or legally objectionable so long as The promissory note contained the following
they are not solely potestative but based on stipulation:
reasonable and valid grounds. Here, as
clearly demonstrated above, not only [are] For value received, I/we, [private
the increases of the interest rates on the respondents] jointly and severally promise to
basis of the escalation clause patently pay to the ORDER of the PHILIPPINE
unreasonable and unconscionable, but also NATIONAL BANK, at its o ce in San Jose
there are no valid and reasonable standards City, Philippines, the sum of FIFTEEN
upon which the increases are anchored. TcDAHS
THOUSAND ONLY (P15,000.00), Philippine
Currency, together with interest thereon at
xxx xxx xxx the rate of 12% per annum until paid,
which interest rate the Bank may at any
time without notice, raise within the limits
 allowed by law, and I/we also agree to pay MORTGAGEE, in accordance with the provision
jointly and severally ___ % per annum hereof, shall be subject during the life of this
penalty charge, by way of liquidated contract to such an increase within the rate
damages should this note be unpaid or is not allowed by law, as the Board of Directors of the
renewed on due dated. MORTGAGEE may prescribe for its debtors.
xxx xxx xxx
Payment of this note shall be as follows:
To begin with, PNB's argument rests
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE on a misapprehension of the import of the
appellate court's ruling. The Court of Appeals
On the reverse side of the note the following condition nulli ed the interest rate increases not
was stamped: because the promissory note did not comply
with P.D. No. 1684 by providing for a de-
All short-term loans to be granted
escalation, but because the absence of such
starting January 1, 1978 shall be made
provision made the clause so one-sided as
subject to the condition that any and/or all
to make it unreasonable.
extensions hereof that will leave any portion
of the amount still unpaid after 730 days shall That ruling is correct. It is in line with
automatically convert the outstanding our decision in Banco Filipino Savings &
balance into a medium or long-term Mortgage Bank v. Navarro that although P.D.
obligation as the case may be and give the No. 1684 is not to be retroactively applied to
Bank the right to charge the interest rates loans granted before its effectivity, there
prescribed under its policies from the date must nevertheless be a de-escalation clause
the account was originally granted. to mitigate the one-sidedness of the
escalation clause. Indeed because of
To secure payment of the loan the
concern for the unequal status of borrowers
parties executed a real estate mortgage
vis-a -vis the banks, our cases after Banco
contract which provided:
Filipino have fashioned the rule that any
(k) INCREASE OF INTEREST RATE: increase in the rate of interest made
pursuant to an escalation clause must be
The rate of interest charged on the obligation the result of agreement between the
secured by this mortgage as well as the interest on the parties.
amount which may have been advanced by the
 Thus in Philippine National Bank v. parties; its validity or compliance cannot be
Court of Appeals, two promissory notes left to the will of one of them." As the Court
authorized PNB to increase the stipulated explained:
interest per annum "within the limits
allowed by law at any time depending on In order that obligations arising
whatever policy [PNB] may adopt in the from contracts may have the force of law
future; Provided, that the interest rate on between the parties, there must be
this note shall be correspondingly mutuality between the parties based on
decreased in the event that the applicable their essential equality. A contract
maximum interest rate is reduced by law containing a condition which makes its ful
or by the Monetary Board." The real llment dependent exclusively upon the
estate mortgage likewise provided: uncontrolled will of one of the contracting
parties, is void (Garcia vs. Rita Legarda, Inc.,
The rate of interest charged on the 21 SCRA 555). Hence, even assuming that
obligation secured by this mortgage as the P1.8 million loan agreement between the
well as the interest on the amount which PNB and the private respondent gave the
may have been advanced by the PNB a license (although in fact there was
MORTGAGEE, in accordance with the none) to increase the interest rate at will
provisions hereof, shall be subject during during the term of the loan, that license would
the life of this contract to such an have been null and void for being violative of
increase within the rate allowed by law, as the principle of mutuality essential in
the Board of Directors of the contracts. It would have invested the loan
MORTGAGEE may prescribe for its agreement with the character of a contract of
debtors. adhesion, where the parties do not bargain
on equal footing, the weaker party's (the
Pursuant to these clauses, PNB debtor) participation being reduced to the
successively increased the interest from 18% alternative "to take it or leave it" (Qua vs. Law
to 32%, then to 41% and then to 48%. This Union & Rock Insurance Co., 95 Phil. 85).
Court declared the increases unilaterally Such a contract is a veritable trap for the
imposed by [PNB] to be in violation of the weaker party whom the courts of justice must
principle of mutuality as embodied in Art. protect against abuse and imposition. aEIADT

1308 of the Civil Code, which provides that

"[t]he contract must bind both contracting
A similar ruling was made in Philippine National decreed by PNB pursuant to a similar
Bank v. Court of Appeals. The credit agreement agreement it had with other borrowers:
in that case provided:
[W]hile the Usury Law ceiling on
The BANK reserves the right to interest rates was lifted by C.B. Circular 905,
increase the interest rate within the limits nothing in the said circular could possibly
allowed by law at any time depending on be read as granting respondent bank
whatever policy it may adopt in the future: carte blanche authority to raise interest
Provided, that the interest rate on this rates to levels which would either enslave
accommodation shall be correspondingly its borrowers or lead to a hemorrhaging
decreased in the event that the applicable of their assets.
maximum interest is reduced by law or by the
Monetary Board. . . . In this case no attempt was made by
PNB to secure the conformity of private
As in the rst case, PNB successively respondents to the successive increases in
increased the stipulated interest so that what the interest rate. Private respondents' assent
was originally 12% per annum became, after to the increases can not be implied from their
only two years, 42%. In declaring the lack of response to the letters sent by PNB,
increases invalid, we held: informing them of the increases. For as
stated in one case, no one receiving a
We cannot countenance petitioner proposal to change a contract is obliged to
bank's posturing that the escalation clause at answer the proposal. 71 (Emphasis supplied)
bench gives it unbridled right to unilaterally
upwardly adjust the interest on private We made the same pronouncement in a fth case,
respondents' loan. That would completely New Sampaguita Builders Construction, Inc. v. Philippine
take away from private respondents the right National Bank, 72 thus —
to assent to an important modi cation in their
agreement, and would negate the element of Courts have the authority to strike
mutuality in contracts. down or to modify provisions in promissory
notes that grant the lenders unrestrained
Only recently we invalidated power to increase interest rates, penalties
another round of interest increases and other charges at the latter's sole
discretion and without giving prior notice to
 and securing the consent of the borrowers. On the strength of this ruling,
This unilateral authority is anathema to the PNB's argument — that the spouses
mutuality of contracts and enable lenders to Rocamora's failure to contest the
take undue advantage of borrowers. increased interest rates that were
Although the Usury Law has been effectively purportedly re ected in the statements of
repealed, courts may still reduce iniquitous or account and the demand letters sent by
unconscionable rates charged for the use of the bank amounted to their implied
money. Furthermore, excessive interests, acceptance of the increase — should
penalties and other charges not revealed likewise fail.
in disclosure statements issued by
banks, even if stipulated in the Evidently, PNB's failure to secure the
promissory notes, cannot be given effect spouses Rocamora's consent to the
under the Truth in Lending Act. 73 increased interest rates prompted the lower
(Emphasis supplied) courts to declare excessive and illegal the
interest rates imposed. To go around this
Yet again, in a sixth disposition, Philippine National lower court nding, PNB alleges that the
Bank v. Spouses Rocamora , 74 the above P206,297.47 de ciency claim was computed
pronouncements were reiterated to debunk PNB's using only the original 12% per annum
repeated reliance on its invalidated contract stipulations: interest rate. We nd this unlikely. Our
examination of PNB's own ledgers, included
We repeated this rule in the 1994 case of PNB in the records of the case, clearly indicates
v. CA and Jayme-Fernandez and the 1996 that PNB imposed interest rates higher than
case of PNB v. CA and Spouses Basco. the agreed 12% per annum rate. This
Taking no heed of these rulings, the confirmatory finding, albeit based solely on
escalation clause PNB used in the present ledgers found in the records, reinforces the
case to justify the increased interest rates is application in this case of the rule that ndings
no different from the escalation clause of the RTC, when a rmed by the CA, are
assailed in the 1996 PNB case; in both, the binding upon this Court. 75 (Emphases
interest rates were increased from the supplied) HSaIDc

agreed 12% per annum rate to 42%. . . .

Verily, all these cases, including the present one,
xxx xxx xxx involve identical or similar provisions found in
respondent's credit agreements and promissory notes.
 Thus, the July 1989 Credit Agreement executed by reduce interest rates "at any time depending on
petitioners and respondent contained the following whatever policy PNB may adopt in the future." 78
stipulation on interest:
On the basis of the Credit Agreement, petitioners
1.03.Interest. (a) The Loan shall be issued promissory notes which they signed in blank, and
subject to interest at the rate of 19.5% [per respondent later on entered their corresponding interest
annum]. Interest shall be payable in advance rates, as follows:
every one hundred twenty days at the rate
prevailing at the time of the renewal. 1st Promissory Note dated July 24, 1989 — 19.5%;
2nd Promissory Note dated November 22, 1989 —
(b) The Borrower agrees that the 23%
Bank may modify the interest rate in the Loan 3rd Promissory Note dated March 21, 1990 ---- 22%
depending on whatever policy the Bank may adopt 4th Promissory Note dated July 19, 1990 ---- 24%
in 5th Promissory Note dated December 17, 1990 —
the future, including without limitation, the 28%;
shifting from the oating interest rate system 6th Promissory Note dated February 14, 1991 — 32%;
to the xed interest rate system, or vice versa. 7th Promissory Note dated March 1, 1991 — 30%; and
Where the Bank has imposed on the Loan 8th Promissory Note dated July 11, 1991 — 24%.
interest at a rate per annum which is equal to
the Bank's spread over the current oating
interest rate, the Borrower hereby agrees On the other hand, the August 1991 Amendment
that the Bank may, without need of notice to Credit Agreement contains the following stipulation
to the Borrower, increase or decrease its regarding interest:
spread over the floating interest rate at
any time depending on whatever policy it 1.03.Interest on Line Availments. (a)
may adopt in the future. 76 (Emphases The Borrowers agree to pay interest on
supplied) each Availment from date of each Availment
up to but not including the date of full
while the eight promissory notes issued pursuant payment thereof at the rate per annum
thereto granted PNB the right to increase or reduce which is determined by the Bank to be
interest rates "within the limits allowed by law or the prime rate plus applicable spread in effect
Monetary Board" 77 and the Real Estate Mortgage as of the date of each Availment. 80
agreement included the same right to increase or (Emphases supplied)
 18th Promissory Note dated November 16, 1994
and under this Amendment to Credit Agreement, — 16%;
petitioners again executed and signed the following
promissory notes in blank, for the respondent to later 19th Promissory Note dated April 10, 1995 —
on enter the corresponding interest rates, which it did, 21%;
as follows:
20th Promissory Note dated July 19, 1995 —
9th Promissory Note dated November 8, 1991 — 18.5%;
26%; 21st Promissory Note dated December 18, 1995 —
18.75%;
10th Promissory Note dated March 19, 1992 — 22nd Promissory Note dated April 22, 1996 —
25%; 18.5%;
23rd Promissory Note dated July 22, 1996 — 18.5%;
11th Promissory Note dated July 11, 1992 — 24th Promissory Note dated November 25, 1996 —
23%; 18%;
25th Promissory Note dated May 30, 1997 —
12th Promissory Note dated November 10, 1992 17.5%; and
— 21%; 26th Promissory Note (PN 9707237) dated July
30, 1997 — 25%.
13th Promissory Note dated March 15, 1993 —
The 9th up to the 17th promissory notes provide for
21%;
the payment of interest at the "rate the Bank may at any
14th Promissory Note dated July 12, 1993 — time without notice, raise within the limits allowed by law .
17.5%; . . ." 82 On the other hand, the 18th up to the 26th
promissory notes — which includes PN 9707237 —
15th Promissory Note dated November 17, 1993 carried the following provision:
— 21%;
. . . For this purpose, I/We agree that the
16th Promissory Note dated March 28, 1994 — rate of interest herein stipulated may be
21%; increased or decreased for the
subsequent Interest Periods, with prior
17th Promissory Note dated July 13, 1994 — notice to the Borrower in the event of
21%; changes in interest rate prescribed by
 law or the Monetary Board of the Central PNB xes — such as cost of money, foreign currency
Bank of the Philippines, or in the Bank's values, bank administrative costs,
overall cost of funds. I/We hereby
pro tability, and considerations which affect the banking
agree that in the event I/we are not industry — it can be seen that considerations which affect
agreeable to the interest rate xed for any PNB's borrowers are ignored. A borrower's current nancial
Interest Period, I/we shall have the state, his feedback or opinions, the nature and purpose of
option to prepay the loan or credit his borrowings, the effect of
facility without penalty within ten (10) foreign currency values or uctuations on his business or borrow
calendar days from the Interest Setting factors which in uence the fixing of interest rates to be im
Date. 83 (Emphasis supplied)
respondent's method of fixing interest rates based on one-s
CSHEAI

subjective criteria such as pro tability, cost of money, bank costs

These stipulations must be once more invalidated,
is no fixed standard or margin above or below these
as was done in previous cases. The common denominator
considerations.
in these cases is the lack of agreement of the parties to
the imposed interest rates. For this case, this lack of The stipulation in the promissory
consent by the petitioners has been made obvious by the notes subjecting the interest rate to review
fact that they signed the promissory notes in blank for the does not render the imposition by UCPB of
respondent to ll. We nd credible the testimony of Lydia in interest rates on the obligations of the
this respect. Respondent failed to discredit her; in fact, its spouses Beluso valid. According to said
witness PNB Kalibo Branch Manager Aspa admitted that stipulation:
interest rates were xed solely by its Treasury Department
in Manila, which were then simply communicated to all The interest rate shall be subject to
PNB branches for implementation. If this were the case, review and may be increased or
then this would explain why petitioners had to sign the decreased by the LENDER
promissory notes in blank, since the imposable interest considering among others the
rates have yet to be determined and xed by respondent's prevailing nancial and monetary
Treasury Department in Manila. conditions; or the rate of interest
and charges which other banks or
nancial institutions charge or offer
Moreover, in Aspa's enumeration of the factors that to charge for similar
determine the interest rates accommodations; and/or the
 resulting pro tability to the parties. The minds of all the parties must meet as to the
LENDER after due consideration of all proposed modi cation, especially when it affects an
dealings with important aspect of the agreement. In the case of loan
agreements, the rate of interest is a principal condition, if
the BORROWER.
not the most important component. Thus, any modification
It should be pointed out that the authority to thereof must be mutually agreed upon; otherwise, it has
review the interest rate was given [to] UCPB no binding effect.
alone as the lender. Moreover, UCPB may apply the
What is even more glaring in the present case is
considerations enumerated in this provision as it
that, the stipulations in question no longer provide that the
wishes. As worded in the above provision, UCPB
parties shall agree upon the interest rate to be xed; -
may give as much weight as it desires to each of the
following considerations: (1) the prevailing nancial instead, they are worded in such a way that the borrower
and monetary condition; (2) shall agree to whatever interest rate respondent xes. In
credit agreements covered by the above-cited cases, it is
the rate of interest and charges which other banks or nancialprovided that:
institutions charge
or offer to charge for similar accommodations; and/or (3) the resulting
pro tability to the LENDER (UCPB) after due consideration of all dealings with the
The Bank reserves the right to
BORROWER (the spouses Beluso). Again,
increase the interest rate within the limits
as in the case of the interest rate
allowed by law at any time depending on
provision, there is no fixed margin above
whatever policy it may adopt in the future:
or below these considerations.
Provided, that, the interest rate on this
In view of the foregoing, the accommodation shall be correspondingly
Separability Clause cannot save either of the decreased in the event that the applicable
two options of UCPB as to the interest to be maximum interest rate is reduced by law or
imposed, as both options violate the principle by the Monetary Board. In either case, the
of mutuality of contracts. 84 (Emphases adjustment in the interest rate agreed upon
supplied) shall take effect on the effectivity date of the
increase or decrease in maximum interest
To repeat what has been said in the above-cited rate. 85 (Emphasis supplied)
cases, any modi cation in the contract, such as the interest
rates, must be made with the consent of the contracting
Whereas, in the present credit agreements under
scrutiny, it is stated that: Plainly, with the present credit agreement, the element of
consent or agreement by the borrower is now completely
IN THE JULY 1989 CREDIT AGREEMENT lacking, which makes respondent's unlawful act all the
more reprehensible.
(b) The Borrower agrees that
the Bank may modify the interest rate on the Accordingly, petitioners are correct in arguing that
Loan depending on whatever policy the Bank estoppel should not apply to them, for "[e]stoppel cannot
may adopt in the future, be predicated on an illegal act. As between the parties to
including without limitation, the shifting from a contract, validity cannot be given to it by estoppel if it is
the oating interest rate system to the xed prohibited by law or is against public policy." 88 It appears
interest rate system, or vice versa. Where that by its acts, respondent violated the Truth in Lending
the Bank has imposed on the Loan interest Act, or Republic Act No. 3765, which was enacted "to
at a rate per annum, which is equal to the
protect . . . citizens from a lack of awareness of the true
Bank's spread over the current oating
cost of credit to the user by using a full disclosure of such
interest rate, the Borrower hereby agrees
cost with a view of preventing the uninformed use of credit
that the Bank may, without need of notice
to the detriment of the national economy." 89 The law
to the Borrower, increase or decrease its
"gives a detailed enumeration of the speci c information
spread over the oating interest rate at any
required to be disclosed, among which are the interest
time depending on whatever policy it may
adopt in the future. 86 (Emphases supplied) and other charges incident to the extension of credit." 90
Section 4 thereof provides that a disclosure statement
IN THE AUGUST 1991 AMENDMENT TO CREDIT must be furnished prior to the consummation of the
AGREEMENT transaction, thus:

1.03.Interest on Line Availments. (a) SEC. 4. Any creditor shall furnish to

The Borrowers agree to pay interest on each person to whom credit is extended,
each Availment from date of each Availment prior to the consummation of the transaction,
up to but not including the date of full a clear statement in writing setting forth, to
payment thereof at the rate per annum which the extent applicable and in accordance with
is determined by the Bank to be prime rate rules and regulations prescribed by the
plus applicable spread in effect as of the date Board, the following information:
of each Availment. 87 (Emphasis supplied) TDcHCa
 (1) the cash price or delivered price of Under Section 4 (6), " nance charge" represents the
the property or service to be amount to be paid by the debtor incident to the extension
of credit such as interest or discounts, collection fees,
acquired; credit investigation fees, attorney's fees, and other service
charges. The total nance charge represents the difference
(2) the amounts, if any, to be credited as between (1) the aggregate consideration (down payment
down payment and/or trade- plus installments) on the part of the debtor, and (2) the
sum of the cash price and non- nance charges. 91
in;
By requiring the petitioners to sign the credit
(3) the difference between the amounts documents and the promissory notes in blank, and then
set forth under clauses (1) and unilaterally lling them up later on, respondent violated the
Truth in Lending Act, and was remiss in its disclosure
(2); obligations. In one case, which the Court finds applicable
here, it was held:
(4) the charges, individually UCPB further argues that since the spouses
itemized, which are paid or to be paid by Beluso were duly given copies of the subject
such person in connection with the promissory notes after their execution, then they
transaction but which are not incident to the were duly noti ed of the terms thereof, in
extension of credit; substantial compliance with the Truth in Lending
Act.
(5) the total amount to be financed; Once more, we disagree. Section 4 provides
that the disclosure statement consummation of the
(6) the finance charge expressed in transaction:
terms of pesos and centavos; and SEC. 4. Any creditor shall
furnish to each person to whom credit
(7) the percentage that the nance
is extended, prior to the
bears to the total amount to be nanced
consummation of the transaction, a
expressed as a simple annual rate on the
clear statement in writing setting forth,
outstanding unpaid balance of
to the extent applicable and in
the obligation. accordance with rules and regulations
prescribed by the Board, the following (6) the nance charge
information: expressed in terms of
pesos and

(1) the cash price or delivered

centavos; and
price of the property or service
to (7) the percentage that the
nance bears to the total amount to be
be acquired; nanced expressed as a simple annual
rate on the outstanding unpaid
(2) the amounts, if any, to be balance of the obligation.
credited as down payment
and/or The rationale of this provision is to
protect users of credit from a lack of
trade-in; awareness of the true cost thereof,
proceeding from the experience that
(3) the difference between the banks are able to conceal such true cost
amounts set forth under by hidden charges, uncertainty of interest
clauses rates, deduction of interests from the
loaned amount, and the like. The law
(1) and (2); thereby seeks to protect debtors by
permitting them to fully appreciate the
(4) the charges, true cost of their loan, to enable them to
individually itemized, which are paid or give full consent to the contract, and to
to be paid by such person in properly evaluate their options in arriving
connection with the transaction but at business decisions. Upholding UCPB's
which are not incident to the extension claim of substantial compliance would defeat
of credit; these purposes of the Truth in Lending Act.
The belated discovery of the true cost of
(5) the total amount to be credit will too often not be able to reverse
financed; the ill effects of an already consummated
business decision.
 In addition, the promissory notes, written in ne print that allow lenders to later on increase or
the copies of which were presented to the decrease interest rates unilaterally, without the consent of
spouses Beluso after execution, are not the borrower, and depending on complex and subjective
su cient noti cation from UCPB. As earlier factors. Because they have been lured into these
discussed, the interest rate provision contracts by initially low interest rates, borrowers get
therein does not su ciently indicate with caught and stuck in the web of subsequent steep rates
particularity the interest rate to be applied and penalties, surcharges and the like. Being ordinary
to the loan covered by said promissory individuals or entities, they naturally dread legal
notes. 92 (Emphases supplied) complications and cannot afford court litigation; they
succumb to whatever charges the lenders impose. At the
However, the one-year period within which an action
very least, borrowers should be charged rightly; but then
for violation of the Truth in Lending Act may be led
again this is not possible in a one-sided credit system
evidently prescribed long ago, or sometime in 2001, one
where the temptation to abuse is strong and the
year after petitioners received the March 2000 demand
willingness to rectify is made weak by the eternal desire
letter which contained the illegal charges.
for profit.
The fact that petitioners later received several
statements of account detailing its outstanding obligations Given the above supposition, the Court cannot subscribe
does not cure respondent's breach. To repeat, the belated to respondent's argument that in every repricing of
discovery of the true cost of credit does not reverse the ill petitioners' loan availment, they are given the right to
effects of an already consummated business decision. 93 question the interest rates imposed. The import of
Neither may the statements be considered proposals sent respondent's line of reasoning cannot be other than that
to secure the petitioners' conformity; they were sent after if one out of every hundred borrowers questions
the imposition and application of the interest rate, and not respondent's practice of unilaterally xing interest rates,
before. And even if it were to be presumed that these are then only the loan arrangement with that lone
proposals or offers, there was no acceptance by complaining borrower will enjoy the bene t of review or
petitioners. "No one receiving a proposal to modify a loan re-negotiation; as to the 99 others, the questionable
contract, especially regarding interest, is obliged to practice will continue unchecked, and respondent will
answer the proposal." 94 continue to reap the pro ts from such unscrupulous
practice. The Court can no more condone a view so
Loan and credit arrangements may be made
perverse. This is exactly what the Court meant in the
enticing by, or "sweetened" with, offers of low initial
immediately preceding cited case when it said that "the
interest rates, but actually accompanied by provisions
 belated discovery of the true cost of credit does not placed upon a stipulation in a contract which grants one
reverse the ill effects of an already consummated party the right to choose whether to continue with or
business decision;" 95 as to the 99 borrowers who did not withdraw from the agreement if it discovers that what the
or could not complain, the illegal act shall have become other party has been doing all along is improper or illegal.
a fait accompli — to their detriment, they
Thus said, respondent's arguments relative to the
have already suffered the oppressive rates. credit documents — that documentary evidence prevails
over testimonial evidence; that the credit documents are
Besides, that petitioners are given the right to in proper form, presumed regular, and endure, against
question the interest rates imposed is, under the arbitrary claims by petitioners, experienced business
circumstances, irrelevant; we have a situation where the persons that they are, they signed questionable loan
petitioners do not stand on equal footing with the documents whose provisions for interest rates were left
respondent. It is doubtful that any borrower who nds blank, and yet they continued to pay the interests without
himself in petitioners' position would dare question protest for a number of years — deserve no consideration.
respondent's power to arbitrarily modify interest rates at
any time. In the second place, on what basis could any With regard to interest, the Court nds that since the
borrower question such power, when the criteria or escalation clause is annulled, the principal amount of the
standards — which are really one-sided, arbitrary and loan is subject to the original or stipulated rate of interest,
subjective — for the exercise of such power are precisely and upon maturity, the amount due shall be subject to
lost on him? legal interest at the rate of 12% per annum. This is the
uniform ruling adopted in previous cases, including those
For the same reasons, the Court cannot validly consider cited here. 96 The interests paid by petitioners should be
that, as stipulated in the 18th up to the 26th promissory applied rst to the payment of the stipulated or legal and
notes, petitioners are granted the option to prepay the unpaid interest, as the case may be, and later, to the
loan or credit facility without penalty within 10 calendar capital or principal. 97 Respondent should then refund the
days from the Interest Setting Date if they are not excess amount of interest that it has illegally imposed
agreeable to the interest rate xed. It has been shown that upon petitioners; "[t]he amount to be refunded refers to
the promissory notes are executed and signed in blank, that paid by petitioners when they had no obligation to do
meaning that by the time petitioners learn of the interest so." 98 Thus, the parties' original agreement stipulated the
rate, they are already bound to pay it because they have payment of 19.5% interest; however, this rate was
already pre-signed the note where the rate is intended to apply only to the rst promissory note which
subsequently entered. Besides, premium may not be expired on November 21, 1989 and was paid by
petitioners; it was not intended to apply to the whole found the credit agreements and promissory notes to be
duration of the loan. Subsequent higher interest rates tainted, we must accord the same treatment to the
have been declared illegal; but because only the rates are mortgages. After all, "[a] mortgage and a note secured by
found to be improper, the obligation to pay interest it are deemed parts of one transaction and are construed
subsists, the same to be xed at the legal rate of 12% per together." 101 Being so tainted and having the attributes of
annum . However, the 12% interest shall apply only until a contract of adhesion as the principal credit documents,
June 30, 2013. Starting July 1, 2013, the prevailing rate of we must construe the mortgage contracts strictly, and
interest shall be 6% per annum pursuant to our ruling in against the party who drafted it. An examination of the
Nacar v. Gallery Frames 99 and Bangko Sentral ng mortgage agreements reveals that nowhere is it stated
Pilipinas-Monetary Board Circular No. 799. that penalties are to be included in the secured amount.
Construing this silence strictly against the respondent, the
Now to the issue of penalty. PN 9707237 provides Court can only conclude that the parties did not intend to
that failure to pay it or any installment thereon, when due, include the penalty allowed under PN 9707237 as part of
shall constitute default, and a penalty charge of 24% per the secured amount. Given its resources, respondent
annum based on the defaulted principal amount shall be could have — if it truly wanted to — conveniently prepared
imposed. Petitioners claim that this penalty should be and executed an amended mortgage agreement with the
excluded from the foreclosure amount or bid price petitioners, thereby including penalties in the amount to
because the Real Estate Mortgage and the Supplement be secured by the encumbered properties. Yet it did not.
thereto did not speci cally include it as part of the secured
amount. Respondent justi es its inclusion in the secured With regard to attorney's fees, it was plain error for
amount, saying that the purpose of the penalty or a penal the CA to have passed upon the issue since it was not
clause is to ensure the performance of the obligation and raised by the petitioners in their appeal; it was the
substitute for damages and the payment of interest in the respondent that improperly brought it up in its appellee's
event of non-compliance. 100 Respondent adds that the brief, when it should have interposed an appeal, since the
imposition and collection of a penalty is a normal banking trial court's Decision on this issue is adverse to it. It is an
practice, and the standard rate per annum for all elementary principle in the subject of appeals that an
commercial banks, at the time, was 24%. Its inclusion as appellee who does not himself appeal cannot obtain from
part of the secured amount in the mortgage agreements the appellate court any a rmative relief other than those
is thus valid and necessary. TcCSIa granted in the decision of the court below.

The Court sustains petitioners' view that the penalty may . . . [A]n appellee, who is at the same time
not be included as part of the secured amount. Having not an appellant, may on appeal be
 permitted to make counter assignments of 2. All subsequent promissory notes
error in ordinary actions, when the purpose (from the 2nd to the 26th promissory
is merely to defend himself against an notes) shall carry an interest rate of
appeal in which errors are alleged to have only 12% per annum. 104 Thus,
been committed by the trial court both in interest payment made in excess of
the appreciation of facts and in the 12% on the 2nd promissory note
interpretation of the law, in order to sustain shall immediately be applied to the
the judgment in his favor but not when his principal, and the principal shall be
purpose is to seek modi cation or reversal accordingly reduced. The reduced
of the judgment, in which case it is
principal shall then be subjected to
necessary for him to have excepted to and
the 12% 105 interest on the 3rd
appealed from the judgment. 102
promissory note, and the excess
Since petitioners did not raise the issue of reduction over 12% interest payment on the
of attorney's fees, the CA possessed no authority to pass 3rd promissory note shall again be
upon it at the instance of respondent. The ruling of the trial applied to the principal, which shall
court in this respect should remain undisturbed. again be reduced accordingly. The
reduced principal shall then be
For the xing of the proper amounts due and owing subjected to the 12% interest on the
to the parties — to the respondent as creditor and to the 4th promissory note, and the excess
petitioners who are entitled to a refund as a consequence over 12% interest payment on the
of overpayment considering that they paid more by way of 4th promissory note shall again be
interest charges than the 12% per annum 103 herein applied to the principal, which shall
allowed — the case should be remanded to the lower again be reduced accordingly. And
court for proper accounting and computation, applying the so on and so forth;
following procedure:
3. After the above procedure is
1. The 1st Promissory Note with the carried out, the trial court shall be
19.5% interest rate is deemed able to conclude if petitioners a)
proper and paid; still have an OUTSTANDING
BALANCE/OBLIGATION or b)
MADE PAYMENTS OVER AND
 ABOVE THEIR TOTAL DEDUCTED from the bid price of
OBLIGATION (principal and P4,324,172.96. The penalties (5.)
interest); are not included because they are
not included in the secured amount;
4. Such outstanding
balance/obligation, if there be 8. The difference in (7.) [P4,324,172.96
any, shall then be subjected to a LESS sum total of the outstanding
12% per annum interest from balance (3.), interest (4.), and 1%
October 28, 1997 until January 14, attorney's fees (6.)] shall be
1999, which is the date of the DELIVERED TO THE
auction sale; PETITIONERS;

5. Such outstanding balance/obligation 9. Respondent may then proceed to

shall also be charged a 24% per consolidate its title to TCTs T-
annum penaltyfrom August 14, 14250 and T-16208;
1997 until January 14, 1999. But
from this total penalty, the 10. ON THE OTHER HAND, if after
petitioners' previous payment of performing the procedure in (2.), it
penalties in the amount of turns out that petitioners made an
P202,000.00 made on January 27, OVERPAYMENT, the interest (4.),
1998 106 shall be penalties (5.), and the award of 1%
DEDUCTED; attorney's fees (6.) shall be
DEDUCTED from the overpayment.
6. To this outstanding balance (3.), the There is no outstanding
interest (4.), penalties (5.), and the balance/obligation precisely
final and executory award of 1% because petitioners have paid
attorney's fees shall be ADDED; beyond the amount of the principal
and interest;
7. The sum total of the outstanding
balance (3.), interest (4.) and 1% 11. If the overpayment exceeds the sum
attorney's fees (6.) shall be total of the interest (4.), penalties
 (5.), and award of 1% attorney's fees From the above, it will be seen that if, after proper
(6.), the excess shall be RETURNED accounting, it turns out that the petitioners made
to the petitioners, with legal interest, payments exceeding what they actually owe by way of
under the principle of solutio indebiti; principal, interest, and attorney's fees, then the mortgaged
107 properties need not answer for any outstanding secured
amount, because there is not any; quite the contrary,
12. Likewise, if the overpayment respondent must refund the excess to petitioners. In such
exceeds the total amount of interest case, the extrajudicial foreclosure and sale of the
(4.) and award of 1% attorney's fees properties shall be declared null and void for obvious lack
(6.), the trial court shall INVALIDATE of basis, the case being one of solutio indebiti instead. If,
THE EXTRAJUDICIAL on the other hand, it turns out that petitioners'
FORECLOSURE AND SALE; aSAHCE
overpayments in interests do not exceed their total
obligation, then the respondent may consolidate its
13. HOWEVER, if the total amount of ownership over the properties, since the period for
interest (4.) and award of 1% redemption has expired. Its only obligation will be to return
attorney's fees (6.) exceed the difference between its bid price (P4,324,172.96) and
petitioners' overpayment, then the petitioners' total obligation outstanding — except
excess shall be DEDUCTED from penalties — after applying the latter's overpayments.
the bid price of P4,324,172.96;

14. The difference in (13.) WHEREFORE, premises considered, the Petition is

[P4,324,172.96 LESS sum total of GRANTED. The May 8, 2007
the interest (4.) and 1% attorney's
Decision of the Court of Appeals in CA-G.R. CV No. 79650
fees (6.)] shall be DELIVERED TO
is ANNULLED and SET ASIDE.
THE PETITIONERS;
Judgment is hereby rendered as follows:
15. Respondent may then proceed to
consolidate its title to TCTs T-14250 1. The interest rates imposed and
and T-16208. The outstanding indicated in the 2nd up to the 26th
penalties, if any, shall be collected Promissory Notes are DECLARED
by other means. NULL AND VOID, and such notes
 shall instead be subject to interest at same null and void in case of
the rate of twelve percent (12%) per overpayment and ordering the
annum up to June 30, 2013, and release and return of Transfer Certi
starting July 1, 2013, six percent cates of Title Nos. T-14250 and
(6%) per annum until full satisfaction; TCT T-16208 to petitioners, or
ordering the delivery to the
2. The penalty charge imposed in petitioners of the difference
Promissory Note No. 9707237 shall between the bid price and the total
b e EXCLUDED from the amounts remaining obligation of petitioners, if
secured by the real estate any;
mortgages;
6. In the meantime, the respondent
3. The trial court's award of one per cent (1%) Philippine National Bank is
attorney's fees is ENJOINED from consolidating title
to Transfer Certi cates of Title Nos.
REINSTATED; T-14250 and T-16208 until all the
steps in the procedure above set
4. The case is ordered REMANDED to forth have been taken and applied;
TaSEHD

the Regional Trial Court, Branch 6 of

Kalibo, Aklan for the computation of 7. The reimbursement of the excess in
overpayments made by petitioners the bid price of P377,505.99, which
spouses Eduardo and Lydia Silos to respondent Philippine National Bank
respondent Philippine National is ordered to reimburse petitioners,
Bank, taking into consideration the should be HELD IN ABEYANCE
foregoing dispositions, and applying until the true amount owing to or
the procedure hereinabove set forth; owed by the parties as against each
other is determined;
5. Thereafter, the trial court is
ORDERED to make a determination Considering that this case has been pending for
as to the validity of the extrajudicial such a long time and that further proceedings, albeit
foreclosure and sale, declaring the
uncomplicated, are required, the trial court is ORDERED to
proceed with dispatch.
SO ORDERED.

Carpio, Leonardo-de Castro, Perez and Perlas-

Bernabe, JJ., concur.