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G.R. No. L-48359. March 30, 1993.

free disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose." In effect, petitioner lent his car to Delgado so
MANOLO P. CERNA, petitioner, vs. THE HONORABLE COURT OF that the latter may mortgage the same to secure his debt. Thus, from the
APPEALS and CONRAD C. LEVISTE, respondents. contract itself, it was clear that only Delgado was the mortgagor regardless of
the fact the he used properties belonging to a third person to secure his debt.
SYLLABUS
4. REMEDIAL LAW; CIVIL ACTIONS; FILING OF COLLECTION SUIT
1. CIVIL LAW; OBLIGATIONS & CONTRACTS; SOLIDARY LIABILITY, BARRED THE FORECLOSURE OF MORTGAGE. We agree with
NOT PRESUMED. Only Delgado signed the promissory note and petitioner that the filing of collection suit barred the foreclosure of the
accordingly, he was the only one bound by the contract of loan. Nowhere did mortgage. Thus: "A mortgage who files a suit for collection abandons the
it appear in the promissory note that petitioner was a co-debtor. The law is remedy of foreclosure of the chattel mortgage constituted over the personal
clear that "(c)ontracts take effect only between the parties . . ." But by some property as security for the debt or value of the promissory note which he
stretch of the imagination, petitioner was held solidarily liable for the debt seeks to recover in the said collection suit." The reason for this rule is that:
allegedly because he was a co-mortgagor of the principal debtor, Delgado. ". . . when, however, the mortgage elects to file a suit for collection, not
This ignores the basic precept that "(t)here is solidarily liability only when the foreclosure, thereby abandoning the chattel as basis for relief, he clearly
obligation expressly so states, or when the law or the nature of the obligation manifest his lack of desire and interest to go after the mortgaged property as
requires solidarity." The contract of loan, as evidenced by the promissory security for the promissory note . . ."
note, was signed by Delgado only. Petitioner had no part in the said contract.
Thus, nowhere could it be seen from the agreement that petitioner was 5. ID.; MORTGAGE DEBT DUE FROM ESTATE; OPTIONS GIVEN TO
solidarily bound with Delgado for the payment of the loan. CREDITORS UNDER SEC. 7, RULE 86, NEW RULES OF COURT.
Leviste, having chosen to file the collection suit, could not now run after
2. ID.; ID.; SIGNATORY TO THE PRINCIPAL CONTRACT OF LOAN, petitioner for the satisfaction of the debt. This is even more true in this case
PRIMARILY LIABLE; THIRD-PARTY MORTGAGOR NOT SOLIDARILY because of the death of the principal debtor, Delgado. Leviste was pursuing a
BOUND WITH THE PRINCIPAL DEBTOR. There is no legal provision nor money claim against a deceased person. Section 7, Rule 86 of the Rules of
jurisprudence in our jurisdiction which makes a third person who secures the Court provides: "Sec. 7. Mortgage debt due from estate. A creditor holding
fulfillment of another's obligation by mortgaging his own property to be a claim against the deceased secured by mortgaged or other collateral
solidarily bound with the principal obligor. A chattel mortgage may be "an security, may abandon the security and prosecute his claim in the manner
accessory contract" to a contract of loan, but that fact alone does not make a provided in this rule, and share in the general distribution of the assets of the
third-party mortgagor solidarily bound with the principal debtor in fulfilling the estate; or he may foreclose his mortgage or realize upon his security, by
principal obligation that is, to pay the loan. The signatory to the principal action in court, making the executor or administrator a party defendant, and if
contract loan remains to be primarily bound. It is only upon the default there is a judgment for a deficiency, after the sale of the mortgaged
of the latter that the creditor may have been recourse on the mortgagors by premises, or the property pledged, in the foreclosure or the other proceeding
foreclosing the mortgaged properties in lieu of an action for the recovery of to realize upon security, he may claim his deficiency judgment in the manner
the amount of the loan. And the liability of the third-party mortgagors extends provided in the preceding section; or he may upon his mortgage or other
only to the property mortgaged. Should there be any deficiency, the creditors security alone, and foreclosure the same at any time within the period of the
has recourse on the principal debtor. statue of limitations, and in that event he shall not be admitted as a creditor,
and shall receive no share in the distribution of the other assets of the estate;
3. ID.; ID.; ID.; A SPECIAL POWER OF ATTORNEY AUTHORIZING . . ."
THE MORTGAGE OF CERTAIN PROPERTIES DID NOT MAKE THE
ATTORNEY-IN-FACT A MORTGAGOR. The mortgage contract was also DECISION
signed only by Delgado as mortgagor. The Special Power of Attorney did not
make petitioner a mortgagor. All it did was to authorized Delgado to mortgage CAMPOS, JR., J p:
certain properties belonging to petitioner. And this is in compliance with the
requirement in Article 2085 of the Civil Code which states that: "Art. 2085. Before us is a Petition for Review on Certiorari of the decision ** of the Court
The following requisites are essential to the contracts of pledge and of Appeals in CA G.R. No. SP-07237, dated March 31, 1978.
mortgage: (3) That the persons constituting the pledge or mortgage have the
The facts of this case are as follows: "Considering the second motion to dismiss filed by respondent Manolo Cerna
on March 4, 1977, as well as plaintiff's opposition thereto reiteration of the
On or about October 16, 1972, Celerino Delgado (Delgado) and Conrad same grounds raised in the first motion to dismiss dated April 4, 1973, this
Leviste (Leviste) entered into a loan agreement which was evidenced by a Court hereby reiterates its resolution found in its order dated August 15,
promissory note worded as follows: 1973." 6

"FOR VALUE RECEIVED, I, CELERINO DELGADO, with postal address at Petitioner filed a motion to reconsider the said order but this was denied.
98 K-11 St., Kamias Rd., Quezon City, promise to pay to the order of Then, on October 17, 1977, he filed another petition for certiorari and
CONRAD C. LEVISTE, NINETY (90) DAYS after date, at his office at 215 prohibition docketed as CA G.R. No. SP-07237 with the Court of Appeals.
Buendia Ave., Makati Rizal, then total sum of SEVENTEEN THOUSAND This petition was dismissed by the said court in a decision which stated, thus:
FIVE HUNDRED (P17,500.00) PESOS, Philippine Currency without
necessity of demand, with interest at the rate of TWELVE (12%) PERCENT "WHEREFORE, the herein petition insofar as it alleges lack of cause of
per annum;" 1 action on the part of the herein petitioner is concerned, is hereby dismissed
and/or denied and the writ of preliminary injunction previously issued by this
On the same date, Delgado executed a chattel mortgage 2 over a Willy's Court is hereby lifted and/or set aside; insofar, however, as the case against
jeep owned by him. And acting as the attorney-in-fact of herein petitioner, the deceased Celerino Delgado is concerned, the petition is granted, that is,
Manolo P. Cerna (petitioner), he also mortgage a "Taunus' car owned by the the complaint in the lower court against Celerino Delgado should be
latter. dismissed. No costs." 7

The period lapsed without Delgado paying the loan. This prompted Leviste to Thereafter, the instant petition for review was filed. Petitioner raised the
a file a collection suit docketed as Civil Case No. 17507 3 with the Court of following legal issue:
First Instance of Rizal, Branch XXII against Delgado and petitioner as
solidary debtors. Herein petitioner filed his first Motion to Dismiss 4 on April ". . . NOW, INASMUCH AS THE COMPLAINT IS ONLY FOR COLLECTION
4, 1973. The grounds cited in the Motion were lank of cause of action against OF A SUM OF MONEY BASED ON THE PROMISSORY NOTE, SHOULD
petitioner and the death of Delgado. Anent the latter, petitioner claimed that NOT THE COMPLAINANT BE DISMISSED FOR LACK OF CAUSE OF
the claim should be filed in the proceedings for the settlement of Delgado's ACTION AS AGAINST MANOLO P. CERNA WHO IS NOT A DEBTOR
estate as the action did not survive Delgado's death. Moreover, he also UNDER THE PROMISSORY NOTE CONSIDERING THAT ACCORDING
stated that since Leviste already opted to collect on the note, he could no TO SETTLED JURISPRUDENCE THE FILING OF A COLLECTION SUIT IS
longer foreclose the mortgage. This Motion to Dismiss was denied on August DEEMED AN ABANDONMENT OF THE SECURITY OF THE CHATTEL
15, 1973 by Judge Nicanor S. Sison. Thereafter, petitioner filed with the MORTGAGE?" 8
Court of Appeals a special civil action for certiorari, mandamus, and
prohibition with preliminary injunction docketed as CA G.R. No. 03088 on the In holding petitioner liable, the Court of Appeals held that petitioner and
ground that the respondent judge committed grave abuse of discretion in Delgado were solidary debtors. Thus, it held:
refusing to dismiss the complaint. On June 28, 1976, the Court of Appeals 5
denied the petition because herein petitioner failed to prove the death of "But the herein petitioner pleads that the complaint states no cause of actions
Delgado and the consequent settlement proceedings regarding the latter's against the defendants Manolo P. Cerna on the following grounds: 1) that the
estate. Neither did petitioner adequately prove his claim that the special petitioner did not sign as joint obligator in the promissory note signed by the
power of attorney in favor of Delgado was forged. deceased Celerino Delgado hence, even if the allegations of the complaint
are hypothetically admitted there is no cause of action against the herein
On February 18, 1977, petitioner filed his second Motion to Dismiss on the petitioner because having proceeded against the promissory note he is
ground that the trial court, now presided by Judge Nelly L. Romero Valdellon, deemed to have abandoned the foreclosure of the chattel mortgage contract.
acquired no jurisdiction over deceased defendant, that the claim did not This contention deserves scant consideration. The chattel mortgage contract,
survive, and that there was no cause of action against him. On May 13, prima facie shows that it created the joint and solidary obligation of petitioner
1977, the said judge dismissed the motion in an order hereunder quoted, to and Celerino Delgado against private respondent." 9 (Emphasis Ours)
wit:
We do not agree. Only Delgado signed the promissory note and accordingly, Delgado to mortgage certain properties belonging to petitioner. And this is in
he was the only one bound by the contract of loan. Nowhere did it appear in compliance with the requirement in Article 2085 of the Civil Code which
the promissory note that petitioner was a co-debtor. The law is clear that states that:
"(c)ontracts take effect only between the parties . . ." 10
"Art. 2085. The following requisites are essential to the contracts of
But by some stretch of the imagination, petitioner was held solidarily liable for pledge and mortgage:
the debt allegedly because he was a co-mortgagor of the principal debtor,
Delgado. This ignores the basic precept that "(t)here is solidarily liability only xxx xxx xxx
when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity." 11 (3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
We have already stated that the contract of loan, as evidenced by the authorized for the purpose." (Emphasis Ours.)
promissory note, was signed by Delgado only. Petitioner had no part in the
said contract. Thus, nowhere could it be seen from the agreement that In effect, petitioner lent his car to Delgado so that the latter may mortgage
petitioner was solidarily bound with Delgado for the payment of the loan. the same to secure his debt. Thus, from the contract itself, it was clear that
only Delgado was the mortgagor regardless of the fact the he used
There is also no legal provision nor jurisprudence in our jurisdiction which properties belonging to a third person to secure his debt.
makes a third person who secures the fulfillment of another's obligation by
mortgaging his own property to be solidarily bound with the principal obligor. Granting, however, that petitioner was obligated under the mortgage contract
A chattel mortgage may be "an accessory contract" 12 to a contract of loan, to answer for Delgado's indebtedness, under the circumstances, petitioner
but that fact alone does not make a third-party mortgagor solidarily bound could not be held liable because the complaint was for recovery of a sum of
with the principal debtor in fulfilling the principal obligation that is, to pay the money, and not for the foreclosure of the security. We agree with petitioner
loan. The signatory to the principal contract loan remains to be that the filing of collection suit barred the foreclosure of the mortgage. Thus:
primarily bound. It is only upon the default of the latter that the creditor may
have been recourse on the mortgagors by foreclosing the mortgaged "A mortgage who files a suit for collection abandons the remedy of
properties in lieu of an action for the recovery of the amount of the loan. And foreclosure of the chattel mortgage constituted over the personal property as
the liability of the third-party mortgagors extends only to the property security for the debt or value of the promissory note which he seeks to
mortgaged. Should there be any deficiency, the creditors has recourse on the recover in the said collection suit." 14
principal debtor.
The reason for this rule is that:
In this case, however, the mortgage contract was also signed only by
Delgado as mortgagor. It is true that the contract stated the following: ". . . when, however, the mortgage elects to file a suit for collection, not
foreclosure, thereby abandoning the chattel as basis for relief, he clearly
"That this CHATTEL MORTGAGE, made and entered into this 16th day of manifest his lack of desire and interest to go after the mortgaged property as
October, 1972 at Makati, Rizal, by and between: security for the promissory note . . ." 15

CELERINO DELGADO, . . . as Attorney-in -Fact of Manolo P. Cerna . . . by Hence, Leviste, having chosen to file the collection suit, could not now run
virtue of a Special Power of Attorney executed by said Manolo P. Cerna in after petitioner for the satisfaction of the debt. This is even more true in this
my favor under the date of October 10, 1972 and acknowledged before case because of the death of the principal debtor, Delgado. Leviste was
Orlando J. Coruna . . . herein referred to as the MORTGAGOR; - and - pursuing a money claim against a deceased person. Section 7, Rule 86 of
the Rules of Court Provides:
CONRAD C. LEVISTE, . . . hereinafter referred to as the MORTGAGEE." 13
"Sec. 7. Mortgage debt due from estate. A creditor holding a claim against
But this alone does not make petitioner a co-mortgagor especially so since the deceased secured by mortgaged or other collateral security, may
only Delgado singed the chattel mortgage as mortgagor. The Special Power abandon the security and prosecute his claim in the manner provided in this
of Attorney did not make petitioner a mortgagor. All it did was to authorized rule, and share in the general distribution of the assets of the estate; or he
may foreclose his mortgage or realize upon his security, by action in court, It appears in this case that the second motion was filed to circumvent the
making the executor or administrator a party defendant, and if there is a effects of the finality of the decision of the Court of Appeals in Ca-G.R. No.
judgment for a deficiency, after the sale of the mortgaged premises, or the 03088. Petitioner intended the second motion and the subsequent
property pledged, in the foreclosure or the other proceeding to realize upon proceedings as remedies for his lapsed appeal. We cannot such behavior. It
security, he may claim his deficiency judgment in the manner provided in the delayed the proceedings in this case and unduly burdened the courts.
preceding section; or he may upon his mortgage or other security alone, and Petitioner should have allowed the trial of the case to go on where his
foreclosure the same at any time within the period of the statue of limitations, defenses could still be presented and heard.
and in that event he shall not be admitted as a creditor, and shall receive no
share in the distribution of the other assets of the estate; . . ." WHEREFORE, in view of the forgoing,, the Petition is hereby DISMISSED.
With costs.
The above-quoted provision is substantially similar to Section 708 of the
Code of Civil Procedure which states: SO ORDERED.

"Sec. 708. A creditor holding against the deceased, secured by


mortgage or other collateral security, may abandon the security and
prosecute his claim before the committee, and share in the mortgage or
realize upon his security, by ordinary action in court, making the executor or
administrator a party defendant; . . ."

The Supreme Court, in the case of Osorio vs. San Agustin, 16 has made the
following interpretation of the said provision,, to wit:

"It is clear by the provisions quoted section that a person holding a mortgage
against the estate of a deceased person may abandon such security and
prosecute his claim before the committee, and share in the distribution of the
general assets of the estate. It provides also that he may, at his own election,
foreclose the mortgage and realize upon his security. But the law does not
provide that he may have both remedies. If he elects one he must abandon
the other. If he fails in one he fails utterly."

But while there is a merit in the substantial allegations of this petition, We are
constrained to deny the petition on procedural grounds. The facts of this case
reveal that the decision under review in the decision in the second certiorari
and prohibition case lodged petitioner against the judge trying the civil case.
It appeared that after the denial of the first motion to dismiss, petitioner filed
CA-G.R. No. 03088 wherein petitioner alleged grave abuse of discretion on
the part of Judge Sison. The first petition was denied by the Court of
Appeals. The decision became final. The second motion to dismiss, based on
the same grounds, was thereafter filed. It was likewise denied and another
petition for certiorari and prohibition was again instituted. The decision in the
latter case is now under review.

We agree with the contention of private respondent, that the action has been
barred by the principle of res judicata.
G.R. No. 166786 September 11, 2006 inconsequential to and has no bearing on the taxability of contracts of pledge
entered into by pawnshops. For purposes of Section 195, pawnshop tickets
MICHEL J. LHUILLER PAWNSHOP, INC., petitioner, need not be an evidence of indebtedness nor a debt instrument because it
vs. taxes the same as a pledge instrument. Neither should the definition of
COMMISSIONER OF INTERNAL REVENUE, respondent. pawnshop ticket, as not a security, exempt it from the imposition of DST. It
was correctly defined as such because the ticket itself is not the security but
RESOLUTION the pawn or the personal property pledged to the pawnbroker.

YNARES-SANTIAGO, J.: The law is clear and needs no further interpretation. No law on legal
hermeneutics could change the fact that the entries contained in a pawnshop
This resolves petitioner's motion for reconsideration of the May 3, 2006 ticket spell out a contract of pledge and that the exercise of the privilege to
Decision of the Court holding that contracts of pledge entered into by conclude such a contract is taxable under Section 195 of the NIRC. The
pawnshops are subject to Documentary Stamp Tax (DST). We ruled therein rationale for the issuance of and the spirit that gave rise to the Pawnshop
that DST is essentially an excise tax; it is not an imposition on the document Regulation Act cannot justify an interpretation that obviously supplies an
itself but on the privilege to enter into a taxable transaction of pledge. exemption which is simply and clearly not found in the law. Nothing in P.D.
No. 114 exempts pawnshops or pawnshop tickets from DST. There is no
The gist of the motion for reconsideration is that before an exercise of a ambiguity in the provisions thereof; any vagueness arises only from the
taxable privilege may be subject to DST, it is indispensable that the circuitous construction invoked by petitioner. If then President Ferdinand E.
transaction must be embodied in and evidenced by a document. Since a Marcos intended to exempt pawnshops or pawnshop tickets from DST, he
pawn ticket as defined in Presidential Decree (P.D.) No. 114 or the Pawnshop would have expressly so provided for said exemption in P.D. No. 114. Since
Regulation Act is merely the pawnbrokers' receipt for a pawn and not a no such exemption appear in the decree, the only logical conclusion is that
security nor a printed evidence of indebtedness, it cannot be considered as no such exemption is intended and that pawnshops or pawnshop tickets are
among the documents subject to DST. In the alternative, petitioner contends subject to DST.
that should the Court rule otherwise, it cannot be made to pay surcharges
and interest because it acted in good faith and the confusion as to whether it Significantly, the Court notes that rural banks and their borrowers and
is liable to pay DST is partly attributable to the divergent rulings of the mortgagors are exempt from documentary stamp tax on instruments relating
Bureau of Internal Revenue (BIR) on the matter. to loans. Under P.D. No. 122,2 the exemption is up to the amount of
P5,000.00 loan and charges are collectible only on the amount in excess of
The motion for reconsideration is partly meritorious.
P5,000.00.3 This provision was adopted by R.A. No. 7353, the Rural Banks
Section 195 of the National Internal Revenue Code (NIRC) imposes a DST Act of 1992 but the threshold amount was increased to P50,000.00, and
on every pledge regardless of whether the same is a conventional pledge documentary tax is levied only on any amount in excess of P50,000.00, if
governed by the Civil Code or one that is governed by the provisions of P.D. there is any.4
No. 114. All pledges are subject to DST, unless there is a law exempting
them in clear and categorical language. This explains why the Legislature did P.D. No. 122 was approved by then President Marcos on January 29, 1973,
not see the need to explicitly impose a DST on pledges entered into by the very same day he approved the Pawnshop Regulation Act. Had there
pawnshops. These pledges are already covered by Section 195 and to been an intention to give a tax exemption, partial or full to pawnshops or
create a separate provision especially for them would be superfluous. pawnshop tickets, it would have been categorically so provided in the law as
what was done in the case of P.D. No. 122. The absence of an express grant
Then too, it is the exercise of the privilege to enter into an accessory contract thus preclude the Court from vesting petitioner an exemption which would
of pledge, as distinguished from a contract of loan, which gives rise to the certainly amount to judicial legislation.
obligation to pay DST. If the DST under Section 195 is levied on the loan or
the exercise of the privilege to contract a loan, then there would be no use for Moreover, it should be pointed out that the provisions of the NIRC on DST
Section 179 of the NIRC, to separately impose stamp tax on all debt has recently been amended by R.A. No. 9243. Among the highlights thereof
instruments, like a simple loan agreement.1 It is for this reason why the were the amendments to Section 199,5 which incorporated 12 more
definition of pawnshop ticket, as not an evidence of indebtedness, is categories of documents in addition to the initial two categories exempted
from DST. As stated in our May 3, 2006 Decision, pawnshop tickets is not
one of them. Expressio unious est exclusion alterius. The omission of
pawnshop tickets only means that it is not among the documents exempted
from DST.

Nevertheless, all is not lost for petitioner. The settled rule is that good faith
and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of surcharges and interest.6 In
Connell Bros. Co. (Phil.) v. Collector of Internal Revenue,7 it was held that:

We are convinced that appellant, in preparing its sales invoices as it did,


was not guilty of an intentional violation of the law. It did not delay filing
the returns for the sales taxes corresponding to the period in question, let
alone did so purposely. The delay was in the payment of the deficiency,
which arose from a mistaken understanding of the regulations laid down
by appellee. The ensuing controversy was, in our opinion, generated in
good faith and should furnish no justification for the imposition of a
penalty.

WHEREFORE, modified by eliminating the surcharge of 25% imposed


upon appellant, the judgment appealed from is affirmed, without costs.

This ruling was subsequently reiterated in Tuason, Jr. v. Lingad,8 where we


deleted the order to pay interest and surcharges, and in Commissioner of
Internal Revenue v. Republic Cement Corporation,9 where the same
surcharge was dispensed with because of the taxpayer's good faith and the
BIR's previous erroneous interpretation of the laws involved. We see no
reason not to apply the same doctrine in the instant case which settles the
divergent rulings of the BIR on DST and establishes the foremost categorical
pronouncement of the Court that pledge transactions entered into by
pawnshops are subject to DST.

WHEREFORE, the motion for reconsideration is partly GRANTED. The


December 29, 2004 Decision of the Court of Appeals in CA-G.R. SP No.
67667 ordering petitioner Michel J. Lhuillier Pawnshop, Inc. to pay deficiency
documentary stamp tax is AFFIRMED with the MODIFICATION that
surcharges and all the interests imposed thereon are DELETED.

SO ORDERED.
G.R. No. 172592 July 9, 2008 Petitioners alleged that the loans extended to them from July 14, 1999 to
March 20, 2000 were founded on several uniform promissory notes, which
SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO- provided for 3.5% monthly interest rates, 5% penalty per month on the total
ONG, Petitioners, amount due and demandable, and a further sum of 25% attorneys fees
vs. thereon,8 and in addition, respondent exacted certain sums denominated as
ROBAN LENDING CORPORATION, Respondent. "EVAT/AR."9 Petitioners decried these additional charges as "illegal,
iniquitous, unconscionable, and revolting to the conscience as they hardly
allow any borrower any chance of survival in case of default." 10
DECISION

Petitioners further alleged that they had previously made payments on their
CARPIO MORALES, J.:
loan accounts, but because of the illegal exactions thereon, the total balance
appears not to have moved at all, hence, accounting was in order.11
On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses
Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from
Petitioners thus prayed for judgment:
Roban Lending Corporation (respondent) in the total amount
of P4,000,000.00. These loans were secured by a real estate mortgage on
petitioners parcels of land located in Binauganan, Tarlac City and covered by a) Declaring the Real Estate Mortgage Contract and its amendments x x
TCT No. 297840.1 x as null and void and without legal force and effect for having been
renounced, abandoned, and given up;
On February 12, 2001, petitioners and respondent executed an Amendment
to Amended Real Estate Mortgage 2consolidating their loans inclusive of b) Declaring the "Memorandum of Agreement" xxx and "Dacion in
charges thereon which totaled P5,916,117.50. On even date, the parties Payment" x x x as null and void for being pactum commissorium;
executed a Dacion in Payment Agreement 3 wherein petitioners assigned the
properties covered by TCT No. 297840 to respondent in settlement of their c) Declaring the interests, penalties, Evat [sic] and attorneys fees
total obligation, and a Memorandum of Agreement4 reading: assessed and loaded into the loan accounts of the plaintiffs with
defendant as unjust, iniquitous, unconscionable and illegal and therefore,
That the FIRST PARTY [Roban Lending Corporation] and the SECOND stricken out or set aside;
PARTY [the petitioners] agreed to consolidate and restructure all
aforementioned loans, which have been all past due and delinquent since d) Ordering an accounting on plaintiffs loan accounts to determine the
April 19, 2000, and outstanding obligations totaling P5,916,117.50. The true and correct balances on their obligation against legal charges only;
SECOND PARTY hereby sign [sic] another promissory note in the amount of and
P5,916,117.50 (a copy of which is hereto attached and forms xxx an integral
part of this document), with a promise to pay the FIRST PARTY in full within e) Ordering defendant to [pay] to the plaintiffs: --
one year from the date of the consolidation and restructuring, otherwise the
SECOND PARTY agree to have their "DACION IN PAYMENT" agreement, e.1 Moral damages in an amount not less than P100,000.00 and
which they have executed and signed today in favor of the FIRST PARTY be exemplary damages of P50,000.00;
enforced[.]5
e.2 Attorneys fees in the amount of P50,000.00 plus P1,000.00
In April 2002 (the day is illegible), petitioners filed a Complaint, 6 docketed as appearance fee per hearing; and
Civil Case No. 9322, before the Regional Trial Court (RTC) of Tarlac City, for
declaration of mortgage contract as abandoned, annulment of deeds, illegal
exaction, unjust enrichment, accounting, and damages, alleging that the e.3 The cost of suit.12
Memorandum of Agreement and the Dacion in Payment executed are void
for being pactum commissorium.7 as well as other just and equitable reliefs.
In its Answer with Counterclaim,13 respondent maintained the legality of its their respective positions which should be the basis for the judgment on the
transactions with petitioners, alleging that: pleadings if the parties fail to settle the case in the next scheduled setting.

xxxx x x x x18 (Underscoring supplied)

If the voluntary execution of the Memorandum of Agreement and Dacion in At the scheduled April 14, 2004 hearing, both counsels appeared but only the
Payment Agreement novated the Real Estate Mortgage then the allegation of counsel of respondent filed a memorandum.19
Pactum Commissorium has no more legal leg to stand on;
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on
The Dacion in Payment Agreement is lawful and valid as it is recognized x x the basis of the pleadings that there was no pactum commissorium,
x under Art. 1245 of the Civil Code as a special form of payment whereby the dismissed the complaint.20
debtor-Plaintiffs alienates their property to the creditor-Defendant in
satisfaction of their monetary obligation; On appeal,21 the Court of Appeals22 noted that

The accumulated interest and other charges which were computed for more x x x [W]hile the trial court in its decision stated that it was rendering
than two (2) years would stand reasonable and valid taking into consideration judgment on the pleadings, x x x what it actually rendered was a summary
[that] the principal loan is P4,000,000 and if indeed it became beyond the judgment. A judgment on the pleadings is proper when the answer fails to
Plaintiffs capacity to pay then the fault is attributed to them and not the tender an issue, or otherwise admits the material allegations of the adverse
Defendant[.]14 partys pleading. However, a judgment on the pleadings would not have been
proper in this case as the answer tendered an issue, i.e. the validity of the
After pre-trial, the initial hearing of the case, originally set on December 11, MOA and DPA. On the other hand, a summary judgment may be rendered by
2002, was reset several times due to, among other things, the parties efforts the court if the pleadings, supporting affidavits, and other documents show
to settle the case amicably.151avvphi1 that, except as to the amount of damages, there is no genuine issue as to
any material fact.23
During the scheduled initial hearing of May 7, 2003, the RTC issued the
following order: Nevertheless, finding the error in nomenclature "to be mere semantics with
no bearing on the merits of the case", 24the Court of Appeals upheld the RTC
Considering that the plaintiff Wilfredo Ong is not around on the ground that decision that there was no pactum commissorium.25
he is in Manila and he is attending to a very sick relative, without objection on
the part of the defendants counsel, the initial hearing of this case is reset to Their Motion for Reconsideration26 having been denied,27 petitioners filed the
June 18, 2003 at 10:00 oclock in the morning. instant Petition for Review on Certiorari,28 faulting the Court of Appeals for
having committed a clear and reversible error
Just in case [plaintiffs counsel] Atty. Concepcion cannot present his witness
in the person of Mr. Wilfredo Ong in the next scheduled hearing, the counsel I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL
manifested that he will submit the case for summary REQUISITES WHICH WOULD WARRANT THE SETTING ASIDE OF
judgment.16(Underscoring supplied) THE SUMMARY JUDGMENT IN VIOLATION OF APPELLANTS RIGHT
TO DUE PROCESS;
It appears that the June 18, 2003 setting was eventually rescheduled to
February 11, 2004 at which both counsels were present 17 and the RTC II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS
issued the following order: NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE;

The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 oclock in
the morning. However, the counsels are directed to be ready with their
memorand[a] together with all the exhibits or evidence needed to support
III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE way of security, and not by way of satisfying the debt. 34 The Dacion in
MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN Payment did not extinguish petitioners obligation to respondent. On the
PAGO AGREEMENT (DPA) WERE DESIGNED TO CIRCUMVENT THE contrary, under the Memorandum of Agreement executed on the same day
LAW AGAINST PACTUM COMMISSORIUM; and as the Dacion in Payment, petitioners had to execute a promissory note
for P5,916,117.50 which they were to pay within one year.35
IV. . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM
OF AGREEMENT (MOA) AND THE DACION EN PAGO (DPA) ARE Respondent cites Solid Homes, Inc. v. Court of Appeals 36 where this Court
NULL AND VOID FOR BEING CONTRARY TO LAW AND PUBLIC upheld a Memorandum of Agreement/Dacion en Pago.37 That case did not
POLICY.29 involve the issue of pactum commissorium.38

The petition is meritorious. That the questioned contracts were freely and voluntarily executed by
petitioners and respondent is of no moment, pactum commissorium being
Both parties admit the execution and contents of the Memorandum of void for being prohibited by law.39
Agreement and Dacion in Payment. They differ, however, on whether both
contracts constitute pactum commissorium or dacion en pago. Respecting the charges on the loans, courts may reduce interest rates,
penalty charges, and attorneys fees if they are iniquitous or
This Court finds that the Memorandum of Agreement and Dacion in Payment unconscionable.40
constitute pactum commissorium, which is prohibited under Article 2088 of
the Civil Code which provides: This Court, based on existing jurisprudence, 41 finds the monthly interest rate
of 3.5%, or 42% per annum unconscionable and thus reduces it to 12% per
The creditor cannot appropriate the things given by way of pledge or annum. This Court finds too the penalty fee at the monthly rate of 5% (60%
mortgage, or dispose of them. Any stipulation to the contrary is null and void." per annum) of the total amount due and demandable principal plus interest,
with interest not paid when due added to and becoming part of the principal
and likewise bearing interest at the same rate, compounded monthly 42
The elements of pactum commissorium, which enables the mortgagee to
unconscionable and reduces it to a yearly rate of 12% of the amount due, to
acquire ownership of the mortgaged property without the need of any
be computed from the time of demand. 43 This Court finds the attorneys fees
foreclosure proceedings,30 are: (1) there should be a property mortgaged by
of 25% of the principal, interests and interests thereon, and the penalty fees
way of security for the payment of the principal obligation, and (2) there
unconscionable, and thus reduces the attorneys fees to 25% of the principal
should be a stipulation for automatic appropriation by the creditor of the thing
amount only.44
mortgaged in case of non-payment of the principal obligation within the
stipulated period.31
The prayer for accounting in petitioners complaint requires presentation of
evidence, they claiming to have made partial payments on their loans, vis a
In the case at bar, the Memorandum of Agreement and the Dacion in
vis respondents denial thereof.45 A remand of the case is thus in order.
Payment contain no provisions for foreclosure proceedings nor redemption.
Under the Memorandum of Agreement, the failure by the petitioners to pay
their debt within the one-year period gives respondent the right to enforce the Prescinding from the above disquisition, the trial court and the Court of
Dacion in Payment transferring to it ownership of the properties covered by Appeals erred in holding that a summary judgment is proper. A summary
TCT No. 297840. Respondent, in effect, automatically acquires ownership of judgment is permitted only if there is no genuine issue as to any material fact
the properties upon petitioners failure to pay their debt within the stipulated and a moving party is entitled to a judgment as a matter of law. 46 A summary
period. judgment is proper if, while the pleadings on their face appear to raise
issues, the affidavits, depositions, and admissions presented by the moving
party show that such issues are not genuine. 47 A genuine issue, as opposed
Respondent argues that the law recognizes dacion en pago as a special form
to a fictitious or contrived one, is an issue of fact that requires the
of payment whereby the debtor alienates property to the creditor in
presentation of evidence.48 As mentioned above, petitioners prayer for
satisfaction of a monetary obligation.32 This does not persuade. In a
accounting requires the presentation of evidence on the issue of partial
true dacion en pago, the assignment of the property extinguishes the
payment.
monetary debt.33 In the case at bar, the alienation of the properties was by
But neither is a judgment on the pleadings proper. A judgment on the
pleadings may be rendered only when an answer fails to tender an issue or
otherwise admits the material allegations of the adverse partys
pleadings.49 In the case at bar, respondents Answer with Counterclaim
disputed petitioners claims that the Memorandum of Agreement and Dation
in Payment are illegal and that the extra charges on the loans are
unconscionable.50Respondent disputed too petitioners allegation of bad
faith.51

WHEREFORE, the challenged Court of Appeals Decision is REVERSED and


SET ASIDE. The Memorandum of Agreement and the Dacion in Payment
executed by petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-
Ong and respondent Roban Lending Corporation on February 12, 2001 are
declared NULL AND VOID for being pactum commissorium.

In line with the foregoing findings, the following terms of the loan contracts
between the parties are MODIFIED as follows:

1. The monthly interest rate of 3.5%, or 42% per annum, is reduced to


12% per annum;

2. The monthly penalty fee of 5% of the total amount due and


demandable is reduced to 12% per annum, to be computed from the
time of demand; and

3. The attorneys fees are reduced to 25% of the principal amount only.

Civil Case No. 9322 is REMANDED to the court of origin only for the purpose
of receiving evidence on petitioners prayer for accounting.

SO ORDERED.
MANUEL M. SERRANO, petitioner, vs. CENTRAL BANK OF THE Notwithstanding series of demands for encashment of the aforementioned
PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, time deposits from the respondent Overseas Bank of Manila, dating from
SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA December 6, 1967 up to March 4, 1968, not a single one of the time deposit
RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA certificates was honored by respondent Overseas Bank of Manila. 6
RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS
TANJUATCO, and TEOFILO TANJUATCO, respondents. Respondent Central Bank admits that it is charged with the duty of
administering the banking system of the Republic and it exercises
CONCEPCION, JR., J.: supervision over all doing business in the Philippines, but denies the
petitioner's allegation that the Central Bank has the duty to exercise a most
Petition for mandamus and prohibition, with preliminary injunction, that seeks rigid and stringent supervision of banks, implying that respondent Central
the establishment of joint and solidary liability to the amount of Three Bank has to watch every move or activity of all banks, including respondent
Hundred Fifty Thousand Pesos, with interest, against respondent Central Overseas Bank of Manila. Respondent Central Bank claims that as of March
Bank of the Philippines and Overseas Bank of Manila and its stockholders, 12, 1965, the Overseas Bank of Manila, while operating, was only on a
on the alleged failure of the Overseas Bank of Manila to return the time limited degree of banking operations since the Monetary Board decided in its
deposits made by petitioner and assigned to him, on the ground that Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of
respondent Central Bank failed in its duty to exercise strict supervision over Manila from making new loans and investments in view of its chronic reserve
respondent Overseas Bank of Manila to protect depositors and the general deficiencies against its deposit liabilities. This limited operation of respondent
public. 1 Petitioner also prays that both respondent banks be ordered to Overseas Bank of Manila continued up to 1968. 7
execute the proper and necessary documents to constitute all properties
fisted in Annex "7" of the Answer of respondent Central Bank of the Respondent Central Bank also denied that it is guarantor of the permanent
Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. solvency of any banking institution as claimed by petitioner. It claims that
Central Bank of the Philippines," into a trust fund in favor of petitioner and all neither the law nor sound banking supervision requires respondent Central
other depositors of respondent Overseas Bank of Manila. It is also prayed Bank to advertise or represent to the public any remedial measures it may
that the respondents be prohibited permanently from honoring, implementing, impose upon chronic delinquent banks as such action may inevitably result to
or doing any act predicated upon the validity or efficacy of the deeds of panic or bank "runs". In the years 1966-1967, there were no findings to
mortgage, assignment. and/or conveyance or transfer of whatever nature of declare the respondent Overseas Bank of Manila as insolvent. 8
the properties listed in Annex "7" of the Answer of respondent Central Bank
in G.R. No. 29352. 2 Respondent Central Bank likewise denied that a constructive trust was
created in favor of petitioner and his predecessor in interest Concepcion
A sought for ex-parte preliminary injunction against both respondent banks Maneja when their time deposits were made in 1966 and 1967 with the
was not given by this Court. respondent Overseas Bank of Manila as during that time the latter was not
an insolvent bank and its operation as a banking institution was being
Undisputed pertinent facts are: salvaged by the respondent Central Bank. 9

On October 13, 1966 and December 12, 1966, petitioner made a time Respondent Central Bank avers no knowledge of petitioner's claim that the
deposit, for one year with 6% interest, of One Hundred Fifty Thousand Pesos properties given by respondent Overseas Bank of Manila as additional
(P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion collaterals to respondent Central Bank of the Philippines for the former's
Maneja also made a time deposit, for one year with 6-% interest, on March overdrafts and emergency loans were acquired through the use of
6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same depositors' money, including that of the petitioner and Concepcion Maneja. 10
respondent Overseas Bank of Manila. 4
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, the Philippines," a case was filed by the petitioner Ramos, wherein
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of respondent Overseas Bank of Manila sought to prevent respondent Central
P200,000.00 with respondent Overseas Bank of Manila. 5 Bank from closing, declaring the former insolvent, and liquidating its assets.
Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion
to intervene in G.R. No. L-29352, on the ground that Serrano had a real and Overseas Bank of Manila, and recovery of damages against respondent
legal interest as depositor of the Overseas Bank of Manila in the matter in Central Bank for its alleged failure to strictly supervise the acts of the other
litigation in that case. Respondent Central Bank in G.R. No. L-29352 respondent Bank and protect the interests of its depositors by virtue of the
opposed petitioner Manuel Serrano's motion to intervene in that case, on the constructive trust created when respondent Central Bank required the other
ground that his claim as depositor of the Overseas Bank of Manila should respondent to increase its collaterals for its overdrafts said emergency loans,
properly be ventilated in the Court of First Instance, and if this Court were to said collaterals allegedly acquired through the use of depositors money.
allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of These claims shoud be ventilated in the Court of First Instance of proper
other depositors would follow and thus cause an avalanche of cases in this jurisdiction as We already pointed out when this Court denied petitioner's
Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene in G.R. No. L-29352. Claims of these nature are not
motion to intervene. The contents of said motion to intervene are proper in actions for mandamus and prohibition as there is no shown clear
substantially the same as those of the present petition. 11 abuse of discretion by the Central Bank in its exercise of supervision over the
other respondent Overseas Bank of Manila, and if there was, petitioner here
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which is not the proper party to raise that question, but rather the Overseas Bank of
became final and executory on March 3, 1972, favorable to the respondent Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in
Overseas Bank of Manila, with the dispositive portion to wit: this case, since the questioned acts of the respondent Central Bank (the acts
of dissolving and liquidating the Overseas Bank of Manila), which petitioner
here intends to use as his basis for claims of damages against respondent
WHEREFORE, the writs prayed for in the petition are hereby
Central Bank, had been accomplished a long time ago.
granted and respondent Central Bank's resolution Nos.
1263, 1290 and 1333 (that prohibit the Overseas Bank of
Manila to participate in clearing, direct the suspension of its Furthermore, both parties overlooked one fundamental principle in the nature
operation, and ordering the liquidation of said bank) are of bank deposits when the petitioner claimed that there should be created a
hereby annulled and set aside; and said respondent Central constructive trust in his favor when the respondent Overseas Bank of Manila
Bank of the Philippines is directed to comply with its increased its collaterals in favor of respondent Central Bank for the former's
obligations under the Voting Trust Agreement, and to desist overdrafts and emergency loans, since these collaterals were acquired by
from taking action in violation therefor. Costs against the use of depositors' money.
respondent Central Bank of the Philippines. 12
Bank deposits are in the nature of irregular deposits. They are really loans
Because of the above decision, petitioner in this case filed a motion for because they earn interest. All kinds of bank deposits, whether fixed,
judgment in this case, praying for a decision on the merits, adjudging savings, or current are to be treated as loans and are to be covered by the
respondent Central Bank jointly and severally liable with respondent law on loans. 14 Current and savings deposit are loans to a bank because it
Overseas Bank of Manila to the petitioner for the P350,000 time deposit can use the same. The petitioner here in making time deposits that earn
made with the latter bank, with all interests due therein; and declaring all interests with respondent Overseas Bank of Manila was in reality a creditor of
assets assigned or mortgaged by the respondents Overseas Bank of Manila the respondent Bank and not a depositor. The respondent Bank was in turn a
and the Ramos groups in favor of the Central Bank as trust funds for the debtor of petitioner. Failure of he respondent Bank to honor the time deposit
benefit of petitioner and other depositors. 13 is failure to pay s obligation as a debtor and not a breach of trust arising from
depositary's failure to return the subject matter of the deposit
By the very nature of the claims and causes of action against respondents,
they in reality are recovery of time deposits plus interest from respondent WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.