Republic of the Philippines defendant-appellee, explaining that there had been a mistake in computation, paid to
SUPREME COURT the appellant the additional sum of P2,182.70, thereby reducing the deducted amount
Manila
FIRST DIVISION
G.R. No. L-48349 December 29, 1986
FRANCISCO HERRERA, plaintiff-appellant,
vs.
PETROPHIL CORPORATION, defendant-appellee.
CRUZ, J.:
This is an appeal by the plaintiff-appellant from a decision rendered by the then Court
of First Instance of Rizal on a pure question of law. 1
The judgment appealed from was rendered on the pleadings, the parties having agreed
during the pretrial conference on the factual antecedents.
The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO
Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered into a
"Lease Agreement" whereby the former leased to the latter a portion of his property for
a period of twenty (20) years from said date, subject inter alia to the following
conditions:
3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per
month on 400 sqm. and are to be expropriated later on (sic) or P560 per
month and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month
or a total of P2,930.20 per month 2,093 sqm. more or less, payable yearly in
advance within the 1st twenty days of each year; provided, a financial aid in
the sum of P15,000 to clear the leased premises of existing improvements
thereon is paid in this manner; P10,000 upon execution of this lease and
P5,000 upon delivery of leased premises free and clear of improvements
thereon within 30 days from the date of execution of this agreement. The
portion on the side of the leased premises with an area of 365 sqrm. more or
less, will be occupied by LESSEE without rental during the lifetime of this
lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental
based on P2,930.70 per month discounted at 12% interest per annum or a
total net amount of P130,288.47 before registration of lease. Leased premises
shall be delivered within 30 days after 1st partial payment of financial aid. 2
On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to
the plaintfff-appellant advance rentals for the first eight years, subtracting therefrom
the amount of P101,010.73, the amount it computed as constituting the interest or
discount for the first eight years, in the total sum P180,288.47. On August 20, 1970, the
to only P98,828.03. 3
On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum
of P98,828.03, with interest, claiming this had been illegally deducted from him in
violation of the Usury Law. 4 He also prayed for moral damages and attorney's fees. In
its answer, the defendant-appellee admitted the factual allegations of the complaint but
argued that the amount deducted was not usurious interest but a given to it for paying
the rentals in advance for eight years. 5 Judgment on the pleadings was rendered for the
defendant. 6
Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower
court erred in the computation of the interest collected out of the rentals paid for the
first eight years; that such interest was excessive and violative of the Usury Law; and
that he had neither agreed to nor accepted the defendant-appellant's computation of
the total amount to be deducted for the eight years advance rentals. 7
The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his
complaint, which read:
6. The interest collected by defendant out of the rentals for the first eight
years was excessive and beyond that allowable by law, because the total
interest on the said amount is only P33,755.90 at P4,219.4880 per yearly
rental; and considering that the interest should be computed excluding the
first year rental because at the time the amount of P281, 199.20 was paid it
was already due under the lease contract hence no interest should be
collected from the rental for the first year, the amount of P29,536.42 only as
the total interest should have been deducted by defendant from the sum of
P281,299.20.
The defendant maintains that the correct amount of the discount is P98,828.03 and that
the same is not excessive and above that allowed by law.
As its title plainly indicates, the contract between the parties is one of lease and not of
loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is
there any showing that the parties intended a loan rather than a lease. The provision for
the payment of rentals in advance cannot be construed as a repayment of a loan
because there was no grant or forbearance of money as to constitute an indebtedness
on the part of the lessor. On the contrary, the defendant-appellee was discharging its
obligation in advance by paying the eight years rentals, and it was for this advance
payment that it was getting a rebate or discount.
The provision for a discount is not unusual in lease contracts. As to its validity, it is
settled that the parties may establish such stipulations, clauses, terms and condition as
they may want to include; and as long as such agreements are not contrary to law,
morals, good customs, public policy or public order, they shall have the force of law
between them. 8
There is no usury in this case because no money was given by the defendant-appellee to
the plaintiff-appellant, nor did it allow him to use its money already in his possession. 9
There was neither loan nor forbearance but a mere discount which the plaintiff-
appellant allowed the defendant-appellee to deduct from the total payments because
they were being made in advance for eight years. The discount was in effect a reduction
of the rentals which the lessor had the right to determine, and any reduction thereof, by
any amount, would not contravene the Usury Law.
The difference between a discount and a loan or forbearance is that the former does
not have to be repaid. The loan or forbearance is subject to repayment and is therefore
governed by the laws on usury. 10
To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to
interest allowed by law." 11
It has been held that the elements of usury are (1) a loan, express or implied; (2) an
understanding between the parties that the money lent shall or may be returned; that
for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to
be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for
the use of money loaned. Unless these four things concur in every transaction, it is safe
to affirm that no case of usury can be declared. 12
Concerning the computation of the deductible discount, the trial court declared:
As above-quoted, the 'Lease Agreement' expressly provides that the lessee
(defendant) shag pay the lessor (plaintiff) eight (8) years in advance rentals
based on P2,930.20 per month discounted at 12% interest per annum. Thus,
the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12
months) and that the interest therefrom is P4,219.4880 (P35,162.40
multiplied by 12%). So, therefore, the total interest for the first eight (8) years
should be only P33,755.90 (P4,129.4880 multiplied by eight (8) years and not
P98,828.03 as the defendant claimed it to be.
The afore-quoted manner of computation made by plaintiff is patently
erroneous. It is most seriously misleading. He just computed the annual
discount to be at P4,129.4880 and then simply multiplied it by eight (8) years.
He did not take into consideration the naked fact that the rentals due on the
eight year were paid in advance by seven (7) years, the rentals due on the
seventh year were paid in advance by six (6) years, those due on the sixth year
by five (5) years, those due on the fifth year by four (4) years, those due on
the fourth year by three (3) years, those due on the third year by two (2)
years, and those due on the second year by one (1) year, so much so that the
total number of years by which the annual rental of P4,129.4880 was paid in
advance is twenty-eight (28), resulting in a total amount of P118,145.44
(P4,129.48 multiplied by 28 years) as the discount. However, defendant was
most fair to plaintiff. It did not simply multiply the annual rental discount by
28 years. It computed the total discount with the principal diminishing
month to month as shown by Annex 'A' of its memorandum. This is why the
total discount amount to only P 8,828.03.
The allegation of plaintiff that defendant made the computation in a
compounded manner is erroneous. Also after making its own computations
and after examining closely defendant's Annex 'A' of its memorandum, the
court finds that defendant did not charge 12% discount on the rentals due
for the first year so much so that the computation conforms with the
provision of the Lease Agreement to the effect that the rentals shall be
'payable yearly in advance within the 1st 20 days of each year. '
We do not agree. The above computation appears to be too much technical mumbo-
jumbo and could not have been the intention of the parties to the transaction. Had it
been so, then it should have been clearly stipulated in the contract. Contracts should be
interpreted according to their literal meaning and should not be interpreted beyond
their obvious intendment. 13
The plaintfff-appellant simply understood that for every year of advance payment there
would be a deduction of 12% and this amount would be the same for each of the eight
years. There is no showing that the intricate computation applied by the trial court was
explained to him by the defendant-appellee or that he knowingly accepted it.
The lower court, following the defendant-appellee's formula, declared that the plaintiff-
appellant had actually agreed to a 12% reduction for advance rentals for all of twenty
eight years. That is absurd. It is not normal for a person to agree to a reduction
corresponding to twenty eight years advance rentals when all he is receiving in advance
rentals is for only eight years.
The deduction shall be for only eight years because that was plainly what the parties
intended at the time they signed the lease agreement. "Simplistic" it may be, as the
Solicitor General describes it, but that is how the lessor understood the arrangement. In
fact, the Court will reject his subsequent modification that the interest should be limited
to only seven years because the first year rental was not being paid in advance. The
agreement was for a uniform deduction for the advance rentals for each of the eight years,
and neither of the parties can deviate from it now.
On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for
eight years, the total rental was P281,347.20 from which was deducted the total
discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this
amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due
the plaintiff-appellant.
The above computation is based on the more reasonable interpretation of the contract Republic of the Philippines
as a whole rather on the single stipulation invoked by the respondent for the flat SUPREME COURT
reduction of P130,288.47. Manila

WHEREFORE, the decision of the trial court is hereby modified, and the defendant- EN BANC
appellee Petrophil Corporation is ordered to pay plaintiff-appellant the amount of Sixty
Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), G.R. No. L-32471 December 29, 1930
with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as
attorney's fees. Costs against the defendant-appellee.
SEVERINO JAYME and LEONARDA RAMOS, plaintiffs-appellees,
vs.
SO ORDERED. JUAN D. SALVADOR, ET AL., defendants-appellants.

Treas and Laserna and Rosauro R. Borromeo for appellant spouses Salvador and Zuiga.
Roman J. Lacson and Francisco Fuentes for appellant National Bank.
Jose Evangelista and Godofredo Escalona for appellees.

ROMUALDEZ, J.:

The dispositive part of the judgment appealed from is as follows:

(a) Holding the deeds Exhibits D, E, F, and G to be null and void and
without effect;

(b) Ordering the cancellation of the transfer certificates of title Exhibits 9 and
18, and the issuance by the registrar of deeds of Iloilo of new transfer
certificates of title to the land or hacienda in Supang, municipality of
Buenavista, in the name of Leonarda Ramos, married to Severino Jayme, and
of lot 69-C of the cadastral survey of Iloilo in the name of Juan D. Salvador,
married to Remegia Zuiga;

(c) Holding the portion of the mortgage deed Exhibit 24 referring to the
estate in Supang, municipality of Buenavista, with an area of 330.8733
hectares to be null and void;

(d) Sentencing the plaintiff spouses to pay the defendant spouses the amount
of eighteen thousand pesos (P18,000) which is the principal loaned, plus two
thousand one hundred sixty pesos (P2,160), one year's interest thereon at
twelve per centum (12%);

(e) Sentencing the plaintiffs to pay the defendants Juan D. Salvador and
Remigia Zuiga the sum of three hundred eighty three pesos and forty-six
centavos (P383.46);
 ( f ) The mortgage evidenced by Exhibit 24 being held null and void in so far
at it refers to the estate of 330.8733 hectares in Supang, the defendant
spouses Juan D. Salvador and Remigia Zuiga are hereby sentenced to pay
the Philippine National Bank the sum of twenty thousand pesos (P20,000)
with interest thereon at nine per centum (9%) from the date of the contract,
November 12, 1928, until fully paid;
(g) Absolving the plaintiffs from the counterclaim and the cross-complaint
set up by defendants Juan D. Salvador and Remigia Zuiga.
Without express pronouncement of costs. So ordered .(Pages 57 and 58, Bill
of Exceptions.)
From this judgment an appeal was taken by the Philippine National Bank, and by the
spouses Juan D. Salvador and Remigia Zuiga.
The appellants Juan D. Salvador and wife made the following assignments of error:
1. In not holding that Exhibit D of the plaintiffs, or Exhibit 11 of the
defendants, is a real contract of final sale.
2. In not holding that Exhibit E of the plaintiffs or Exhibit 12 of the
defendants is another actual contract final sale.
3. In not holding the Exhibit F of the plaintiffs or Exhibit 14 of the
defendants is an actual contract of lease.
4. In not holding that Exhibit G of the plaintiffs or Exhibit 13 of the
defendants is an actual option to purchase.
5. In declaring said contracts Exhibit D, E, F, and G of the plaintiffs or
Exhibits 11, 12, 14, and 13, of the defendants, respectively, to be null and
void, and without effect.
6. In ordering that the defendants Juan D. Salvador and Remigia Zuiga
receive from the plaintiffs the sum of P18,000 only, with interest at twelve
per cent per annum.
7. In not sentencing the plaintiffs to pay the defendant spouses Juan D.
Salvador and Remigia Zuiga the sum of P6,240 as rental for the land leased
by said plaintiffs from said defendants, during the first two years of the lease,
with interest thereon.
8. In not sentencing the plaintiffs to pay the defendant spouses Juan D.
Salvador and Remigia Zuiga the sum of P5,000 by way of liquidated
damages.
9. In not holding that the contract of lease evidenced by Exhibit F of the
plaintiffs or Exhibit 14 of the defendants has been rescinded; and in not
compelling said plaintiffs to deliver to the defendant spouses Juan D.
Salvador and Remigia Zuiga the possession of the land leased by them, with
all the seeds and products.
10. In not holding that the option to purchase evidenced by Exhibit G of the
plaintiffs or Exhibit 13 of the defendants has been rescinded and ceased to
exist.
The Philippine National Bank makes the following assignments of error:
1. In holding that the deed of sale of the Supang estate executed on May 22,
1928, by the spouses Severino Jayme and Leonarda Ramos in favor of the
spouses Juan D .Salvador and Remigia Zuiga is null and void on account of
fraud.
2. In holding that the mortgage deed upon the Supang estate executed on
November 12, 1928, by the spouses Juan D. Salvador and Remigia Zuiga in
favor of the Philippine National Bank is null and void; and.
3. In not absolving the Philippine National Bank from the complaint, with
costs against the plaintiffs.
The facts of the case as shown by the evidence are as follows:
The plaintiff spouses owed Presentacion Hofilena de Evangelista P14,381.13, with
interest at 12 per cent per annum, payment of which was secured by a mortgage upon
the realty covered by transfer certificate of title No. 2336. Upon being pressed for
payment, said plaintiffs, through broker Abaya went to the defendant herein, Juan D.
Salvador, from whom they obtained a loan of P18,000 on condition that their realty
referred to above should appear to have been sold to the defendants for P26,000
(Exhibit D), the plaintiffs would purchase of the defendants lot No. 69-C of the
cadastre of Iloilo for P8,000 (Exhibit E), and said plaintiffs would further appear as
lessees of said Supang estate at an annual rental of P3,120 (Exhibit F), although in
reality such conveyance of the land was not the real intention of the parties and the
aforesaid rental of P3,120 was no such rent, but the interest thus cloaked, at 12 per cent
per annum of the sum of P26,000 stated as the selling price of the said
estate.lawphi1>net
It was agreed between the parties that the plaintiffs could repurchase said estate by
returning the principal loaned and the interest thereon, and for this purpose the option,
Exhibit G, was executed, the defendants agreeing to accept the return of said lot No.
69-C.
The amount of P26,000 was represented in these transactions by two checks, one for
P18,000 (Exhibit 1) and the other for P8,000 (Exhibit 2). Immediately upon receipt of
the latter check by the plaintiffs, upon instructions from the defendant Salvador, they
endorsed it and returned it to the defendants to pass for the price of said lot No. 69-C.
The check Exhibit 1 for the amount of P18,000 finally reached the hands of the
plaintiffs who deposited it in the National Bank (Exhibit N).
The plaintiff Severino Jayme then paid his debt to Presentacion Hofilena de
Evangelista, and in consequence the mortgage upon said Supang estate was cancelled.
A few days later, the plaintiff Severino Jayme asked the defendant Juan D. Salvador to
increase the loan. The latter answered he had not money, and suggested that he secure a
loan from somebody else upon the security of lot 69-C, for which reason Severino
Jayme obtained a transfer certificate to said lot in his name, and mortgaged it to Go
Tiang Tin for a loan of P600, and another of P320 in favor of said Severino Jayme
(Exhibit 4 and 5). These loans were later paid, the mortgage upon lot no. 69-C being
cancelled (Exhibit CC).
Having obtained the transfer certificate of title No. 6212 to the estate referred to
(Exhibit 18), on November 12, 1928, the defendants succeed in obtaining a loan of
P20,000 from the Philippine National Bank, mortgaging said estate.lawphi1>net
Some months later, having obtained the loan of P22,000 from Vicente Lopez, the
plaintiff offered to pay the defendant Juan D. Salvador his debt of P18,000, plus the
interest amount to P3,120. Said defendant refused to accept it, claiming that the sum
due from Severino Jayme was P29,320. As the latter would not admit said claim, he
brought this action, depositing with the clerk of the court below the amount of P6,240
on May 22, 1928 (Exhibit AA), representing the rental for two years.
To prove the first six errors, the defendants contend that the plaintiffs voluntarily and
definitely entered into the aforementioned contracts according to their proper deeds,
and, furthermore, conveyed to the defendant Juan D. Salvador 80 hectares of land in
payment of the rental of the Supang estate leased to them; that on September 11, 1928,
the defendants together with the plaintiffs made a donation to the municipality of
Buenavista of 25,000 square meters of the land in Supang, evidenced by Exhibit 7; that
the defendants conveyed to said municipality the use of the house located thereon, and
that the plaintiffs acquiesced therein, and that the defendant Salvador paid the land tax
upon the estate in Supang for the years 1928 and 1929.
The defendants contend that inasmuch as the plaintiffs read all said contracts and will
full knowledge of the contents and conditions thereof signed Exhibit D and E, which
are deeds of final sale, as well as Exhibit F, which is a contract of lease, we must take
these documents literally, since they are set forth in clear terms and leave no room for
doubt as to the intention of the contracting parties, citing in support thereof, articles
1281 and 1283 of the Civil Code, and the decision in Tolentino and Mario vs. Gonzales
Sy Chiam (50 Phil., 558). With respect to the real intention of the parties in executing
said contracts, the defendants invoke the testimony of broker Abaya, witness for the
plaintiffs. The defendants do not deny that the plaintiffs' first intention was to obtain
from them a loan secured by a mortgage upon said estate; but they allege that they
rejected the proposal and in turn proposed to the plaintiffs the purchase of said estate,
which was agreed to by the plaintiffs; the defendants also attempt to show the validity
of said contracts by the plaintiffs' subsequent acts in paying the land tax of the Tansa
lot bought by them from the defendants; and in mortgaging said lot several times in
favor of Go Julian. The defendants argue that these acts performed at the time of the
contract and subsequent thereto indicate, according to article 1282 of the Civil Code,
the intention of the plaintiffs. Among the acts performed by the plaintiffs subsequent
to the contract, the defendants point out those evidenced by Exhibits 3, 4, 5, 6, 7 and 8,
which the defendants contend amount to a ratification of the contracts set forth in
Exhibits D, E, F, and G, a ratification which, according to article 1313 of the Civil
Code, purges these contracts of all defects to which they may have been subject.
After examining the record, we have reached the conclusion that the transactions
alluded to between the plaintiffs and the defendants constitute a loan of P18,000
granted by the latter to the former with interest at 12 per cent per annum .We agree
with the court below, that the plaintiffs did not intend to sell their Supang estate. It is
true that the plaintiffs were aware of the contents of the contracts, but the
preponderance of the evidence shows that they signed them knowing that said
contracts did not express their real intention, and if they did so notwithstanding this, it
was due to the urgent necessity of obtaining funds. Therefore article 1282 of the Civil
Code and those cognate thereto cannot be applied to the case before us, where it
sufficiently appears that what the parties really intended was different from what
appears in said contracts.
Plaintiff Severino Jayme paid the land tax upon the Tansa lot, according to him, with
money furnished him, by the defendant Juan D. Salvador.
As to the mortgage of the Tansa lot, we here quote and adopt the findings of the lower
court, being supported by the evidence of record:
Exhibit 6, executed on September 5, 1928, shows that the mortgage of lot
69-C to Go Julian or Go Tiang Tin was made, not only with the knowledge
of the defendant Juan D. Salvador, but at his suggestion, as testified by the
plaintiff Severino Jayme (pages 97 and 98, t. s. n.), for, as said lot 69-C
appeared as security of the payment of the yearly rental of the contract of
lease, Exhibit F, and in order that said lot 69-C might appear to be free and
unencumbered on being mortgaged to Go Tiang Tin or Go Julian, the
defendant Juan D. Salvador, through said Exhibit 6, succeeded in making
plaintiff Severino Jayme substitute the lot 69-C for his other land located in
Bamban, San Pedro, municipality of Buenavista, with an area of 83.3156
hectares, to secure the payment of the yearly rental of said contract of lease
Exhibit F. (Pages 38 and 39, Bill of Exceptions.)
With respect to the donation of the 25,000 square meters of land in Supang in favor of
the municipality of Buenavista, the evidence shows that said gift was an offer made by
the plaintiffs in exchange of the condition that the residential part of the municipality
of Buenavista should be transferred to the barrio of Supang, where said estate of the
plaintiffs is situated; the latter having promised said municipality before May 22, 1928,
that when said transactions took place with the defendants, they would convey a part of
said estate gratis, as also the use of the building of strong materials located thereon; and
this donation and cession was respected by the defendants, being the ones who
executed Exhibits 7 and 8, in compliance with a promise not made by them, but by the
plaintiffs, this act of theirs constituting an open acknowledgment of the fact that said
estate belonged to said plaintiffs.
This latter is one of the most salient facts showing that the real intention of both
parties in executing the principal contracts referred to heretofore, was that of a loan
granted by the defendants to the plaintiffs in the amount of P18,000 with interest
thereon at 12 per cent per annum, secured by a mortgage on said estate situated in
Supang .Among these circumstances may be mentioned the assessed value of the land,
which, even taking that of P19,920 in May, 1928, is already greater than the P18,000
received by the plaintiffs. The fact that upon the same date were executed the sale of
the said Supang Estate (Exhibit D), the option in favor of the plaintiffs to repurchase
said estate (Exhibit G), the lease of said estate in favor of said plaintiffs (Exhibit F), and
the transfer of the lot in Tansa (Exhibit E), in exchange of the endorsement or return
to the defendant Salvador of his check for P8,000 (Exhibit 2), taken together with the
remainder of the circumstances of the case, corroborate and strengthen the conclusion
set forth above.
The Philippine National Bank impugns the judgment appealed from in so far as it holds
that the deed of sale of the Supang estate is null and void on account of fraud. By virtue
of the foregoing, it is held that the court below committed no such error.
In its second assignment of error the bank refers to the mortgage deed upon the said
estate, executed in its favor.
in inducing the Philippine National Bank to believe in the validity and enforceability of
said certificate of title.
The third error assigned by the bank is a consequence of the preceding ones.
By virtue of the foregoing considerations, the judgment appealed from is modified as
follows:
(1) The deeds Exhibits D, E, F, and G, are hereby held null and void;
(2) It is ordered that transfer certificates of title Exhibits 9 and 18 be cancelled and that
the registrar of deeds of Iloilo issue to Juan D. Salvador, married to Remigia Zuiga, a
new transfer certificate of title to lot 69-C of the Iloilo cadastre, and to Leonarda
Ramos, married to Severino Jayme, a new transfer certificate of title to the land or
estate in Supang, according to the result after the donation and conveyance appearing
in Exhibits 7 and 8 in this case, and noting in said new transfer certificate of title to the
land or estate in Supang, a mortgage in favor of the Philippine National Bank to answer
for the payment of the sum of P20,000 subject to the conditions stipulated in the deed,
Exhibit 24, with the understanding that the mortgagors are the plaintiffs herein;
(3) The plaintiffs are hereby sentenced to pay the Philippine National Bank the sum of
P18,000 (which they received from the defendants), plus P2,160 (interest thereon)
taking the total, or P20,000 as the payment of the principal owed to the bank aforesaid
by the defendants, and the P160 remaining on account of the interest on said P20,000
in accordance with the mortgage deed, Exhibit 24;
(4) The defendants are hereby sentenced to reimburse the plaintiffs for any amount
which the latter may have to pay to the Philippine National Bank hereafter in order to
make up the balance of the interest due upon said P20,000 in accordance with the
Exhibit 24, deducting from such reimbursement the amount of P383.46 which the
plaintiffs were by the judgment appealed from sentenced to pay to the defendants; and

There is some merit in this allegation of the bank's although said mortgage ought not to
appear in the transfer certificate of title issued to the defendants (which certificate is
void and must be cancelled), but in the former certificate issued in favor of the
plaintiffs.
(5) The judgment appealed from is affirmed as regards the remainder, in so far as no
incompatible with this decision.
Without express pronouncement of costs. So ordered.

This mortgage must be respected as a whole because the Philippine National Bank in
the case before us is an innocent creditor perfectly entitled to believe the apparent
validity of the transfer certificate of title presented to it by the defendants. And for the
same reasons, the whole P20,000 must be noted as a mortgage upon said estate because
as to the plaintiffs, although it is true that their debt to the defendants only amounts of
P18,000, nevertheless as between said plaintiffs and the bank, the latter's right must be
deemed preferential, said entity being entirely innocent, whereas the plaintiffs, having
signed the fictitious transfer of said estate to the defendants, though compelled thereto
by necessity, have, under the circumstances, made it possible that said transfer
certificate of title should be issued in the name of the defendants, thereby cooperating
 Republic of the Philippines To ingratiate themselves to their valued depositors, some banks at times bend
over backwards that they unwittingly expose themselves to great risks.
SUPREME COURT
The Case
Manila
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court
SECOND DIVISION of Appeals (CAs) Decision promulgated on March 18, 19981[1] in CA-G.R. CV No.
46290 entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified
the Decision dated November 15, 19932[2] of the Regional Trial Court (RTC), Branch
63 in Makati City rendered in Civil Case No. 6757.

The Facts

ALLIED BANKING CORPORATION, Petitioner, - versus - LIM SIO WAN,
METROPOLITAN
BANK AND TRUST CO., and PRODUCERS BANK, Respondents.
G.R. No. 133179 March 27, 2008
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner
Allied Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money
market placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15,
1983,3[3] as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.4[4]

DECISION
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina
So, an officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money
market placement, to issue a managers check representing the proceeds of the placement,
and to give the check to one Deborah Dee Santos who would pick up the check.5[5] Lim
VELASCO, JR., J.: Sio Wan described the appearance of Santos so that So could easily identify her.6[6]

Later, Santos arrived at the bank and signed the application form for a
managers check to be issued.7[7] The bank issued Managers Check No. 035669 for PhP
1,158,648.49, representing the proceeds of Lim Sio Wans money market placement in
the name of Lim Sio Wan, as payee.8[8] The check was cross-checked For Payees
Account Only and given to Santos.9[9]
Thereafter, the managers check was deposited in the account of Filipinas
Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co.
(Metrobank),10[10] with the forged signature of Lim Sio Wan as indorser.11[11]
Earlier, on September 21, 1983, FCC had deposited a money market placement
for PhP 2 million with respondent Producers Bank. Santos was the money market trader
assigned to handle FCCs account.12[12] Such deposit is evidenced by Official Receipt
No. 31756813[13] and a Letter dated September 21, 1983 of Santos addressed to Angie
Lazo of FCC, acknowledging receipt of the placement.14[14] The placement matured on
October 25, 1983 and was rolled-over until December 5, 1983 as evidenced by a Letter
dated October 25, 1983.15[15] When the placement matured, FCC demanded the
payment of the proceeds of the placement.16[16] On December 5, 1983, the same date
that So received the phone call instructing her to pre-terminate Lim Sio Wans placement,
the managers check in the name of Lim Sio Wan was deposited in the account of FCC,
purportedly representing the proceeds of FCCs money market placement with Producers
Bank.17[17] In other words, the Allied check was deposited with Metrobank in the
account of FCC as Producers Banks payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine
Clearing House Corporation (PCHC) Rules and Regulations, Metrobank stamped a
guaranty on the check, which reads: All prior endorsements and/or lack of endorsement
guaranteed.18[18]
The check was sent to Allied through the PCHC. Upon the presentment of
the check, Allied funded the check even without checking the authenticity of Lim Sio
Wans purported indorsement. Thus, the amount on the face of the check was credited
to the account of FCC.19[19]
On December 9, 1983, Lim Sio Wan deposited with Allied a second money
market placement to mature on January 9, 1984.20[20]
 On December 14, 1983, upon the maturity date of the first money market
placement, Lim Sio Wan went to Allied to withdraw it.21[21] She was then informed that
the placement had been pre-terminated upon her instructions. She denied giving any
instructions and receiving the proceeds thereof. She desisted from further complaints
when she was assured by the banks manager that her money would be recovered.22[22]
Allied filed a third party complaint27[27] against Metrobank and Santos. In
turn, Metrobank filed a fourth party complaint28[28] against FCC. FCC for its part filed
a fifth party complaint29[29] against Producers Bank. Summonses were duly served upon
all the parties except for Santos, who was no longer connected with Producers
Bank.30[30]

When Lim Sio Wans second placement matured on January 9, 1984, So called
Lim Sio Wan to ask for the latters instructions on the second placement. Lim Sio Wan
instructed So to roll-over the placement for another 30 days.23[23] On January 24, 1984,
Lim Sio Wan, realizing that the promise that her money would be recovered would not
materialize, sent a demand letter to Allied asking for the payment of the first
placement.24[24] Allied refused to pay Lim Sio Wan, claiming that the latter had
authorized the pre-termination of the placement and its subsequent release to
Santos.25[25]
On May 15, 1984, or more than six (6) months after funding the check, Allied
informed Metrobank that the signature on the check was forged.31[31] Thus, Metrobank
withheld the amount represented by the check from FCC. Later on, Metrobank agreed
to release the amount to FCC after the latter executed an Undertaking, promising to
indemnify Metrobank in case it was made to reimburse the amount.32[32]

Consequently, Lim Sio Wan filed with the RTC a Complaint dated February
13, 198426[26] docketed as Civil Case No. 6757 against Allied to recover the proceeds
of her first money market placement. Sometime in February 1984, she withdrew her
second placement from Allied.
 Lim Sio Wan thereafter filed an amended complaint to include Metrobank as
a party-defendant, along with Allied.33[33] The RTC admitted the amended complaint
despite the opposition of Metrobank.34[34] Consequently, Allieds third party complaint
against Metrobank was converted into a cross-claim and the latters fourth party
complaint against FCC was converted into a third party complaint.35[35]
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking
Corporation to pay plaintiff the amount of P1,158,648.49 plus 12%
interest per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay
plaintiff the amount of P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay
plaintiff the amount of P173,792.20 by way of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the
costs of suit.
Defendant Allied Banks cross-claim against defendant
Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as
against Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint
against Producers Bank is also DISMISSED.
SO ORDERED.36[36]
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March
18, 1998, modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision
appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay
sixty (60%) percent and defendant-appellee Metropolitan Bank and
Trust Company forty (40%) of the amount of P1,158,648.49 plus
12% interest per annum from March 16, 1984 until fully paid. The
moral damages, attorneys fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation
and defendant-appellee Metropolitan Bank and Trust Company in
the same proportion of 60-40. Except as thus modified, the decision
appealed from is AFFIRMED.
SO ORDERED.37[37]
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that
Lim Sio Wan did not authorize [Allied] to pre-terminate the initial
placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving
Producers Bank of any liability for the reimbursement of amount
adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied]
liable to the extent of 60% of amount adjudged demandable in clear
 disregard to the ultimate liability of Metrobank as guarantor of all
endorsement on the check, it being the collecting bank.38[38]
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied
was not authorized to release the proceeds of Lim Sio Wans money market placement to
Santos. Allied clearly raises a question of fact. When the CA affirms the findings of fact
of the RTC, the factual findings of both courts are binding on this Court.39[39]
We also agree with the CA when it said that it could not disturb the trial courts
findings on the credibility of witness So inasmuch as it was the trial court that heard the
witness and had the opportunity to observe closely her deportment and manner of
testifying. Unless the trial court had plainly overlooked facts of substance or value, which,
if considered, might affect the result of the case,40[40] we find it best to defer to the trial
court on matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.41[41] Thus, the finding of the RTC, affirmed by the CA, that the respective
parties were negligent in the exercise of their obligations is also conclusive upon this
Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan.
Fundamental and familiar is the doctrine that the relationship between a bank and a client
is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is bound
to pay to the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money
in banks and similar institutions shall be governed by the provisions
concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a
simple loan or mutuum.42[42] More succinctly, in Citibank, N.A. (Formerly First National
City Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan
or mutuum.43[43] Further, we defined a money market in Cebu International Finance
Corporation v. Court of Appeals, as follows:
[A] money market is a market dealing in standardized
short-term credit instruments (involving large amounts) where lenders
and borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money market
transaction, the investor is a lender who loans his money to a
borrower through a middleman or dealer.
In the case at bar, the money market transaction between
the petitioner and the private respondent is in the nature of a
loan.44[44]
Lim Sio Wan, as creditor of the bank for her money market placement, is
entitled to payment upon her request, or upon maturity of the placement, or until the
bank is released from its obligation as debtor. Until any such event, the obligation of
Allied to Lim Sio Wan remains unextinguished.
 Since there was no effective payment of Lim Sio Wans money market
Art. 1231 of the Civil Code enumerates the instances when obligations are placement, the bank still has an obligation to pay her at six percent (6%) interest from
considered extinguished, thus: March 16, 1984 until the payment thereof.

Art. 1231. Obligations are extinguished: We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
(1) By payment or performance;
(2) By the loss of the thing due; Allied claims that Metrobank is the proximate cause of the loss of Lim Sio
(3) By the condonation or remission of the Wans money. It points out that Metrobank guaranteed all prior indorsements inscribed
debt; on the managers check, and without Metrobanks guarantee, the present controversy
(4) By the confusion or merger of the rights of would never have occurred. According to Allied:
creditor and debtor;
(5) By compensation; Failure on the part of the collecting bank to ensure that
(6) By novation. the proceeds of the check is paid to the proper party is, aside from
being an efficient intervening cause, also the last negligent act, x x x
Other causes of extinguishment of obligations, such as contributory to the injury caused in the present case, which thereby
annulment, rescission, fulfillment of a resolutory condition, and leads to the conclusion that it is the collecting bank, Metrobank that
prescription, are governed elsewhere in this Code. (Emphasis is the proximate cause of the alleged loss of the plaintiff in the
supplied.) instant case.46[46]

We are not persuaded.

From the factual findings of the trial and appellate courts that Lim Sio Wan
did not authorize the release of her money market placement to Santos and the bank had
been negligent in so doing, there is no question that the obligation of Allied to pay Lim
Proximate cause is that cause, which, in natural and continuous sequence,
Sio Wan had not been extinguished. Art. 1240 of the Code states that payment shall be
unbroken by any efficient intervening cause, produces the injury and without which the
made to the person in whose favor the obligation has been constituted, or his successor
result would not have occurred.47[47] Thus, there is an efficient supervening event if the
in interest, or any person authorized to receive it. As commented by Arturo Tolentino:
event breaks the sequence leading from the cause to the ultimate result. To determine
the proximate cause of a controversy, the question that needs to be asked is: If the event
Payment made by the debtor to a wrong party does not
did not happen, would the injury have resulted? If the answer is NO, then the event is
extinguish the obligation as to the creditor, if there is no fault or
the proximate cause.
negligence which can be imputed to the latter. Even when the
debtor acted in utmost good faith and by mistake as to the person
of his creditor, or through error induced by the fraud of a third In the instant case, Allied avers that even if it had not issued the check
person, the payment to one who is not in fact his creditor, or payment, the money represented by the check would still be lost because of Metrobanks
authorized to receive such payment, is void, except as provided in negligence in indorsing the check without verifying the genuineness of the indorsement
Article 1241. Such payment does not prejudice the creditor, and thereon.
accrual of interest is not suspended by it.45[45] (Emphasis
supplied.) Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
 Section 66. Liability of general indorser.Every indorser who
indorses without qualification, warrants to all subsequent holders in
due course;
a) The matters and things mentioned in
subdivisions (a), (b) and (c) of the next
preceding section; and
b) That the instrument is at the time of his
indorsement valid and subsisting;
And in addition, he engages that on due presentment, it
shall be accepted or paid, or both, as the case may be according to
its tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay
it.
Section 65. Warranty where negotiation by delivery, so
forth.Every person negotiating an instrument by delivery or by a
qualified indorsement, warrants:
a) That the instrument is genuine and in all
respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which
would impair the validity of the instrument or
render it valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not
apply to persons negotiating public or corporation securities, other
than bills and notes. (Emphasis supplied.)
The warranty that the instrument is genuine and in all respects what it purports
to be covers all the defects in the instrument affecting the validity thereof, including a
forged indorsement. Thus, the last indorser will be liable for the amount indicated in the
negotiable instrument even if a previous indorsement was forged. We held in a line of
cases that a collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor.48[48]
However, this general rule is subject to exceptions. One such exception is
when the issuance of the check itself was attended with negligence. Thus, in the cases
cited above where the collecting bank is generally held liable, in two of the cases where
the checks were negligently issued, this Court held the institution issuing the check just
as liable as or more liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than
that of the payees on the strength of forged indorsements, we held the collecting bank
solely liable for the whole amount of the checks involved for having indorsed the same.
In Republic Bank v. Ebrada,49[49] the check was properly issued by the Bureau of Treasury.
While in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking
Corporation,50[50] Banco de Oro admittedly issued the checks in the name of the correct
payees. And in Traders Royal Bank v. Radio Philippines Network, Inc.,51[51] the checks were
issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the
drawee bank is liable for 60% of the amount on the face of the negotiable instrument
and the collecting bank is liable for 40%. We also noted the relative negligence exhibited
by two banks, to wit:
Both banks were negligent in the selection and
supervision of their employees resulting in the encashment of the
forged checks by an impostor. Both banks were not able to
overcome the presumption of negligence in the selection and
supervision of their employees. It was the gross negligence of the
employees of both banks which resulted in the fraud and the
subsequent loss. While it is true that petitioner BPIs negligence may
have been the proximate cause of the loss, respondent CBCs
negligence contributed equally to the success of the impostor in
encashing the proceeds of the forged checks. Under these
circumstances, we apply Article 2179 of the Civil Code to the effect
 that while respondent CBC may recover its losses, such losses are
subject to mitigation by the courts. (See Phoenix Construction Inc.
v. Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2)
banks, we rule that the demands of substantial justice are satisfied
by allocating the loss of P2,413,215.16 and the costs of the
arbitration proceeding in the amount of P7,250.00 and the cost of
litigation on a 60-40 ratio.52[52]
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing
institution and the collecting bank should equally share the liability for the loss of amount
represented by the checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing
of fifty percent-fifty percent (50%-50%). Due to the negligence of
the Province of Tarlac in releasing the checks to an unauthorized
person (Fausto Pangilinan), in allowing the retired hospital cashier
to receive the checks for the payee hospital for a period close to
three years and in not properly ascertaining why the retired hospital
cashier was collecting checks for the payee hospital in addition to
the hospitals real cashier, respondent Province contributed to the
loss amounting to P203,300.00 and shall be liable to the PNB for
fifty (50%) percent thereof. In effect, the Province of Tarlac can
only recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to
PNB for fifty (50%) percent of P203,300.00. It is liable on its
warranties as indorser of the checks which were deposited by Fausto
Pangilinan, having guaranteed the genuineness of all prior
indorsements, including that of the chief of the payee hospital, Dr.
Adena Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payees indorsement.53[53]
A reading of the facts of the two immediately preceding cases would reveal
that the reason why the bank or institution which issued the check was held partially
liable for the amount of the check was because of the negligence of these parties which
resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing
the managers check and in transmitting it to Santos without even a written
authorization.54[54] In fact, Allied did not even ask for the certificate evidencing the
money market placement or call up Lim Sio Wan at her residence or office to confirm
her instructions. Both actions could have prevented the whole fraudulent transaction
from unfolding. Allieds negligence must be considered as the proximate cause of the
resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution,
the check would not have been issued and no loss of funds would have resulted. In fact,
there would have been no issuance of indorsement had there been no check in the first
place.
The liability of Allied, however, is concurrent with that of Metrobank as the
last indorser of the check. When Metrobank indorsed the check in compliance with the
PCHC Rules and Regulations55[55] without verifying the authenticity of Lim Sio Wans
indorsement and when it accepted the check despite the fact that it was cross-checked
payable to payees account only,56[56] its negligent and cavalier indorsement contributed
to the easier release of Lim Sio Wans money and perpetuation of the fraud. Given the
relative participation of Allied and Metrobank to the instant case, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and
Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery
of Lim Sio Wans indorsement, can raise the real defense of forgery as against both
banks.57[57]
 As to Producers Bank, Allied Banks argument that Producers Bank must be
held liable as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art.
2180 pertains to the vicarious liability of an employer for quasi-delicts that an employee
has committed. Such provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the
Revised Penal Code in the instant case. Such liability on the part of the employer for the
civil aspect of the criminal act of the employee is based on the conviction of the employee
for a crime. Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers
Bank, the same is correct. Allied correctly claims in its petition that Producers Bank
should reimburse Allied for whatever judgment that may be rendered against it pursuant
to Art. 22 of the Civil Code, which provides: Every person who through an act of
performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just cause or legal ground, shall return the
same to him.
The above provision of law was clarified in Reyes v. Lim, where we ruled that
[t]here is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience.58[58]
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus:
Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is
unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another.59[59]
In the instant case, Lim Sio Wans money market placement in Allied Bank was
pre-terminated and withdrawn without her consent. Moreover, the proceeds of the
placement were deposited in Producers Banks account in Metrobank without any
justification. In other words, there is no reason that the proceeds of Lim Sio Wans
placement should be deposited in FCCs account purportedly as payment for FCCs
money market placement and interest in Producers Bank. With such payment, Producers
Banks indebtedness to FCC was extinguished, thereby benefitting the former. Clearly,
Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts
and circumstances of the case, Producers Bank should reimburse Allied and Metrobank
for the amounts the two latter banks are ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be
considered as having been unjustly enriched. It must be remembered that FCCs money
market placement with Producers Bank was already due and demandable; thus, Producers
Banks payment thereof was justified. FCC was entitled to such payment. As earlier stated,
the fact that the indorsement on the check was forged cannot be raised against FCC which
was not a part in any stage of the negotiation of the check. FCC was not unjustly
enriched.
From the facts of the instant case, we see that Santos could be the architect of
the entire controversy. Unfortunately, since summons had not been served on Santos,
the courts have not acquired jurisdiction over her.60[60] We, therefore, cannot ascribe
to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the
amount of the check plus 12% interest per annum, moral damages, attorneys fees, and
costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a
proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998
CA Decision in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in
Civil Case No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as
follows:
WHEREFORE, premises considered, the decision
appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay
sixty (60%) percent and defendant-appellee Metropolitan Bank and
Trust Company forty (40%) of the amount of P1,158,648.49 plus
12% interest per annum from March 16, 1984 until fully paid. The
moral damages, attorneys fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation
 and defendant-appellee Metropolitan Bank and Trust Company in
the same proportion of 60-40. Except as thus modified, the decision
appealed from is AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby
ordered to pay Allied and Metrobank the aforementioned amounts. The liabilities of the
parties are concurrent and independent of each other.
This appeal was certified to this Court by the Court of Appeals as involving questions
purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis Occidental
(Branch I) in an action instituted by the plaintiff-appellee Lucia Tan against the
defendants-appellants Arador Valdehueza and Rediculo Valdehueza (docketed as civil
case 2574) for (a) declaration of ownership and recovery of possession of the parcel of
land described in the first cause of action of the complaint, and (b) consolidation of
ownership of two portions of another parcel of (unregistered) land described in the
second cause of action of the complaint, purportedly sold to the plaintiff in two separate
deeds of pacto de retro.

After the issues were joined, the parties submitted the following stipulation of facts:
SO ORDERED.
1. That parties admit the legal capacity of plaintiff to sue; that
defendants herein, Arador, Rediculo, Pacita, Concepcion and
Rosario, all surnamed Valdehueza, are brothers and sisters; that the
answer filed by Arador and Rediculo stand as the answer of Pacita,
Concepcion and Rosario.

2. That the parties admit the identity of the land in the first cause
of action.
Republic of the Philippines
SUPREME COURT 3. That the parcel of land described in the first cause of action was
Manila the subject matter of the public auction sale held on May 6, 1955 at
the Capitol Building in Oroquieta, Misamis Occidental, wherein
the plaintiff was the highest bidder and as such a Certificate of Sale
EN BANC
was executed by MR. VICENTE D. ROA who was then the Ex-
Officio Provincial Sheriff in favor of LUCIA TAN the herein
plaintiff. Due to the failure of defendant Arador Valdehueza to
redeem the said land within the period of one year as being
G.R. No. L-38745 August 6, 1975 provided by law, MR. VICENTE D. ROA who was then the Ex-
Officio Provincial Sheriff executed an ABSOLUTE DEED OF
SALE in favor of the plaintiff LUCIA TAN.
LUCIA TAN, plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants- A copy of the NOTICE OF SHERIFFS SALE is hereby marked
appellants. as 'Annex A', the CERTIFICATE OF SALE is marked as 'Annex
B' and the ABSOLUTE DEED OF SALE is hereby marked as
Annex C and all of which are made as integral parts of this
Alaric P. Acosta for plaintiff-appellee. stipulation of facts.

Lorenzo P. de Guzman for defendants-appellants. 4. That the party-plaintiff is the same plaintiff in Civil Case No.
2002; that the parties defendants Arador, Rediculo and Pacita, all
Valdehueza were the same parties-defendants in the same said
Civil Case No. 2002; the complaint in Civil Case No. 2002 to be
CASTRO, J.: marked as Exhibit 1; the answer as Exhibit 2 and the order dated
 May 22, 1963 as Exhibit 3, and said exhibits are made integral part
of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO
VALDEHUEZA have executed two documents of DEED OF
PACTO DE RETRO SALE in favor of the plaintiff herein,
LUCIA TAN of two portions of a parcel of land which is
described in the second cause of action with the total amount of
ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00),
Philippine Currency, copies of said documents are marked as
'Annex D' and Annex E', respectively and made as integral parts of
this stipulation of facts.
6. That from the execution of the Deed of Sale with right to
repurchase mentioned in the second cause of action, defendants
Arador Valdehueza and Rediculo Valdehueza remained in the
possession of the land; that land taxes to the said land were paid by
the same said defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a
complaint for injunction filed by Tan on July 24, 1957 against the
Valdehuezas, to enjoin them "from entering the above-described
parcel of land and gathering the nuts therein ...." This complaint
and the counterclaim were subsequently dismissed for failure of
the parties "to seek for the immediate trial thereof, thus evincing
lack of interest on their part to proceed with the case. 1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D" (dated
August 5, 1955) was not registered in the Registry of Deeds, while the Deed of Pacto
de Retro referred to as "Annex E" (dated March 15, 1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered
judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff:
1. Declaring Lucia Tan the absolute owner of the property
described in the first cause of action of the amended complaint;
and ordering the herein defendants not to encroach and molest her
in the exercise of her proprietary rights; and, from which property
they must be dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo
Valdehueza jointly and severally to pay to the plaintiff, Lucia Tan,
on Annex 'E' the amount of P1,200, with legal interest of 6% as of
August 15, 1966, within 90 days to be deposited with the Office of
the Court within 90 days from the date of service of this decision,
and that in default of such payment the property shall be sold in
accordance with the Rules of Court for the release of the mortgage
debt, plus costs;
3. And as regards the land covered by deed of pacto de retro annex
'D', the herein defendants Arador Valdehueza and Rediculo
Valdehueza are hereby ordered to pay the plaintiff the amount of
P300 with legal interest of 6% from August 15, 1966, the said land
serving as guaranty of the said amount of payment;
4. Sentencing the defendants Arador Valdehueza and Rediculo
Valdehueza to pay jointly and severally to the herein plaintiff Lucia
Tan the amount of 1,000.00 as attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first cause
of action that there exists res judicata; and
That the lower court erred in making a finding on the second
cause of action that the transactions between the parties were
simple loan, instead, it should be declared as equitable mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides
that a dismissal for failure to prosecute "shall have the effect of an adjudication upon
the merits," the Valdehuezas submit that the dismissal of civil case 2002 operated, upon
the principle of res judicata, as a bar to the first cause of action in civil case 2574. We rule
that this contention is untenable as the causes of action in the two cases are not
identical. Case 2002 was for injunction against the entry into and the gathering of nuts
from the land, while case 2574 seeks to "remove any doubt or cloud of the plaintiff's
ownership ..." (Amended complaint, Rec. on App., p. 27), with a prayer for declaration
of ownership and recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent judgments,
2 we hold that the failure of Tan, in case 2002, to secure an injunction against the
Valdehuezas to prevent them from entering the land and gathering nuts is not
inconsistent with her being adjudged, in case 2574, as owner of the land with right to
recover possession thereof. Case 2002 involved only the possession of the land and the
fruits thereof, while case 2574 involves ownership of the land, with possession as a
mere attribute of ownership. The judgment in the first case could not and did not
encompass the judgment in the second, although the second judgment would
encompass the first. Moreover, the new Civil Code provides that suitors in actions to
quiet title "need not be in possession of said property. 3
2. The trial court treated the registered deed of pacto de retro as an equitable mortgage
but considered the unregistered deed of pacto de retro "as a mere case of simple loan,
secured by the property thus sold under pacto de retro," on the ground that no suit lies to
foreclose an unregistered mortgage. It would appear that the trial judge had not
updated himself on law and jurisprudence; he cited, in support of his ruling, article 1875
of the old Civil Code and decisions of this Court circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for
the validity of a mortgage even as between the parties, but under article 2125 of the
new Civil Code (in effect since August 30,1950), this is no longer so. 4
If the instrument is not recorded, the mortgage is nonetheless
binding between the parties. (Article 2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and the realty taxes having
been paid by them, the contracts which purported to be pacto de retro transactions are
presumed to be equitable mortgages, 5 whether registered or not, there being no third
parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed
that they remained in possession of the land and gave the proceeds of the harvest to
the plaintiff; it is thus argued that they would suffer double prejudice if they are to pay
legal interest on the amounts stated in the pacto de retro contracts, as the lower court has
directed, and that therefore the court should have ordered evidence to be adduced on
the harvest.
The record does not support this claim. Nowhere in the original and the amended
complaints is an allegation of delivery to the plaintiff of the harvest from the land
involved in the second cause of action. Hence, the defendants' answer had none to
affirm.
In submitting their stipulation of facts, the parties prayed "for its approval and maybe
made the basis of the decision of this Honorable Court. " (emphasis supplied) This, the court
did. It cannot therefore be faulted for not receiving evidence on who profited from the
harvest.
4. The imposition of legal interest on the amounts subject of the equitable mortgages,
P1,200 and P300, respectively, is without legal basis, for, "No interest shall be due
unless it has been expressly stipulated in writing." (Article 1956, new Civil Code)
Furthermore, the plaintiff did not pray for such interest; her thesis was a consolidation
of ownership, which was properly rejected, the contracts being equitable mortgages.
With the definitive resolution of the rights of the parties as discussed above, we find it
needless to pass upon the plaintiffs petition for receivership. Should the circumstances
so warrant, she may address the said petition to the court a quo.
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts
of P1,200 and P300 mentioned in Annexes E and D shall bear interest at six percent
per annum from the finality of this decision; and (b) the parcel of land 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 P300 within 90 days from the finality
of this decision. In all other respects the judgment is affirmed. No costs.
SECOND DIVISION
SPOUSES JOVENAL TORING and CECILIA ESCALONA-TORING,
petitioners - versus - SPOUSES ROSALIE GANZON-OLAN and GILBERT
OLAN, and ROWENA OLAN, Respondents.
G.R. No. 168782 October 10, 2008
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision61[1] and
Resolution,62[2] dated March 28, 2005 and June 30, 2005, respectively, of the Court of
Appeals in CA-G.R. CV No. 76831. The Court of Appeals affirmed the Resolution63[3]
dated June 10, 2002 of the Regional Trial Court, Branch 276, Muntinlupa City, in Civil
Case No. 00-137 which had ordered petitioners to pay respondents the sum of
P20,000,000 representing the total amount of petitioners loan and interest due.
 The facts are as follows:
On September 4, 1998, petitioner Jovenal Toring obtained from respondents
a loan amounting to P6,000,000 at 3% interest per month. The loan was secured by a
mortgage on a parcel of land covered by Transfer Certificate of Title No. T-27418,64[4]
as evidenced by a Deed of Real Estate Mortgage65[5] dated September 8, 1998.
On September 23, 1998, the parties executed a Deed of Absolute Sale66[6]
conveying the mortgaged property in favor of respondents. Subsequently, respondents
gave petitioners an exclusive option to repurchase the land for P10,000,000. This was
embodied in a document denominated as an Option to Buy67[7] dated September 28,
1998. On this same document, respondents acknowledged receipt of a total sum of
P10,000,000 as consideration for the purchase of the land.68[8] The Option to Buy
provided that if the option is exercised after December 5, 1998, the purchase price shall
increase at the rate of P300,000 or 3% of the purchase price every month until September
5, 1999 and thereafter at the rate of P381,000 or 3.81% of the purchase price every
month, with the fifth of every month as the cut-off date for said increases.69[9]
On July 28, 2000, petitioners filed a Complaint70[10] docketed as Civil Case
No. 00-137 for reformation of instruments, abuse of rights and damages against
respondents. Petitioners prayed that the Deed of Absolute Sale dated September 23, 1998
and Option to Buy dated September 28, 1998, be treated as an equitable mortgage instead
of a sale.
At the pre-trial, the parties made the following stipulations: (1) the principal
amount of P10,000,000 has long become overdue; (2) no payment has been made; (3)
the parties had agreed on an equitable mortgage and not a sale.71[11] The parties limited
the issues on the amount of interest due and the time of payment of the entire obligation.
Thereafter, the court ordered the parties to submit their respective position papers, but
only respondents complied. All other claims for damages were waived by the
parties.72[12]
On June 10, 2002, the trial court issued its Resolution, the pertinent portion
of which reads:
...the document of mortgage specified the interest at
3.81% per month from the time it was obtained, and which was now
estimated to be P7,239,000.00. This sum should be added to the
total loan of TEN MILLION PESOS, . . .
xxxx
Therefore, judgment is rendered for defendants
ROSALIE GANZON OLAN and GILBERT OLAN [and]
ROWENA GANZON since the loan is not denied, directing
spouses [p]laintiffs JOVENAL TORING and CECILIA
ESCALONA TORING, to pay the sum of TWENTY
MILLION PESOS within one month from receipt of this
decision.
xxxx
 It [i]s SO ORDERED.73[13] (Emphasis supplied.)
Petitioners appealed, contending that the trial court erred in awarding interest. Petitioners
stress that Article 160274[14] of the Civil Code governing equitable mortgages provides
that any money, fruits or other benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to the usury laws. Thus, there should
have been no award of interest.
On March 28, 2005, the Court of Appeals affirmed the trial courts ruling, as
follows:
WHEREFORE, the June 10, 2002 Resolution of the
Regional Trial Court, Branch 276, Muntinlupa City, is hereby
AFFIRMED.
SO ORDERED.75[15]
Their motion for reconsideration having been denied, petitioners now come
before us raising the sole issue:
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED A REVERSIBLE ERROR IN
DENYING PETITIONERS APPEAL AND IN AFFIRMING
THE DECISION OF [THE] TRIAL COURT DATED JUNE 10,
2002.76[16]
Simply put, the issue is: Did the Court of Appeals err in sustaining the trial
courts ruling upholding the 3% and 3.81% stipulated monthly interest?
Petitioners contend that they are not liable to pay interest as the stipulated
monthly rates of 3% and 3.81%77[17] are unconscionable. Petitioners further contend
that the reformed instrument, i.e., the Option to Buy dated September 28, 1998, did not
mention any rate of interest chargeable to the loan but rather, an escalation78[18] of the
purchase price.
On the other hand, respondents maintain that petitioners are liable to pay
interest based on the Deed of Absolute Sale and Option to Buy executed by the parties.
Respondents assert that the P300,000 and P381,000 differences per month as stated in
the Option to Buy represents the 3% or 3.81% interest to be charged on the loan.
Respondents further assert that the 3% or 3.81% interest is not usurious since Central
Bank Circular No. 905-8279[19] removed the ceiling on interest rates on secured and
unsecured loans.
In resolving the issue in this controversy, we have agreed to focus our attention
on the basic provisions of statutes as well as the prior decisions of this Court bearing on
rates of interest on monetary obligations.
 In a loan or forbearance of money, according to the Civil Code, the interest
due should be that stipulated in writing,80[20] and in the absence thereof, the rate shall
be 12% per annum.81[21]
The first time that the parties in this case entered into a loan transaction was
on September 4, 1998 when petitioners obtained the P6,000,000 loan from respondents.
Based on the Deed of Real Estate Mortgage dated September 8, 1998 embodying the
promissory note dated September 4, 1998, the parties agreed on an interest rate of 3%
per month.
The second and third times that the parties transacted were on September 23
and 28, 1998 when they executed the Deed of Absolute Sale and the Option to Buy,
respectively. These two documents were the instruments reformed in Civil Case No. 00-
137, where both parties agreed that the transactions embodied therein were really that of
an equitable mortgage. The stipulation in a contract sharply escalating the repurchase
price every month is for the purpose of securing the return of money invested with
substantial profit or interest.82[22] Undoubtedly, the P300,000 and P381,000 successive
increases stated in the Option to Buy represent the monthly interest which respondents
sought to recover from petitioners.
While the parties are free to stipulate on the interest to be imposed on
monetary obligations, the Court will temper interest rates if they are
unconscionable.83[23] Even if the Usury Law has been suspended by Central Bank
Circular No. 905-82, and parties to a loan agreement have been given wide latitude to
agree on any interest rate, we have held that stipulated interest rates are illegal if they are
unconscionable.84[24] Consequently, in our view, the Court of Appeals erred in
sustaining the trial courts decision upholding the stipulated interest of 3% and 3.81%.
Thus, we are unanimous now in our ruling to reduce the above stipulated interest rates
to 1% per month, in conformity with our ruling in Ruiz v. Court of Appeals.85[25] For as
well stressed in that case:
Nothing in the said circular [CB Circular No. 905, s. 1982]
grants lenders carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging
of their assets.
Undeniably, in the present case, petitioners failed to pay the principal loan on
its maturity and upon demand by respondents, as well as the interest payments thereafter.
Indeed, petitioners cannot turn their backs on their obligation; they have to comply with
what is incumbent upon them. All other claims for damages having been waived by the
parties, petitioners are bound to pay respondents the principal loan of P10,000,000, plus
what we have repeatedly held as the appropriate rate of interest of 1% per month, from
December 6, 199886[26] until fully paid.
WHEREFORE, the assailed Decision and Resolution dated March 28, 2005
and June 30, 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 76831 are
MODIFIED to the effect that the stipulated interest rate of 3% or 3.81%
per month on the subject equitable mortgage is hereby ordered REDUCED
to 1% per month only. No pronouncement as to costs.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 76518 July 13, 1990
IRENE P. RELUCIO, petitioner,
vs.
ZEIDA B. BRILLANTE-GARFIN and COURT OF APPEALS, respondents.
Orlando A. Martizano for petitioner.
Sivestre V. Garfin for private respondent.
RESOLUTION
FELICIANO, J.:
On 22 October 1979, private respondent Zeida B. Brillante-Garfin filed a complaint in
the lower court for specific performance with damages against petitioner Irene P.
Relucio, to compel the latter to: (a) execute, in compliance with the Contract to Buy
and Sell in question, a final deed of sale in favor of the former over two (2) residential
subdivision lots in the Mariano Village Subdivision, Naga City; and (b) construct paved
roads on the northern and southern sides of the lots, as "necessary facilities,
improvements, infrastructures and other forms of development of the subdivision
area." Private respondent alleged that the lots, which have a total contract price of
P10,800.00, have already been paid for, as she had already paid P200.00 as down
payment, and had subsequently completed payment of 128 equal monthly installments
of P89.45 each amounting to P11,450.00; that as the law allows the charging of interest
only as monetary interest or as compensatory interest, none of which have obtained in
her case, as she had never incurred in delay in the payment of installments due, the
stipulated interest of six percent (6%) per annum on the outstanding balance is null and
void; and that the amount of 650.00 representing overpayment be returned to her.
Petitioner resisted the complaint, maintaining that private respondent, contrary to the
latter's allegations, is obliged to pay interest on the installment payments of the unpaid
outstanding balance even if paid on their "due dates" per schedule of payments; that
private respondent had actually been in arrears in the amount of P4,269.40,
representing such interest as of June 1979, which therefore entitled petitioner to cancel
the contract in question. Petitioner then prayed for judicial affirmance of her Notarial
Notice of Cancellation over the said contract in question.
The lower court ordered petitioner:
1. To execute a deed of absolute sale of the two lots described in
the complaint in favor of the plaintiff to enable the latter to secure
the corresponding certificate of title in her name within thirty (30)
days from the finality of this Decision;
2. To construct or cause the construction of roads on the
Northern and Southern sides of the said two lots in accordance
with the contract if any, and in conformity with the City of Naga
planning ordinance relative to this case;
3. The return to the plaintiff the excess payment of P650.00, plus
6% interest per annum from the date of the filing of the
complaint; and
To pay to the plaintiff attorney's fees in the sum of P l,000.00 and
the costs of suit. 1
The Court of Appeals affirmed in A.C.-GR CV No. 03194 by a
Decision 2 dated 17 July 1986.
Petitioner now comes to this Court, arguing that she has the right to rescind the
contract for private respondent's continued refusal to pay the monthly installments on
the contract price.
Two issues are presented for resolution in this petition: (1) whether or not private
respondent has fully paid the stipulated price in the contract so as to be entitled lawfully
to demand the execution of a deed of absolute sale in her favor. This issue in turn will
depend on the question of whether or not petitioner may validly charge interest on
installment payments, notwithstanding that private respondent had been prompt in her
monthly payments; and (2) whether or not petitioner's notice of cancellation was valid
and effective.
Examination of the record shows that the questioned Contract to Buy and Sell the
subdivision lots provided for payment by private respondent of the sum of P200.00 as
downpayment, and that "the balance [of P10,600.00] shall be paid in 180 monthly
installments at P89.45 per month, including interest rate at six percent (6%) per annum,
until the purchase price is fully paid." 3 This stipulation clearly specified that an interest
charge of six percent (6%) per annum was included in the monthly installment price:
private respondent could not have helped noticing that P89.45 multiplied by 180
monthly installments equals P16,101.00, and not P10,600.00. The contract price of
P10,800.00 may thus be seen to be the cash price of the subdivision lots, that is, the
amount payable if the price of the lots were to be paid in cash and in full at the
execution of the contract; it is not the amount that the vendor will have received in the
aggregate after fifteen (15) years if the vendee shall have religiously paid the monthly
installments. The installment price, upon the other hand, of the subdivision lots-the
sum total of the monthly installments (i.e., P16,101.00) typically, as in the instant case,
has an interest component which compensates the vendor for waiting fifteen (15) years
before receiving the total principal amount of P10,600.00. Economically or financially,
P10,600.00 delivered in full today is simply worth much more than a long series of
small payments totalling, after fifteen (15) years, P10,600.00. For the vendor, upon
receiving the full cash price, could have deposited that amount in a bank, for instance,
and earned interest income which at six percent (6%) per year and for fifteen (15) years,
would precisely total P5,501.00 (the difference between the installment price of
P16,101.00 and the cash price of P10,600.00) To suppose, as private respondent
argues, that mere prompt payment of the monthly installments as they fell due would
obviate application of the interest charge of six percent (6%) per annum, is to ignore
that simple economic fact. That economic fact is, of course, recognized by law, which
authorizes the payment of interest when contractually stipulated for by the parties 4 or
when implied in recognized commercial custom or usage.
Vendor and vendee are legally free to stipulate for the payment of either the cash price of
a subdivision lot or its installment price. Should the vendee opt to purchase a subdivision
lot via the installment payment system, he is in effect paying interest on the cash price,
whether the fact and rate of such interest payment is disclosed in the contract or not.
The contract for the purchase and sale of a piece of land on the installment payment
system in the case at bar is not only quite lawful; it also reflects a very wide spread
usage or custom in our present day commercial life.
Applying the foregoing analysis to the case at bar: when private respondent started
paying monthly installments in September 1968, the initial P89.45 was apportioned
between the principal and the interest, with P53.00 5 being allocated to service the
interest charge and P36.45 6 being credited to the principal. During the succeeding
monthly payments, however, as the outstanding balance on the principal gradually
declined, the interest component (in absolute terms) correspondingly fell while the
component credited to the principal increased proportionately, thus amortizing the
balance of the principal purchase prize as that balance gradually declined. 7 This
explains petitioner's theory of declining balance, which unfortunately was not
appreciated by both the trial and appellate courts.
Despite private respondent's failure to fully pay the stipulated price of the two lots in
question, petitioner, however, could not validly rescind the contract not being lawfully
entitled to do so. Petitioner failed to rebut private respondents' allegations that the
former had failed to introduce required improvements in the subdivision; the former's
bare allegation that the improvements have already been donated to the city
government was not accepted by the trial court. Section 23 of Presidential Decree No.
957, otherwise known as The Subdivision and Condominium Buyers' Protective
Decree, provides:
Section 23. Non-forfeiture of Payments. No installment
payment made by the buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be forfeited in
favor of the owner or developer when the buyer, after due notice
to the owner or developer desists front further payment due to the
failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer may, at his
option, be reimbursed the total amount paid. . . (Emphasis
supplied)
In this respect, the trial court was correct in holding that petitioner could not
rescind the contract. As the law vests upon the buyer the option to demand
reimbursement of the total amount paid, or to wait for further development
of the subdivision, private respondent who opted for the latter alternative by
waiting for the proper development of the site, may not be ousted from the
subdivision. 8
ACCORDINGLY, the Court Resolved to GRANT the Petition due course and to SET
ASIDE and NULLIFY the Decision of the Court of Appeals. In lieu thereof, a new
Decision is hereby RENDERED requiring
1. the petitioner to complete the necessary improvements and
developments in the subdivision area in accordance with the
approved subdivision plans and applicable provisions of P.D. No.
957 as well as applicable implementing administrative regulations
and City of Naga zoning ordinances, if any;
2. private respondent immediately to resume paying installment
payments under her Contract to Buy and Sell with petitioner,
subject to her right to proceed against petitioner should petitioner
fail again to comply with her obligations under P.D. No. 957; and
3. petitioner to execute the Deed of Absolute Sale when private
respondent shall have fully paid the purchase price in accordance
with the mentioned Contract to Buy and Sell.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 90676 June 19, 1991
STATE INVESTMENT HOUSE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. JUDGE PERLITA J.
TRIA TIRONA, Presiding Judge of the Regional Trial Court of Quezon City,
Branch CII and SPS. RAFAEL and REFUGIO AQUINO, respondents.
FELICIANO, J.:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain
shares of stock to petitioner State Investment House, Inc. ("State") in order to secure a
loan of P120,000.00 designated as Account No. IF-82-0631-AA. Prior to the execution
of the pledge, respondent-spouses, as an accommodation to and together with the
spouses Jose and Marcelina Aquino, signed an agreement (Account No. IF-82-1379-
AA) with petitioner State for the latter's purchase of receivables amounting to
P375,000.00. When Account No. IF-82-0631-AA fell due, respondent spouses paid the
same partly with their own funds and partly from the proceeds of another loan which
they obtained also from petitioner State designated as Account No. IF-82-0904-AA.
This new loan was secured by the same pledge agreement executed in relation to
Account No. IF-820631-AA. When the new loan matured, State demanded payment.
Respondents expressed willingness to pay, requesting that upon payment, the shares of
stock pledged be released. Petitioner State denied the request on the ground that the
loan which it had extended to the spouses Jose and Marcelina Aquino (Account No.
IF-82-1379- AA) had remained unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of
Notarial Sale stating that upon request of State and by virtue of the pledge agreement,
he would sell at public auction the shares of stock pledged to State. This prompted
respondents to file a case before the Regional Trial Court of Quezon City alleging that
the intended foreclosure sale was illegal because from the time the obligation under
Account No. IF-82-0904-AA became due, they had been able and willing to pay the
same, but petitioner had insisted that respondents pay even the loan account of Jose
and Marcelina Aquino which had not been secured by the pledge. It was further alleged
that their failure to pay their loan (Account No. IF-82-0904-AA) was excused because
the petitioner State itself had prevented the satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984 rendered by Judge Willelmo
Fortun, initially dismissed the complaint. Respondent spouses filed a motion for
reconsideration praying for a new decision ordering petitioner State to release the
shares upon payment of respondents' loan "without interest," as the latter had not been in
delay in the performance of their obligation. State countered that the pledge executed
by respondent spouses also covered the loan extended to Jose and Marcelina Aquino,
which too should be paid before the shares may be released.
Acting on the motion for reconsideration, Judge Fortun set aside his original decision
and rendered a new judgment dated 29 January 1985, ordering State to immediately
release the pledge and to deliver to respondents the share of stock "upon payment of
the loan under Code No. 82-0904-AA."
On appeal, the Court of Appeals affirmed in toto the new decision of the trial court,
holding that the loan extended to Jose and Marcelina Aquino, having been executed
prior to the pledge was not covered by the pledge which secured only loans executed
subsequently. Thus, upon payment of the loan under Code No. IF-0904-AA, the shares
of stock should be released. The decisions of the Court of Appeals and of Judge Fortun
became final and executory.
Upon remand of the records of the case to the trial court for execution, there
developed disagreement over the amount which respondent spouses Rafael and
Refugio Aquino should pay to secure the release of the shares of stock petitioner
State contending that respondents should also pay interest and respondents arguing
they should not. Respondent spouses then filed a motion with the trial court to clarify
the Fortun decision praying that an order issue clarifying the phrase "upon payment of
plaintiffs' loan" to mean upon payment of plaintiff' loan in the principal amount of
P110,000.00 alone, "without interest, penalties and other charges."
On 17 February 1989, the trial court, speaking this time through Judge Perlita Tria
Tirona, rendered a decision purporting to clarify the decision of Judge Fortun and
ruling that petitioner State shall release respondents' shares of stock upon payment by
respondents of the principal of the loan as set forth in PN No. 82-0904-AA in the
amount of P110,000.00, without interest, penalties and other charges.
Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the appeal
was dismissed. The Court of Appeals agreed with Judge Tirona that no interest need be
paid and added that the clarificatory (Tirona) decision of the trial court merely restated
what had been provided for in the earlier (Fortun) decision; that the Tirona decision
did not go beyond what had been adjudged in the earlier decision. The motion for
reconsideration filed by petitioner was accordingly denied.
Hence, this Petition for Review contending that no manifest ambiguity existed in the
decision penned by Judge Fortun; that the trial court through Judge Tirona, erred in
clarifying the decision of Judge Fortun; and that the amendment sought to be
introduced in the Fortun decision by respondents may not be made as the same was
substantial in nature and the Fortun decision had become final.
We begin by noting that the trial court has asserted authority to issue the clarificatory
order in respect of the decision of Judge Fortun, even though that judgment had
become final and executory. In Reinsurance Company of the Orient, Inc. v. Court of Appeals,1
this Court had occasion to deal with the applicable doctrine to some extent:
- - - [E]ven a judgment which has become final and executory may be
clarified under certain circumstances. The dispositive portion of the
judgment may, for instance, contain an error clearly clerical in nature
(perhaps best illustrated by an error in arithmetical computation) or an
 ambiguity arising from inadvertent omission, which error may be rectified or
ambiguity clarified and the omission supplied by reference primarily to the
body of the decision itself Supplementary reference to the pleadings
previously filed in the case may also be resorted to by way of corroboration
of the existence of the error or of the ambiguity in the dispositive part of the
judgment. In Locsin, et al. v. Parades, et al., this Court allowed a judgment
which had become final and executory to be clarified by supplying a word
which had been inadvertently omitted and which, when supplied, in effect
changed the literal import of the original phraseology:
. . . it clearly appears from the allegations of the complaint, the
promissory note reproduced therein and made a part thereof, the
prayer and the conclusions of fact and of law contained in the
decision of the respondent judge, that the obligation contracted by
the petitioners is joint and several and that the parties as well as the
trial judge so understood it. Under the juridical rule that the judgment
should be in accordance with the allegations, the evidence and the conclusions of
fact and law, the dispositive part of the judgment under consideration should
have ordered that the debt be paid 'severally' and in omitting the word or
adverb 'severally' inadvertently, said judgment became ambiguous. This
ambiguity may be clarified at any time after the decision is rendered and even
after it had become final (34 Corpus Juris, 235, 326). This respondent
judge did not, therefore, exceed his jurisdiction in clarifying the
dispositive part of the judgment by supplying the omission.
(Emphasis supplied)
In Filipino Legion Corporation vs. Court of Appeals, et al., the applicable principle was set out
in the following terms:
[W]here there is ambiguity caused by an omission or mistake in the dispositive portion of a
decision, the court may clarify such ambiguity by an amendment even after the judgment had
become final, and for this purpose it may resort to the pleadings filed by the parties, the
court's findings of facts and conclusions of law as expressed in the body of the
decision. (Emphasis supplied)
In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court, the Court, in
applying the above doctrine, said:
. . . We clarify, in other words, what we did affirm. That is involved here is not what is
ordinarily regarded as a clerical error in the dispositive part of the decision of the Court
of First Instance, . . . At the same time, what is involved here is not a correction of an
erroneous judgment or dispositive portion of a judgment. What we believe is involved
here is in the nature of an inadvertent omission on the part of the Court of First
Instance (which should have been noticed by private respondents' counsel who had
prepared the complaint), of what might be described as a logical follow-through of
something set forth both in the body of the decision and in the dispositive portion
thereof; the inevitable follow-through, or translation into, operational or behavioral
terms, of the annulment of the Deed of Sale with Assumption of Mortgage, from
which petitioners' title or claim of title embodied in TCT 133153 flows. (Emphasis
supplied)2 (Underscoring in the original; citations omitted)
The question we must resolve is thus whether or not there is an ambiguity or clerical
error or inadvertent omission in the dispositive portion of the decision of Judge Fortun
which may be legitimately clarified by referring to the body of the decision and perhaps
even the pleadings filed before him. The decision of Judge Fortun disposing of the
motion for reconsideration filed by respondent spouses Rafael and Refugio Aquino
consisted basically of quoting practically the whole motion for reconsideration. In its
dispositive portion, Judge Fortun's decision stated:
WHEREFORE, plaintiffs "Motion for Reconsideration" dated January 3,
1985, is granted and the decision of this Court dated December 14, 1984 is
hereby revoked and set aside and another judgment is hereby rendered in
favor of plaintiffs as follows:
(1) Ordering defendants to immediately release the pledge on, and to deliver
to plaintiffs, the shares of stocks enumerated and described in paragraph 4 of
plaintiffs' complaint dated July 17, 1984, upon payment of plaintiffs loan
under Code No. 82-0904-AA to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to plaintiffs
P10,000.00 as moral damages, P5,000.00 as exemplary damages, P6,000.00 as
attorney's fees, plus costs;
(3) Dismissing defendants' counterclaim, for lack of merit and making the
preliminary injunction permanent.
SO ORDERED.3
Judge Fortun evidently meant to act favorably on the motion for reconsideration of the
respondent Aquino spouses and in effect accepted respondent spouses' argument that
they had not incurred mora considering that their failure to pay PN No. IF82-0904-AA
on time had been due to petitioner State's unjustified refusal to release the shares
pledged to it. It is not, however, clear to what precise extent Judge Fortun meant to
grant the motion for reconsideration. The promissory note in Account No. IF-82-0904-
AA had three (3) components: (a) principal of the loan in the amount of P110,000.00;
(b) regular interest in the amount of seventeen percent (17%) per annum; and (c)
additional or penalty interest in case of non-payment at maturity, at the rate of two
percent (2%) per month or twenty-four percent (24%) per annum. In the dispositive part
of his resolution, Judge Fortun did not specify which of these components of the loan
he was ordering respondent spouses to pay and which component or components he
was in effect deleting. We cannot assume that Judge Fortun meant to grant the relief
prayed for by respondent spouses in all its parts. For one thing, respondent spouses in
their motion for reconsideration asked for "at least P50,000.00" for moral damages and
"at least P50,000.00" for exemplary damages, as well as P20,000.00 by way of attorney's
fees and litigation expenses. Judge Fortun granted respondent spouses only P10,000.00
as moral damages and P5,000.00 as exemplary damages, plus P6,000.00 as attorney's
fees and costs. For another, respondent spouses asked Judge Fortun to order the
release of the shares pledged "upon payment of [respondent spouses'] loan under Code
No. 82-0904-AA without interest, as plaintiffs were not in delay in accordance with Article
69 of the New Civil Code " (Emphasis supplied). In other words, respondent
spouses did not themselves become very clear what they were asking Judge Fortun to
grant them; they did not apparently distinguish between regular interest or "monetary
interest" in the amount of seventeen percent (17%) per annum and penalty charges or
"compensatory interest" in the amount of two percent (2%) per month or twenty-four
percent (24%) per annum.
It thus appears that the Fortun decision was ambiguous in the sense that it was cryptic.
We believe that in these circumstances, we must assume that Judge Fortun meant to
decide in accordance with law, that we cannot fairly assume that Judge Fortun was grossly
ignorant of the law, or that he intended to grant the respondent spouses relief to which
they were not entitled under law. Thus, the ultimate question which arises is: if
respondent Aquino spouses were not in delay, what should they have been held liable
for in accordance with law?
We believe and so hold that since respondent Aquino spouses were held not to have
been in delay, they were properly liable only for: (a) the principal of the loan or
P110,000.00; and (b) regular or monetary interest in the amount of seventeen percent
(17%) per annum. They were not liable for penalty or compensatory interest, fixed by the
promissory note in Account No. IF-82-0904-AA at two percent (2%) per month or
twenty-four (24%) per annum. It must be stressed in this connection that under Article
2209 of the Civil Code which provides that
. . . [i]f the obligation consists in the payment of a sum of money, and the
debtor incurs in delay. the indemnity for damages, there being no stimulation
to the contrary. shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum.
the appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum or money, is the payment of penalty interest at the
rate agreed upon; and in the absence of a stipulation of a particular rate of penalty
interest, then 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 legal interest
or six percent (6%) per annum.4
The fact that the respondent Aquino spouses were not in default did not mean that they,
as a matter of law, were relieved from the payment not only of penalty or
compensatory interest at the rate of twenty-four percent (24%) per annum but also of
regular or monetary interest of seventeen percent (17%) per annum. The regular or
monetary interest continued to accrue under the terms of the relevant promissory note
until actual payment is effected. The payment of regular interest constitutes the price or
cost of the use of money and thus, until the principal sum due is returned to the
creditor, regular interest continues to accrue since the debtor continues to use such
principal amount. The relevant rule is set out in Article 1256 of the Civil Code which
provides as follows:
Art. 1256. If the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place
of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (Emphasis supplied)
Where the creditor unjustly refuses to accept payment, the debtor desirous of being
released from his obligation must comply with two (2) conditions: (a) tender of
payment; and (b) consignation of the sum due. Tender of payment must be
accompanied or followed by consignation in order that the effects of payment may be
produced. Thus, in Llamas v. Abaya,5 the Supreme Court stressed that a written tender
of payment alone, without consignation in court of the sum due, does not suspend the
accruing of regular or monetary interest.
In the instant case, respondent spouses Aquino, while they are properly regarded as
having made a written tender of payment to petitioner State, failed to consign in court
the amount due at the time of the maturity of Account No. IF-820904-AA. It follows
that their obligation to pay principal-cum-regular or monetary interest under the terms
and conditions of Account No. IF-82-0904-AA was not extinguished by such tender of
payment alone.
For the respondent spouses to continue in possession of the principal of the loan
amounting to P110,000.00 and to continue to use the same after maturity of the loan
without payment of regular or monetary interest, would constitute unjust enrichment
on the part of the respondent spouses at the expense of petitioner State even though
the spouses had not been guilty of mora. It is precisely this unjust enrichment which
Article 1256 of the Civil Code prevents by requiring, in addition to tender of payment,
the consignation of the amount due in court which amount would thereafter be
deposited by the Clerk of Court in a bank and earn interest to which the creditor would
be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED DUE COURSE. The INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Petitioner, - versus -
Decision of the Court of Appeals dated 30 August 1989 in C.A.-G.R. No. 17954 and FGU INSURANCE CORPORATION, Respondent.
the Decision of the Regional Trial Court dated 17 February 1989 in Civil Case No. Q-
42188 are hereby REVERSED and SET ASIDE. The dispositive portion of the G.R. No. 161539 June 27, 2008
decision of Judge Fortun is hereby clarified so as to read as follows:
DECISION
(1) Ordering defendants to immediately release the pledge and to deliver to the plaintiff
spouses Rafael and Refugio Aquino the shares of stock enumerated and described in
paragraph 4 of said spouses' complaint dated 17 July 1984, upon full payment of the
amount of P110,000.00 plus seventeen percent (17%) per annum regular interest
computed from the time of maturity of the plaintiffs' loan (Account No. IF-82-0904- AUSTRIA-MARTINEZ, J.:
AA) and until full payment of such principal and interest to defendants;

(2) Ordering defendant State Investment House, Inc. to pay to the plaintiff spouses
Rafael and Refugio Aquino P10,000.00 as moral damages, P5,000.00 as exemplary
damages, P6,000.00 as attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit and making the preliminary
injunction permanent."
In a Decision dated July 1, 1999 in Civil Case No. 95-73532, the Regional Trial Court
(RTC) of Manila, Branch 30, ordered International Container Terminal Services, Inc. (petitioner) to
pay FGU Insurance Corporation (respondent) the following sums: (1) P1,875,068.88 with 12%
interest per annum from January 3, 1995 until fully paid; (2) P50,000.00 as attorney's fees; and (3)
P10,000.00 as litigation expenses.87[1]

No pronouncement as to costs.

SO ORDERED. Petitioner's liability arose from a lost shipment of 14 Cardboards 400 kgs. of Silver Nitrate
63.53 FCT Analytically Pure (purity 99.98 PCT), shipped by Hapag-Lloyd AG through the vessel
Hannover Express from Hamburg, Germany on July 10, 1994, with Manila, Philippines as the port of
discharge, and Republic Asahi Glass Corporation (RAGC) as consignee. Said shipment was insured
by FGU Insurance Corporation (FGU). When RAGC's customs broker, Desma Cargo Handlers,
Inc., was claiming the shipment, petitioner, which was the arrastre contractor, could not find it in its
storage area. At the behest of petitioner, the National Bureau of Investigation (NBI) conducted an
investigation. The AAREMA Marine and Cargo Surveyors, Inc. also conducted an inquiry. Both
found that the shipment was lost while in the custody and responsibility of petitioner.

Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION
 As insurer, FGU paid RAGC the amount of P1,835,068.88 on January 3, 1995.88[2] In CORPORATION VS. COURT OF APPEALS (225 SCRA 411)
turn, FGU sought reimbursement from petitioner, but the latter refused. This constrained FGU to file AND THE FAIRLY RECENT DECISION IN WALLEM
with the RTC of Manila Civil Case No. 95-73532 for a sum of money. PHILIPPINES SHIPPING, INC. AND SEACOAST MARITIME
CORP. VS. PRUDENTIAL GUARANTEE AND ASSURANCE,
INC. AND COURT OF APPEALS, G.R. NO. 152158, 07
FEBRUARY 2003.

After trial, the RTC rendered its Decision dated July 1, 1999 finding petitioner liable. 4. ASSUMING ARGUENDO THAT PETITIONER IS LIABLE,
THE COURT OF APPEALS SERIOUSLY ERRED IN
AFFIRMING THE AWARD OF 12% INTEREST DESPITE
THE FACT THAT THE OBLIGATION PURPORTEDLY
BREACHED DOES NOT CONSTITUTE A LOAN OF
Petitioner appealed to the Court of Appeals (CA), which, in the assailed Decision89[3] FORBEARANCE OF MONEY AND DESPITE THE CLEAR
dated October 22, 2003, affirmed the RTC Decision. Petitioner filed a motion for reconsideration GUIDELINES SET FORTH BY THIS HONORABLE COURT
which the CA denied in its Resolution dated January 8, 2004.90[4] IN EASTERN SHIPPING LINES, INC. VS. COURT OF
APPEALS. (234 SCRA 78).91[5]

Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court,
with the following assignment of errors: The rule in our jurisdiction is that only questions of law may be entertained by this Court
in a petition for review on certiorari. This rule, however, is not ironclad and admits certain exceptions,
such as when (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no
1. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING citation of specific evidence on which the factual findings are based; (7) the findings of absence of
TO APPLY THE LIMITATION OF LIABILITY OF P3,5000 PER facts are contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to
PACKAGE WHICH LIMITS PETITIONER'S LIABILITY, IF those of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if
ANY, TO A TOTAL OF ONLY P49,000.00 PURSUANT TO PPA properly considered, would justify a different conclusion; (10) the findings of the CA are beyond the
ADMINISTRATIVE ORDER NO. 10-81. issues of the case; and (11) such findings are contrary to the
2. THE COURT OF APPEALS SERIOUSLY ERRED IN
UPHOLDING THE MARINE OPEN POLICY DESPITE THE
FACT THAT THE SAME WAS NO LONGER IN FORCE AT
THE TIME THE SHIPMENT WAS LOADED ON BOARD
THE CARRYING VESSEL.
3. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING
TO DISMISS THE COMPLAINT ON THE GROUND OF
RESPONDENT'S FAILURE TO OFFER THE INSURANCE
POLICY IN EVIDENCE PURSUANT TO THIS HONORABLE
COURT'S DECISION IN HOME INSURANCE
admissions of both parties.92[6] In the present case, there is nothing on record which will show that it
falls within the exceptions. Hence, the petition must be denied.
Petitioner posits that its liability for the lost shipment should be limited to P3,500.00 per
package as provided in Philippine Ports Authority Administrative Order No. 10-81 (PPA AO 10-81),
under Article VI, Section 6.01 of which provides:
Section 6.01. Responsibility and Liability for Losses and Damages; Exceptions - The
CONTRACTOR shall at its own expense handle all merchandise in all work undertaken by it
hereunder deligently [sic] and in a skillful, workman-like and efficient manner; that the
CONTRACTOR shall be solely responsible as an independent CONTRACTOR, and hereby agrees
to accept liability and to promptly pay to the shipping company consignees, consignors or other
interested party or parties for the loss, damage, or non-delivery of cargoes to the extent of the actual
invoice value of each package which in no case shall be more than THREE THOUSAND FIVE
HUNDRED PESOS (P3,500.00) (for import cargo) x x x for each package unless the value of the
cargo importation is otherwise specified or manifested or communicated in writing together
with the declared bill of lading value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge x x x of the goods,
as well as all damage that may be suffered on account of loss, damage, or destruction of any
merchandise while in custody or under the control of the CONTRACTOR in any pier, shed,
warehouse facility or other designated place under the supervision of the AUTHORITY x x x.93[7]
(Emphasis supplied)
The CA summarily ruled that PPA AO 10-81 is not applicable to this case without laying
out the reasons therefor.
PPA AO 10-81 is the management contract between by the Philippine Ports Authority
and the cargo handling services providers. In Summa Insurance Corporation v. Court of Appeals,94[8] the
Court ruled that:
In the performance of its job, an arrastre operator is bound by the management contract it
had executed with the Bureau of Customs. However, a management contract, which is a sort of a
stipulation pour autrui within the meaning of Article 1311 of the Civil Code, is also binding on a
consignee because it is incorporated in the gate pass and delivery receipt which must be presented by
the consignee before delivery can be effected to it. The insurer, as successor-in-interest of the
consignee, is likewise bound by the management contract. Indeed, upon taking delivery of the cargo, a
consignee (and necessarily its successor-in- interest) tacitly accepts the provisions of the management
contract, including those which are intended to limit the liability of one of the contracting parties, the
arrastre operator.
However, a consignee who does not avail of the services of the arrastre operator is not
bound by the management contract. Such an exception to the rule does not obtain here as the
consignee did in fact accept delivery of the cargo from the arrastre operator.95[9]
While it appears in the present case that the RAGC availed itself of petitioner's services
and therefore, PPA AO 10-81 should apply, the Court finds that the extent of petitioner's liability
should cover the actual value of the lost shipment and not the P3,500.00 limit per package as provided
in said Order.
It is borne by the records that when Desma Cargo Handlers was negotiating for the
discharge of the shipment, it presented Hapag-Lloyd's Bill of Lading,96[10] Degussa's Commercial
Invoice, which indicates that value of the shipment, including seafreight charges, was DM94.960,00
(CFR Manila);97[11] and Degussa's Packing List, which likewise notes that the value of the shipment
was DM94.960,00.98[12] It is highly unlikely that petitioner was not made aware of the actual value of
the shipment, since it had to examine the pertinent documents for stripping purposes and, later on,
for the discharge of the shipment to the consignee or its representative. In fact, the NBI Report dated
September 26, 1994 on the investigation conducted by it regarding the loss of the shipment shows
that petitioner's Admeasurer Rosco Esquibal was shown the Bill of Lading by Desma Brokerage's
representative, Rey Villanueva.99[13] Esquibal also stated that another representative of Desma
Brokerage, Joey Laurente, went to their office and furnished him a copy of the processed papers of
the fourteen cartons of Asahi Glass cargoes.100[14]
By its own act of not charging the corresponding arrastre fees based on the value of the
shipment after it came to know of such declared value from the marine insurance policy, petitioner
cannot escape liability for the actual value of the shipment. The value of the merchandise or shipment
may be declared or stated not only in the bill of lading or shipping manifest, but also in other
documents required by law before the shipment is cleared from the piers.101[15]
Petitioner insists that Marine Open Policy No. MOP-12763 under which the shipment
was insured was no longer in force at the time it was loaded on board the Hannover Express on June
10, 1994, as provided in the Endorsement portion of the policy, which states: IT IS HEREBY
DECLARED AND AGREED that effective June 10, 1994, this policy is deemed
CANCELLED.102[16] FGU, on the other hand, insists that it was under Marine Risk Note No.
9798, which was executed on May 26, 1994, that said shipment was covered.
It must be emphasized that a marine risk note is not an insurance policy. It is only an
acknowledgment or declaration of the insurer confirming the specific shipment covered by its marine
open policy, the evaluation of the cargo and the chargeable premium.103[17] It is the marine open
policy which is the main insurance contract. In other words, the marine open policy is the blanket
insurance to be undertaken by FGU on all goods to be shipped by RAGC during the existence of the
contract, while the marine risk note specifies the particular goods/shipment insured by FGU on that
specific transaction, including the sum insured, the shipment particulars as well as the premium paid
for such shipment. In any event, as it stands, it is evident that even prior to the cancellation by FGU of
Marine Open Policy No. MOP-12763 on June 10, 1994, it had already undertaken to insure the
shipment of the 400 kgs. of silver nitrate, specially since RAGC had already paid the premium on the
insurance of said shipment.
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in
evidence before the trial court or even belatedly before the appellate court. In Malayan Insurance Co., Inc.
v. Regis Brokerage Corp.,104[18] the Court stated that the presentation of the marine insurance policy
was necessary, as the issues raised therein arose from the very existence of an insurance contract
between Malayan Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment.
In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc.,105[19] the Court ruled that
the insurance contract must be presented in evidence in order to determine the extent of the coverage.
This was also the ruling of the Court in Home Insurance Corporation v. Court of Appeals.106[20]
However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines,
Inc. v. Court of Appeals,107[21] the Court stated that the presentation of the insurance policy was not
fatal because the loss of the cargo undoubtedly occurred while on board the petitioner's vessel, unlike
in Home Insurance in which the cargo passed through several stages with different parties and it could
not be determined when the damage to the cargo occurred, such that the insurer should be liable for
it.
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while
in petitioner's custody. Moreover, there is no issue as regards the provisions of Marine Open Policy
No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to
mention that its existence was already admitted by petitioner in open court.108[22] And even though
it was not offered in evidence, it still can be considered by the court as long as they have been properly
identified by testimony duly recorded and they have themselves been incorporated in the records of
the case.109[23]
Finally, petitioner questions the imposition of a 12% interest rate, instead of 6%, on its
adjudged liability. The ruling in Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines,
Inc.,110[24] to wit:
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, inscribed the rule of thumb in
the application of interest to be imposed on obligations, regardless of their source. Eastern emphasized
beyond cavil that when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, regardless of whether the obligation involves a loan or forbearance
of money, shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
We find application of the rule in the case at bar proper, thus, a rate of 12% per annum
from the finality of judgment until the full satisfaction thereof must be imposed on the total amount
of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of
judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit,
hence, the imposition of the aforesaid interest.111[25] (Emphasis supplied)
is instructive. The CA did not commit any error in applying the same.
The Court notes, however, an apparent clerical error made in the dispositive portion of
the RTC Decision. While it appears that FGU paid RAGC the amount of P1,835,068.88, as shown
in the Subrogation Receipt,112[26] as prayed for in its Complaint,113[27] the RTC awarded the sum
of P1,875,068.88. Thus, a necessary modification should be made on this score.
WHEREFORE, the petition is DENIED. The Decision dated October 22, 2003 and
Resolution dated January 8, 2004 of the Court of Appeals are AFFIRMED, with the modification
that the award in the RTC Decision dated July 1, 1999 should be P1,835,068.88 instead of
P1,875,068.88. COSTS AGAINS PETITIONER. SO ORDERED
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 115821 October 13, 1999
JESUS T. DAVID, petitioner,
vs.
THE COURT OF APPEALS, HON. EDGARDO P. CRUZ, MELCHOR P.
PEA, and VALENTIN AFABLE, JR., respondents.
QUISUMBING, J.:
This is a petition for review, under Rule 45 of the Rules of Court, seeking the reversal
of the Decision dated May 30, 1994, of the Court of Appeals, Ninth Division, in CA-
G.R. SP No. 32782.
The parties do not dispute the facts in this case. The dispute concerns only the
execution of the Decision of the Regional Trial Court of Manila, Branch 27, in Civil
Case No. 94781, dated October 31, 1979, as amended by an Order dated June 20,
1980.1wphi1.nt On July 5, 1993, respondent Judge issued an Order denying petitioner's Motion dated
The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, then
presiding, issued a writ of attachment over real properties covered by TCT Nos. 80718
and 10289 of private respondents. In his Decision dated October 31, 1979, Judge Diaz
ordered private respondent Afable to pay petitioner P66,500.00 plus interest from July
24, 1974, until fully paid, plus P5,000.00 as attorney's fees, and to pay the costs of suit.
On June 20, 1980, however, Judge Diaz issued an Order amending said Decision, so
that the legal rate of interest should be computed from January 4, 1966, instead of from
July 24, 1974. The amended Decision in the decretal portion reads:
WHEREFORE, judgment is hereby rendered against the
defendant, Valentin Afable Jr., ordering him to pay to the plaintiff
the sum of P66,500.00 plus the legal rate of interest thereon from
January 4, 1966 up to the time the same is fully paid plus the
amount of P5,000.00 as and for attorney's fees and to pay the costs
of the suit." ordering the private respondent Afable to pay the
petitioner the sum of P66,500.00 plus the legal rate of interest
thereon from July 24, 1974, plus the amount of P5,000.00 as
attorney's fees and to pay the costs of suit. 1 (Emphasis ours.)
Respondent Afable appealed to the Court of Appeals and then to the Supreme Court.
In both instances, the decision of the lower court was affirmed. Entries of judgment
were made and the record of the case was remanded to Branch 27, presided at that time
by respondent Judge Edgardo P. Cruz, for the final execution of the Decision dated
October 31, 1979, as amended by the Order dated June 20, 1980.
Upon petitioner's motion, respondent Judge issued an Alias Writ of Execution by
virtue of which respondent Sheriff Melchor P. Pea conducted a public auction. Sheriff
Pea informed the petitioner that the total amount of the judgment is P270,940.52. The
amount included a computation of simple interest. Petitioner, however, claimed that
the judgment award should be P3,027,238.50, because the amount due ought to be
based on compounded interest.
Although the auctioned properties were sold to the petitioner, Sheriff Pea did not
issue the Certificate of Sale because there was an excess in the bid price in the amount
of P2,941,524.47, which the petitioner failed to pay despite notice. This excess was
computed by the Sheriff on the basis of petitioner's bid price of P3,027,238.50 minus
the amount of P270,940.52 computed in the judgment award.
On May 18, 1993, petitioner filed a Motion praying that respondent Judge Cruz issue an
order directing respondent Sheriff Pea to prepare and execute a certificate of sale in
favor of the petitioner, placing therein the amount of the judgment as P3,027,238.50,
the amount he bid during the auction which he won. His reason is that compound
interest, which is allowed by Article 2212 of the Civil Code, should apply in this case.
May 18, 1993, which pertinently states:
In accordance with CB Circular No. 416 and as construed in
Reforming vs. Tomol (139 SCRA 260), legal interest on P66,500,00
 corresponds to 6% per annum for the period January 4, 1966 to July
28, 1974 and 12% per annum from July 29, 1974 up to April 26,
1993, amounting to P34,180.92 and P149,582.32, respectively, or a
grand total of P183,763.24.
Conformably with the Sheriff's Computation of Interest dated
April 26, 1993 and Supplemental Report dated June 14, 1993, the
judgment as of April 26, 1993 amounted to P271,039.84, broken
down as follows:
Principal P66,500.00
Interest 183,763.24
Attorney's fees 5,000.00
Publication expenses
15,500.00
Costs of suit 276.60
respondent judge in issuing the assailed orders.
Total P271,039.84
Considering that plaintiff's P3,027,238.50 bid exceeds the amount
of his judgment, then he is not entitled to a certificate of sale
without paying the "excess" in the sum of P2,756,198.66 (Secs. 22
and 23 Rule 39, Rules of Court). And since plaintiff did not pay
Petitioner now comes before the Court, claiming the appellate court committed the
the "excess", then the sale did not materialize and the sheriff "may
following errors in the abovecited decision:
again sell the property to the highest bidder" (Sec. 22, Rule 39, id.).
2
On August 11, 1993, petitioner moved for reconsideration of the Order dated July 5,
1993, reiterating his Motion dated May 18, 1993.
On November 17, 1993, respondent Judge issued his Order denying the petitioner's
motion for reconsideration.
Petitioner elevated said Orders to the Court of Appeals in a petition for certiorari,
prohibition and mandamus. However, respondent appellate court dismissed the petition
in a Decision dated May 30, 1994. Pertinent portions of said decision reads:
. . . In this case, the records show that no interest was stipulated by
the parties. In the promissory note denominated as "Compromise
Agreement" signed by private respondent which was duly accepted
by petitioner, no interest was mentioned. In his complaint,
petitioner merely prayed that defendant be ordered to pay plaintiff
the sum of P66,500.00 with interest thereon at the legal rate from the
date of filing of the complaint until fully paid." Clearly, there was
no accrued conventional interest which could further earn interest
when plaintiff-appellant made his judicial demand, thus, the
respondent court awarded ". . . the sum of P66,500.00 plus the legal
rate of interest thereon . . . ."1wphi1.nt
Further the Supreme Court in the same case [Referring to
Philippine American Accident Insurance Company, Inc. vs. the
Hon. Jose P. Flores and Concordia G. Navalta, 97 SCRA 811,
Rollo, p. 9.] stressed that when the judgment ordered payment of
simple legal interest only and nothing said about payment of
compound interest, said interest should not be compounded. In
this case, the decretal portion is clearly worded, that is, the legal
rate of interest thereon from January 4, 1966. No mention or
reference was made regarding compound interest. Ergo, the judgment
award must be computed as simple legal interest only. (Emphasis ours.)
Foregoing considered, We find no grave abuse of discretion
amounting to lack or excess of jurisdiction committed by public
WHEREFORE, the petition is DENIED due course and is
hereby DISMISSED.
SO ORDERED. 3
First Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN
RULING THAT ARTICLE 2212 OF THE CIVIL CODE
APPLIES ONLY WHERE THE PARTIES TO AN
OBLIGATION STIPULATED OR AGREED TO PAY
COMPOUNDED INTEREST.
Second Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN
CONFUSING LEGAL INTEREST (AS DISTINGUISHED
FROM CONSENSUAL INTEREST) WITH SIMPLE
 INTEREST, JUST AS IT ALSO ERRED IN CONFUSING
THE INTEREST ON THE PRINCIPAL WITH INTEREST
ON THE INTEREST.
Third Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN
REFUSING TO APPLY THE SIMPLE MANDATE OF
ARTICLE 2212 OF THE CIVIL CODE TO THE CASE AT
BAR.
Fourth Assigned Error
THE RESPONDENT COURT OF APPEALS ERRED IN
PROMULGATING ITS DECISION WHICH IS CLEARLY
CONTRARY TO LAW.
Essentially, we find that the issue here is whether respondent appellate court erred in
affirming respondent Judge's order for the payment of simple interest only rather than
compounded interest.
Petitioner insists that in computing the interest due of the P66,500.00, interest should
be computed at 6% on the principal sum of P66,500.00 pursuant to Article 2209 and
then "interest on the legal interest" should also be computed in accordance with the
language of Article 2212 of the Civil Code. 4 In his view, said article meant "compound
interest".
However, this Court has already interpreted Article 2212, and defined standards for its
application in Philippine American Accident Insurance vs. Flores, 97 SCRA 811. As therein
held, Article 2212 contemplates the presence of stipulated or conventional interest
which has accrued when demand was judicially made. In cases where no interest had
been stipulated by the parties, as in the case of Philippine American Accident
Insurance, no accrued conventional interest could further earn interest upon judicial
demand. 5
In the said case, we further held that when the judgment sought to be executed ordered
the payment of simple "legal interest" only and said nothing about payment of
compound interest, but the respondent judge orders payment of compound interest,
then, he goes beyond the confines of a judgment which had become final. Thus:
The judgment which was sought to be executed ordered the
payment of simple "legal interest" only. It said nothing about the
payment of compound interest. Accordingly, when the respondent
judge ordered the payment of compound interest he went beyond
the confines of his own judgment which had been affirmed by the
Court of Appeals and which had become final. Fundamental is the
rule that execution must conform to that ordained or decreed in
the dispositive part of the decision. Likewise, a court can not,
except for clerical errors or omissions amend a judgment that has
become final (Jabon et. al., vs. Alo, et al., 91 Phil. 750 [1952];
Robles vs. Timario, et al., 107 Phil. 809 [1960]; Collector of
Internal Revenue vs. Gutierrez, et al., 108 Phil 215 [1960]; Ablaza
vs. Sycip, et al., 110 Phil 4 [1060].)
Private respondent invokes Sec. 5 of the Usury Law . . . as well as
Art. 2212 of the Civil Code which stipulates: "Interest due shall earn
legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point." Both legal provisions are
in applicable (sic) for they contemplate the presence of stipulated or
conventional interest which has accrued when demand was judicially made.
(Sunico v. Ramirez, 14 Phil. 500 [1909]; Salvador vs. Palencia, 25
Phil. 661 [1913]; Bachrach vs. Golingco, 39 Phil 912 [1919];
Robinson vs. Sackermann, 46 Phil. 539 [1924]; Philippine
Engineering Co. vs. Green, 48 Phil. 466 [1925]; and Cu Unjieng vs.
Mabalacat Sugar Co., 54 Phil. 916 [1930].) . . . In other words, there
was no accrued conventional interests which could further earn interest upon
judicial demand.
Note that in the case now before us, the Court of Appeals made the finding that ". . .
no interest was stipulated by the parties. In the promissory note denominated as
"Compromise Agreement" signed by the private respondent which was duly accepted
by petitioner no interest was mentioned. In his complaint, petitioner merely prayed that
defendant be ordered to pay plaintiff the sum of P66,500.00 with interest thereon at the
legal rate from the date of the filing of the complaint until fully paid. 6 Clearly here the
Philippine American Accident Insurance ruling applies.
Petitioner also alleges that when the case was remanded to the trial court, respondent
Judge, abused his discretion when he modified the Decision and amended its
dispositive portion. He argues that when a decision has become final and executory, the
court may no longer amend, revoke, nor alter the dispositive portion, and the only
power of the court is to order its execution.
But the rule that once a judgment has become final and executory, it is ministerial duty
of the courts to order its execution is not absolute It admits of certain exceptions. 7
One exception is that where facts and/or events transpire after a decision has become
executory, which facts and/or events present a supervening cause or reason which
renders the final and executory decision of the court no longer enforceable. 8 Under the
law, the court may modify or alter a judgment even after the same has become
executory whenever circumstances transpire rendering its execution unjust and
inequitable, as where certain facts and circumstances justifying or requiring such
modification or alteration transpired after the judgment has become final and
executory. 9
We earlier held that a case, in which an execution order has been issued, is still pending,
so that all proceedings on the execution are still proceedings in the suit. 10 In the
present case, after the case was remanded to the lower court, petitioner filed a motion
for the issuance of an alias Writ of Execution. The motion was only finally resolved on
July 5, 1993. When Central Bank Circular No. 416 took effect on July 29, 1974, the suit
was still pending. Hence, when respondent Judge ordered the computation of legal
interest for the execution of the amended October 31, 1979 order, he correctly took
judicial notice of the Court's pronouncement in Reformina vs. Tomol, Jr., 139 SCRA 260.

In Reformina, the Court applied Central Bank Circular No. 416 which took effect on July
29, 1974, pursuant to P.D. 116, amending Act. 2655 (Usury Law) and raising the legal
rate of interest from 6% to 12% per annum. Respondent Judge followed Reformina and
did not err in modifying the Order of October 31, 1979. The passage of the Central
Bank Circular No. 416 was a supervening event which happened after the decision had
become executory. Had respondent Judge failed to order the assailed amendment, the
result would have been iniquitous. Hence, here, no error nor grave abuse of discretion
could be ascribed to respondent Judge's order dated June 30, 1980. Likewise,
respondent appellate court could not be faulted for affirming said order of respondent
Judge.1wphi1.nt

THIRD DIVISION
WHEREFORE, the instant petition is DENIED. The Decision of the Court of
Appeals dated May 30, 1994, in CA-G.R. SP NO. 32782 is hereby AFFIRMED. The
records of the case are ordered remanded to the Regional Trial Court of Manila, Branch [G.R. No. 129227. May 30, 2000]
27, for execution of the Decision in due course.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioners, vs.
Costs against petitioner. THE HON. COURT OF APPEALS, and CALVIN & ELSA ARCILLA,
respondents.
SO ORDERED.
DECISION

GONZAGA_REYES, J.:

Before us is a Petition for Review on Certiorari of the Decision of the Court of

Appeals114[1] in CA-G.R. CV No. 45891 entitled CALVIN S. ARCILLA and ELSA B.
ARCILLA vs. BANCO FILIPINO SAVINGS and MORTGAGE BANK, ET. AL.
which affirmed the decision of the Regional Trial Court (RTC), Branch 33, Manila
ordering BANCO FILIPINO to pay CALVIN and ELSA ARCILLA the amount of
P126,139.00 with interest thereon at 12% per annum from the filing of the complaint.

The undisputed facts as found by the Court of Appeals are as follows:

"Elsa Arcilla and her husband, Calvin Arcilla, the Appellees in the
present recourse, secured, on three (3) occasions, loans from the
 Banco Filipino Savings and Mortgage Bank, the Appellant in the
present recourse, in the total amount of P107,946.00 as evidenced
by "Promissory Note" executed by the Appellees in favor of the
Appellant. To secure the payment of said loans, the Appellees
executed "Real Estate Mortgages" in favor of the Appellants over
their parcels of land located in BF-Paraaque, covered by Transfer
Certificate of Title Nos. 444645, 450406, 450407 and 455410 of
the Registry of Deeds of Paraaque (Annexes "B" to "B-2",
Amended Complaint). Under said deeds, the Appellant may
increase the rate of interest, on said loans, within the limits allowed
by law, as Appellants Board of Directors may prescribe for its
borrowers. At that time, under the Usury Law, Act 2655, as
amended, the maximum rate of interest for loans secured by real
estate mortgages was 12% per annum. On January 10, 1975, the
Appellees and the Appellant executed a "Deed of Consolidation
and Amendment of Real Estate Mortgage" whereby the
aforementioned loans of the Appellees and the "Real Estate
Mortgage" executed by them as security for the payment of said
loans were consolidated (pages 33-35, Record). Likewise, under
said deed, the loan of the Appellees from the Appellant was
increased to P188,000.00. The Appellees executed a "Promissory
Note", dated January 15, 1975, whereby they bound and obliged
themselves, jointly and severally, to pay the Appellant the aforesaid
amount of P188,000.00 with interest at the rate of 12% per annum,
in nineteen (19) years from date thereof, in stated installments of
P2,096.93 a month (page 32, Records).
On January 2, 1976, the Central Bank of the Philippines issued Central Bank Circular
No. 494, quoted infra, as follows:
xxx
3. The maximum rate of interest, including commissions,
premiums, fees and other charges on loans with maturity of more
than seven hundred thirty (730) days, by banking institutions,
including thrift banks, or by financial intermediaries authorized to
engage in quasi-banking functions shall be nineteen percent (19%)
per annum.
xxx
7. Except as provided in this Circular and Circular No. 493, loans
or renewals thereof shall continue to be governed by the Usury
Law, as amended. (idem, supra)
In the meantime, the Skyline Builders, Inc., through its President, Appellee Calvin
Arcilla, secured loans from the Bank of the Philippine Islands in the total amount of
P450,000.00. To insure payment of the aforesaid loan, the FGU Insurance Corporation,
issued PG Bond No. 1003 for the amount of P225,000.00 (pages 434-436, Records) in
favor of the Bank of the Philippine Islands. Skyline Buildings, Inc., and the Appellees
executed an "Agreement of Counter-Guaranty with Mortgage" in favor of the FGU
Insurance Corporation covering the aforesaid parcels of land to assure payment of any
amount that the insurance company may pay on account of said loans (pages 429-436,
Records). The mortgage was annotated as Entry No. 58009 at the dorsal portion of
Appellees titles.
After October 30, 1978, the Appellant prepared and issued a "Statement of Account"
to the Appellees on their loan account to the effect that, as of October 30, 1978, the
balance of their loan account, inclusive of interests, computed at 17% per annum,
amounted to 284,490.75 (page 555, Records). It turned out that the Appellant
unilaterally increased the rate of interest on the loan account of the Appellees from
12% per annum, as covenanted in the "Real Estate Mortgage" and "Deed of
Consolidated and Amended Real Estate Mortgage" to 17% per annum on the authority
of the aforequoted Central Bank Circular.
The Appellees failed to pay their monthly amortizations to Appellant. The latter
forthwith filed, on April 3, 1979, a petition, with the Provincial Sheriff, for the
extrajudicial foreclosure of Appellees "Real Esate Mortgage" in favor of the Appellant
for the amount of P342,798.00 inclusive of the 17% per annum which purportedly was
the totality of Appellees account with the Appellant on their loans. The Appellant was
the purchaser of the property at public auction for the aforesaid amount of
P324,798.00. On May 25, 1979, the Sheriff executed a "Certificate of Sale" over the
aforesaid properties in favor of the Appellant for the aforesaid amount (pages 37-38,
Records).
The Appellant filed a "Petition for a Writ of Possession" with the Regional Trial Court
entitled "Banco Filipino Savings and Mortgage Bank vs. Elsa Arcilla, et al., LRC Case
No. P-7757-P". On February 28, 1980, the Court rendered a Decision granting the
Petition of the Appellant. The Appellees appealed to the Court of Appeals but the
latter Court, on June 29, 1985, promulgated a Decision affirming the Decision of the
Regional Trial Court (pages 190-198, Records).
In the meantime, the FGU Insurance Corporation, Inc., redeemed the aforesaid
properties from the Appellant by paying to the latter the amount of P389,289.41
inclusive of interest computed at 17% per annum. The Appellant and FGU Insurance
Corp., Inc., executed, on May 27, 1980, a "Deed of Redemption" (pages 126-129,
Records).
On September 2, 1985, the Appellees filed a complaint in the Court a quo for the
"Annulment of the Loan Contracts, Foreclose Sale with Prohibition and Injunction,
Etc." entitled "Calvin Arcilla, et al. vs. Banco Filipino Savings and Mortgage Bank, et
al." (pages 1-38, Records).
The Appellees averred, in their complaint, inter alia, that the loan contracts and
mortgages between the Appellees and the Appellant were null and void because: (a) the
interests, charges, etc., were deducted in advance from the face value of the
"Promissory Notes" executed by the Appellees; and (b) the rate of interests charged by
the Appellant were usurious. The Appellees prayed that judgment be rendered in their
favor as follows:
"x x x
WHEREFORE, it is respectfully prayed
a) Pending hearing on the prayer for the issuance of the Writ of
Preliminary Injunction, a restraining order be immediately issued
against the defendants or anyone acting in their behalf from
enforcing the writ of possession issued against the plaintiffs;
b) After notice and hearing, a writ of preliminary injunction be
issued against the defendants, particularly defendants FGU
Insurance Corporation and the City Sheriff of Pasay City, MM, or
any of his deputies or anyone acting in their behalf from enforcing
the writ of possession;
c) After trial
1) To make the injunction permanent;
2) Declare the loan contracts null and void;
3) Declare the extrajudicial foreclosure null and void;
4) Ordering the defendants to pay the plaintiffs the sums
of P100,000.00 as moral damages; P50,000.00 as
attorney fees; and, costs of suit.
PLAINTIFFS further pray for such other reliefs and
remedies just and equitable in the premises." (pages 88-
89, Records)
In its Answer to the Complaint, the Appellant averred that the
interests charged by it on Appellees loan accounts and that the said
loan contracts and mortgages were lawful. The Appellant further
averred that the Appellees action had already prescribed.
In the interim, the Supreme Court promulgated its Decision in the
precedent - setting case of "Banco Filipino Savings and Mortgage
Bank vs. Hon. Miguel Navarro, et al., 152 SCRA 346" where it
declared that Central Bank Circular No. 494 was not the "law"
envisaged in the mortgage deeds of borrowers of the Bank; that
the escalation clause incorporated in said deeds giving authority to
the Appellant to increase the rate of interests without the
corresponding deescalation clause should not be given effect
because of its one-sidedness in favor of the Appellant; that the
aforesaid Central Bank Circular did not apply to loans secured by
real estate mortgages, and that, therefore, the Appellant cannot rely
said Circular as authority for it to unilaterally increase the rate of
interests on loans secured by Real Estate Mortgages.
In the meantime, the FGU Insurance Corp., Inc., filed a "Motion
for Substitution" with the Regional Trial Court, in LRC Case No.
Pq-7757-P praying that it be substituted as the Petitioner in said
case (pages 354-356, Records). The Appellees were served with a
copy of said motion and filed their Opposition thereto. However,
on November 10, 1987, the Regional Trial Court rendered a
Decision granting the motion of FGU Insurance Company (page
369, Records)
On December 3, 1987, the Appellees filed a Motion, with the
Court a quo, for leave to file an "Amended Complaint" to implead
FGU Insurance Corporation as party defendant (pages 83-129,
Records). The Court granted said motion and admitted Appellees
Amended Complaint.
After the requisite pre-trial, the Court a quo issued a Pre-Trial
Order which defined, inter alia, Appellees action against the
Appellant, and the latters defenses, to wit:
"x x x
On the part of the defendants Banco Filipino Savings to
simplify the case, it seeks to declare as null and void
plaintiffs loan contract with Banco Filipino obtained in
May 1974, on the ground that the interest agreed in the
contract was usurious. Plaintiffs also seek to declare as
null and void the foreclosure of their mortgage by
Banco Filipino on the ground that the loan with the said
mortgagee foreclosure maybe validly done.
DEFENSES
1. Prescription
2. Laches
 3. Estoppel" (page 496, Records)
In the meantime, the Appellees and FGU Insurance Corporation
entered into and forged a "Compromise Agreement." The Court a
quo promulgated a Decision, dated April 3, 1991, based on said
"Compromise Agreement." Under the "Compromise Agreement",
the Appellees bound and obliged themselves, jointly and severally,
to pay to FGU Insurance Corporation the amount of
P1,964,117.00 in three (3) equal installments and that:
"x x x
6. Upon faithful compliance by plaintiffs Calvin S.
Arcilla and Elsa B. Arcilla with their Agreement,
defendant FGU Insurance Corporation shall renounce
in their favor all its rights, interests and claims to the
four (4) parcels of land mentioned in paragraph No. 4 of
this Compromise Agreement, together with all the
improvements thereon, and plaintiffs Calvin S. Arcilla
and Elsa B. Arcilla shall be subrogated to all such rights,
interests and claims. In addition, defendant FGU
Insurance Corporation shall execute in favor of
plaintiffs Calvin S. Arcilla and Elsa B. Arcilla a deed of
cancellation of the real estate mortgage constituted in its
favor on the above-mentioned four (4) parcels of land,
together with all the improvements thereon. All
documentary stamps and expenses for registration of the
said deed of cancellation of mortgage shall be for the
account of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla.
7. Subject to the provisions of paragraph No. 4 of this
Compromise Agreement, the execution of this
Compromise Agreement shall be without prejudice to
the prosecution of the claims of plaintiffs Calvin S.
Arcilla and Elsa B. Arcilla. (pages 543-544, Records)
Thereafter, the Appellees and the Appellant agreed, upon the
prodding of the Court a quo, that the only issue to be resolved by
the Court a quo was, whether or not the Appellees were entitled to
the refund, under the Decision of the Supreme Court in "Banco
Filipino Savings and Mortgage Bank vs. Hon. Miguel Navarro, et
al.," supra. On November 8, 1991, the Appellees filed a "Motion
for Summary Judgment" appending thereto, inter alia, the Affidavit
of Appellee Calvin S. Arcilla and the appendages thereof (pages
550-555, Records). Appellant filed its Opposition but did not
append any affidavit to said Opposition. On March 26, 1993, the
Court a quo promulgated a Decision, the decretal portion of which
reads as follows:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiffs and against
defendant Banco Filipino ordering defendant Banco
Filipino to pay spouses Calvin S. Arcilla and Elsa B.
Arcilla the sum of P126,139.00 with interest thereon at
12% per annum reckoned from the filing of the
complaint.
SO ORDERED. (pages 584-585, Records)"115[2]
Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC
the dispositive portion of which reads:
"IN THE LIGHT OF ALL THE FOREGOING, the assailed
Decision is AFFIRMED. Appellants appeal is DISMISSED. With
costs against the Appellant.
SO ORDERED."116[3]
Their Motion for Reconsideration117[4] was denied hence this petition where the
petitioner assigns the following errors:
"I. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT HELD THAT THE CAUSE OF ACTION OF
THE PRIVATE RESPONDENTS ACCRUED ON
OCTOBER 30, 1978, AND THEREFORE THE FILING
OF THEIR COMPLAINT FOR ANNULMENT OF
THEIR LOAN CONTRACTS WITH THE PETITIONER
IN 1985 WAS NOT YET BARRED BY PRESCRIPTION.
 II. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT HELD THAT THE MATERIAL
ALLEGATIONS OF THE PRIVATE RESPONDENTS
COMPLAINT WERE SUFFICIENT TO WARRANT THE
RELIEFS GRANTED TO THEM BY THE LOWER
COURT, PATICULARLY THE REFUND OF P126,139.00
REPRESENTING ALLEGED EXCESS INTEREST PAID
ON THEIR LOAN.
III. THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT THE PRIVATE RESPONDENTS
WERE ENTITLED TO THE SAID REFUND OF
P126,139.00 CLAIMED BY THEM."118[5]
The petitioner maintains that the complaint filed by herein private respondents was an
action for Annulment of Loan Contracts, foreclosure sale with prohibition and
injunction. It is contended that these causes of action accrued on the date of the
execution of the promissory note and deed of mortgage on January 15, 1975 and not
October 30, 1978 as found by the Court of Appeals. Thus, private respondents cause of
action has already prescribed inasmuch as the case was filed on September 2, 1985 or
more than ten years thereafter. Petitioner further contends that private respondents
cannot rely on the ruling in the case of Banco Filipino Savings & Mortgage Bank vs.
Navarro119[6] considering that they were not parties to said case. Petitioner also
maintains that the order of the lower court, which was affirmed by the Court of
Appeals ordering the petitioner to refund the excess interest paid by private
respondents in the amount of P126,318.00 was without any legal basis since private
respondents never raised the issue of interest nor prayed for any relief with respect
thereto. Moreover, the private respondents never paid said amount to the petitioner.
While the amount was included in the bid price of the bank when it bought the
mortgaged properties during the public auction, said bid price did not prejudice the
private respondents because when the private respondents repurchased the properties,
the amount they paid was different and independent of the redemption price of the
bank. Besides, the agreement between the private respondents and FGU Insurance
Corporation was one of sale and not redemption. Thus, any amount paid by the private
respondents to FGU was voluntarily entered into by them and was not a consequence
of the foreclosure of the mortgage properties.
Conversely, private respondents allege that their action has not prescribed considering
that prescription begins to run from the day the action may be brought; the date their
right of action accrued. It is their contention that the period of prescription of their
action should commence to run from October 30, 1978 when the petitioner unilaterally
increased the rate of interest on private respondents loan to 17% per annum. Thus,
when private respondents filed their action against the petitioner on September 2, 1985
or almost eight years thereafter, their action had not yet prescribed. Moreover, private
respondents aver that they are entitled to the refund inasmuch as the escalation clause
incorporated in the loan contracts do not have a corresponding de-escalation clause and
is therefore illegal.
The appeal is unmeritorious.
There are only two issues, which must be resolved in the present appeal. First, has the
action of the private respondents prescribed; and second, are the respondents entitled
to the refund of the alleged interest overpayments.
Petitioners claim that the action of the private respondents has prescribed is bereft of
merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of
actions, when there is no special provision which ordains otherwise, shall be counted
from the day they may be brought. Thus, the period of prescription of any cause of
action is reckoned only from the date the cause of action accrued.120[7] And a cause of
action arises when that which should have been done is not done, or that which should
not have been done is done.121[8] The period should not be made to retroact to the
date of the execution of the contract on January 15, 1975 as claimed by the petitioner
for at that time, there would be no way for the respondents to know of the violation of
their rights.122[9] The Court of Appeals therefore correctly found that respondents
cause of action accrued on October 30, 1978, the date they received the statement of
account showing the increased rate of interest, for it was only from that moment that
they discovered the petitioners unilateral increase thereof. We quote with approval the
pertinent portions of the Court of Appeals decision as follows:
"It is the legal possibility of bringing the action that determines the
starting point for the computation of the period of prescription
(Constancia C. Telentino vs. Court of Appeals, et al., 162 SCRA
66). In fine, the ten-year prescriptive period is to be reckoned from
the accrual of Appellees right of action, not necessarily on the very
date of the execution of the contracts subject of the action (Naga
Telepone Co. Inc. vs. Court of Appeals, et al., 230 SCRA 351). A
partys right of action accrues only when the confluence of the
following elements is established:
"xxx: a) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is created; b)
an obligation on the part of defendant to respect such
right; and c) an act or omission on the part of such
defendant violative of the right of the plaintiff (Cole vs.
Vda. de Gregorio, 116 SCRA 670 [1982]; Mathay vs.
Consolidated Bank & Trust Co., 58 SCRA 559 [1974];
Vda. de Enriquez vs. Dela Cruz, 54 SCRA 1 [1973]. It is
only when the last element occurs or takes place that it
can be said in law that a cause of action has arisen (Cole
vs. Vda. De Gregorio, supra)" (Maria U. Espaol vs.
Chairman, etc., et al.,, 137 SCRA 314, page 318)
More, the aggrieved must have either actual or presumptive
knowledge of the violation, by the guilty party of his rights either
by an act or omission. The question that now comes to the fore is
when the Appellees became precisely aware of the unilateral
increase, by the Appellant, of the rate of interest on their loan
account to 17% per annum. As can be ascertained from the
records, the Appellees discovered or should have discovered, for
the first time, the unilateral increase by the Appellant of the rate of
interest to 17% per annum when they received the "Statement of
Account" of the Appellant as of October 30, 1978. Hence, it was
only then that the prescriptive period for the Appellees to institute
their action in the Court a quo commenced. Since the Appellees
filed their complaint in the Court a quo on September 2, 1985, the
same was seasonably filed within the ten-year prescriptive
period."123[10]
Anent the second issue as to whether the respondents are entitled to recover the alleged
overpayments of interest, we find that they are despite the absence of any prayer
therefor. This Court has ruled that it is the material allegations of fact in the complaint,
not the legal conclusion made therein or the prayer that determines the relief to which
the plaintiff is entitled.124[11] It is the allegations of the pleading which determine the
nature of the action and the Court shall grant relief warranted by the allegations and the
proof even if no such relief is prayed for.125[12] Thus, even if the complaint seeks the
declaration of nullity of the contract, the Court of Appeals correctly ruled that the
factual allegations contained therein ultimately seek the return of the excess interests
paid.
The amended complaint126[13] of herein private respondents specifically allege that
the contracts of loan entered into by them and the petitioner were contrary to and
signed in violation of the Usury Law127[14] and consequentially pray that said
contracts be declared null and void. The amended complaint reads:
"6. The aforementioned loans granted by defendant Banco Filipino
to the plaintiffs as stated on the face of the promissory note and
real estate mortgage (Annexes "B" to "D", inclusive) were not
actually received by the plaintiffs because interests, charges, etc.
were deducted in advance from the face value of the loans not in
accordance with the contracts;
7. Even the loan contracts (Annexes "B" to "D", inclusive)
required by defendant Banco Filipino to be signed by the plaintiffs
were contrary to and in violation of the then Usury Law, as
amended;
8. Assuming arguendo that the loan contracts between plaintiffs
and defendant Banco Filipino are valid, the extra-judicial
foreclosure of the properties of the plaintiffs on May 24, 1979 was
null and void for having been conducted in clear violation of the
 law (Act 3135), namely: a) lack of roper notice to the plaintiffs; b)
lack of proper publication and posting as required by law; c) the
alleged sale was conducted at the place other than that prescribed
by law, among others;
9. On May 27, 1990, defendant Banco Filipino purportedly
executed in favor of defendant FGU Insurance Corporation a
Deed of Redemption over the foreclosed properties of the
plaintiffs, again, without notice to the latter, as evidenced by the
said Deed of Redemption, copy of which is hereto attached and
marked as Annex "F".
10. The Deed of Redemption (Annex "F") is clearly null and void
for having been executed in violation of Rule 39, Rules of Court,
and other related provisions of the Rules of Court."128[15]
The loan contracts with real estate mortgage entered into by and between the petitioner
and respondent stated that the petitioner may increase the interest on said loans, within
the limits allowed by law, as petitioners Board of Directors may prescribe for its
borrowers. At the time the contracts were entered into, said escalation clause was
valid.129[16] It was only pursuant to P.D. No. 1684 which became effective March 17,
1980 wherein to be valid, escalation clauses should provide: 1.) that there can be an
increase in interest if increased by law or by the Monetary Board; and 2.) in order for
such stipulation to be valid, it must include a provision for the reduction of the
stipulated interest in the event that the maximum rate of interest is reduced by law or
by the Monetary Board.130[17]
Given the validity of the escalation clause, could the petitioner increase the stipulated
interest pursuant to the Central Bank Circular 494 from 12% to 17%.
We rule that it may not.
The escalation clause in the loan contracts reads as follows:
"xxx g) The rate of interest charged on the obligation secured by
this mortgage, as well as the interest on the amount which may
have been advanced by the Mortgagee in accordance with
paragraph (b) and (d) hereof, shall be subject, during the terms of
this contract, to such an increase, within the limits allowed by law, as
the Board of Directors of the Mortgagee may prescribe for its
debtors; xxx" (emphasis supplied)131[18]
In Banco Filipino Savings & Mortgage Bank vs. Navarro,132[19] which involved a similar
escalation clause133[20], we ruled that Central Bank Circular 494, although it has the
force and effect of law, is not a law and is not the law contemplated by the parties
which authorizes the petitioner to unilaterally raise the interest rate of the loan.134[21]
Consequently, the reliance by the petitioner on Central Bank Circular 494 to unilaterally
raise the interest rates on the loan in question was without any legal basis.
Petitioners argument that the Banco Filipino case cannot be applied to the present case
since the respondents were not intervenors therein is flawed. Only the judgment in said
case cannot bind the respondents as they were not parties thereto, however, the
doctrine enunciated therein is a judicial decision and forms part of the legal system of
the land.135[22] It forms a precedent, which must be adhered to under the doctrine of
stare decisis.136[23] Thus, even if the respondents were not parties to the above-
mentioned case, the doctrine enunciated therein may be applied to the present case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 45891 is
AFFIRMED and the instant petition is hereby DENIED. No pronouncement as to
costs. SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-66826 August 19, 1988
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK
respondents.
Pacis & Reyes Law Office for petitioner.
Ernesto T. Zshornack, Jr. for private respondent.
CORTES, J.:
The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank
and Trust Company of the Philippines [hereafter referred to as "COMTRUST."] In
1980, the Bank of the Philippine Islands (hereafter referred to as BPI absorbed
COMTRUST through a corporate merger, and was substituted as party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First
Instance of Rizal Caloocan City a complaint against COMTRUST alleging four
causes of action. Except for the third cause of action, the CFI ruled in favor of
Zshornack. The bank appealed to the Intermediate Appellate Court which modified the
CFI decision absolving the bank from liability on the fourth cause of action. The
pertinent portions of the judgment, as modified, read:
IN VIEW OF THE FOREGOING, the Court renders judgment
as follows:
1. Ordering the defendant COMTRUST to restore to the dollar
savings account of plaintiff (No. 25-4109) the amount of U.S
$1,000.00 as of October 27, 1975 to earn interest together with the
remaining balance of the said account at the rate fixed by the bank
for dollar deposits under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return to the plaintiff the
amount of U.S. $3,000.00 immediately upon the finality of this
decision, without interest for the reason that the said amount was
merely held in custody for safekeeping, but was not actually
deposited with the defendant COMTRUST because being cash
currency, it cannot by law be deposited with plaintiffs dollar
account and defendant's only obligation is to return the same to
plaintiff upon demand;
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount
of P8,000.00 as damages in the concept of litigation expenses and
attorney's fees suffered by plaintiff as a result of the failure of the
defendant bank to restore to his (plaintiffs) account the amount of
U.S. $1,000.00 and to return to him (plaintiff) the U.S. $3,000.00
cash left for safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be totally absolved from any
liability to Zshornack. The latter not having appealed the Court of Appeals decision,
the issues facing this Court are limited to the bank's liability with regard to the first and
second causes of action and its liability for damages.
1. We first consider the first cause of action, On the dates material to this case, Rizaldy
Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City
Branch, a dollar savings account and a peso current account.
On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V.
Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable to a certain
Leovigilda D. Dizon in the amount of $1,000.00. In the application, Garcia indicated
that the amount was to be charged to Dollar Savings Acct. No. 25-4109, the savings
account of the Zshornacks; the charges for commission, documentary stamp tax and
others totalling P17.46 were to be charged to Current Acct. No. 210465-29, again, the
current account of the Zshornacks. There was no indication of the name of the
purchaser of the dollar draft.
On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V.
Garcia, issued a check payable to the order of Leovigilda D. Dizon in the sum of US
$1,000 drawn on the Chase Manhattan Bank, New York, with an indication that it was
to be charged to Dollar Savings Acct. No. 25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from his account, he
demanded an explanation from the bank. In answer, COMTRUST claimed that the
peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of
Rizaldy, on October 27, 1975 when he (Ernesto) encashed with COMTRUST a
cashier's check for P8,450.00 issued by the Manila Banking Corporation payable to
Ernesto.
Upon consideration of the foregoing facts, this Court finds no reason to disturb the
ruling of both the trial court and the Appellate Court on the first cause of action.
Petitioner must be held liable for the unauthorized withdrawal of US$1,000.00 from
private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its depositor's savings
account, the bank has adopted inconsistent theories. First, it still maintains that the
peso value of the amount withdrawn was given to Atty. Ernesto Zshornack, Jr. when
the latter encashed the Manilabank Cashier's Check. At the same time, the bank claims
that the withdrawal was made pursuant to an agreement where Zshornack allegedly
authorized the bank to withdraw from his dollar savings account such amount which,
when converted to pesos, would be needed to fund his peso current account. If indeed
the peso equivalent of the amount withdrawn from the dollar account was credited to
the peso current account, why did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to the first explanation,
petitioner bank has not shown how the transaction involving the cashier's check is
related to the transaction involving the dollar draft in favor of Dizon financed by the
withdrawal from Rizaldy's dollar account. The two transactions appear entirely
independent of each other. Moreover, Ernesto Zshornack, Jr., possesses a personality
distinct and separate from Rizaldy Zshornack. Payment made to Ernesto cannot be
considered payment to Rizaldy.
As to the second explanation, even if we assume that there was such an agreement, the
evidence do not show that the withdrawal was made pursuant to it. Instead, the record
reveals that the amount withdrawn was used to finance a dollar draft in favor of
Leovigilda D. Dizon, and not to fund the current account of the Zshornacks. There is
no proof whatsoever that peso Current Account No. 210-465-29 was ever credited with
the peso equivalent of the US$1,000.00 withdrawn on October 27, 1975 from Dollar
Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court alleged that
on December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00
cash (popularly known as greenbacks) for safekeeping, and that the agreement was
embodied in a document, a copy of which was attached to and made part of the
complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from
you today the sum of US DOLLARS:
THREE THOUSAND ONLY (US$3,000.00)
for safekeeping.
It was also alleged in the complaint that despite demands, the bank refused to return
the money.
In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's
peso current account at prevailing conversion rates.
It must be emphasized that COMTRUST did not deny specifically under oath the
authenticity and due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed delivered
to the bank US $3,000 for safekeeping. When he requested the return of the money on
May 10, 1976, COMTRUST explained that the sum was disposed of in this manner:
US$2,000.00 was sold on December 29, 1975 and the peso proceeds amounting to
P14,920.00 were deposited to Zshornack's current account per deposit slip
accomplished by Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and
the peso proceeds amounting to P8,350.00 were deposited to his current account per
deposit slip also accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current
account at prevailing conversion rates, BPI now posits another ground to defeat private
respondent's claim. It now argues that the contract embodied in the document is the
contract of depositum (as defined in Article 1962, New Civil Code), which banks do
not enter into. The bank alleges that Garcia exceeded his powers when he entered into
the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and
the obligation is purely personal to Garcia.
Before we go into the nature of the contract entered into, an important point which
arises on the pleadings, must be considered.
The second cause of action is based on a document purporting to be signed by
COMTRUST, a copy of which document was attached to the complaint. In short, the
second cause of action was based on an actionable document. It was therefore
incumbent upon the bank to specifically deny under oath the due execution of the
document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the
authority of Garcia to bind the corporation; and (2) to deny its capacity to enter into
such contract. [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314
(1906).] No sworn answer denying the due execution of the document in question, or
questioning the authority of Garcia to bind the bank, or denying the bank's capacity to
enter into the contract, was ever filed. Hence, the bank is deemed to have admitted not
only Garcia's authority, but also the bank's power, to enter into the contract in
question.
In the past, this Court had occasion to explain the reason behind this procedural
requirement.
The reason for the rule enunciated in the foregoing authorities will,
we think, be readily appreciated. In dealing with corporations the
public at large is bound to rely to a large extent upon outward
appearances. If a man is found acting for a corporation with the
external indicia of authority, any person, not having notice of want
of authority, may usually rely upon those appearances; and if it be
found that the directors had permitted the agent to exercise that
authority and thereby held him out as a person competent to bind
the corporation, or had acquiesced in a contract and retained the
benefit supposed to have been conferred by it, the corporation will
be bound, notwithstanding the actual authority may never have
been granted
... Whether a particular officer actually possesses the authority
which he assumes to exercise is frequently known to very few, and
the proof of it usually is not readily accessible to the stranger who
deals with the corporation on the faith of the ostensible authority
exercised by some of the corporate officers. It is therefore
reasonable, in a case where an officer of a corporation has made a
contract in its name, that the corporation should be required, if it
denies his authority, to state such defense in its answer. By this
means the plaintiff is apprised of the fact that the agent's authority
is contested; and he is given an opportunity to adduce evidence
showing either that the authority existed or that the contract was
ratified and approved. [Ramirez v. Orientalist Co. and Fernandez,
38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical effect of
absolving a corporation from liability every time an officer enters into a contract which
is beyond corporate powers, even without the proper allegation or proof that the
corporation has not authorized nor ratified the officer's act, is to cast corporations in so
perfect a mold that transgressions and wrongs by such artificial beings become
impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say
that a corporation has no right to do unauthorized acts is only to put forth a very plain
truism but to say that such bodies have no power or capacity to err is to impute to
them an excellence which does not belong to any created existence with which we are
acquainted. The distinction between power and right is no more to be lost sight of in
respect to artificial than in respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the corporation,
we now determine the correct nature of the contract, and its legal consequences,
including its enforceability.
The document which embodies the contract states that the US$3,000.00 was received
by the bank for safekeeping. The subsequent acts of the parties also show that the
intent of the parties was really for the bank to safely keep the dollars and to return it to
Zshornack at a later time, Thus, Zshornack demanded the return of the money on May
10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code,
which reads:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the
thing delivered is not the principal purpose of the contract, there is
no deposit but some other contract.
Note that the object of the contract between Zshornack and COMTRUST was foreign
exchange. Hence, the transaction was covered by Central Bank Circular No. 20,
Restrictions on Gold and Foreign Exchange Transactions, promulgated on December
9, 1949, which was in force at the time the parties entered into the transaction involved
in this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in them
of whatever nature, including, where applicable their exportation
and importation, shall NOT be effected, except with respect to
deposit accounts included in sub-paragraphs (b) and (c) of this
paragraph, when such deposit accounts are owned by and in the
name of, banks.
(a) Any and all assets, provided they are held
through, in, or with banks or banking
institutions located in the Philippines,
including money, checks, drafts, bullions bank
drafts, deposit accounts (demand, time and
savings), all debts, indebtedness or
obligations, financial brokers and investment
houses, notes, debentures, stocks, bonds,
coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of
security, expressed in foreign currencies, or if
payable abroad, irrespective of the currency in
which they are expressed, and belonging to
any person, firm, partnership, association,
branch office, agency, company or other
unincorporated body or corporation residing
or located within the Philippines;
(b) Any and all assets of the kinds included
and/or described in subparagraph (a) above,
whether or not held through, in, or with
banks or banking institutions, and existent
within the Philippines, which belong to any
person, firm, partnership, association, branch
office, agency, company or other
unincorporated body or corporation not
residing or located within the Philippines;
(c) Any and all assets existent within the
Philippines including money, checks, drafts,
bullions, bank drafts, all debts, indebtedness
or obligations, financial securities commonly
dealt in by bankers, brokers and investment
houses, notes, debentures, stock, bonds,
coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of
security expressed in foreign currencies, or if
payable abroad, irrespective of the currency in
which they are expressed, and belonging to
any person, firm, partnership, association,
branch office, agency, company or other
unincorporated body or corporation residing
or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank
by those authorized to deal in foreign exchange. All receipts of
foreign exchange by any person, firm, partnership, association,
branch office, agency, company or other unincorporated body or
corporation shall be sold to the authorized agents of the Central
Bank by the recipients within one business day following the receipt of such
foreign exchange. Any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or
corporation, residing or located within the Philippines, who
acquires on and after the date of this Circular foreign exchange
shall not, unless licensed by the Central Bank, dispose of such
foreign exchange in whole or in part, nor receive less than its full
value, nor delay taking ownership thereof except as such delay is
customary; Provided, further, That within one day upon taking
ownership, or receiving payment, of foreign exchange the
aforementioned persons and entities shall sell such foreign
exchange to designated agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined;
and any person, firm or corporation, foreign or domestic, who
being bound to the observance thereof, or of such other rules,
regulations or directives as may hereafter be issued in
implementation of this Circular, shall fail or refuse to comply with,
or abide by, or shall violate the same, shall be subject to the penal
sanctions provided in the Central Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281,
Regulations on Foreign Exchange, promulgated on November 26, 1969 by limiting its
coverage to Philippine residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person,
firm, company or corporation shall be sold to authorized agents of
the Central Bank by the recipients within one business day
following the receipt of such foreign exchange. Any resident person,
firm, company or corporation residing or located within the Philippines,
who acquires foreign exchange shall not, unless authorized by the
 Central Bank, dispose of such foreign exchange in whole or in
part, nor receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided, That, within
one business day upon taking ownership or receiving payment of
foreign exchange the aforementioned persons and entities shall sell
such foreign exchange to the authorized agents of the Central
Bank.

As earlier stated, the document and the subsequent acts of the parties show that they
intended the bank to safekeep the foreign exchange, and return it later to Zshornack,
who alleged in his complaint that he is a Philippine resident. The parties did not
intended to sell the US dollars to the Central Bank within one business day from
receipt. Otherwise, the contract of depositum would never have been entered into at all.
Republic of the Philippines
SUPREME COURT
Since the mere safekeeping of the greenbacks, without selling them to the Central Bank Manila
within one business day from receipt, is a transaction which is not authorized by CB
Circular No. 20, it must be considered as one which falls under the general class of
prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is void, THIRD DIVISION
having been executed against the provisions of a mandatory/prohibitory law. More
importantly, it affords neither of the parties a cause of action against the other. "When
the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes a criminal offense, both parties being in pari delicto, they shall have no cause
G.R. No. 90027 March 3, 1993
of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one
on behalf of the State to prosecute the parties for violating the law.
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
We thus rule that Zshornack cannot recover under the second cause of action.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND
TRUST COMPANY, respondents.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept
of litigation expenses and attorney's fees to be reasonable. The award is sustained.
Dolorfino & Dominguez Law Offices for petitioner.

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is

Danilo B. Banares for private respondent.
ordered to restore to the dollar savings account of private respondent the amount of
US$1,000.00 as of October 27, 1975 to earn interest at the rate fixed by the bank for
dollar savings deposits. Petitioner is further ordered to pay private respondent the
amount of P8,000.00 as damages. The other causes of action of private respondent are
ordered dismissed. DAVIDE, JR., J.:

SO ORDERED. Is the contractual relation between a commercial bank and another party in a contract
of rent of a safety deposit box with respect to its contents placed by the latter one of
bailor and bailee or one of lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses
Ramon and Paula Pugao entered into an agreement whereby the former purchased
from the latter two (2) parcels of land for a consideration of P350,625.00. Of this
amount, P75,725.00 was paid as downpayment while the balance was covered by three
(3) postdated checks. Among the terms and conditions of the agreement embodied in a
Memorandum of True and Actual Agreement of Sale of Land were that the titles to the
lots shall be transferred to the petitioner upon full payment of the purchase price and
that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title
(TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank.
The same could be withdrawn only upon the joint signatures of a representative of the
petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through
Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private
respondent Security Bank and Trust Company, a domestic banking corporation
hereinafter referred to as the respondent Bank. For this purpose, both signed a contract
of lease (Exhibit "2") which contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it
has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters
one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained
in the possession of the respondent Bank. The safety deposit box has two (2) keyholes,
one for the guard key and the other for the renter's key, and can be opened only with
the use of both keys. Petitioner claims that the certificates of title were placed inside the
said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two
(2) lots at a price of P225.00 per square meter which, as petitioner alleged in its
complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00
for the entire property. Mrs. Ramos demanded the execution of a deed of sale which
necessarily entailed the production of the certificates of title. In view thereof, Aguirre,
accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October
1979 to open the safety deposit box and get the certificates of title. However, when
opened in the presence of the Bank's representative, the box yielded no such
certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew
her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly
failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1
September 1980 a complaint 2 for damages against the respondent Bank with the Court
of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the
same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no
cause of action because of paragraphs 13 and 14 of the contract of lease (Exhibit "2");
corollarily, loss of any of the items or articles contained in the box could not give rise to
an action against it. It then interposed a counterclaim for exemplary damages as well as
attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to
the counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the Regional Trial Court
(RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8
December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered
ordering plaintiff to pay defendant the amount of FIVE
THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs
13 and 14 of the contract of lease, the Bank has no liability for the loss of the
certificates of title. The court declared that the said provisions are binding on the
parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the
adverse decision to the respondent Court of Appeals which docketed the appeal as CA-
G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the challenged
decision because the trial court erred in (a) absolving the respondent Bank from liability
from the loss, (b) not declaring as null and void, for being contrary to law, public order
and public policy, the provisions in the contract for lease of the safety deposit box
absolving the Bank from any liability for loss, (c) not concluding that in this
jurisdiction, as well as under American jurisprudence, the liability of the Bank is settled
and (d) awarding attorney's fees to the Bank and denying the petitioner's prayer for
nominal and exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed
decision principally on the theory that the contract (Exhibit "2") executed by the
petitioner and respondent Bank is in the nature of a contract of lease by virtue of which
the petitioner and its co-renter were given control over the safety deposit box and its
contents while the Bank retained no right to open the said box because it had neither
the possession nor control over it and its contents. As such, the contract is governed by
Article 1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to
give to another the enjoyment or use of a thing for a price certain,
and for a period which may be definite or indefinite. However, no
lease for more than ninety-nine years shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the
property loses his control over the property leased during the period of the
contract and Article 1975 of the Civil Code which provides:
 Art. 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter
when it becomes due, and to take such steps as may be necessary
in order that the securities may preserve their value and the rights
corresponding to them according to law.
The above provision shall not apply to contracts for the rent of
safety deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any
duty to maintain the contents of the box. The stipulation absolving the
defendant-appellee from liability is in accordance with the nature of the
contract of lease and cannot be regarded as contrary to law, public order and
public policy." 12 The appellate court was quick to add, however, that under
the contract of lease of the safety deposit box, respondent Bank is not
completely free from liability as it may still be made answerable in case
unauthorized persons enter into the vault area or when the rented box is
forced open. Thus, as expressly provided for in stipulation number 8 of the
contract in question:
8. The Bank shall use due diligence that no unauthorized person
shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's
Resolution of 28 August 1989, 15 petitioner took this recourse under Rule 45 of the
Rules of Court and urges Us to review and set aside the respondent Court's ruling.
Petitioner avers that both the respondent Court and the trial court (a) did not properly
and legally apply the correct law in this case, (b) acted with grave abuse of discretion or
in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is
contrary to, or is a departure from precedents adhered to and affirmed by decisions of
this Court and precepts in American jurisprudence adopted in the Philippines. It
reiterates the arguments it had raised in its motion to reconsider the trial court's
decision, the brief submitted to the respondent Court and the motion to reconsider the
latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of
deposit governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss
of the certificates of title pursuant to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to
return it, when required, to the depositor, or to his heirs and
successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the
loss of the thing, shall be governed by the provisions of Title I of
this Book.
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is
supposed to expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit
company leases a safe-deposit box or safe and the lessee takes
possession of the box or safe and places therein his securities or
other valuables, the relation of bailee and bail or is created between
the parties to the transaction as to such securities or other
valuables; the fact that the
safe-deposit company does not know, and that it is not expected
that it shall know, the character or description of the property
which is deposited in such safe-deposit box or safe does not
change that relation. That access to the contents of the safe-
deposit box can be had only by the use of a key retained by the
lessee ( whether it is the sole key or one to be used in connection
with one retained by the lessor) does not operate to alter the
foregoing rule. The argument that there is not, in such a case, a
delivery of exclusive possession and control to the deposit
company, and that therefore the situation is entirely different from
that of ordinary bailment, has been generally rejected by the courts,
usually on the ground that as possession must be either in the
depositor or in the company, it should reasonably be considered as
in the latter rather than in the former, since the company is, by the
nature of the contract, given absolute control of access to the
property, and the depositor cannot gain access thereto without the
consent and active participation of the company. . . . (citations
omitted).
and a segment from Words and Phrases 18 which states that a contract for the
rental of a bank safety deposit box in consideration of a fixed amount at
stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are
contrary to law and public policy and should be declared null and void. In support
thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract
may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order
or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition
and required the parties to simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety
deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil
Code. However, We do not fully subscribe to its view that the same is a contract of
deposit that is to be strictly governed by the provisions in the Civil Code on deposit; 19
the contract in the case at bar is a special kind of deposit. It cannot be characterized as
an ordinary contract of lease under Article 1643 because the full and absolute
possession and control of the safety deposit box was not given to the joint renters
the petitioner and the Pugaos. The guard key of the box remained with the respondent
Bank; without this key, neither of the renters could open the box. On the other hand,
the respondent Bank could not likewise open the box without the renter's key. In this
case, the said key had a duplicate which was made so that both renters could have
access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply.
Neither could Article 1975, also relied upon by the respondent Court, be invoked as an
argument against the deposit theory. Obviously, the first paragraph of such provision
cannot apply to a depositary of certificates, bonds, securities or instruments which earn
interest if such documents are kept in a rented safety deposit box. It is clear that the
depositary cannot open the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous
support even in American jurisprudence. We agree with the petitioner that under the
latter, the prevailing rule is that the relation between a bank renting out safe-deposit
boxes and its customer with respect to the contents of the box is that of a bail or and
bailee, the bailment being for hire and mutual benefit. 21 This is just the prevailing view
because:
There is, however, some support for the view that the relationship
in question might be more properly characterized as that of
landlord and tenant, or lessor and lessee. It has also been suggested
that it should be characterized as that of licensor and licensee. The
relation between a bank, safe-deposit company, or storage
company, and the renter of a safe-deposit box therein, is often
described as contractual, express or implied, oral or written, in
whole or in part. But there is apparently no jurisdiction in which
any rule other than that applicable to bailments governs questions
of the liability and rights of the parties in respect of loss of the
contents of safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States
has been adopted. Section 72 of the General Banking Act 23 pertinently provides:
Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building and
loan associations may perform the following services:
(a) Receive in custody funds, documents, and
valuable objects, and rent safety deposit boxes
for the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections
(a), (b) and (c) of this section as depositories or as agents. . . . 24
(emphasis supplied)
Note that the primary function is still found within the parameters of a contract of
deposit, i.e., the receiving in custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not independent from, but
related to or in conjunction with, this principal function. A contract of deposit may be
entered into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the
parties thereto may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy. The depositary's responsibility for the safekeeping of the
objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in performing its obligation, it is found
guilty of fraud, negligence, delay or contravention of the tenor of the agreement. 26 In
the absence of any stipulation prescribing the degree of diligence required, that of a
good father of a family is to be observed. 27 Hence, any stipulation exempting the
depositary from any liability arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary to law and public policy. In
the instant case, petitioner maintains that conditions 13 and 14 of the questioned
contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it
has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent
with the respondent Bank's responsibility as a depositary under Section 72(a)
of the General Banking Act. Both exempt the latter from any liability except
as contemplated in condition 8 thereof which limits its duty to exercise
reasonable diligence only with respect to who shall be admitted to any rented
safe, to wit:
8. The Bank shall use due diligence that no unauthorized person
shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it. 29
 Furthermore, condition 13 stands on a wrong premise and is contrary to the
actual practice of the Bank. It is not correct to assert that the Bank has
neither the possession nor control of the contents of the box since in fact,
the safety deposit box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key to the said box.
As stated earlier, renters cannot open their respective boxes unless the Bank
cooperates by presenting and using this guard key. Clearly then, to the extent
above stated, the foregoing conditions in the contract in question are void
and ineffective. It has been said:
petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision
(dispositive portion) of public respondent Court of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award
for attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals in
CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made
above on the nature of the relationship between the parties in a contract of lease of
safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED
and the instant Petition for Review is otherwise DENIED for lack of merit.

With respect to property deposited in a safe-deposit box by a No pronouncement as to costs.

customer of a safe-deposit company, the parties, since the relation
is a contractual one, may by special contract define their respective
duties or provide for increasing or limiting the liability of the SO ORDERED.
deposit company, provided such contract is not in violation of law
or public policy. It must clearly appear that there actually was such
a special contract, however, in order to vary the ordinary
obligations implied by law from the relationship of the parties;
Republic of the Philippines
liability of the deposit company will not be enlarged or restricted
SUPREME COURT
by words of doubtful meaning. The company, in renting
Manila
safe-deposit boxes, cannot exempt itself from liability for loss of
the contents by its own fraud or negligence or that of its agents or
servants, and if a provision of the contract may be construed as an EN BANC
attempt to do so, it will be held ineffective for the purpose.
Although it has been held that the lessor of a safe-deposit box G.R. No. 4015 August 24, 1908
cannot limit its liability for loss of the contents thereof through its
own negligence, the view has been taken that such a lessor may
limits its liability to some extent by agreement or stipulation. 30 ANGEL JAVELLANA, plaintiff-appellee,
(citations omitted) vs.
JOSE LIM, ET AL., defendants-appellants.
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that
the petition should be dismissed, but on grounds quite different from those relied upon R. Zaldarriaga for appellants.
by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, B. Montinola for appellee.
contrary to the holding of the Court of Appeals, be based on or proceed from a
characterization of the impugned contract as a contract of lease, but rather on the fact TORRES, J.:
that no competent proof was presented to show that respondent Bank was aware of the
agreement between the petitioner and the Pugaos to the effect that the certificates of
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October,
title were withdrawable from the safety deposit box only upon both parties' joint
1906, with the Court of First Instance of Iloilo, praying that the defendants, Jose Lim
signatures, and that no evidence was submitted to reveal that the loss of the certificates and Ceferino Domingo Lim, he sentenced to jointly and severally pay the sum of
of title was due to the fraud or negligence of the respondent Bank. This in turn flows
P2,686.58, with interest thereon at the rate of 15 per cent per annum from the 20th of
from this Court's determination that the contract involved was one of deposit. Since January, 1898, until full payment should be made, deducting from the amount of
both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it interest due the sum of P1,102.16, and to pay the costs of the proceedings.
was obvious that either of them could ask the Bank for access to the safety deposit box
and, with the use of such key and the Bank's own guard key, could open the said box,
without the other renter being present. Authority from the court having been previously obtained, the complaint was amended
on the 10th of January, 1907; it was then alleged, on the 26th of May, 1897, the
defendants executed and subscribed a document in favor of the plaintiff reading as
Since, however, the petitioner cannot be blamed for the filing of the complaint and no
follows:
bad faith on its part had been established, the trial court erred in condemning the
We have received from Angel Javellana, as a deposit without interest, the sum of two
thousand six hundred and eighty-six cents of pesos fuertes, which we will return to the
said gentleman, jointly and severally, on the 20th of January, 1898. Jaro, 26th of
May, 1897. Signed Jose Lim. Signed: Ceferino Domingo Lim.
That, when the obligation became due, the defendants begged the plaintiff for an
extension of time for the payment thereof, building themselves to pay interest at the
rate of 15 per cent on the amount of their indebtedness, to which the plaintiff acceded;
that on the 15th of May, 1902, the debtors paid on account of interest due the sum of
P1,000 pesos, with the exception of either capital or interest, had thereby been
subjected to loss and damages.
A demurrer to the original complaint was overruled, and on the 4th of January, 1907,
the defendants answered the original complaint before its amendment, setting forth
that they acknowledged the facts stated in Nos. 1 and 2 of the complaint; that they
admitted the statements of the plaintiff relative to the payment of 1,102.16 pesos made
on the 15th of November, 1902, not, however, as payment of interest on the amount
stated in the foregoing document, but on account of the principal, and denied that
there had been any agreement as to an extension of the time for payment and the
payment of interest at the rate of 15 per cent per annum as alleged in paragraph 3 of
the complaint, and also denied all the other statements contained therein.
As a counterclaim, the defendants alleged that they had paid to the plaintiff sums
which, together with the P1,102.16 acknowledged in the complaint, aggregated the total
sum of P5,602.16, and that, deducting therefrom the total sum of P2,686.58 stated in
the document transcribed in the complaint, the plaintiff still owed the defendants
P2,915.58; therefore, they asked that judgment be entered absolving them, and
sentencing the plaintiff to pay them the sum of P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their exhibits, together with an
account book having been made of record, the court below rendered judgment on the
15th of January, 1907, in favor of the plaintiff for the recovery of the sum of P5,714.44
and costs.
The defendants excepted to the above decision and moved for a new trial. This motion
was overruled and was also excepted to by them; the bill of exceptions presented by the
appellants having been approved, the same was in due course submitted to this court.
The document of indebtedness inserted in the complaint states that the plaintiff left on
deposit with the defendants a given sum of money which they were jointly and severally
obliged to return on a certain date fixed in the document; but that, nevertheless, when
the document appearing as Exhibits 2, written in the Visayan dialect and followed by a
translation into Spanish was executed, it was acknowledged, at the date thereof, the
15th of November, 1902, that the amount deposited had not yet been returned to the
creditor, whereby he was subjected to losses and damages amounting to 830 pesos
since the 20th of January, 1898, when the return was again stipulated with the further
agreement that the amount deposited should bear interest at the rate of 15 per cent per
annum, from the aforesaid date of January 20, and that the 1,000 pesos paid to the
depositor on the 15th of May, 1900, according to the receipt issued by him to the
debtors, would be included, and that the said rate of interest would obtain until the
debtors on the 20th of May, 1897, it is called a deposit consisted, and they could have
accomplished the return agreed upon by the delivery of a sum equal to the one received
by them. For this reason it must be understood that the debtors were lawfully
authorized to make use of the amount deposited, which they have done, as subsequent
shown when asking for an extension of the time for the return thereof, inasmuch as,
acknowledging that they have subjected the letter, their creditor, to losses and damages
for not complying with what had been stipulated, and being conscious that they had
used, for their own profit and gain, the money that they received apparently as a
deposit, they engaged to pay interest to the creditor from the date named until the time
when the refund should be made. Such conduct on the part of the debtors is
unquestionable evidence that the transaction entered into between the interested parties
was not a deposit, but a real contract of loan.
Article 1767 of the Civil Code provides that
The depository can not make use of the thing deposited without the express
permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that
When the depository has permission to make use of the thing deposited, the
contract loses the character of a deposit and becomes a loan or bailment.
The permission shall not be presumed, and its existence must be proven.
When on one of the latter days of January, 1898, Jose Lim went to the office of the
creditor asking for an extension of one year, in view of the fact the money was scare,
and because neither himself nor the other defendant were able to return the amount
deposited, for which reason he agreed to pay interest at the rate of 15 per cent per
annum, it was because, as a matter of fact, he did not have in his possession the amount
deposited, he having made use of the same in his business and for his own profit; and
the creditor, by granting them the extension, evidently confirmed the express
permission previously given to use and dispose of the amount stated as having bee
deposited, which, in accordance with the loan, to all intents and purposes gratuitously,
until the 20th of January, 1898, and from that dated with interest at 15 per cent per
annum until its full payment, deducting from the total amount of interest the sum of
1,000 pesos, in accordance with the provisions of article 1173 of the Civil Code.
Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2)
executed in the presence of three witnesses on the 15th of November, 1902, by
Ceferino Domingo Lim on behalf of himself and the former, nevertheless, the said
document has not been contested as false, either by a criminal or by a civil proceeding,
nor has any doubt been cast upon the authenticity of the signatures of the witnesses In view of the foregoing, and adopting the findings in the judgment appealed from, it is
who attested the execution of the same; and from the evidence in the case one is our opinion that the same should be and is hereby affirmed with the costs of this
sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his instance against the appellant, provided that the interest agreed upon shall be paid until
joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos, on account the complete liquidation of the debt. So ordered.
thereof, and to execute the aforesaid document No. 2. A true ratification of the original
document of deposit was thus made, and not the least proof is shown in the record that
Jose Lim had ever paid the whole or any part of the capital stated in the original
document, Exhibit 1.

If the amount, together with interest claimed in the complaint, less 1,000 pesos appears
as fully established, such is not the case with the defendant's counterclaim for
P5,602.16, because the existence and certainty of said indebtedness imputed to the
plaintiff has not been proven, and the defendants, who call themselves creditors for the
said amount have not proven in a satisfactory manner that the plaintiff had received
partial payments on account of the same; the latter alleges with good reason, that they
should produce the receipts which he may have issued, and which he did issue
whenever they paid him any money on account. The plaintiffs allegation that the two
amounts of 400 and 1,200 pesos, referred to in documents marked "C" and "D" FIRST DIVISION
offered in evidence by the defendants, had been received from Ceferino Domingo Lim
on account of other debts of his, has not been contradicted, and the fact that in the
original complaint the sum of 1,102.16 pesos, was expressed in lieu of 1,000 pesos, the
only payment made on account of interest on the amount deposited according to
documents No. 2 and letter "B" above referred to, was due to a mistake. EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL APAS,
Petitioners, - v e r s u s - NG SHEUNG NGOR** doing business under the
name and style KEN MARKETING, KEN APPLIANCE DIVISION, INC. and
Moreover, for the reason above set forth it may, as a matter of course, be inferred that BENJAMIN E. GO, Respondents.
there was no renewal of the contract deposited converted into a loan, because, as has
already been stated, the defendants received said amount by virtue of real loan contract
under the name of a deposit, since the so-called bailees were forthwith authorized to G.R. No. 171545 December 19, 2007
dispose of the amount deposited. This they have done, as has been clearly shown.

The original joint obligation contracted by the defendant debtor still exists, and it has
not been shown or proven in the proceedings that the creditor had released Joe Lim DECISION
from complying with his obligation in order that he should not be sued for or
sentenced to pay the amount of capital and interest together with his codebtor,
Ceferino Domingo Lim, because the record offers satisfactory evidence against the
pretension of Jose Lim, and it further appears that document No. 2 was executed by
the other debtor, Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it CORONA, J.:
has also been proven that Jose Lim, being fully aware that his debt had not yet been
settled, took steps to secure an extension of the time for payment, and consented to
pay interest in return for the concession requested from the creditor.
 This petition for review on certiorari137[1] seeks to set aside the Equitable, in its answer, asserted that respondents knowingly accepted all the
decision138[2] of the Court of Appeals (CA) in CA-G.R. SP No. 83112 and its terms and conditions contained in the promissory notes.145[9] In fact, they continuously
resolution139[3] denying reconsideration. availed of and benefited from Equitable's credit facilities for five years.146[10]

On October 7, 2001, respondents Ng Sheung Ngor,140[4] Ken Appliance After trial, the RTC upheld the validity of the promissory notes. It found that,
Division, Inc. and Benjamin E. Go filed an action for annulment and/or reformation of in 2001 alone, Equitable restructured respondents' loans amounting to US$228,200 and
documents and contracts141[5] against petitioner Equitable PCI Bank (Equitable) and P1,000,000.147[11] The trial court, however, invalidated the escalation clause contained
its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), therein because it violated the principle of mutuality of contracts.148[12] Nevertheless,
Branch 16 of Cebu City.142[6] They claimed that Equitable induced them to avail of its it took judicial notice of the steep depreciation of the peso during the intervening
peso and dollar credit facilities by offering low interest rates143[7] so they accepted
Equitable's proposal and signed the bank's pre-printed promissory notes on various dates
beginning 1996. They, however, were unaware that the documents contained identical
escalation clauses granting Equitable authority to increase interest rates without their
consent.144[8]
period149[13] and declared the existence of extraordinary deflation.150[14]
Consequently, the RTC ordered the use of the 1996 dollar exchange rate in computing
respondents' dollar-denominated loans.151[15] Lastly, because the business reputation
of respondents was (allegedly) severely damaged when Equitable froze their
accounts,152[16] the trial court awarded moral and exemplary damages to them.153[17]
The dispositive portion of the February 5, 2004 RTC decision154[18]
provided:
WHEREFORE, premises considered, judgment is hereby
rendered:
A) Ordering [Equitable] to reinstate and return the amount
of [respondents'] deposit placed on hold status;
B) Ordering [Equitable] to pay [respondents] the sum of
P12 [m]illion [p]esos as moral damages;
C) Ordering [Equitable] to pay [respondents] the sum of P10
[m]illion [p]esos as exemplary damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas
to pay [respondents], jointly and severally, the sum of
[t]wo [m]illion [p]esos as moral and exemplary damages;
E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas],
jointly and severally, to pay [respondents'] attorney's fees
in the sum of P300,000; litigation expenses in the sum of
P50,000 and the cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing
to pay [Equitable] the unpaid principal obligation for the
peso loan as well as the unpaid obligation for the dollar
denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing
to pay [Equitable] interest as follows:
1) 12% per annum for the peso loans;
2) 8% per annum for the dollar loans. The basis for
the payment of the dollar obligation is the
conversion rate of P26.50 per dollar availed of at the
time of incurring of the obligation in accordance
with Article 1250 of the Civil Code of the
Philippines;
H) Dismissing [Equitable's] counterclaim except the
payment of the aforestated unpaid principal loan
obligations and interest.
SO ORDERED.155[19]
 Equitable and respondents filed their respective notices of appeal.156[20]
In the March 1, 2004 order of the RTC, both notices were denied due course
because Equitable and respondents failed to submit proof that they paid their respective
appeal fees.157[21]
WHEREFORE, premises considered, the appeal
interposed by defendants from the Decision in the above-entitled
case is DENIED due course. As of February 27, 2004, the
Decision dated February 5, 2004, is considered final and
executory in so far as [Equitable, Aimee Yu and Bejan Lionel
Apas] are concerned.158[22] (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the
RTC159[23] on the ground that it did in fact pay the appeal fees. Respondents, on the
other hand, prayed for the issuance of a writ of execution.160[24]
On March 24, 2004, the RTC issued an omnibus order denying Equitable's
motion for reconsideration for lack of merit161[25] and ordered the issuance of a writ of
execution in favor of respondents.162[26] According to the RTC, because respondents
did not move for the reconsideration of the previous order (denying due course to the
parties notices of appeal),163[27] the February 5, 2004 decision became final and
executory as to both parties and a writ of execution against Equitable was in order.164[28]
A writ of execution was thereafter issued165[29] and three real properties of
Equitable were levied upon.166[30]
 On March 26, 2004, Equitable filed a petition for relief in the RTC from the
March 1, 2004 order.167[31] It, however, withdrew that petition on March 30,
2004168[32] and instead filed a petition for certiorari with an application for an injunction
in the CA to enjoin the implementation and execution of the March 24, 2004 omnibus
order.169[33]
On June 16, 2004, the CA granted Equitable's application for injunction. A
writ of preliminary injunction was correspondingly issued.170[34]
Notwithstanding the writ of injunction, the properties of Equitable previously
levied upon were sold in a public auction on July 1, 2004. Respondents were the highest
bidders and certificates of sale were issued to them.171[35]
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale
and to cite the sheriffs who conducted the sale in contempt for proceeding with the
auction despite the injunction order of the CA.172[36]
On October 28, 2005, the CA dismissed the petition for certiorari.173[37] It
found Equitable guilty of forum shopping because the bank filed its petition for certiorari
in the CA several hours before withdrawing its petition for relief in the RTC.174[38]
Moreover, Equitable failed to disclose, both in the statement of material dates and
certificate of non-forum shopping (attached to its petition for certiorari in the CA), that
it had a pending petition for relief in the RTC.175[39]
Equitable moved for reconsideration176[40] but it was denied.177[41] Thus,
this petition.
 Equitable asserts that it was not guilty of forum shopping because the petition
for relief was withdrawn on the same day the petition for certiorari was filed.178[42] It
likewise avers that its petition for certiorari was meritorious because the RTC committed
grave abuse of discretion in issuing the March 24, 2004 omnibus order which was based
on an erroneous assumption. The March 1, 2004 order denying its notice of appeal for
non payment of appeal fees was erroneous because it had in fact paid the required
fees.179[43] Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively
prevented Equitable from appealing the patently wrong February 5, 2004
decision.180[44]
This petition is meritorious.
EQUITABLE WAS NOT GUILTY OF FORUM SHOPPING
Forum shopping exists when two or more actions involving the same
transactions, essential facts and circumstances are filed and those actions raise identical
issues, subject matter and causes of action.181[45] The test is whether, in two or more
pending cases, there is identity of parties, rights or causes of actions and reliefs.182[46]
Equitable's petition for relief in the RTC and its petition for certiorari in the
CA did not have identical causes of action. The petition for relief from the denial of its
notice of appeal was based on the RTCs judgment or final order preventing it from taking
an appeal by fraud, accident, mistake or excusable negligence.183[47] On the other hand,
its petition for certiorari in the CA, a special civil action, sought to correct the grave abuse
of discretion amounting to lack of jurisdiction committed by the RTC.184[48]
In a petition for relief, the judgment or final order is rendered by a court with
competent jurisdiction. In a petition for certiorari, the order is rendered by a court
without or in excess of its jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum
shopping when it moved to withdraw its petition for relief in the RTC on the same day
(in fact just four hours and forty minutes after) it filed the petition for certiorari in the
CA. Even if Equitable failed to disclose that it had a pending petition for relief in the
RTC, it rectified what was doubtlessly a careless oversight by withdrawing the petition
for relief just a few hours after it filed its petition for certiorari in the CA a clear
indication that it had no intention of maintaining the two actions at the same time
THE TRIAL
COURT COMMITTED GRAVE ABUSE OF DISCRETION IN ISSUING
ITS MARCH 1, 2004 AND MARCH 24, 2004 ORDERS
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board or officer
exercising judicial or quasi-judicial function has acted without
or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and
there is no appeal, nor any plain, speedy or adequate remedy
in the ordinary course of law, a person aggrieved thereby may file
 a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and
granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy
of the judgment, order or resolution subject thereof, copies of all
pleadings and documents relevant and pertinent thereto, and a
sworn certificate of non-forum shopping as provided in the third
paragraph of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari. These are:
1. that the tribunal, board or officer exercising judicial or
quasi-judicial functions acted without or in excess of his
or its jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction; and
2. that there is no appeal or any plain, speedy and adequate
remedy in the ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper,
petitioner must show that the public respondent patently and grossly abused his
discretion and that abuse amounted to an evasion of positive duty or a virtual refusal to
perform a duty enjoined by law or to act at all in contemplation of law, as where the
power was exercised in an arbitrary and despotic manner by reason of passion or
hostility.185[49]
The March 1, 2004 order denied due course to the notices of appeal of both
Equitable and respondents. However, it declared that the February 5, 2004 decision was
final and executory only with respect to Equitable.186[50] As expected, the March
24, 2004 omnibus order denied Equitable's motion for reconsideration and granted
respondents' motion for the issuance of a writ of execution.187[51]
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously
intended to prevent Equitable, et al. from appealing the February 5, 2004 decision. Not
only that. The execution of the decision was undertaken with indecent haste, effectively
obviating or defeating Equitable's right to avail of possible legal remedies. No matter
how we look at it, the RTC committed grave abuse of discretion in rendering those
orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in
the ordinary course of law, we hold that there was none. The RTC denied due course to
its notice of appeal in the March 1, 2004 order. It affirmed that denial in the March 24,
2004 omnibus order. Hence, there was no way Equitable could have possibly appealed
the February 5, 2004 decision.188[52]
Although Equitable filed a petition for relief from the March 24, 2004 order,
that petition was not a plain, speedy and adequate remedy in the ordinary course of
law.189[53] A petition for relief under Rule 38 is an equitable remedy allowed only in
exceptional circumstances or where there is no other available or adequate
remedy.190[54]
 Thus, we grant Equitable's petition for certiorari and consequently give due
course to its appeal.
EQUITABLE RAISED PURE QUESTIONS OF LAW IN ITS
PETITION FOR REVIEW
The jurisdiction of this Court in Rule 45 petitions is limited to questions of law.191[55]
There is a question of law when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue does not
call for the probative value of the evidence presented, the truth or falsehood of facts
being admitted.192[56]
Equitable does not assail the factual findings of the trial court. Its arguments
essentially focus on the nullity of the RTCs February 5, 2004 decision. Equitable points
out that that decision was patently erroneous, specially the exorbitant award of
damages, as it was inconsistent with existing law and jurisprudence.193[57]
THE PROMISORY NOTES WERE VALID
The RTC upheld the validity of the promissory notes despite respondents
assertion that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party.194[58] The participation of the other party is limited to affixing his
signature or his adhesion to the contract.195[59] For this reason, contracts of adhesion
are strictly construed against the party who drafted it.196[60]
It is erroneous, however, to conclude that contracts of adhesion are invalid per
se. They are, on the contrary, as binding as ordinary contracts. A party is in reality free to
accept or reject it. A contract of adhesion becomes void only when the dominant party
takes advantage of the weakness of the other party, completely depriving the latter of the
opportunity to bargain on equal footing.197[61]
That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would have walked
out and negotiated with another bank at the first available instance. But they did not.
Instead, they continuously availed of Equitable's credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar-
and peso-denominated loans with Equitable, it, however, failed to ascertain the total
amount due (principal, interest and penalties, if any) as of July 9, 2001. The trial court did
not explain how it arrived at the amounts of US$228,200 and P1,000,000.198[62] In Metro
Manila Transit Corporation v. D.M. Consunji,199[63] we reiterated that this Court is not a
trier of facts and it shall pass upon them only for compelling reasons which unfortunately
are not present in this case.200[64] Hence, we ordered the partial remand of the case for
the sole purpose of determining the amount of actual damages.201[65]
ESCALATION CLAUSE VIOLATED THE PRINCIPLE OF
MUTUALITY OF CONTRACTS
Escalation clauses are not void per se. However, one which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely depriving
the debtor of the right to assent to an important modification in the agreement is void.
Clauses of that nature violate the principle of mutuality of contracts.202[66] Article
1308203[67] of the Civil Code holds that a contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them.204[68]
For this reason, we have consistently held that a valid escalation clause
provides:
1. that the rate of interest will only be increased if the
applicable maximum rate of interest is increased by law
or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the
applicable maximum rate of interest is reduced by law or
by the Monetary Board (de-escalation clause).205[69]
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent
extensions shall be at such rate as shall be determined by the
bank.206[70]
Equitable dictated the interest rates if the term (or period for repayment) of
the loan was extended. Respondents had no choice but to accept them. This was a
violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation clause
did not contain the necessary provisions for validity, that is, it neither provided that the
rate of interest would be increased only if allowed by law or the Monetary Board, nor
allowed de-escalation. For these reasons, the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine
National Bank207[71] we held that, because the escalation clause was annulled, the
principal amount of the loan was subject to the original or stipulated rate of interest.
Upon maturity, the amount due was subject to legal interest at the rate of 12% per THE AWARD FOR MORAL AND EXEMPLARY DAMAGES LACKED BASIS
annum.208[72]
Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered, not to impose a penalty to the wrongdoer.210[79] To
be entitled to moral damages, a claimant must prove:
Consequently, respondents should pay Equitable the interest rates of 12.66%
p.a. for their dollar-denominated loans and 20% p.a. for their peso-denominated loans 1. That he or she suffered besmirched reputation, or
from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest physical, mental or psychological suffering sustained by
of 12% p.a. on all amounts due. the claimant;

THERE WAS NO EXTRA ORDINARY DEFLATION 2. That the defendant committed a wrongful act or
omission;
Extraordinary inflation exists when there is an unusual decrease in the 3. That the wrongful act or omission was the proximate
purchasing power of currency (that is, beyond the common fluctuation in the value of cause of the damages the claimant sustained;
currency) and such decrease could not be reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of the obligation. Extraordinary deflation, 4. The case is predicated on any of the instances expressed
on the other hand, involves an inverse situation.209[73] or envisioned by Article 2219211[80] and 2220212[81].
213[82]
Article 1250 of the Civil Code provides:

In culpa contractual or breach of contract, moral damages are recoverable only if

Article 1250. In case an extraordinary inflation or deflation of the the defendant acted fraudulently or in bad faith or in wanton disregard of his contractual
currency stipulated should intervene, the value of the currency at obligations.214[83] The breach must be wanton, reckless, malicious or in bad faith, and
the time of the establishment of the obligation shall be the basis oppressive or abusive.215[84]
of payment, unless there is an agreement to the contrary.
 The RTC found that respondents did not pay Equitable the interest due on
February 9, 2001 (or any month thereafter prior to the maturity of the loan)216[85] or
the amount due (principal plus interest) due on July 9, 2001.217[86] Consequently,
Equitable applied respondents' deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and
debtor.218[87] For this reason, a bank has the right to set-off the deposits in its hands
for the payment of a depositor's indebtedness.219[88]
Respondents indeed defaulted on their obligation. For this reason, Equitable
had the option to exercise its legal right to set-off or compensation. However, the RTC
mistakenly (or, as it now appears, deliberately) concluded that Equitable acted
fraudulently or in bad faith or in wanton disregard of its contractual obligations despite
the absence of proof. The undeniable fact was that, whatever damage respondents
sustained was purely the consequence of their failure to pay their loans. There was
therefore absolutely no basis for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents
were not entitled to moral damages, neither should they be awarded exemplary
damages.220[89] And if respondents were not entitled to moral and exemplary damages,
neither could they be awarded attorney's fees and litigation expenses.221[90]
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court
of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16,
Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being rendered
with grave abuse of discretion amounting to lack or excess of jurisdiction. All proceedings
undertaken pursuant thereto are likewise declared null and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City
in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable
PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due course.
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu
City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby
entered:
1. ordering respondents Ng Sheung Ngor, doing business under the
name and style of Ken Marketing, Ken Appliance Division, Inc. and
Benjamin E. Go to pay petitioner Equitable PCI Bank the principal
amount of their dollar- and peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the
name and style of Ken Marketing, Ken Appliance Division, Inc. and
Benjamin E. Go to pay petitioner Equitable PCI Bank interest at:
a) 12.66% p.a. with respect to their dollar-denominated
loans from January 10, 2001 to July 9, 2001;
 b) 20% p.a. with respect to their peso-denominated loans
from January 10, 2001 to July 9, 2001;222[91]
c) pursuant to our ruling in Eastern Shipping Lines v. Court
of Appeals,223[92] the total amount due on July 9, 2001
shall earn legal interest at 12% p.a. from the time
petitioner Equitable PCI Bank demanded payment,
whether judicially or extra-judicially; and
d) after this Decision becomes final and executory, the
applicable rate shall be 12% p.a. until full satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall
compute the exact amounts due on the respective dollar-denominated and peso-
denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor, doing business
under the name and style of Ken Marketing, Ken Appliance Division and Benjamin E.
Go. SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF
MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B.
RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA,
ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO
LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO
TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of
Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent Central Bank of the Philippines and
Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas
Bank of Manila to return the time deposits made by petitioner and assigned to him, on
the ground that respondent Central Bank failed in its duty to exercise strict supervision
over respondent Overseas Bank of Manila to protect depositors and the general public.
1 Petitioner also prays that both respondent banks be ordered to execute the proper and
necessary documents to constitute all properties fisted in Annex "7" of the Answer of
respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M.
Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner and
all other depositors of respondent Overseas Bank of Manila. It is also prayed that the
respondents be prohibited permanently from honoring, implementing, or doing any act
predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or
conveyance or transfer of whatever nature of the properties listed in Annex "7" of the
Answer of respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not
given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one
year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the
respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit,
for one year with 6-% interest, on March 6, 1967, of Two Hundred Thousand Pesos
(P200,000.00) with the same respondent Overseas Bank of Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned
and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with
respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time
deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967
up to March 4, 1968, not a single one of the time deposit certificates was honored by
respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the
banking system of the Republic and it exercises 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 rigid and stringent supervision of banks, implying that respondent
Central Bank has to watch every move or activity of all banks, including respondent
Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965,
the Overseas Bank of Manila, while operating, was only on a limited degree of banking
operations since the Monetary Board decided in its Resolution No. 322, dated March
12, 1965, to prohibit the Overseas Bank of Manila from making new loans and
investments in view of its chronic reserve deficiencies against its deposit liabilities. This
limited operation of respondent Overseas Bank of Manila continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of
any banking institution as claimed by petitioner. It claims that neither the law nor
sound banking supervision requires respondent Central Bank to advertise or represent
to the public any remedial measures it may impose upon chronic delinquent banks as
such action may inevitably result to panic or bank "runs". In the years 1966-1967, there
were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor
of petitioner and his predecessor in interest Concepcion Maneja when their time
deposits were made in 1966 and 1967 with the 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 salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties
given by respondent Overseas Bank of Manila as additional collaterals to respondent
Central Bank of the Philippines for the former's overdrafts and emergency loans were
acquired through the use of depositors' money, including that of the petitioner and
Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines,"
a case was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila
sought to prevent respondent Central 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 legal interest as depositor of the Overseas Bank of Manila in the
matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352
opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground
that his claim as depositor of the Overseas Bank of Manila should properly be
ventilated in the Court of First Instance, and if this Court were to allow Serrano to
intervene as depositor in G.R. No. L-29352, thousands of other depositors would
follow and thus cause an avalanche of cases in this Court. In the resolution dated
October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of said
motion to intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became
final and executory on March 3, 1972, favorable to the respondent Overseas Bank of
Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby
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 operation, and ordering the
liquidation of said bank) are hereby annulled and set aside; and said
respondent Central Bank of the Philippines is directed to comply
with its obligations under the Voting Trust Agreement, and to
desist from taking action in violation therefor. Costs against
respondent Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in this
case, praying for a decision on the merits, adjudging respondent Central Bank jointly
and severally liable with respondent Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with all interests due therein; and
declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila
and the Ramos groups in favor of the Central Bank as trust funds for the benefit of
petitioner and other depositors. 13
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 Overseas Bank of Manila,
and recovery of damages against respondent Central Bank for its alleged failure to
strictly supervise the acts of the other respondent Bank and protect the interests of its
depositors by virtue of the constructive trust created when respondent Central Bank
required the other respondent to increase its collaterals for its overdrafts said
emergency loans, said collaterals allegedly acquired through the use of depositors
money. These claims shoud be ventilated in the Court of First Instance of proper
jurisdiction as We already pointed out when this Court denied petitioner's motion to
intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for
mandamus and prohibition as there is no shown clear 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 is not the proper party to raise that question,
but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there
anything to prohibit in 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
Central Bank, had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of bank
deposits when the petitioner claimed that there should be created a constructive trust in
his favor when the respondent Overseas Bank of Manila increased its collaterals in
favor of respondent Central Bank for the former's overdrafts and emergency loans,
since these collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they
earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans. 14 Current and savings
deposit are loans to a bank because it can use the same. The petitioner here in making
time deposits that earn interests with respondent Overseas Bank of Manila was in
reality a creditor of the respondent Bank and not a depositor. The respondent Bank
was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time
deposit 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

WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.

SO ORDERED.