Cred Trans

11/14/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 225
268 SUPREME COURT REPORTS ANNOTATED

Pilipinas Bank vs. Court of Appeals
*
G.R. No. 97873. August 12, 1993.
PILIPINAS BANK, petitioner, vs. THE HON. COURT OF

APPEALS, and LILIA R. ECHAUS, respondents.
Obligations; Interest Rates; CB Circular No. 416.—Note that

Circular No. 416, fixing the rate of interest at 12% per annum,
deals with (1) loans; (2) forbearance of any money, goods or credit;
and (3) judgments. In Reformina v. Tomol, Jr., 139 SCRA 260
[1985], the Court held that the judgments spoken of and referred
to in Circular No. 416 are ‘judgments in litigation involving loans
or forbearance of any money, goods or credits. Any other kind of
monetary judgment which has nothing to do with nor involving
loans or forbearance of any money, goods or credits does not fall
within the coverage of the said law for it is not, within the ambit
of the authority granted to the Central Bank.”
Same; Same; Same; Civil Code, Art. 2209; Obligation arising
from contract of purchase and sale.—What then is the nature of
the judgment ordering petitioner to pay private respondent the
amount of P2,300,000.00? The said amount was a portion of the
P7,776,335.69 which petitioner was obligated to pay Greatland as
consideration for the sale of several parcels of land by Greatland
to petitioner. The amount of P2,300,000.00 was assigned by
Greatland in favor of private respondent. The said obligation
therefore arose from a contract of purchase and sale and not from
a contract of loan or mutuum. Hence, what is applicable is the
rate of 6% per annum as provided in Article 2209 of the Civil Code
of the Philippines and not the rate of 12% per annum as provided
in Circular No. 416.
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* FIRST DIVISION.
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Same; Same; Same; Restitution contemplated by Sec. 5 of Rule

39, Rules of Court.—Under Section 5 of Rule 39 of the Revised
Rules of Court where “the judgment executed is reversed totally
or partially on appeal, the trial court, on motion, after the case is
remanded to it, may issue such orders of restitution, as equity and
justice may warrant under the circumstances.” It was to
guarantee the restitution contemplated by Section 5 of Rule 39 of
the Revised Rules of Court that private respondent was required
by the trial court to post a bond before the writ of advance
execution was issued. In the case before us, the excess amount
ordered to be refunded by private respondent falls within the
ruling in Viloria and Buiser that Circular No. 416 applies to cases
where money is transferred from one person to another and the
obligation to return the same or a portion thereof is subsequently
adjudged.
PETITION for certiorari to review the resolution of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Gella, Reyes, Danguilan and Associates for the
petitioner.
Manuel L. Melotindos for the respondents.
QUIASON, J.:
This is a petition for certiorari under Rule 45 of the Revised

Rules of Court to review the Resolution of the Court of
Appeals in CA-G.R. CV No. 06017 promulgated on March
14, 1991. The Resolution was rendered in response to
private respondent’s motion for clarification of the decision
of the Court of Appeals in CA-G.R. No. 06017. The matters
sought to be clarified arose in the course of the execution of
the decision of the Regional Trial Court, Branch 71,
Antipolo, Rizal in Civil Case No. 239-A, as modified by the
decision of the Court of Appeals in CA-G.R. CV No. 06017.
In Civil Case No. 239-A, private respondent filed a
complaint against petitioner and its president, Constantino
Bautista, for collection of a sum of money. The complaint
alleged: (1) that petitioner and Greatland Realty
Corporation (Greatland) executed a “Dacion en Pago,”
wherein Greatland conveyed to petitioner several parcels of
land in consideration of the sum of P7,776,335.69; (2) that
Greatland assigned P2,300,000.00 out of
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the total consideration of the Dacion en Pago, in favor of

private respondent; and (3) that notwithstanding her
demand for payment, petitioner in bad faith, refused and
failed to pay the said amount assigned to her.
Petitioner, while admitting the execution of the Dacion

en Pago, claimed: (1) that its former president had no
authority to enter into such agreement; (2) that it never
ratified the same; and (3) that assuming arguendo that the
agreement was binding, the conditions stipulated therein
were never fulfilled.
Dismissing petitioner’s defenses as unmeritorious, the
trial court ruled in favor of private respondent. The trial
court ordered petitioner and its co-defendant, jointly and
severally, to pay private respondent as follows:
“1) P2,300,000.00 the total amount assigned by

Greatland in her favor out of the P2,300,000.00
liability of defendant Pilipinas to Greatland plus
legal interest from the dates of assignments until
fully paid;
2) P3,217,707.00 representing the total actual
damages suffered by the plaintiff plus legal interest
until fully paid;
3) P1,000,000.00 in moral damages to partially
assuage the extreme moral sufferings of plaintiff
inflicted upon her person considering the bad faith
on the part of the defendants and their failure to
act with justice, and to give what is lawfully due
her and observe honesty and good faith;
4) P100,000.00 exemplary and nominal damages to
vindicate plaintiffs violated rights;
5) Attorney’s fees equivalent to 15% of the total award
in favor of the plaintiff;
6) Costs of suit” (Rollo, p. 78).
On March 22, 1985, petitioner appealed the decision of the

trial court to the Court of Appeals, which docketed the
appeal as CA-G.R. No. 06017. On the same day, private
respondent filed a Motion for Immediate Execution
Pending Appeal. The trial court granted the motion for
execution pending appeal in an Order dated April 3, 1985.
Petitioner challenged the Order dated April 3, 1985 before
the Court of Appeals in CA-G.R. No. SP No. 05909.
On October 30, 1986, the Court of Appeals modified the
Order dated April 3, 1985, by limiting the execution
pending appeal against petitioner to P5,517,707.00 and
deferring the execution of the award for moral, exemplary
and nominal damages to await
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the final judgment of the main case in CA-G.R. No. 06017.

On June 17, 1987, the Supreme Court in G.R. No. L-76506
affirmed the Order dated October 30, 1986 of the Court of

Appeals.
On July 1, 1988, the trial court granted the new motion
for execution pending appeal filed by private respondent
pursuant to the Resolution of the Supreme Court dated
June 17, 1987, upon the filing of the required bond.
Petitioner complied with the writ of execution pending
appeal by issuing two manager’s checks in the total amount
of P5,517,707.00 (one for P4,965,936.30 payable to private
respondent and another for P551,770.70 payable to the
Clerk of Court, RTC, Antipolo, Rizal).
The check payable to private respondent was encashed
on July 15, 1988.
On June 28, 1990, the Court of Appeals rendered a
decision in CA-G.R. No. CV-06017, which modified the
judgment of the trial court as follows:
“1. The defendant-appellant Pilipinas Bank, formerly

known as Filipinas Manufacturers Bank is ordered
to pay the plaintiff-appellee the following:
(a) The sum of Two Million Three Hundred Thousand

(2,300,000.00) Pesos, representing the total amount
assigned by Greatland to her, with interest at the
legal rate starting July 24, 1981, date when
demand was first made (Exh. “F” and “G”);
(b) The sum of One Hundred Thousand (P100,000.00)
Pesos in moral damages, to assuage moral
sufferings and embarrassment of plaintiff-appellee
as a consequence of appellant-bank’s unwarranted
acts;
(c) The sum of Twenty Five Thousand (P25,000.00)
Pesos, as exemplary damages to serve as an
example or correction for the public good;
(d) The sum equivalent to ten (10) percent of the
principal claim awarded, representing attorney’s
fees; and
2. Constantino Bautista is absolved of personal

liability” (Rollo, pp. 31-32).
Petitioner filed a motion for extension of time to file a

Petition for Review on Certiorari with the Supreme Court,
which however was withdrawn on July 23, 1990. Private
respondent, on her part, filed a motion for reconsideration
of the decision of the Court of Appeals in CA-G.R. No.
06017, which likewise was
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withdrawn on August 13, 1990.

Hence, the decision of the Court of Appeals rendered in
CA-G.R. No. 06017 became final and executory.
On September 4, 1990, petitioner filed a motion in the
trial court praying that private respondent and Standard
Insurance Co. (which furnished the bond required in the
advance execution of the decision of the trial court) to
refund to her the excess payment of P1,898,623.67 with
interests at 6% (Rollo, pp. 83-84).
It must be recalled that while private respondent was
able to collect P5,517,707.00 from petitioner pursuant to
the writ of advance execution allowed in CA-G.R. No. SP
No. 05909, the final judgment in the main case (CA-G.R.
No. 06017) awarded to private respondent damages in the
total amount of only P2,655,000.00 (P2,300,000.00
representing the amount assigned by Greatland to private
respondent, P100,000.00 as moral damages; P25,000.00 as
exemplary damages and attorney’s fees equivalent to 10%
of the P2,300,000.00), together “with interest on the
amount of P2,300,000.00 at the legal rate starting July 24,
1981, date when demand was first made (Exh. “F” and
“G”).”
Private respondent opposed the motion of petitioner
with respect to the rate of interest to be charged on the
amount of P2,300,000.00. According to private respondent,
the legal interest on the principal amount of P2,300,000.00
due her should be 12% per annum pursuant to CB Circular
No. 416 and not 6% per annum as computed by petitioner.
On October 12, 1990, the trial court, while ordering the
refund to petitioner of the excess payment, fixed the
interest rate due on the amount of P2,300,000.00 at 12%
per annum as proposed by private respondent instead of
6% per annum as proposed by petitioner.
On October 16, 1990, petitioner moved to reconsider the
Order dated October 12, 1990 of the trial court, which
however could not be acted upon because on October 23,
1990, private respondent filed a Motion for Clarification
with the Court of Appeals in CA-G.R. CV No. 06017,
regarding the following matters:
“a) The ‘legal rate’ of interest on the principal award of

P2,300,000.00 from July 24, 1981 (as per decision)
up to July 14, 1988 (date of actual payment made
by defendant-appellant to plaintiff-appellee per
execution pending appeal);
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b) The imposition of such ‘legal rate’ of interest on the

accrued interest’ from July 24, 1981 up to July 14,
1988;
c) The amount of the costs of suit will include
premium on surety bond;
d) The discharge of the surety bond whether total or
partial, depending on the computation of the
interest;
e) The award of attorney’s fees equivalent to 10% of
the principal award, whether this should totally go
to plaintiff-appellee’s former counsel or to be shared
on the basis of quantum meruit with the
undersigned counsel; and
f) Aside from this final award of 10% attorney’s fees
chargeable against defendant-appellant, whether or
not former counsel of plaintiff-appellee can still
collect from her the balance of 15% out of the 25%
attorney’s fees under Exh. ‘N’ ” (Rollo, p. 32).
In its Resolution promulgated on March 14, 1991, the

Court of Appeals clarified that:
“a) The legal rate of interest on the principal award of

P2,300,000.00 should be 12% per annum in accordance
with Circular No. 416 dated July 29, 1974 of the Central
Bank.
b) The computation of compounding interest annually has no
basis, therefore, not allowed in the instant case;
c) The payment of premium on the bond in the sum of
P259,813.50 as cost, being without legal and factual basis,
is denied;
d) The surety bond posted by plaintiff-appellee may be
released after satisfaction of the decision; and
e) Payment/distribution of attorney’s fees may/shall be
litigated in a separate proceeding if the parties cannot
settle their differences amicably.
SO ORDERED” (Rollo, pp. 35-36).
In this appeal, petitioner claims that the Court of Appeals

erred:
(1) In ruling that the legal rate of interest on the

amount of P2,300,000.00 adjudged to be paid by
petitioner to private respondent is 12% per annum.
(2) In not holding that the refund to which petitioner is
entitled should earn interest at the rate of 12% per
annum.
(3) In not holding that the surety bond should only be
released after actual refund (Rollo, p. 18).
The Court of Appeals was of the theory that the action in

Civil
274

Case No. 239-A filed by private respondent against

petitioner “involves forbearance of money, as the principal
award to plaintiff-appellee (private respondent) in the
amount of P2,300,000.00 was the overdue debt of
defendant-appellant to her since July 1981. The case is, in
effect, a simple collection of the money due to plaintiff-
appellee, as the unpaid creditor from the defendant bank,
the debtor” (Resolution, p. 3; Rollo, p. 33). Applying Central
Bank Circular No. 416, the Court of Appeals held that the
applicable rate of interest is 12% per annum
Petitioner argues that the applicable law is Article 2209
of the Civil Code, not the Central Bank Circular No. 416.
Said Article 2209 provides:
“Art. 2209. If the obligation consists in the payment of a sum of

money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation 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.”
Presidential Decree No. 116 authorized the Monetary

Board to prescribe the maximum rate or rates of interest
for the loan or renewal thereof or the forbearance of any
money, goods or credits and amended the Usury Law (Act
No. 2655) for that purpose.
As amended, the Usury Law now provides:
“SECTION 1. The rate of interest for the loan or forbearance of

any money, goods, or credits and the rate allowed in judgments, in
the absence of express contract as to such rate of interest, shall be
six per centum per annum or such rate as may be prescribed by
the Monetary Board of the Central Bank of the Philippines for
that purpose in accordance with the authority hereby granted.”
“SECTION 1-a. The Monetary Board is hereby authorized to
prescribe the maximum rate or rates of interest for the loan or
renewal thereof or the forbearance of any money, goods or credits,
and to charge such rate or rates whenever warranted by
prevailing economic and social conditions: Provided, That such
changes shall not be made oftener than once every twelve months.
“In the exercise of the authority herein granted, the Monetary
Board may prescribe higher maximum rates for consumer loans
or renewals thereof as well as such loans made by pawnshops,
finance companies and other similar credit institutions although
the rates prescribed for these institutions need not necessarily be
uniform.”
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Acting on the authority vested on it by the Usury Law, as

amended by P.D. No. 116, the Monetary Board of Central
Bank issued Central Bank Circular No. 416, which
provides:
“By virtue of the authority granted to it under Section 1 of Act

2655, as amended, otherwise known as the ‘Usury Law’ the
Monetary Board in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan, or forbearance
of any money, goods, or credits and the rate allowed in judgments,
in the absence of express contract as to such rate of interest, shall
be twelve (12%) per cent per annum. This Circular shall take
effect immediately .” (italics supplied)
Note that Circular No. 416, fixing the rate of interest at

12% per annum, deals with (1) loans; (2) forbearance of any
money, goods or credit; and (3) judgments.
In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the
Court held that the judgments spoken of and referred to in
Circular No. 416 are “judgments in litigation involving
loans or forbearance of any money, goods or credits. Any
other kind of monetary judgment which has nothing to do
with nor involving loans or forbearance of any money,
goods or credits does not fall within the coverage of the said
law for it is not, within the ambit of the authority granted
to the Central Bank.”
Reformina was affirmed in Philippine Virginia Tobacco
Administration v. Tensuan, 188 SCRA 628 [1990], which
emphasized that the “judgments” contemplated in Circular
No. 417 “are judgments involving said loans or forbearance
only and not in judgments in litigation that have nothing to
do with loans x x x.”
We held that Circular No. 416 does not apply to
judgments involving damages (Reformina v. Tomol, Jr.,
supra; Philippine Virginia Tobacco Administration v.
Tensuan, supra)and compensation in expropriation
proceedings (National Power Corporation v. Angas, 208
SCRA 542 [1992]). We also held that Circular No. 416
applies to judgments involving the payment of unliquidated
cash advances to an employee by his employer (Villarica v.
Court of Appeals, 123 SCRA 259 [1983]) and the return of
money paid by a buyer of a leasehold right but which
contract was voided due to the fault of the seller (Buisier v.
Court of Appeals, 154 SCRA 438 [1987]).
What then is the nature of the judgment ordering
petitioner to pay private respondent the amount of
P2,300,000.00?
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The said amount was a portion of the P7,776,335.69 which

petitioner was obligated to pay Greatland as consideration
for the sale of several parcels of land by Greatland to
petitioner. The amount of P2,300,000.00 was assigned by
Greatland in favor of private respondent. The said
obligation therefore arose from a contract of purchase and
sale and not from a contract of loan or mutuum. Hence,
what is applicable is the rate of 6% per annum as provided
in Article 2209 of the Civil Code of the Philippines and not
the rate of 12% per annum as provided in Circular No. 416.
Petitioner next contends that, consistent with its thesis
that Circular No. 416 applies only to judgments involving
the payment of loans or forbearance of money, goods and
credit, the Court of Appeals should have ordered private
respondent to pay interest at the rate of 12% on the
overpayment collected by her pursuant to the advance
execution of the judgment.
Again, we sustain petitioner’s contention as correct.
Private respondent was paid in advance the amount of
P5,517,707.00 by petitioner pursuant to the order for the
execution pending appeal of the judgment of the trial court.
On appeal, the Court of Appeals reduced the total damages
to P3,619,083.33, leaving a balance of P1,898,623.67 to be
refunded by private respondent to petitioner. In an
execution pending appeal, funds are advanced by the losing
party to the prevailing party with the implied obligation of
the latter to repay the former, in case the appellate court
cancels or reduces the monetary award.
Under Section 5 of Rule 39 of the Revised Rules of Court
where “the judgment executed is reversed totally or
partially on appeal, the trial court, on motion, after the
case is remanded to it, may issue such orders of restitution,
as equity and justice may warrant under the
circumstances.” It was to guarantee the restitution
contemplated by Section 5 of Rule 39 of the Revised Rules
of Court that private respondent was required by the trial
court to post a bond before the writ of advance execution
was issued.
In the case before us, the excess amount ordered to be
refunded by private respondent falls within the ruling in
Viloria and Buiser that Circular No. 416 applies to cases
where money is transferred from one person to another and
the obligation to return the same or a portion thereof is
subsequently adjudged.
Finally, petitioner questions as vague the ruling of the
Court
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of Appeals that the surety bond given to secure the advance

execution may be discharged “upon the finality and
satisfaction of the decision.” We believe that this ruling of
the Court of Appeals is clear enough in ordering that the
surety bond shall be released only after private respondent
has fully refunded the overpayment to petitioner.
WHEREFORE, the petition is GRANTED. The
Resolution of the Court of Appeals appealed from is
MODIFIED in that (1) the amount of P2,300,000.00
adjudged to be paid by petitioner to private respondent
shall earn interest of 6% per annum and (2) the amount of
P1,898,623.67 to be refunded by private respondent to
petitioner shall earn interest of 12% per annum. Costs
against private respondent.
SO ORDERED.
Cruz (Chairman), Griño-Aquino, Davide, Jr. and

Bellosillo, JJ., concur.
Petition granted. Appealed resolution modified.
Note.—The adjusted rate mentioned in Circular No. 416

of the Central Bank refers only to loans or forbearance of
money, goods or credits and court judgments thereon but
not to court judgments for damages arising from injury to
persons and loss of property which does not involve a loan
(Tio Khe Chio vs. Court of Appeals, 202 SCRA 119).
——o0o——
278
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
G.R. No. 192986. January 15, 2013.*
ADVOCATES FOR TRUTH IN LENDING, INC. and

EDUARDO B. OLAGUER, petitioners, vs. BANGKO
SENTRAL MONETARY BOARD, represented by its
Chairman, GOVERNOR ARMANDO M. TETANGCO, JR.,
and its incumbent members: JUANITA D. AMATONG,
ALFREDO C. ANTONIO, PETER FAVILA, NELLY F.
VILLAFUERTE, IGNACIO R. BUNYE and CESAR V.
PURISIMA, respondents.
Remedial Law; Special Civil Actions; Certiorari; A petition for

certiorari being an extraordinary remedy, the party seeking to
avail of the same must strictly observe the procedural rules laid
down by law, and non-observance thereof may not be brushed
aside as mere technicality.—The decision on whether or not to
accept a petition for certiorari, as well as to grant due course
thereto, is addressed to the sound discretion of the court. A
petition for certiorari being an extraordinary remedy, the party
seeking to avail of the same must strictly observe the procedural
rules laid down by law, and non-observance thereof may not be
brushed aside as mere technicality. As provided in Section 1 of
Rule 65, a writ of certiorari is directed against a tribunal
exercising judicial or quasi-judicial functions. Judicial functions
are exercised by a body or officer clothed with authority to
determine what the law is and what the legal rights of the parties
are with respect to the matter in controversy. Quasi-judicial
function is a term that applies to the action or discretion of public
administrative officers or bodies given the authority to investigate
facts or ascertain the existence of facts, hold hearings, and draw
conclusions from them as a basis for their official action using
discretion of a judicial nature.
Same; Civil Procedure; Locus Standi; Words and Phrases;
Locus standi is defined as a right of appearance in a court of
justice on a given question.—Locus standi is defined as “a right of
appearance in a court of justice on a given question.” In private
suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that “every action must be prosecuted or defended in the
name of the real party in interest,” who is “the party who stands
to be benefited or injured
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* EN BANC.
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Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary

Board
by the judgment in the suit or the party entitled to the avails of

the suit.” Succinctly put, a party’s standing is based on his own
right to the relief sought.
Same; Same; Same; In Prof. David v. Pres. Macapagal-
Arroyo, 489 SCRA 160 (2006), the Supreme Court summarized the
requirements before taxpayers, voters, concerned citizens, and
legislators can be accorded a standing to sue.—In Prof. David v.
Pres. Macapagal-Arroyo, 489 SCRA 160 (2006), the Court
summarized the requirements before taxpayers, voters, concerned
citizens, and legislators can be accorded a standing to sue, viz.: (1)
the cases involve constitutional issues; (2) for taxpayers, there
must be a claim of illegal disbursement of public funds or that the
tax measure is unconstitutional; (3) for voters, there must be a
showing of obvious interest in the validity of the election law in
question; (4) for concerned citizens, there must be a showing that
the issues raised are of transcendental importance which must be
settled early; and (5) for legislators, there must be a claim that
the official action complained of infringes upon their prerogatives
as legislators.
Usury Law; Central Bank (CB) Circular No. 905; Central
Bank (CB) Circular No. 905 did not repeal nor in anyway amend
the Usury Law but simply suspended the latter’s effectivity; that a
Central Bank (CB) Circular cannot repeal a law, for only a law
can repeal another law; that by virtue of CB Circular No. 905, the
Usury Law has been rendered ineffective; and Usury Law has been
legally non-existent in our jurisdiction.—The power of the CB to
effectively suspend the Usury Law pursuant to P.D. No. 1684 has
long been recognized and upheld in many cases. As the Court
explained in the landmark case of Medel v. CA, 299 SCRA 481
(1998), citing several cases, CB Circular No. 905 “did not repeal
nor in anyway amend the Usury Law but simply suspended the
latter’s effectivity”; that “a [CB] Circular cannot repeal a law, [for]
only a law can repeal another law”; that “by virtue of CB Circular
No. 905, the Usury Law has been rendered ineffective”; and
“Usury has been legally non-existent in our jurisdiction. Interest
can now be charged as lender and borrower may agree upon.”
Same; Section 109 of R.A. No. 265 covered only loans extended
by banks, whereas under Section 1-a of the Usury Law, as
amended, the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB) may
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Board
prescribe the maximum rate or rates of interest for all loans or

renewals thereof or the forebearance of any money, goods or
credits, including those for loans of low priority such as consumer
loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions.—A closer perusal
shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law,
as amended, the BSP-MB may prescribe the maximum rate or
rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for
loans of low priority such as consumer loans, as well as such loans
made by pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial
intermediaries. Act No. 2655, an earlier law, is much broader in
scope, whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other financial
institutions. Had R.A. No. 7653 been intended to repeal Section 1-
a of Act No. 2655, it would have so stated in unequivocal terms.
Statutes; Implied Repeals; Repeals by implication are not
favored, because laws are presumed to be passed with deliberation
and full knowledge of all laws existing pertaining to the subject.—
The rule is settled that repeals by implication are not favored,
because laws are presumed to be passed with deliberation and full
knowledge of all laws existing pertaining to the subject. An
implied repeal is predicated upon the condition that a substantial
conflict or repugnancy is found between the new and prior laws.
Thus, in the absence of an express repeal, a subsequent law
cannot be construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy exists in the terms of
the new and old laws. We find no such conflict between the
provisions of Act 2655 and R.A. No. 7653.
Usury Law; Interest Rates; Stipulations authorizing
iniquitous or unconscionable interests have been invariably struck
down for being contrary to morals, if not against the law; In a
usurious loan with mortgage, the right to foreclose the mortgage
subsists, and this right can be exercised by the creditor upon
failure by the debtor to pay the debt due. The debt due is
considered as without the stipulated excessive interest, and the
legal interest of 12% per annum will be added in place of the
excessive interest formerly imposed.—It is set-
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Board
tled that nothing in CB Circular No. 905 grants lenders a carte

blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets.

As held in Castro v. Tan, 605 SCRA 231 (2009): The imposition of
an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous
deprivation of property, repulsive to the common sense of man. It
has no support in law, in principles of justice, or in the human
conscience nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be sustained
within the sphere of public or private morals. Stipulations
authorizing iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not against
the law. Indeed, under Article 1409 of the Civil Code, these
contracts are deemed inexistent and void ab initio, and therefore
cannot be ratified, nor may the right to set up their illegality as a
defense be waived. Nonetheless, the nullity of the stipulation of
usurious interest does not affect the lender’s right to recover the
principal of a loan, nor affect the other terms thereof. Thus, in a
usurious loan with mortgage, the right to foreclose the mortgage
subsists, and this right can be exercised by the creditor upon
failure by the debtor to pay the debt due. The debt due is
considered as without the stipulated excessive interest, and a
legal interest of 12% per annum will be added in place of the
excessive interest formerly imposed.
SPECIAL CIVIL ACTION in the Supreme Court.

Certiorari.
Nathaniel A. Lobigas for petitioners.
The Solicitor General for respondents.
REYES, J.:
Petitioners, claiming that they are raising issues of
transcendental importance to the public, filed directly with
this Court this Petition for Certiorari under Rule 65 of the
1997 Rules of Court, seeking to declare that the Bangko
Sentral ng Pilipinas Monetary Board (BSP-MB), replacing
the Central
534

Advocates for Truth in Lending, Inc. vs. Bangko Sentral
Monetary Board
Bank Monetary Board (CB-MB) by virtue of Republic Act

(R.A.) No. 7653, has no authority to continue enforcing
Central Bank Circular No. 905,1 issued by the CB-MB in
1982, which “suspended” Act No. 2655, or the Usury Law of
1916.
Factual Antecedents
Petitioner “Advocates for Truth in Lending, Inc.”

(AFTIL) is a nonprofit, non-stock corporation organized to
engage in pro bono concerns and activities relating to
money lending issues. It was incorporated on July 9, 2010,2
and a month later, it filed this petition, joined by its
founder and president, Eduardo B. Olaguer, suing as a
taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of
the Philippines on June 15, 1948, empowered the CB-MB
to, among others, set the maximum interest rates which
banks may charge for all types of loans and other credit
operations, within limits prescribed by the Usury Law.
Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges.—The

Monetary Board may fix the maximum rates of interest which
banks may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the
Usury Law fix the maximum rates of interest which banks may
charge for different types of loans and for any other credit
operations, or may fix the maximum differences which may exist
between the interest or rediscount rates of the Central Bank and
the rates which the banks may charge their customers if the
respective credit documents are not to lose their eligibility for
rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for
the borrowing or lending operations of the banks shall apply only
to future operations and not to those made prior to the date on
which the modification becomes effective.
_______________
1 Rollo, pp. 48-56.
2 Id., at pp. 40-45.
535
VOL. 688, JANUARY 15, 2013 535

Board
In order to avoid possible evasion of maximum interest rates

set by the Monetary Board, the Board may also fix the maximum
rates that banks may pay to or collect from their customers in the
form of commissions, discounts, charges, fees or payments of any
sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by

Presidential Decree (P.D.) No. 1684, giving the CB-MB
authority to prescribe different maximum rates of interest
which may be imposed for a loan or renewal thereof or the
forbearance of any money, goods or credits, provided that
the changes are effected gradually and announced in
advance. Thus, Section 1-a of Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to

prescribe the maximum rate or rates of interest for the loan or
renewal thereof or the forbearance of any money, goods or credits,
and to change such rate or rates whenever warranted by
prevailing economic and social conditions: Provided, That changes
in such rate or rates may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the Monetary
Board may prescribe higher maximum rates for loans of low
priority, such as consumer loans or renewals thereof as well as
such loans made by pawnshops, finance companies and other
similar credit institutions although the rates prescribed for these
institutions need not necessarily be uniform. The Monetary Board
is also authorized to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries. (Underlining and
emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the

CB-MB issued CB Circular No. 905, Series of 1982,
effective on January 1, 1983. Section 1 of the Circular,
under its General Provisions, removed the ceilings on
interest rates on loans or forbearance of any money, goods
or credits, to wit:
_______________
3 Id., at pp. 48-56.
536

Monetary Board
Sec. 1. The rate of interest, including commissions,

premiums, fees and other charges, on a loan or forbearance of any
money, goods, or credits, regardless of maturity and whether
secured or unsecured, that may be charged or collected by any
person, whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as
amended. (Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the

CB’s “Manual of Regulations for Banks and Other
Financial Intermediaries” (Manual of Regulations) by
removing the applicable ceilings on specific interest rates.
Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended
Book I, Subsections 1303, 1349, 1388.1 of the Manual of
Regulations, by removing the ceilings for interest and other
charges, commissions, premiums, and fees applicable to
commercial banks; Sections 12 and 17 removed the interest
ceilings for thrift banks (Book II, Subsections 2303, 2349);
Sections 19 and 21 removed the ceilings applicable to rural
banks (Book III, Subsection 3152.3-c); and, Sections 26, 28,

30 and 32 removed the ceilings for non-bank financial
intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9,
4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into
law R.A. No. 7653 establishing the Bangko Sentral ng
Pilipinas (BSP) to replace the CB. The repealing clause
thereof, Section 135, reads:
Sec. 135. Repealing Clause.—Except as may be provided for

in Sections 46 and 132 of this Act, Republic Act No. 265, as
amended, the provisions of any other law, special charters, rule or
regulation issued pursuant to said Republic Act No. 265, as
amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.
_______________
4 Id., at pp. 10-12.
537
VOL. 688, JANUARY 15, 2013 537

Monetary Board
Petition for Certiorari

To justify their skipping the hierarchy of courts and
going directly to this Court to secure a writ of certiorari,
petitioners contend that the transcendental importance of
their Petition can readily be seen in the issues raised
therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684,
the CB-MB had the statutory or constitutional
authority to prescribe the maximum rates of interest
for all kinds of credit transactions and forbearance of
money, goods or credit beyond the limits prescribed in
the Usury Law;
b) If so, whether the CB-MB exceeded its authority
when it issued CB Circular No. 905, which removed
all interest ceilings and thus suspended Act No. 2655
as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may
continue to enforce CB Circular No. 905.5
Petitioners attached to their petition copies of several
Senate Bills and Resolutions of the 10th Congress, which
held its sessions from 1995 to 1998, calling for
investigations by the Senate Committee on Banks and
Financial Institutions into alleged unconscionable
commercial rates of interest imposed by these entities.
Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator
Vicente C. Sotto III and the late Senator Blas F. Ople,
respectively, sought to amend Act No. 2655 by fixing the
rates of interest on loans and forbearance of credit;

Philippine Senate Resolution (SR) No. 1053,8 10739 and
1102,10 filed by Senators Ramon B. Magsaysay, Jr.,
Gregorio B. Honasan and
_______________
5 Id., at p. 13.
6 Id., at pp. 31-32.
7 Id., at p. 33.
8 Id., at pp. 34-35.
9 Id., at pp. 36-37.
10 Id., at p. 38.
538

Monetary Board
Franklin M. Drilon, respectively, urged the aforesaid

Senate Committee to investigate ways to curb the high
commercial interest rates then obtaining in the country;
Senator Ernesto Maceda filed SB No. 1151 to prohibit the
collection of more than two months of advance interest on
any loan of money; and Senator Raul Roco filed SR No.
114411 seeking an investigation into an alleged cartel of
commercial banks, called “Club 1821”, reportedly behind
the regime of high interest rates. The petitioners also
attached news clippings12 showing that in February 1998
the banks’ prime lending rates, or interests on loans to
their best borrowers, ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No.
2655, as amended by P.D. No. 1684, the CB-MB was
authorized only to prescribe or set the maximum rates of
interest for a loan or renewal thereof or for the forbearance
of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social
conditions, the changes to be effected gradually and on
scheduled dates; that nothing in P.D. No. 1684 authorized
the CB-MB to lift or suspend the limits of interest on all
credit transactions, when it issued CB Circular No. 905.
They further insist that under Section 109 of R.A. No. 265,
the authority of the CB-MB was clearly only to fix the
banks’ maximum rates of interest, but always within the
limits prescribed by the Usury Law.
Thus, according to petitioners, CB Circular No. 905,
which was promulgated without the benefit of any prior
public hearing, is void because it violated Article 5 of the
New Civil Code, which provides that “Acts executed against
the provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity.”
They further claim that just weeks after the issuance of
CB Circular No. 905, the benchmark 91-day Treasury bills
(T-
_______________
11 Id., at p. 30.
12 Id., at pp. 26-29.
539
VOL. 688, JANUARY 15, 2013 539

Monetary Board
bills),13 then known as “Jobo” bills14 shot up to 40% per

annum, as a result. The banks immediately followed suit
and re-priced their loans to rates which were even higher
than those of the “Jobo” bills. Petitioners thus assert that
CB Circular No. 905 is also unconstitutional in light of
Section 1 of the Bill of Rights, which commands that “no
person shall be deprived of life, liberty or property without
due process of law, nor shall any person be denied the
equal protection of the laws.”
Finally, petitioners point out that R.A. No. 7653 did not
re-enact a provision similar to Section 109 of R.A. No. 265,
and therefore, in view of the repealing clause in Section
135 of R.A. No. 7653, the BSP-MB has been stripped of the
power either to prescribe the maximum rates of interest
which banks may charge for different kinds of loans and
credit transactions, or to suspend Act No. 2655 and
continue enforcing CB Circular No. 905.
Ruling
The petition must fail.

A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for
certiorari, as well as to grant due course thereto, is
addressed to the sound discretion of the court.15 A petition
for certiorari being an extraordinary remedy, the party
seeking to avail of the same must strictly observe the
procedural rules laid down by law, and non-observance
thereof may not be brushed aside as mere technicality.16
_______________
13 Treasury bills are government debt securities issued by the Bureau
of the Treasury with maturities of less than 1 year.
14 Named after CB Governor Jose “Jobo” Fernandez.
15 Chong v. Dela Cruz, G.R. No. 184948, July 21, 2009, 593 SCRA 311,
313-314.
16 Sea Power Shipping Enterprises, Inc. v. Court of Appeals, 412 Phil.
603, 611; 360 SCRA 173, 181 (2001).
540

Monetary Board
As provided in Section 1 of Rule 65, a writ of certiorari is

directed against a tribunal exercising judicial or quasi-
judicial functions.17 Judicial functions are exercised by a
body or officer clothed with authority to determine what
the law is and what the legal rights of the parties are with
respect to the matter in controversy. Quasi-judicial
function is a term that applies to the action or discretion of
public administrative officers or bodies given the authority
to investigate facts or ascertain the existence of facts, hold
hearings, and draw conclusions from them as a basis for
their official action using discretion of a judicial nature.18
The CB-MB (now BSP-MB) was created to perform
executive functions with respect to the establishment,
operation or liquidation of banking and credit institutions,
and branches and agencies thereof.19 It does not perform
judicial or quasi-judicial functions. Certainly, the issuance
of CB Circular No. 905 was done in the exercise of an
executive function. Certiorari will not lie in the instant
case.20
_______________
17 Sec. 1. Petition for certiorari.—When any tribunal, board or officer
exercising judicial or quasi-judicial functions 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, and 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.
18 Chamber of Real Estate and Builders’ Associations, Inc. (CREBA) v.
Energy Regulatory Commission (ERC), G.R. No. 174697, July 8, 2010, 624
SCRA 556, 571.
19 Central Bank of the Philippines v. Court of Appeals, 158 Phil. 986,
993; 61 SCRA 348, 355 (1974).
20 In Philnabank Employees Association v. Estanislao (G.R. No.
104209, November 16, 1993, 227 SCRA 804), the Supreme Court refused
to issue a writ of certiorari against the Secretaries of Finance and of Labor
after noting that they did not act in any judicial or
541
VOL. 688, JANUARY 15, 2013 541

Monetary Board
B. Petitioners have no locus standi

to file the Petition
Locus standi is defined as “a right of appearance in a

court of justice on a given question.” In private suits,
Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that “every action must be prosecuted or defended
in the name of the real party in interest,” who is “the party
who stands to be benefited or injured by the judgment in
the suit or the party entitled to the avails of the suit.”
Succinctly put, a party’s standing is based on his own right
to the relief sought.21
Even in public interest cases such as this petition, the
Court has generally adopted the “direct injury” test that
the person who impugns the validity of a statute must have
“a personal and substantial interest in the case such that
he has sustained, or will sustain direct injury as a result.”22
Thus, while petitioners assert a public right to assail CB
Circular No. 905 as an illegal executive action, it is
nonetheless required of them to make out a sufficient
interest in the vindication of the public order and the
securing of relief. It is significant that in this petition, the
petitioners do not allege that they sustained any personal
injury from the issuance of CB Circular No. 905.
Petitioners also do not claim that public funds were
being misused in the enforcement of CB Circular No. 905.
In Kilosbayan, Inc. v. Morato,23 involving the on-line
lottery contract of the PCSO, there was no allegation that
public funds were
_______________
quasi-judicial capacity but were merely promulgating the implementing
rules of R.A. No. 6971, the Productivity Incentives Act of 1990.
21 Prof. David v. Pres. Macapagal-Arroyo, 522 Phil. 705, 755-756; 489
SCRA 160, 216 (2006). (Citations omitted)
22 People of the Philippines and HSBC v. Vera, 65 Phil. 56, 89 (1937).
23 320 Phil. 171; 246 SCRA 540 (1995); 316 Phil. 652; 250 SCRA 130
(1995).
542

Monetary Board
being misspent, which according to the Court would have

made the action a public one, “and justify relaxation of the
requirement that an action must be prosecuted in the name
of the real party-in-interest.” The Court held, moreover,
that the status of Kilosbayan as a people’s organization did
not give it the requisite personality to question the validity
of the contract. Thus:
Petitioners do not in fact show what particularized interest

they have for bringing this suit. It does not detract from the high
regard for petitioners as civic leaders to say that their interest
falls short of that required to maintain an action under the Rule

3, Sec. 2.24
C. The Petition raises no issues of

transcendental importance.
In the 1993 case of Joya v. Presidential Commission on
Good Government,25 it was held that no question involving
the constitutionality or validity of a law or governmental
act may be heard and decided by the court unless there is
compliance with the legal requisites for judicial inquiry,
namely: (a) that the question must be raised by the proper
party; (b) that there must be an actual case or controversy;
(c) that the question must be raised at the earliest possible
opportunity; and (d) that the decision on the constitutional
or legal question must be necessary to the determination of
the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court
summarized the requirements before taxpayers, voters,
concerned citizens, and legislators can be accorded a
standing to sue, viz.:
_______________
24 Id., at p. 696.
25 G.R. No. 96541, August 24, 1993, 225 SCRA 568.
26 Supra note 21.
543
VOL. 688, JANUARY 15, 2013 543

Monetary Board
(1) the cases involve constitutional issues;

(2) for taxpayers, there must be a claim of illegal disbursement of
public funds or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the
validity of the election law in question;
(4) for concerned citizens, there must be a showing that the issues
raised are of transcendental importance which must be settled
early; and
(5) for legislators, there must be a claim that the official action
complained of infringes upon their prerogatives as legislators.
While the Court may have shown in recent decisions a

certain toughening in its attitude concerning the question
of legal standing, it has nonetheless always made an
exception where the transcendental importance of the
issues has been established, notwithstanding the
petitioners’ failure to show a direct injury.27 In CREBA v.
ERC,28 the Court set out the following instructive guides as
determinants on whether a matter is of transcendental
importance, namely: (1) the character of the funds or other
assets involved in the case; (2) the presence of a clear case
of disregard of a constitutional or statutory prohibition by
the public respondent agency or instrumentality of the

government; and (3) the lack of any other party with a
more direct and specific interest in the questions being
raised. Further, the Court stated in Anak Mindanao Party-
List Group v. The Executive Secretary29 that the rule on
standing will not be waived where these determinants are
not established.
In the instant case, there is no allegation of misuse of
public funds in the implementation of CB Circular No. 905.
Neither were borrowers who were actually affected by the
sus-
_______________
27 Id.
28 Supra note 18.
29 G.R. No. 166052, August 29, 2007, 531 SCRA 583.
544

Monetary Board
pension of the Usury Law joined in this petition. Absent

any showing of transcendental importance, the petition
must fail.
More importantly, the Court notes that the instant
petition adverted to the regime of high interest rates which
obtained at least 15 years ago, when the banks’ prime
lending rates ranged from 26% to 31%,30 or even 29 years
ago, when the 91-day Jobo bills reached 40% per annum. In
contrast, according to the BSP, in the first two (2) months
of 2012 the bank lending rates averaged 5.91%, which
implies that the banks’ prime lending rates were lower;
moreover, deposit interests on savings and long-term
deposits have also gone very low, averaging 1.75% and
1.62%, respectively.31
Judging from the most recent auctions of T-bills, the
savings rates must be approaching 0%. In the auctions held
on November 12, 2012, the rates of 3-month, 6-month and
1-year T-bills have dropped to 0.150%, 0.450% and 0.680%,
respectively.32 According to Manila Bulletin, this very low
interest regime has been attributed to “high liquidity and
strong investor demand amid positive economic indicators
of the country.”33
While the Court acknowledges that cases of
transcendental importance demand that they be settled
promptly and definitely, brushing aside, if we must,
technicalities of procedure,34 the delay of at least 15 years
in the filing of the instant
_______________
30 Rollo, p. 27. In contrast, as reported in the October 10, 2012 issue of

the Philippine Daily Inquirer, Section B-2-1, a recent 25-year treasury
bond issue, government securities which mature in more than a year,
carried an annual rate of 6.125%, way below 31%. It fetched P63 billion,
more than double the government’s original offer of P30 billion.
31 See www.bsp.gov.ph/statistics.online.asp.
32 Manila Bulletin article, November 13, 2012, p. B-1: “Treasury Bill
Yields Tumble to Record Lows, 91-Day at 0.150%”
33 Id.
34 Araneta v. Dinglasan, 84 Phil. 368, 373 (1949).
545
VOL. 688, JANUARY 15, 2013 545

Monetary Board
petition has actually rendered moot and academic the

issues it now raises.
For its part, BSP-MB maintains that the petitioners’
allegations of constitutional and statutory violations of CB
Circular No. 905 are really mere challenges made by
petitioners concerning the wisdom of the Circular. It
explains that it was in view of the global economic
downturn in the early 1980’s that the executive department
through the CB-MB had to formulate policies to achieve
economic recovery, and among these policies was the
establishment of a market-oriented interest rate structure
which would require the removal of the government-
imposed interest rate ceilings.35
D. The CB-MB merely suspended
the effectivity of the Usury Law
when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury
Law pursuant to P.D. No. 1684 has long been recognized
and upheld in many cases. As the Court explained in the
landmark case of Medel v. CA,36 citing several cases, CB
Circular No. 905 “did not repeal nor in anyway amend the
Usury Law but simply suspended the latter’s effectivity”;37
that “a [CB] Circular cannot repeal a law, [for] only a law
can repeal another law”;38 that “by virtue of CB Circular
No. 905, the Usury Law has been rendered ineffective”;39
and “Usury has been legally
_______________
35 Rollo, pp. 79-80, 103-105.
36 359 Phil. 820; 299 SCRA 481 (1998).
37 Security Bank and Trust Co. v. RTC-Makati, Branch 61, 331 Phil.
787, 793; 263 SCRA 483, 488 (1996).
38 Palanca v. Court of Appeals, G.R. No. 106685, December 2, 1994,
238 SCRA 593, 601.
39 Sps. Florendo v. Court of Appeals, 333 Phil. 535, 546; 265 SCRA 678,
687 (1996).
546

Monetary Board
non-existent in our jurisdiction. Interest can now be

charged as lender and borrower may agree upon.”40
In First Metro Investment Corp. v. Este Del Sol
Mountain Reserve, Inc.41 cited in DBP v. Perez,42 we also
belied the contention that the CB was engaged in self-
legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way
amend the Usury Law but simply suspended the latter’s
effectivity. The illegality of usury is wholly the creature of
legislation. A Central Bank Circular cannot repeal a law. Only a
law can repeal another law. x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a

loan agreement authorized the PNB to unilaterally
increase the rate of interest to 25% per annum, plus a
penalty of 6% per annum on past dues, then to 30% on
October 15, 1984, and to 42% on October 25, 1984. The
Supreme Court invalidated the rate increases made by the
PNB and upheld the 12% interest imposed by the CA, in
this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow
contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously stipulated.
x x x.45
Thus, according to the Court, by lifting the interest

ceiling, CB Circular No. 905 merely upheld the parties’
freedom of
_______________
40 People v. Dizon, 329 Phil. 685, 696; 260 SCRA 851, 859 (1996).
41 420 Phil. 902; 369 SCRA 99 (2001).
42 484 Phil. 843; 442 SCRA 238 (2004).
43 Supra note 41, at p. 914; p. 111, citing Medel v. Court of Appeals,
supra note 36, at p. 829; p. 489; Security Bank and Trust v. RTC Makati,
Branch 61, supra note 37; Palanca v. Court of Appeals, supra note 38.
44 G.R. No. 107569, November 8, 1994, 238 SCRA 20.
45 Id., at p. 25.
547
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Monetary Board
contract to agree freely on the rate of interest. It cited

Article 1306 of the New Civil Code, under which the
contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
E. The BSP-MB has authority to
enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that “The rate
of interest, including commissions, premiums, fees and
other charges, on a loan or forbearance of any money,
goods, or credits, regardless of maturity and whether
secured or unsecured, that may be charged or collected by
person, whether natural or juridical, shall not be subject to
any ceiling prescribed under or pursuant to the Usury Law,
as amended.” It does not purport to suspend the Usury Law
only as it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had
power to “suspend” the Usury Law, the new BSP-MB did
not retain this power of its predecessor, in view of Section
135 of R.A. No. 7653, which expressly repealed R.A. No.
265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265
covered only loans extended by banks, whereas under
Section 1-a of the Usury Law, as amended, the BSP-MB
may prescribe the maximum rate or rates of interest for all
loans or renewals thereof or the forbearance of any money,
goods or credits, including those for loans of low priority
such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit
institutions. It even authorizes the BSP-MB to prescribe
different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries.
548

Monetary Board
Act No. 2655, an earlier law, is much broader in scope,

whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other
financial institutions. Had R.A. No. 7653 been intended to
repeal Section 1-a of Act No. 2655, it would have so stated
in unequivocal terms.
Moreover, the rule is settled that repeals by implication

are not favored, because laws are presumed to be passed
with deliberation and full knowledge of all laws existing
pertaining to the subject.46 An implied repeal is predicated
upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws. Thus,
in the absence of an express repeal, a subsequent law
cannot be construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy exists in the
terms of the new and old laws.47 We find no such conflict
between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for in-
terest rates does not authorize stipu-
lations charging excessive, uncon-
scionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants
lenders a carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.48 As held in Castro v. Tan:49
_______________
46 Sps. Recaña, Jr. v. Court of Appeals, 402 Phil. 26, 35; 349 SCRA 24,
33 (2001), citing City Government of San Pablo, Laguna v. Reyes, 364 Phil.
842; 305 SCRA 353 (1999).
47 Berces, Jr. v. Guingona, Jr., 311 Phil. 614, 620; 241 SCRA 539, 544
(1995).
48 Spouses Solangon v. Salazar, 412 Phil. 816, 822; 360 SCRA 379, 384
(2001), citing Sps. Almeda v. Court of Appeals, 326 Phil. 309; 256 SCRA
292 (1996).
549
VOL. 688, JANUARY 15, 2013 549

Monetary Board
The imposition of an unconscionable rate of interest on a

money debt, even if knowingly and voluntarily assumed, is
immoral and unjust. It is tantamount to a repugnant spoliation
and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason
whatsoever which may justify such imposition as righteous and as
one that may be sustained within the sphere of public or private
morals.50
Stipulations authorizing iniquitous or unconscionable

interests have been invariably struck down for being
contrary to morals, if not against the law.51 Indeed, under
Article 1409 of the Civil Code, these contracts are deemed
inexistent and void ab initio, and therefore cannot be
ratified, nor may the right to set up their illegality as a

defense be waived.
Nonetheless, the nullity of the stipulation of usurious
interest does not affect the lender’s right to recover the
principal of a loan, nor affect the other terms thereof.52
Thus, in a usurious loan with mortgage, the right to
foreclose the mortgage subsists, and this right can be
exercised by the creditor upon failure by the debtor to pay
the debt due. The debt due is considered as without the
stipulated excessive interest, and a legal interest of 12%
per annum will be added in place of the excessive interest
formerly imposed,53 following the guidelines laid down in
the landmark case of Eastern Shipping Lines,
_______________
50 Id., at pp. 232-233, citing Ibarra v. Aveyro, 37 Phil. 273, 282 (1917).
51 Medel v. Court of Appeals, supra note 36, at p. 830; p. 489.
52 First Metro Investment Corp. v. Este del Sol Mountain Reserve, Inc.,
supra note 41, at p. 918; p. 115.
53 See Castro v. Tan, supra note 49, at p. 240; Heirs of Zoilo Espiritu v.
Landrito, G.R. No. 169617, April 3, 2007, 520 SCRA 383, 394; Cuaton v.
Salud, 465 Phil. 999; 421 SCRA 278 (2004); Sps. Almeda v. Court of
Appeals, supra note 48; First Metro Investment Corp. v. Este Del Sol
Mountain Reserve, Inc., supra note 41, at p. 918; Ruiz v. Court of Appeals,
449 Phil. 419, 433-435; 401 SCRA 410, 421 (2003); Spouses Solangon v.
Salazar, supra note 48.
550

Monetary Board
Inc. v. Court of Appeals,54 regarding the manner of

computing legal interest:
II. With regard particularly to an award of interest in the

concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where

the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.55 (Citations omitted)
_______________
54 G.R. No. 97412, July 12, 1994, 234 SCRA 78.
55 Id., at pp. 95-97.
551
VOL. 688, JANUARY 15, 2013 551

Monetary Board
The foregoing rules were further clarified in Sunga-

Chan v. Court of Appeals,56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the

imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall
apply only to loans or forbearance of money, goods, or credits, as
well as to judgments involving such loan or forbearance of money,
goods, or credit, while the 6% per annum under Art. 2209 of the
Civil Code applies “when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general,” with the
application of both rates reckoned “from the time the complaint
was filed until the [adjudged] amount is fully paid.” In either
instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition “that
the courts are vested with discretion, depending on the equities of
each case, on the award of interest.”57 (Citations omitted)
WHEREFORE, premises considered, the Petition for

certiorari is DISMISSED.
SO ORDERED.
Sereno (C.J.), Carpio, Velasco, Jr., Leonardo-De Castro,

Peralta, Bersamin, Del Castillo, Abad, Villarama, Jr.,
Perez, Mendoza, Perlas-Bernabe and Leonen, JJ., concur.
Brion, J., On leave.
Petition dismissed.
Notes.—Stipulations authorizing iniquitous or

unconscionable interests are contrary to morals if not
against the law. (Castro vs. Tan, 605 SCRA 231 [2009])
_______________
56 G.R. No. 164401, June 25, 2008, 555 SCRA 275.
57 Id., at p. 288.
552

Monetary Board
The nullity of the stipulation on the usurious interest

does not, however, affect the lender’s right to recover the
principal of the loan, nor would it affect the terms of the
real estate mortgage. (Asian Cathay Finance and Leasing
Corporation vs. Gravador, 623 SCRA 517 [2010])
——o0o——
VOL. 299, NOVEMBER 27, 1998 481

Medel vs. Court of Appeals
*
G.R. No. 131622. November 27, 1998.
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and

SERVANDO FRANCO, petitioners, vs. COURT OF
APPEALS, SPOUSES VERONICA R. GONZALES and
DANILO G. GONZALES, JR. doing lending business under
the trade name and style “GONZALES CREDIT
ENTERPRISES,” respondents.
Loans; Usury Law; Interest Rates; A stipulated rate of interest

at 5.5% per month on a P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant; The Usury Law is now “legally
inexistent.”—We agree with petitioners that the stipulated rate of
interest
__________________
* THIRD DIVISION.
482
at 5.5% per month on the P500,000.00 loan is excessive,

iniquitous, unconscionable and exorbitant. However, we can not
consider the rate “usurious” because this Court has consistently
held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is now
“legally inexistent.”
Same; Same; Same; C.B. Circular No. 905 “did not repeal nor
in any way amend the Usury Law but simply suspended the
latter’s effectivity.”—In Security Bank and Trust Company vs.
Regional Trial Court of Makati, Branch 61 the Court held that CB
Circular No. 905 “did not repeal nor in any way amend the Usury
Law but simply suspended the latter’s effectivity.” Indeed, we
have held that “a Central Bank Circular can not repeal a law.
http://www.central.com.ph/sfsreader/session/000001670e1059c17ad7fcd6003600fb002c009e/t/?o=False 1/10
Only a law can repeal another law.” In the recent case of Florendo
vs. Court of Appeals, the Court reiterated the ruling that “by
virtue of CB Circular No. 905, the Usury Law has been rendered
ineffective.” “Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower
may agree upon.”
Same; Same; Same; The courts shall reduce equitably

liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable.—We find the
interest at 5.5% per month, or 66% per annum, stipulated upon by
the parties in the promissory note iniquitous or unconscionable,
and, hence, contrary to morals (“contra bonos mores”), if not
against the law. The stipulation is void. The courts shall reduce
equitably liquidated damages, whether intended as an indemnity
or a penalty if they are iniquitous or unconscionable.
PETITION for review on certiorari of a decision of the

Court of Appeals.

De Castro & Cagampang Law Offices for petitioners.
Leopoldo C. Sta. Maria for private respondents.
PARDO, J.:
The case before the Court is a petition for review on

certiorari, under Rule 45 of the Revised Rules of Court,
seeking to
483
VOL. 299, NOVEMBER 27, 1998 483

1
set aside the decision of the Court 2
of Appeals, and its
resolution denying reconsideration, the dispositive portion
of which decision reads as follows:
“WHEREFORE, the appealed judgment is hereby MODIFIED

such that defendants are hereby ordered to pay the plaintiff: the
sum of P500,000.00, plus 5.5% per month interest and 2% service
charge per annum effective July 23, 1986, plus 1% per month of
the total amount due and demandable as penalty charges effective
August 23, 1986, until the entire amount is fully paid.
“The award to the plaintiff of P50,000.00 as attorney’s fees is
affirmed. And so3 is the imposition of costs against the defendants.
SO ORDERED.”
The Court4
required the respondents to comment 5
on the
petition, which was filed on April 3, 1998, and the
petitioners
6
to reply thereto, which was filed on May 29,
1998. We now resolve to give due course to the petition and
decide the case.
The facts of the case, as found by the Court of Appeals in

its decision, which are considered binding and conclusive
on the parties herein, as the appeal is limited to questions
of law, are as follows:
On November 7, 1985, Servando Franco and Leticia
Medel (hereafter Servando and Leticia) obtained a loan
from Veronica R. Gonzales (hereafter Veronica), who was
engaged in the money lending business under the name
“Gonzales Credit Enterprises,” in the amount of
P50,000.00, payable in two months. Veronica gave only the
amount of P47,000.00, to the borrowers, as she retained
P3,000.00, as advance interest for one month at 6% per
month. Servando and Leticia executed a
___________________
1 CA-G.R. CV No. 36096, promulgated on March 21, 1997.

2 Issued on November 25, 1995.
3 Rollo, pp. 22-28.
4 Resolution dated February 23, 1998, p. 44, Rollo.
5 Rollo, pp. 45-48.
6 Rollo, pp. 53-56.
484

promissory note for P50,000.00, to evidence the loan,

payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained
from Veronica another loan in the amount of P90,000.00,
payable in two months, at 6% interest per month. They
executed a promissory note to evidence the loan, maturing
on January 19, 1986. They received only P84,000.00, out of
the proceeds of the loan.
On maturity of the two promissory notes, the borrowers
failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from
Veronica still another loan in the amount of P300,000.00,
maturing in one month, secured by a real estate mortgage
over a property belonging to Leticia Makalintal
Yaptinchay, who issued a special power of attorney in favor
of Leticia Medel, authorizing her to execute the mortgage.
Servando and Leticia executed a promissory note in favor
of Veronica to pay the sum of P300,000.00, after a month,
or on July 11, 1986. However, only the sum of P275,000.00,
was given to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to
pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter’s
husband, Dr. Rafael Medel, consolidated all their previous
unpaid loans totaling P440,000.00, and sought from
Veronica another loan in the amount of P60,000.00,

bringing their indebtedness to a total of P500,000.00,
payable on August 23, 1986. They executed a promissory
note, reading as follows:
“Baliwag, Bulacan July 23, 1986

“Maturity Date August 23, 1986
“P500,000.00
“FOR VALUE RECEIVED, I/WE jointly and severally

promise to pay to the order of VERONICA R. GONZALES
doing business in the business style of GONZALES
CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the sum of
PESOS . . . . . FIVE HUNDRED THOUSAND . . . . .
(P500,000.00) Philippine Currency with interest thereon at
the
485
VOL. 299, NOVEMBER 27, 1998 485

rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the
amortization schedule contained herein. (Italics supplied)
“Payment will be made in full at the maturity date.
“Should I/WE fail to pay any amortization or portion
hereof when due, all the other installments together with
all interest accrued shall immediately be due and payable
and I/WE hereby agree to pay an additional amount
equivalent to one per cent (1%) per month of the amount due
and demandable as penalty charges in the form of
liquidated damages until fully paid; and the further sum of
TWENTY FIVE PER CENT (25%) thereof in full, without
deductions as Attorney’s Fee whether actually incurred or
not, of the total amount due and demandable, exclusive of
costs and judicial or extra judicial expenses. (Italics
supplied)
“I, WE further agree that in the event the present rate of
interest on loan is increased by law or the Central Bank of
the Philippines, the holder shall have the option to apply
and collect the increased interest charges without notice
although the original interest have already been collected
wholly or partially unless the contrary is required by law.
“It is also a special condition of this contract that the
parties herein agree that the amount of peso-obligation
under this agreement is based on the present value of the
peso, and if there be any change in the value thereof, due to
extraordinary inflation or deflation, or any other cause or
reason, then the peso-obligation herein contracted shall be
adjusted in accordance with the value of the peso then
prevailing at the time of the complete fulfillment of the

obligation.
“Demand and notice of dishonor waived. Holder may
accept partial payments and grant renewals of this note or
extension of payments, reserving rights against each and
all indorsers and all parties to this note.
“IN CASE OF JUDICIAL Execution of this obligation, or
any part of it, the debtors waive all his/their rights under
the provisions of Section 12, Rule 39, of the Revised Rules
of Court.”
On maturity of the loan, the borrowers failed to pay the
indebtedness of P500,000.00, plus interests and penalties,
evidenced by the above-quoted promissory note.
486

On February 20, 1990, Veronica R. Gonzales, joined by her

husband Danilo G. Gonzales, filed with the Regional Trial
Court of Bulacan, Branch 16, at Malolos, Bulacan, a
complaint for collection of the full amount of the loan
including interests and other charges.
In his answer to the complaint filed with the trial court
on April 5, 1990, defendant Servando alleged that he did
not obtain any loan from the plaintiffs; that it was
defendants Leticia and Dr. Rafael Medel who borrowed
from the plaintiffs the sum of P500,000.00, and actually
received the amount and benefited therefrom; that the loan
was secured by a real estate mortgage executed in favor of
the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.
In their separate answer filed on April 10, 1990,
defendants Leticia and Rafael Medel alleged that the loan
was the transaction of Leticia Yaptinchay, who executed a
mortgage in favor of the plaintiffs over a parcel of real
estate situated in San Juan, Batangas; that the interest
rate is excessive at 5.5% per month with additional service
charge of 2% per annum, and penalty charge of 1% per
month; that the stipulation for attorney’s fees of 25% of the
amount due is unconscionable, illegal and excessive, and
that substantial payments made were applied to interest,
penalties and other charges.
After due trial, the lower court declared that the due
execution and genuineness of the four promissory notes
had been duly proved, and ruled that although the Usury
Law had been repealed, the interest charged by the
plaintiffs on the loans was unconscionable and “revolting to
the conscience.” Hence, the trial court applied “the
provision of the New [Civil] Code” that the “legal rate of
interest for loan or
7
forbearance of money, goods or credit is
12% per annum.”
Accordingly, on December 9, 1991, the trial court

rendered judgment, the dispositive portion of which reads
as follows:
___________________
7 Petition, Rollo, pp. 8-21, 17.
487
VOL. 299, NOVEMBER 27, 1998 487

“WHEREFORE, premises considered, judgment is hereby

rendered, as follows:
“1. Ordering the defendants Servando Franco and Leticia

Medel, jointly and severally, to pay plaintiffs the amount
of P47,000.00 plus 12% interest per annum from
November 7, 1985 and 1% per month as penalty, until the
entire amount is paid in full;
“2. Ordering the defendants Servando Franco and Leticia Y.
Medel to plaintiffs, jointly and severally the amount of
P84,000.00 with 12% interest per annum and 1% per cent
per month as penalty from November 19, 1985 until the
whole amount is fully paid;
“3. Ordering the defendants to pay the plaintiffs, jointly and
severally, the amount of P285,000.00 plus 12% interest
per annum and 1% per month as penalty from July 11,
1986, until the whole amount is fully paid;
“4. Ordering the defendants to pay plaintiffs, jointly and
severally, the amount of P50,000.00 as attorney’s fees;
“5. All counterclaims are hereby dismissed.
8
“With costs against the defendants.”
In due time, both plaintiffs and defendants appealed to the

Court of Appeals.
In their appeal, plaintiffs-appellants argued that the
promissory note, which consolidated all the unpaid loans of
the defendants, is the law that governs the parties. They
further argued that Circular No. 416 of the Central Bank
prescribing the rate of interest for loans or forbearance of
money, goods or credit at 12% per annum, applies only in
the absence of a stipulation on interest rate, but not when
the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants’
contention. It ruled that “the Usury Law having become
‘legally inexistent’ with the promulgation by the Central
Bank in 1982 of Circular No. 905, the lender and borrower
could 9agree on any interest that may be charged on the
loan.” The
_________________
8 Rollo, pp. 36-A-43.
9 Citing Verdejo v. Court of Appeals, 157 SCRA 743 (1988); Liam Law
v. Olympic Sawmill Co., 129 SCRA 439 (1984).
488

Court of Appeals further held that “the imposition of ‘an

additional amount equivalent to 1% per month of the
amount due and demandable as penalty charges in the
form 10of liquidated damages until fully paid’ was allowed by
law.”
Accordingly, on March 21, 1997, the Court of Appeals
promulgated its decision reversing that of the Regional
Trial Court, disposing as follows:
“WHEREFORE, the appealed judgment is hereby MODIFIED

such that defendants are hereby ordered to pay the plaintiffs the
sum of P500,000.00, plus 5.5% per month interest and 2% service
charge per annum effective July 23, 1986, plus 1% per month of
the total amount due and demandable as penalty charges effective
August 24, 1986, until the entire amount is fully paid.
“The award to the plaintiffs of P50,000.00 as attorney’s fees is
affirmed. And so is the
11
imposition of costs against the defendants.
“SO ORDERED.”
On April 15, 1997, defendants-appellants filed a motion for

reconsideration of the said decision. By resolution dated
November12
25, 1997, the Court of Appeals denied the
motion.
Hence, defendants interposed 13
the present recourse via
petition for review on certiorari.
We find the petition meritorious.
Basically, the issue revolves on the validity of the
interest rate stipulated upon. Thus, the question presented
is whether or not the stipulated rate of interest at 5.5% per
month on the loan in the sum of P500,000.00, that
plaintiffs extended to the defendants is usurious. In other
words, is the Usury Law still effective, or has it been
repealed by Central Bank Circular No. 905, adopted on
December 22, 1982, pursuant to its powers under P.D. No.
116, as amended by P.D. No. 1684?
___________________
10 Citing Article 2209, Civil Code, and State Investment House, Inc. v.
Court of Appeals, 198 SCRA 390.
11 Rollo, p. 27.
12 Rollo, p. 36.
13 Rollo, pp. 8-21.
489
VOL. 299, NOVEMBER 27, 1998 489

We agree with petitioners that the stipulated rate of

interest at 5.5% per month on the P500,000.00 loan is 14
excessive, iniquitous, unconscionable and exorbitant.
However, we can not consider the rate “usurious” because
this Court has consistently held that Circular No. 905 of
the Central Bank, adopted on December 22, 1982, has
expressly removed
15
the interest ceilings prescribed by the
Usury Law16 and that the Usury Law is now “legally
inexistent.”
In Security Bank and Trust17Company vs. Regional Trial
Court of Makati, Branch 61 the Court held that CB
Circular No. 905 “did not repeal nor in any way amend the
Usury Law but simply suspended the latter’s effectivity.”
Indeed, we have held that “a Central Bank Circular18can not
repeal a law. Only a law can repeal another law.”19
In the
recent case of Florendo vs. Court of Appeals, the Court
reiterated the ruling that “by virtue of CB Circular 905, the
Usury Law has been rendered ineffective.” “Usury has been
legally non-existent in our jurisdiction. Interest can
20
now be
charged as lender and borrower may agree upon.”
Nevertheless, we find the interest at 5.5% per month, or
66% per annum, stipulated upon by the parties in the
promissory note iniquitous or unconscionable, and, hence,
contrary21 to morals (“contra bonos22
mores”), if not against
the law. The stipulation is void. The courts shall reduce
equitably liqui-
____________________
14 Petition, pp. 15-17, Rollo.

15 People v. Dizon, 329 Phil. 687 [1996].
16 Liam Law v. Olympic Sawmill Co., 129 SCRA 439, 442.
17 331 Phil. 787 [1996].
18 Palanca v. Court of Appeals, 238 SCRA 593, 601 [1994].
19 333 Phil. 535 [1996].
20 People v. Dizon, supra, citing other cases.
21 Article 1306, Civil Code.
22 Cf. Ibarra v. Aveyro, 37 Phil. 274; Almeda v. Court of Appeals, 256
SCRA 292 [1996].
490

dated damages, whether intended as an indemnity 23

or a
penalty if they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in upholding
the stipulation of the parties. Rather, we agree with the
trial court that, under the circumstances, interest at 12%
per annum, and an additional 1% a month penalty charge

as liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS
ASIDE the decision of the Court of Appeals promulgated on
March 21, 1997, and its resolution dated November 25,
1997. Instead, we render judgment REVIVING and
AFFIRMING the decision dated December 9, 1991, of the
Regional Trial Court of Bulacan, Branch 16, Malolos,
Bulacan, in Civil Case No. 134-M-90, involving the same
parties.
No pronouncement as to costs in this instance.
SO ORDERED.
Narvasa (C.J., Chairman), Romero, Kapunan and

Purisima, JJ., concur.
Judgment and resolution reversed and set aside, that of

the Regional Trial Court of Bulacan, Br. 16 revived and
affirmed.
Notes.—Under the Civil Service Law, lending money at

usurious rates of interest is specifically listed as ground for
disciplinary action; Courts are not lending institutions.
(RTC Makati Movement Against Graft and Corruption vs.
Dumlao, 247 SCRA 108 [1995])
While the Usury Law ceiling on interest rates was lifted
by C.B. Circular No. 905, nothing in the said circular could
possibly be read as granting carte blanche authority to
lenders to
_____________________
23 Article 2227, Civil Code; Joe’s Radio and Electrical Supply v. Alto
Electronics Corp., 104 Phil. 33 [1958]; Social Security Commission v.
Almeda, 168 SCRA 474 [1988]; Palmares v. Court of Appeals, G.R. No.
126490, March 31, 1998, reported in The Court Systems Journal, Special
Edition 1, October, 1998, pp. 79-93.
491
VOL. 299, DECEMBER 2, 1998 491

Sta. Ines Melale Forest Products Corporation vs. Macaraig,
Jr.
raise interest rates to levels which would either enslave

their borrowers or lead to a hemorrhaging of their assets.
(Almeda vs. Court of Appeals, 256 SCRA 292 [1996])
——o0o——
G.R. No. 170452. August 13, 2008.*
SALVADOR CHUA and VIOLETA CHUA, petitioners, vs.

RODRIGO TIMAN, MA. LYNN TIMAN and LYDIA
TIMAN, respondents.
Civil Law; Contracts; Interests; Stipulated interest rates of 3%

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

resolution of the Court of Appeals.
Jose S. Santos, Jr. for petitioners.
Salonga, Hernandez & Mendoza for respondents.
QUISUMBING, J.:
Before us is a petition for review on certiorari assailing

the Decision1 and Resolution2 dated March 9, 2005 and
November
_______________
* SECOND DIVISION.
1 Rollo, pp. 28-34. Penned by Associate Justice Juan Q. Enriquez, Jr.
with Associate Justices Portia Aliño-Hormachuelos and Vicente Q. Roxas
concurring.
2 Id., at pp. 36-37.
147
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VOL. 562, AUGUST 13, 2008 147

Chua vs. Timabn
24, 2005, respectively, of the Court of Appeals in CA-G.R.

CV No. 82865, which had affirmed the Decision3 dated May
14, 2004 of the Regional Trial Court (RTC) of Quezon City,
Branch 86, in Civil Case No. Q-00-41276. The Court of
Appeals reduced the stipulated original interest rates of 7%
and 5% per month to only 1% per month or 12% per annum
and ordered petitioners to refund the excess interest
payments by respondents.
The pertinent facts are as follows:
In February and March 1999, petitioners Salvador and
Violeta Chua granted respondents Rodrigo, Ma. Lynn and
Lydia Timan the following loans: a) P100,000; b) P200,000;
c) P150,000; d) P107,000; e) P200,000; and f) P107,000.
These loans were evidenced by promissory notes with
interest of 7% per month, which was later reduced to 5%
per month. Rodrigo and Ma. Lynn issued five (5) postdated
checks to secure the loans, except for the P150,000 loan
which was secured by a postdated check issued by Lydia.
Respondents paid the loans initially at 7% interest rate
per month until September 1999 and then at 5% interest
rate per month from October to December 1999. Sometime
in March 2000, respondents offered to pay the principal
amount of the loans through a Philippine National Bank
manager’s check worth P764,000, but petitioners refused to
accept the same insisting that the principal amount of the
loans totalled P864,000.
On May 3, 2000, respondents deposited P864,000 with
the Clerk of Court of the RTC of Quezon City. Later, they
filed a case for consignation and damages. Petitioners
moved to dismiss the case, but the RTC denied the motion,
as well as the subsequent motion for reconsideration.
_______________
3 Id., at pp. 111-115. Penned by Judge Teodoro A. Bay.
148

Chua vs. Timabn
By virtue of an order of Partial Judgment4 dated

October 16, 2002, the Clerk of Court of the RTC of Quezon
City released the amount of P864,000 to petitioners.
Trial on the validity of the stipulated interests on the
subject loans, as well as on the issue of damages, then
proceeded.
On May 14, 2004, the RTC rendered a decision in favor
of respondents. It ruled that the original stipulated interest
rates of 7% and 5% per month were excessive. It further
ordered petitioners to refund to respondents all interest

payments in excess of the legal rate of 1% per month or
12% per annum. However, the RTC denied petitioners’
claim for damages.
On appeal, the Court of Appeals affirmed the trial
court’s decision. The Court of Appeals declared illegal the
stipulated interest rates of 7% and 5% per month for being
Accordingly, the Court of Appeals reduced the stipulated
interest rates of 7% and 5% per month (equivalent to 84%
and 60% per annum, respectively) to a fair and reasonable
rate of 1% per month or 12% per annum. The Court of
Appeals also ordered petitioners to refund to respondents
all interest payments in excess of 12% per annum.
Petitioners sought reconsideration, but it was denied.
Hence, this petition raising the lone issue of:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS

COMMITTED A REVERSIBLE ERROR—OR ACTED NOT IN
ACCORD WITH THE LAW AND JURISPRUDENCE—WHEN IT
AFFIRMED THE JUDGMENT OF THE REGIONAL TRIAL
COURT ORDERING THE RETURN OF THE EXCESS
INTEREST TO RESPONDENTS.5
Essentially, the main issue is: (1) Did the Court of

Appeals err in ruling that the original stipulated interest
rates of 7%
_______________
4 Id., at pp. 105-106.

5 Id., at p. 212.
149
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Chua vs. Timabn
and 5%, equivalent to 84% and 60% per annum, are

unconscionable, and in ordering petitioners to refund to
respondents all payments of interest in excess of 12% per
annum?
Petitioners aver that the stipulated interest of 5%
monthly and higher cannot be considered unconscionable
because these rates are not usurious by virtue of Central
Bank (C.B.) Circular No. 905-826 which had expressly
removed the interest ceilings prescribed by the Usury Law.
Petitioners add that respondents were in pari delicto since
they agreed on the stipulated interest rates of 7% and 5%
per month. They further aver they honestly believed that
the interest rates they imposed on respondents’ loans were
not usurious.
Respondents, invoking Medel v. Court of Appeals,7
counter that the stipulated interest rates of 7% and 5% per
month are iniquitous, unconscionable and exorbitant, thus,

they are entitled to the return of the excessive interest
paid. They also contend that petitioners cannot raise the
defense of in pari delicto for the first time on appeal. They
further contend that the defense of good faith is a factual
issue which cannot be raised by petitioners in a petition for
review under Rule 45 of the Rules of Civil Procedure.
The petition is patently devoid of merit.
The stipulated interest rates of 7% and 5% per month
imposed on respondents’ loans must be equitably reduced
to 1% per month or 12% per annum.8 We need not unsettle
the principle we had affirmed in a plethora of cases that
stipulated
_______________
6 SECTION 1. The rate of interest, including commissions,

premiums, fees and other charges, on a loan or forbearance of any money,
goods or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether
natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.
8 Ruiz v. Court of Appeals, G.R. No. 146942, April 22, 2003, 401 SCRA
410, 421.
150

Chua vs. Timabn
interest rates of 3%9 per month and higher10 are excessive,

iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not
against the law.11 While C.B. Circular No. 905-82, which
took effect on January 1, 1983, effectively removed the
ceiling on interest rates for both secured and unsecured
loans, regardless of maturity,12 nothing in the said circular
could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging of
their assets.13
Petitioners cannot also raise the defenses of in pari
delicto and good faith. The defense of in pari delicto was
not raised in the RTC, hence, such an issue cannot be
raised for the first time on appeal. Petitioners must have
seasonably raised it in the proceedings before the lower
court, because questions raised on appeal are confined only
within the issues framed by the parties.14 The defense of
good faith must also fail because such an issue is a
question of fact15 which may not be properly raised in a
petition for review under Rule 45 of the Rules of Civil
Procedure which allows only questions of law.16
_______________
9 Id.
10 Solangon v. Salazar, G.R. No. 125944, June 29, 2001, 360 SCRA
379, 384-385; Imperial v. Jaucian, G.R. No. 149004, April 14, 2004, 427
SCRA 517, 525-526; Cuaton v. Salud, G.R. No. 158382, January 27, 2004,
421 SCRA 278, 282.
11 Medel v. Court of Appeals, supra note 7 at p. 489.
12 Dio v. Japor, G.R. No. 154129, July 8, 2005, 463 SCRA 170, 177.
13 Almeda v. Court of Appeals, G.R. No. 113412, April 17, 1996, 256
SCRA 292, 302.
14 Lim v. Queensland Tokyo Commodities, Inc., G.R. No. 136031,
January 4, 2002, 373 SCRA 31, 41.
15 Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 356,
366.
16 Kay Products, Inc. v. Court of Appeals, G.R. No. 162472, July 28,
2005, 464 SCRA 544, 553.
151
VOL. 562, AUGUST 13, 2008 151

Chua vs. Timabn
As well set forth in Medel:17
“We agree … that the stipulated rate of interest at 5.5% per

month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant. However, we can not consider the
rate “usurious” because this Court has consistently held that
Circular No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by
the Usury Law and that the Usury Law is now “legally
inexistent.”
In Security Bank and Trust Company vs. Regional Trial Court
of Makati, Branch 61, the Court held that CB Circular No. 905
“did not repeal nor in any way amend the Usury Law but simply
suspended the latter’s effectivity.” Indeed, we have held that “a
Central Bank Circular can not repeal a law. Only a law can repeal
another law.” In the recent case of Florendo vs. Court of Appeals,
the Court reiterated the ruling that “by virtue of CB Circular 905,
the Usury Law has been rendered ineffective.” “Usury has been
legally non-existent in our jurisdiction. Interest can now be
charged as lender and borrower may agree upon.”
Nevertheless, we find the interest at 5.5% per month, or 66%
per annum, stipulated upon by the parties in the promissory note
iniquitous or unconscionable, and, hence, contrary to morals
(“contra bonos mores”), if not against the law. The stipulation is
void.”
WHEREFORE, the petition is DENIED for lack of merit.

The assailed Decision and Resolution dated March 9, 2005
and November 24, 2005, respectively, of the Court of
Appeals in CA-G.R. CV No. 82865 are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Corona,** Carpio-Morales, Velasco, Jr. and Brion, JJ.,

concur.
Petition denied, assailed decision and resolution

affirmed.
_______________
17 Medel v. Court of Appeals, supra note 7 at p. 489.

** Designated as additional member in view of the official leave of
absence of Associate Justice Dante O. Tinga.
G.R. No. 172139. December 8, 2010.*

JOCELYN M. TOLEDO, petitioner, vs. MARILOU M.
HYDEN, respondent.
Civil Law; Contracts; Interest Rates; In view of Central Bank

Circular No. 905 s. 1982 which suspended the Usury Law ceiling
on interest effective January 1, 1983, parties to a loan agreement
have wide latitude to stipulate interest rates; Such stipulated
interest rates may be declared as illegal if the same is
unconscionable.—In view of Central Bank Circular No. 905 s.
1982, which suspended the Usury Law ceiling on interest effective
January 1, 1983, parties to a loan agreement have wide latitude
to stipulate interest rates. Nevertheless, such stipulated interest
rates may be declared as illegal if the same is unconscionable.
There is certainly nothing in said circular which 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. In fact, in Medel v. Court of Appeals, 299 SCRA 481 (1998),
we annulled a stipulated 5.5% per month or 66% per annum
interest with additional service charge of 2% per annum and
penalty charge of 1% per month on a P500,000.00 loan for being
Same; Same; Same; A litigant may be denied relief by a court
of equity on the ground that has been inequitable, unfair, and
dishonest or fraudulent or deceitful as to the controversy in issue.
—After years of benefiting from the proceeds of the loans bearing
an interest rate of 6% to 7% per month and paying for the same,
Jocelyn cannot now go to court to have the said interest rate
annulled on the ground that it is excessive, iniquitous,
unconscionable, exorbitant, and absolutely revolting to the
conscience of man. “This is so because among the maxims of
equity are (1) he who seeks equity must do equity, and (2) he who
comes into equity must come with clean hands. The latter is a
frequently stated maxim which is also expressed in the principle
that he who has done inequity shall not have equity. It signifies
that a litigant may be denied relief by a court of equity on the
ground that his conduct has been inequitable, unfair and
dishonest, or fraudulent, or deceitful as to the controversy in
issue.”
Same; Same; Estoppel; Essential Elements of Estoppel.—The
essential elements of estoppel are: (1) conduct amounting to false
representation or
_______________
* FIRST DIVISION.
http://www.central.com.ph/sfsreader/session/000001670e13cf3af0fea51b003600fb002c009e/t/?o=False 1/12
541
VOL. 637, DECEMBER 8, 2010 541
Toledo vs. Hyden
concealment of material facts or at least calculated to convey the

impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert; (2)
intent, or at least expectation, that this conduct shall be acted
upon by, or at least influence, the other party; and, (3) knowledge,
actual or constructive, of the real facts.
Same; Same; Same; A party to a contract cannot deny the
validity thereof after enjoying its benefits without outrage to one’s
sense of justice and fairness; Courts have no power to relieve
parties from obligations voluntarily assumed, simply because their
contracts turned out to be disastrous or unwise investments.—
Jocelyn already availed herself of the benefits of the
“Acknowledgment of Debt,” the validity of which she now
impugns. As aptly found by the RTC and the CA, Jocelyn was
making a business out of the loaned amounts. She was actually
using the money to make advance payments for her prospective
clients so that her sales production would increase. Accordingly,
she did not mind the 6% to 7% interest per month as she was
getting a 50% rebate on her sales. Clearly, by her own acts,
Jocelyn is estopped from impugning the validity of the
“Acknowledgment of Debt.” “[A] party to a contract cannot deny
the validity thereof after enjoying its benefits without outrage to
one’s sense of justice and fairness.” “It is a long established
doctrine that the law does not relieve a party from the effects of
an unwise, foolish or disastrous contract, entered into with all the
required formalities and with full awareness of what she was
doing. Courts have no power to relieve parties from obligations
voluntarily assumed, simply because their contracts turned out to
be disastrous or unwise investments.”

Hernan M. Morante for petitioner.
Manuel S. Paradela for respondent.
DEL CASTILLO, J.:

It is true that the imposition of an unconscionable rate
of interest on a money debt is immoral and unjust and the
court may come to the aid of the aggrieved party to that
contract. However, before doing so, courts have to consider
the settled principle that the law will not
542
Toledo vs. Hyden
relieve a party from the effects of an unwise, foolish or

disastrous contract if such party had full awareness of
what she was doing.
This Petition for Review on Certiorari1 assails the
Decision2 dated August 24, 2005 of the Court of Appeals
(CA) in CA-G.R. CV No. 79805, which affirmed the Decision
dated March 10, 20033 of the Regional Trial Court (RTC),
Branch 22, Cebu City in Civil Case No. CEB-22867. Also
assailed is the Resolution dated March 8, 2006 denying the
motion for reconsideration.
Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the
Vice-President of the College Assurance Plan (CAP) Phils.,
Inc., obtained several loans from respondent Marilou M.
Hyden (Marilou). The transactions are briefly summarized
below:
1) August 15,1993 ……… P 30,000.00

2) April 21, 1994 ……… 100,000.00 with 6%
monthly
3) October 2, 1995 ……… 30,000.00 interest
4) October 9, 1995 ……… 30,000.00
5) May 22, 1997 ……… _100,000.00 with 7%
monthly
TOTAL AMOUNT ……… P290,000.004 interest
OF LOAN
From August 15, 1993 up to December 31, 1997, Jocelyn

had been religiously paying Marilou the stipulated monthly
interest by issuing checks and depositing sums of money in
the bank account of the latter. However, the total principal
amount of P290,000.00 remained unpaid. Thus, in April
1998, Marilou visited Jocelyn in her office at CAP in Cebu
City and asked Jocelyn and the other employees who were
likewise indebted to her to acknowledge their debts. A
document
_______________
1 Rollo, pp. 3-26.

2 CA Rollo, pp. 65-75; penned by Associate Justice Mercedes Gozo-
Dadole and concurred in by Associate Justices Isaias P. Dicdican and
Ramon M. Bato, Jr.
3 Records, pp. 341-349; penned by Judge Pampio A. Abarintos.
4 Id., at p. 342.
543
VOL. 637, DECEMBER 8, 2010 543

Toledo vs. Hyden
entitled “Acknowledgment of Debt”5 for the amount of

P290,000.00 was signed by Jocelyn with two of her
subordinates as witnesses. The said amount represents the

principal consolidated amount of the aforementioned
previous debts due on December 25, 1998. Also on said
occasion, Jocelyn issued five checks to Marilou
representing renewal payment of her five previous loans,
viz.:
Check No. 0010761 dated September . . . . . . . P 30,000.00

2, 1998 ..
Check No. 0010762 dated September . . . . . . . 30,000.00
9, 1998 ..
15, 1998 ..
22, 1998 ..
25, 1998 ..
TOTAL P290,000.00
In June 1998, Jocelyn asked Marilou for the recall of

Check No. 0010761 in the amount of P30,000.00 and
replaced the same with six checks, in staggered amounts,
namely:
Check No. 0010494 dated July 2, 1998 ........ P 6,625.00

.
Check No. 0010495 dated August 2, ........ 6,300.00
1998 .
Check No. 0010496 dated September ........ 5,975.00
2, 1998 .
Check No. 0010497 dated October 2, ........ 6,500.00
1998 .
Check No. 0010498 dated November 2, ........ 5,325.00
1998 .
Check No. 0010499 dated December 2, ........ 5,000.00
1998 .
TOTAL P35,725.00
After honoring Check Nos. 0010494, 0010495 and

0010496, Jocelyn ordered the stop payment on the
remaining checks and on October 27, 1998, filed with the
RTC of Cebu City a complaint6 against Marilou for
Declaration of Nullity and Payment, Annulment, Sum of
Money, Injunction and Damages.
_______________
5 Id., at p. 8.
6 Id., at pp. 1-9.
544

Toledo vs. Hyden
Jocelyn averred that Marilou forced, threatened and

intimidated her into signing the “Acknowledgment of Debt”
and at the same time forced her to issue the seven
postdated checks. She claimed that Marilou even

threatened to sue her for violation of Batas Pambansa (BP)
Blg. 22 or the Bouncing Checks Law if she will not sign the
said document and draw the above-mentioned checks.
Jocelyn further claimed that the application of her total
payment of P528,550.00 to interest alone is illegal,
unfounded, unjust, oppressive and contrary to law because
there was no written agreement to pay interest.
On November 23, 1998, Marilou filed an Answer7 with
Special Affirmative Defenses and Counterclaim alleging
that Jocelyn voluntarily obtained the said loans knowing
fully well that the interest rate was at 6% to 7% per month.
In fact, a 6% to 7% advance interest was already deducted
from the loan amount given to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not find any showing that Jocelyn
was forced, threatened, or intimidated in signing the
document referred to as “Acknowledgment of Debt” and in
issuing the postdated checks. Thus, in its March 10, 2003
Decision the trial court ruled in favor of Marilou, viz.:
“WHEREFORE, premised on the foregoing, the Court hereby

declares the document “Acknowledgment of Debt” valid and
binding. PLAINTIFF is indebted to DEFENDANT [for] the
amount of TWO HUNDRED NINETY THOUSAND (P290,000.00)
PESOS since December 25, 1998 less the amount of EIGHTEEN
THOUSAND NINE HUNDRED (P18,900.00) PESOS, equivalent
to the three checks made good (P6,625.00 dated 07-02-1998;
P6,300.00 dated 08-02-1998; and P5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay
DEFENDANT the amount of TWO HUNDRED SEVENTY ONE
THOUSAND ONE HUNDRED (P271,100.00) PESOS due on
December 25, 1998 with a 12% interest per annum or 1% interest
per month until such time that the said amount shall have been
fully paid.
No pronouncement as to costs.
_______________
7 Id., at pp. 12-24.
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VOL. 637, DECEMBER 8, 2010 545

Toledo vs. Hyden
SO ORDERED.”8
On March 26, 2003, Jocelyn filed an Earnest Motion for

Reconsideration,9 which was denied by the trial court in its
Order10 dated April 29, 2003 stating that it finds no
sufficient reason to disturb its March 10, 2003 Decision.
Ruling of the Court of Appeals
On appeal, Jocelyn asserts that she had made payments
in the total amount of P778,000.00 for a principal amount
of loan of only P290,000.00. What is appalling, according to

Jocelyn, was that such payments covered only the interest
because of the excessive, iniquitous, unconscionable and
exorbitant imposition of the 6% to 7% monthly interest.
On August 24, 2005, the CA issued its Decision which
provides:
“WHEREFORE, premises considered, the Decision dated

March 10, 2003 and the Order dated April 29, 2003, of the
Regional Trial Court, 7th Judicial Region, Branch 22, Cebu City,
in Civil Case No. CEB-22867 are hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.”11
The Motion for Reconsideration12 filed by Jocelyn was

denied by the CA through its Resolution13 dated March 8,
2006.
Issues
Hence, this petition raising the following issues:
I.
_______________
8 Id., at p. 349.
9 Id., at pp. 350-354.
10 Id., at pp. 364-365.
11 CA Rollo, p. 75.
12 Id., at pp. 76-90.
13 Id., at pp. 113-114.
546

Toledo vs. Hyden
Whether the CA gravely erred when it held that the imposition of

interest at the rate of six percent (6%) to seven percent (7%) is not
contrary to law, morals, good customs, public order or public
policy.
II.
Whether the CA gravely erred when it failed to declare that the
“Acknowledgment of Debt” is an inexistent contract that is void
from the very beginning pursuant to Article 1409 of the New Civil
Code.
Petitioner’s Arguments
Jocelyn posits that the CA erred when it held that the
imposition of interest at the rates of 6% to 7% per month is
not contrary to law, not unconscionable and not contrary to
morals. She likewise contends that the CA erred in ruling
that the “Acknowledgment of Debt” is valid and binding.
According to Jocelyn, even assuming that the execution of
said document was not attended with force, threat and
intimidation, the same must nevertheless be declared null
and void for being contrary to law and public policy. This is
borne out by the fact that the payments in the total amount
of P778,000.00 was applied to interest payment alone. This
only proves that the transaction was iniquitous, excessive,
oppressive and unconscionable.
Respondent’s Arguments
On the other hand, Marilou would like this Court to
consider the fact that the document referred to as
“Acknowledgment of Debt” was executed in the safe
surroundings of the office of Jocelyn and it was witnessed
by two of her staff. If at all there had been coercion, then
Jocelyn could have easily prevented her staff from affixing
their signatures to said document. In fact, petitioner had
admitted that she was the one who went to the tables of
her staff to let them sign the said document.
Our Ruling
The petition is without merit.
547
VOL. 637, DECEMBER 8, 2010 547

Toledo vs. Hyden
The 6% to 7% interest per month paid

by Jocelyn is not excessive under the
circumstances of this case.
In view of Central Bank Circular No. 905 s. 1982, which
suspended the Usury Law ceiling on interest effective
January 1, 1983, parties to a loan agreement have wide
latitude to stipulate interest rates. Nevertheless, such
stipulated interest rates may be declared as illegal if the
same is unconscionable.14 There is certainly nothing in said
circular which 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.15 In
fact, in Medel v. Court of Appeals,16 we annulled a
stipulated 5.5% per month or 66% per annum interest with
additional service charge of 2% per annum and penalty
charge of 1% per month on a P500,000.00 loan for being
In this case, however, we cannot consider the disputed
6% to 7% monthly interest rate to be iniquitous or
unconscionable vis-à-vis the principle laid down in Medel.
Noteworthy is the fact that in Medel, the defendant-
spouses were never able to pay their indebtedness from the
very beginning and when their obligations ballooned into a
staggering sum, the creditors filed a collection case against
them. In this case, there was no urgency of the need for
money on the part of Jocelyn, the debtor, which compelled
her to enter into said loan transactions. She used the
money from the loans to make advance payments for
prospective clients of educational plans offered by her
employer. In this way, her sales production would increase,
thereby entitling her to 50% rebate on her sales. This is the

reason why she did not mind the 6% to 7% monthly
interest. Notably too, a business transaction of this nature
between Jocelyn and Marilou continued for more than five
years. Jocelyn religiously paid the agreed amount of
interest until she ordered for stop payment on some of the
checks
_______________
14 Ruiz v. Court of Appeals, 449 Phil. 419, 434; 401 SCRA 410 (2003).
15 Spouses Almeda v. Court of Appeals, 326 Phil. 309, 319; 256 SCRA
292, 302 (1996).
16 359 Phil. 820; 299 SCRA 481 (1998).
548

Toledo vs. Hyden
issued to Marilou. The checks were in fact sufficiently

funded when she ordered the stop payment and then filed a
case questioning the imposition of a 6% to 7% interest rate
for being allegedly iniquitous or unconscionable and, hence,
contrary to morals.
It was clearly shown that before Jocelyn availed of said
loans, she knew fully well that the same carried with it an
interest rate of 6% to 7% per month, yet she did not
complain. In fact, when she availed of said loans, an
advance interest of 6% to 7% was already deducted from
the loan amount, yet she never uttered a word of protest.
After years of benefiting from the proceeds of the loans
bearing an interest rate of 6% to 7% per month and paying
for the same, Jocelyn cannot now go to court to have the
said interest rate annulled on the ground that it is
excessive, iniquitous, unconscionable, exorbitant, and
absolutely revolting to the conscience of man. “This is so
because among the maxims of equity are (1) he who seeks
equity must do equity, and (2) he who comes into equity
must come with clean hands. The latter is a frequently
stated maxim which is also expressed in the principle that
he who has done inequity shall not have equity. It signifies
that a litigant may be denied relief by a court of equity on
the ground that his conduct has been inequitable, unfair
and dishonest, or fraudulent, or deceitful as to the
controversy in issue.” 17
We are convinced that Jocelyn did not come to court for
equitable relief with equity or with clean hands. It is
patently clear from the above summary of the facts that the
conduct of Jocelyn can by no means be characterized as
nobly fair, just, and reasonable. This Court likewise notes
certain acts of Jocelyn before filing the case with the RTC.
In September 1998, she requested Marilou not to deposit
her checks as she can cover the checks only the following
month. On the next month, Jocelyn again requested for
another extension of one month. It turned out that she was
only sweet-talking Marilou into believing that she had no
money at that time. But as testified by Serapio Romarate,18
an employee of the Bank of Commerce where
_______________
17 University of the Philippines v. Catungal, Jr., 338 Phil. 728, 743-744;

272 SCRA 221, 237 (1997).
18 TSN, January 15, 2002, p. 8.
549
VOL. 637, DECEMBER 8, 2010 549

Toledo vs. Hyden
Jocelyn is one of their clients, there was an available

balance of P276,203.03 in the latter’s account and yet she
ordered for the stop payments of the seven checks which
can actually be covered by the available funds in said
account. She then caught Marilou by surprise when she
surreptitiously filed a case for declaration of nullity of the
document and for damages.
The document “Acknowledgment of Debt” is
valid and binding.
Jocelyn seeks for the nullification of the document
entitled “Acknowledgment of Debt” and wants this Court to
declare that she is no longer indebted to Marilou in the
amount of P290,000.00 as she had already paid a total
amount of P778,000.00. She claims that said document is
an inexistent contract that is void from the very beginning
as clearly provided for by Article 140919 of the New Civil
Code.
Jocelyn further claims that she signed the said
document and issued the seven postdated checks because
Marilou threatened to sue her for violation of BP Blg. 22.
Jocelyn is misguided. Even if there was indeed such
threat made by Marilou, the same is not considered as
threat that would vitiate consent. Article 1335 of the New
Civil Code is very specific on this matter. It provides:
“Art. 1335. There is violence when in order to wrest consent,

serious or irresistible force is employed.
xxxx
A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate
consent.” (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.
_______________
19 Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
xxxx
550

Toledo vs. Hyden
As can be seen from the records of the case, Jocelyn has

failed to prove her claim that she was made to sign the
document “Acknowledgment of Debt” and draw the seven
Bank of Commerce checks through force, threat and
intimidation. As earlier stressed, said document was signed
in the office of Jocelyn, a high ranking executive of CAP,
and it was Jocelyn herself who went to the table of her two
subordinates to procure their signatures as witnesses to
the execution of said document. If indeed, she was forced to
sign said document, then Jocelyn should have immediately
taken the proper legal remedy. But she did not.
Furthermore, it must be noted that after the execution of
said document, Jocelyn honored the first three checks
before filing the complaint with the RTC. If indeed she was
forced she would never have made good on the first three
checks.
It is provided, as one of the conclusive presumptions
under Rule 131, Section 2(a), of the Rules of Court that,
“Whenever a party has, by his own declaration, act or
omission, intentionally and deliberately led another to
believe a particular thing to be true, and to act upon such
belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it.” This
is known as the principle of estoppel.
“The essential elements of estoppel are: (1) conduct
amounting to false representation or concealment of
material facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (2) intent, or at least expectation, that
this conduct shall be acted upon by, or at least influence,
the other party; and, (3) knowledge, actual or constructive,
of the real facts.”20
Here, it is uncontested that Jocelyn had in fact signed
the “Acknowledgment of Debt” in April 1998 and two of her
subordinates served as witnesses to its execution, knowing
fully well the nature of the contract she was entering into.
Next, Jocelyn issued five checks in favor of Marilou
representing renewal payment of her loans amounting to
P290,000.00. In June 1998, she asked to recall Check No.
_______________
20 Philippine National Bank v. Court of Appeals, 367 Phil. 508, 516;
308 SCRA 229, 235-236 (1999).
551
VOL. 637, DECEMBER 8, 2010 551

Toledo vs. Hyden
0010761 in the amount of P30,000.00 and replaced the

same with six checks, in staggered amounts. All these are
indicia that Jocelyn treated the “Acknowledgment of Debt”
as a valid and binding contract.
More significantly, Jocelyn already availed herself of the
benefits of the “Acknowledgment of Debt,” the validity of
which she now impugns. As aptly found by the RTC and
the CA, Jocelyn was making a business out of the loaned
amounts. She was actually using the money to make
advance payments for her prospective clients so that her
sales production would increase. Accordingly, she did not
mind the 6% to 7% interest per month as she was getting a
50% rebate on her sales.
Clearly, by her own acts, Jocelyn is estopped from
impugning the validity of the “Acknowledgment of Debt.”
“[A] party to a contract cannot deny the validity thereof
after enjoying its benefits without outrage to one’s sense of
justice and fairness.”21 “It is a long established doctrine
that the law does not relieve a party from the effects of an
unwise, foolish or disastrous contract, entered into with all
the required formalities and with full awareness of what
she was doing. Courts have no power to relieve parties from
obligations voluntarily assumed, simply because their
contracts turned out to be disastrous or unwise
investments.”22
WHEREFORE, the instant petition for review on
certiorari is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 79805 dated August 24, 2005 affirming
the Decision dated March 10, 2003 of the Regional Trial
Court, Branch 22, Cebu City, in Civil Case No. CEB-22867
is AFFIRMED.
SO ORDERED.
Corona (C.J., Chairperson), Leonardo-De Castro,

Abad** and Perez, JJ., concur.
_______________
21 Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 45; 373
SCRA 31, 39 (2002).
22 Esguerra v. Court of Appeals, 335 Phil. 58, 69; 267 SCRA 380, 393
(1997).
** In lieu of Associate Justice Presbitero J. Velasco, Jr., per Special
Order No. 917 dated November 24, 2010.
SO ORDERED.
Carpio (Chairperson), Brion, Abad and Perez, JJ.,

concur.
Petition granted, judgment and resolution reversed and

set aside.
Note.—Criteria to determine the existence of “Labor-

only” contracting. (Mandaue Galleon Trade, Inc. vs.
Andales, 548 SCRA 17 [2008])
——o0o——
G.R. No. 160545. March 9, 2010.*
PRISMA CONSTRUCTION & DEVELOPMENT

CORPORATION and ROGELIO S. PANTALEON,
petitioners, vs. ARTHUR F. MENCHAVEZ, respondent.
Civil Law; Contracts; Interpretation of Contracts; When the

terms of a contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulations
governs; It is only when the contract is vague and ambiguous that
courts are permitted to resort to the interpretation of its terms to
determine the parties’ intent.—Obligations arising from contracts
have the force of law between the contracting parties and should
be complied with in good faith. When the terms of a contract are
clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs. In such
cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a court’s
duty is confined to the interpretation of the contract the parties
made for themselves without regard to its wisdom or folly, as the
court cannot supply material stipulations or read into the contract
words the contract does not contain. It is only when the
_______________
* SECOND DIVISION.
591
VOL. 614, March 9, 2010 591
Prisma Construction & Development Corporation vs. Menchavez
http://www.central.com.ph/sfsreader/session/000001670e160cae38231383003600fb002c009e/t/?o=False 1/14
contract is vague and ambiguous that courts are permitted to

resort to the interpretation of its terms to determine the parties’
intent.
Same; Same; Interest Rates; Two conditions for the payment
of interest in loans of forbearance of money; Collection of interest
without any stipulation in writing is prohibited by law.—Article
1956 of the Civil Code specifically mandates that “no interest
shall be due unless it has been expressly stipulated in writing.”
Under this provision, the payment of interest in loans or
forbearance of money is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for
the payment of interest was reduced in writing. The concurrence
of the two conditions is required for the payment of interest at a
stipulated rate. Thus, we held in Tan v. Valdehueza, 66 SCRA 61
(1975) and Ching v. Nicdao, 522 SCRA 316 (2007) that collection
of interest without any stipulation in writing is prohibited by law.
Same; Same; It is a familiar doctrine in obligations and
contracts that the parties are bound by the stipulations, clauses,
terms and conditions they have agreed to, which is the law between
them, the only limitation being that these stipulation, clauses,
terms and conditions are not contrary to law, morals, public order
or public policy.—It is a familiar doctrine in obligations and
contracts that the parties are bound by the stipulations, clauses,
terms and conditions they have agreed to, which is the law
between them, the only limitation being that these stipulations,
clauses, terms and conditions are not contrary to law, morals,
public order or public policy. The payment of the specific sum of
money of P40,000.00 per month was voluntarily agreed upon by
the petitioners and the respondent. There is nothing from the
records and, in fact, there is no allegation showing that
petitioners were victims of fraud when they entered into the
agreement with the respondent.
Corporation Law; Doctrine of Piercing the Corporate Veil;
Three instances when the doctrine applies; In the absence of
malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.—The doctrine of piercing the
corporate veil applies only in three (3) basic instances, namely: a)
when the separate and distinct corporate personality defeats
public convenience, as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; b) in fraud cases,
or when the corporate entity is used to justify
592
a wrong, protect a fraud, or defend a crime; or c) is used in alter

ego cases, i.e., where a corporation is essentially a farce, since it is
a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs so

conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation. In the absence of
malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.

resolution of the Court of Appeals Former Ninth
Division.
Cordova, Perez and Rigoroso Law Offices for
petitioners.
Yulo & Bello Law Offices for respondent.
BRION, J.:
We resolve in this Decision the petition for review on
certiorari1 filed by petitioners Prisma Construction &
Development Corporation (PRISMA) and Rogelio S.
Pantaleon (Pantaleon) (collectively, petitioners) who seek to
reverse and set aside the Decision2 dated May 5, 2003 and
the Resolution3 dated October 22, 2003 of the Former
Ninth Division of the Court of Appeals (CA) in CA-G.R. CV
No. 69627. The assailed CA Decision affirmed the Decision
of the Regional Trial Court (RTC), Branch 73, Antipolo City
in Civil Case No. 97-4552 that held the petitioners liable
for payment of P3,526,117.00 to respondent Arthur F.
Menchavez (respondent), but modified the interest rate
from 4% per month to 12% per annum, computed from the
filing of the complaint to full payment. The assailed CA
Resolution denied the petitioners’ Motion for
Reconsideration.
_______________
1 Filed under Rule 45 of the 1997 Rules of Civil Procedure.

2 Penned by Associate Justice Jose L. Sabio, Jr. (retired), with
Associate Justice B.A. Adefuin-De La Cruz (retired) and Associate Justice
Hakim S. Abdulwahid concurring. See Rollo, pp. 29-38.
3 Id., at pp. 52-53.
593
VOL. 614, March 9, 2010 593

Prisma Construction ### Development Corporation vs.
Menchavez
Factual Background
The facts of the case, gathered from the records, are
briefly summarized below.
On December 8, 1993, Pantaleon, the President and
Chairman of the Board of PRISMA, obtained a
P1,000,000.004 loan from the respondent, with a
monthly interest of P40,000.00 payable for six
months, or a total obligation of P1,240,000.00 to be paid

within six (6) months,5 under the following schedule of
payments:
January 8, 1994.......................P40,000.00
February 8, 1994......................P40,000.00
March 8, 1994..........................P40,000.00
April 8, 1994.............................P40,000.00
May 8, 1994............................. P40,000.00
June 8, 1994....................... P1,040,000.006
Total P1,240,000.00
To secure the payment of the loan, Pantaleon issued a

promissory note7 that states:
“I, Rogelio S. Pantaleon, hereby acknowledge the receipt of

ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS
(P1,240,000), Philippine Currency, from Mr. Arthur F.
Menchavez, representing a six-month loan payable according to
the following schedule:
January 8, 1994.........................P40,000.00
February 8, 1994........................P40,000.00
_______________
4 Exhibit “A,” Folder II, Exhibits “A” to “E” and Submarkings (for the Plaintiff),
p. 1; TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 2-4.
5 TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 9-10.
6 Original Records, p. 8.
7 Exhibit “C,” Folder II, Exhibits “A” to “E” and Submarkings (for the Plaintiff),
p. 5.
594

March 8, 1994............................P40,000.00
April 8, 1994.............................. P40,000.00
May 8, 1994................................P40,000.00
June 8, 1994............................P1,040,000.00
The checks corresponding to the above amounts are hereby
acknowledged.8
and six (6) postdated checks corresponding to the schedule

of payments. Pantaleon signed the promissory note in his
personal capacity,9 and as duly authorized by the Board of
Directors of PRISMA.10 The petitioners failed to completely
pay the loan within the stipulated six (6)-month period.
From September 8, 1994 to January 4, 1997, the
petitioners paid the following amounts to the respondent:
September 8, 1994..................P320,000.00
October 8, 1995......................P600,000.00
November 8, 1995..................P158,772.00
January 4, 1997.....................P 30,000.0011
As of January 4, 1997, the petitioners had already paid a

total of P1,108,772.00. However, the respondent found that
the petitioners still had an outstanding balance of
P1,364,151.00 as of January 4, 1997, to which it applied a
4% monthly interest.12 Thus, on August 28, 1997, the
respondent filed a complaint for sum of money with the
RTC to enforce the unpaid balance, plus 4% monthly
interest, P30,000.00 in attorney’s fees, P1,000.00 per court
appearance and costs of suit.13
_______________
9 Ibid.
10 Exhibit “B,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 2.
11 Exhibit “E,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 2.
12 Ibid.
13 Original Records, pp. 1-7.
595
VOL. 614, March 9, 2010 595

Menchavez
In their Answer dated October 6, 1998, the petitioners

admitted the loan of P1,240,000.00, but denied the
stipulation on the 4% monthly interest, arguing that the
interest was not provided in the promissory note.
Pantaleon also denied that he made himself personally
liable and that he made representations that the loan
would be repaid within six (6) months.14
The RTC Ruling
The RTC rendered a Decision on October 27, 2000

finding that the respondent issued a check for
P1,000,000.00 in favor of the petitioners for a loan that
would earn an interest of 4% or P40,000.00 per month, or a
total of P240,000.00 for a 6-month period. It noted that the
petitioners made several payments amounting to
P1,228,772.00, but they were still indebted to the
respondent for P3,526,117.00 as of February 11,15 1999
after considering the 4% monthly interest. The RTC
observed that PRISMA was a one-man corporation of
Pantaleon and used this circumstance to justify the
piercing of the veil of corporate fiction. Thus, the RTC
ordered the petitioners to jointly and severally pay the
respondent the amount of P3,526,117.00 plus 4% per
month interest from February 11, 1999 until fully paid.16
The petitioners elevated the case to the CA via an

ordinary appeal under Rule 41 of the Rules of Court,
insisting that there was no express stipulation on the 4%
monthly interest.
The CA Ruling
The CA decided the appeal on May 5, 2003. The CA

found that the parties agreed to a 4% monthly interest
principally based on the board resolution that authorized
Pantaleon to
_______________

14 Id., at pp. 29-31.
15 The date of the last payment made by the petitioners should be
“February 12, 1999,” per Exhibit “E,” Folder II, Exhibits “A” to “E” and
Submarkings (for the Plaintiff), p. 2.
16 Id., at pp. 99-106.
596

Menchavez
transact a loan with an approved interest of not more

than 4% per month. The appellate court, however, noted
that the interest of 4% per month, or 48% per annum, was
unreasonable and should be reduced to 12% per annum.
The CA affirmed the RTC’s finding that PRISMA was a
mere instrumentality of Pantaleon that justified the
piercing of the veil of corporate fiction. Thus, the CA
modified the RTC Decision by imposing a 12% per annum
interest, computed from the filing of the complaint until
finality of judgment, and thereafter, 12% from finality until
fully paid.17
After the CA’s denial18 of their motion for
reconsideration,19 the petitioners filed the present petition
for review on certiorari under Rule 45 of the Rules of Court.
The Petition
The petitioners submit that the CA mistakenly relied on

their board resolution to conclude that the parties agreed to
a 4% monthly interest because the board resolution was not
an evidence of a loan or forbearance of money, but merely
an authorization for Pantaleon to perform certain acts,
including the power to enter into a contract of loan. The
expressed mandate of Article 1956 of the Civil Code is that
interest due should be stipulated in writing, and no such
stipulation exists. Even assuming that the loan is subject
to 4% monthly interest, the interest covers the six (6)-
month period only and cannot be interpreted to apply

beyond it. The petitioners also point out the glaring
inconsistency in the CA Decision, which reduced the
interest from 4% per month or 48% per annum to 12% per
annum, but failed to consider that the amount of
P3,526,117.00 that the RTC ordered them to pay includes
the compounded 4% monthly interest.
_______________
17 Supra note 2.
18 Resolution of October 22, 2003; Rollo, pp. 52-53.
19 Id., at pp. 43-60.
597
VOL. 614, March 9, 2010 597

Prisma Construction & Development Corporation vs.
Menchavez
The Case for the Respondent
The respondent counters that the CA correctly ruled

that the loan is subject to a 4% monthly interest because
the board resolution is attached to, and an integral part of,
the promissory note based on which the petitioners
obtained the loan. The respondent further contends that
the petitioners are estopped from assailing the 4% monthly
interest, since they agreed to pay the 4% monthly interest
on the principal amount under the promissory note and the
board resolution.
The Issue
The core issue boils down to whether the parties agreed

to the 4% monthly interest on the loan. If so, does the rate
of interest apply to the 6-month payment period only or
until full payment of the loan?
Our Ruling
We find the petition meritorious.

Interest due should be stipulated
in writing; otherwise, 12% per
annum
Obligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith.20 When the terms of a contract are clear
and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs.21 In
such cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a
court’s duty is confined to the interpretation of the contract
the parties made
_______________
20 Article 1159, Civil Code; Dumlao v. Marlon Realty Corporation, G.R.

131491, August 17, 2007, 530 SCRA 427, 430.
21 Article 1370, Civil Code.
598

Menchavez
for themselves without regard to its wisdom or folly, as the

court cannot supply material stipulations or read into the
contract words the contract does not contain.22 It is only
when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to
determine the parties’ intent.
In the present case, the respondent issued a check for
P1,000,000.00.23 In turn, Pantaleon, in his personal
capacity and as authorized by the Board, executed the
promissory note quoted above. Thus, the P1,000,000.00
loan shall be payable within six (6) months, or from
January 8, 1994 up to June 8, 1994. During this period, the
loan shall earn an interest of P40,000.00 per month, for a
total obligation of P1,240,000.00 for the six-month period.
We note that this agreed sum can be computed at 4%
interest per month, but no such rate of interest was
stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that
“no interest shall be due unless it has been expressly
stipulated in writing.” Under this provision, the payment of
interest in loans or forbearance of money is allowed only if:
(1) there was an express stipulation for the payment of
interest; and (2) the agreement for the payment of interest
was reduced in writing. The concurrence of the two
conditions is required for the payment of interest at a
stipulated rate. Thus, we held in Tan v. Valdehueza24 and
Ching v. Nicdao25 that collection of interest without any
stipulation in writing is prohibited by law.
_______________
22 Cuison v. Court of Appeals, G.R. No. 102096, August 22, 1996, 260
SCRA 645, 667.
23 Exhibit “A,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 1; TSN, Testimony of Arthur F. Menchavez, April 12, 1999,
pp. 2-4.
24 160 Phil. 760, 767; 66 SCRA 61, 66 (1975).
25 G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.
599
VOL. 614, March 9, 2010 599

Menchavez
Applying this provision, we find that the interest of

P40,000.00 per month corresponds only to the six (6)-month
period of the loan, or from January 8, 1994 to June 8, 1994,
as agreed upon by the parties in the promissory note.
Thereafter, the interest on the loan should be at the legal
interest rate of 12% per annum, consistent with our ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals:26
“When the obligation is breached, and it consists in the payment

of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the
Civil Code.” (Emphasis supplied)
We reiterated this ruling in Security Bank and Trust Co.

v. RTC-Makati, Br. 61,27 Sulit v. Court of Appeals,28
Crismina Garments, Inc. v. Court of Appeals,29 Eastern
Assurance and Surety Corporation v. Court of Appeals,30
Sps. Catungal v. Hao,31 Yong v. Tiu,32 and Sps. Barrera v.
Sps. Lorenzo.33 Thus, the RTC and the CA misappreciated
the facts of the case; they erred in finding that the parties
agreed to a 4% interest, compounded by the application of
this interest beyond the promissory note’s six (6)-month
period. The facts show that the parties agreed to the
payment of a specific sum of money of P40,000.00 per
month for six months, not to a 4% rate of interest payable
within a six (6)-month period.
_______________
26 G.R. No. 97412, July 12, 1994, 234 SCRA 78.

27 331 Phil. 787; 263 SCRA 483 (1996).
28 335 Phil. 914; 268 SCRA 441 (1997).
29 363 Phil. 701; 304 SCRA 356 (1999).
30 379 Phil. 84; 322 SCRA 73 (2000).
31 407 Phil. 309; 355 SCRA 29 (2001).
32 426 Phil. 331; 375 SCRA 614 (2002).
33 438 Phil. 42; 389 SCRA 329 (2002).
600

Menchavez
Medel v. Court of Appeals

not applicable
The CA misapplied Medel v. Court of Appeals34 in
finding that a 4% interest per month was unconscionable.
In Medel, the debtors in a P500,000.00 loan were
required to pay an interest of 5.5% per month, a service
charge of 2% per annum, and a penalty charge of 1% per
month, plus attorney’s fee equivalent to 25% of the amount
due, until the loan is fully paid. Taken in conjunction with
the stipulated service charge and penalty, we found the
interest rate of 5.5% to be excessive, iniquitous,
unconscionable, exorbitant and hence, contrary to morals,
thereby rendering the stipulation null and void.
Applying Medel, we invalidated and reduced the
stipulated interest in Spouses Solangon v. Salazar35 of 6%
per month or 72% per annum interest on a P60,000.00 loan;
in Ruiz v. Court of Appeals,36 of 3% per month or 36% per
annum interest on a P3,000,000.00 loan; in Imperial v.
Jaucian,37 of 16% per month or 192% per annum interest
on a P320,000.00 loan; in Arrofo v. Quiño,38 of 7% interest
per month or 84% per annum interest on a P15,000.00 loan;
in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per
annum interest on a P2,500,000.00 loan; and in Chua v.
Timan,40 of 7% and 5% per month for loans totalling
P964,000.00. We note that in all these cases, the terms of
the loans were open-ended; the stipulated interest rates
were applied for an indefinite period.
Medel finds no application in the present case where no
other stipulation exists for the payment of any extra
amount
_______________
34 359 Phil. 820; 299 SCRA 481 (1998).

35 412 Phil. 816; 360 SCRA 379 (2001).
36 449 Phil. 419; 401 SCRA 410(2003).
37 471 Phil. 484; 427 SCRA 517 (2004).
38 490 Phil. 179; 449 SCRA 284 (2005).
39 G.R. No. 139290, May 19, 2006, 490 SCRA 1.
40 G.R. No. 170452, August 13, 2008, 562 SCRA 146.
601
VOL. 614, March 9, 2010 601

Menchavez
except a specific sum of P40,000.00 per month on the

principal of a loan payable within six months. Additionally,
no issue on the excessiveness of the stipulated amount of
P40,000.00 per month was ever put in issue by the
petitioners;41 they only assailed the application of a 4%
interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that

the parties are bound by the stipulations, clauses, terms
and conditions they have agreed to, which is the law
between them, the only limitation being that these
stipulations, clauses, terms and conditions are not contrary
to law, morals, public order or public policy.42 The payment
of the specific sum of money of P40,000.00 per month was
voluntarily agreed upon by the petitioners and the
respondent. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims
of fraud when they entered into the agreement with the
respondent.
Therefore, as agreed by the parties, the loan of
P1,000,000.00 shall earn P40,000.00 per month for a period
of six (6) months, or from December 8, 1993 to June 8,
1994, for a total principal and interest amount of
P1,240,000.00. Thereafter, interest at the rate of 12% per
annum shall apply. The amounts already paid by the
petitioners during the pendency of the suit, amounting to
P1,228,772.00 as of February 12, 1999,43 should be
deducted from the total amount due, computed as indicated
above. We remand the case to the trial court for the actual
computation of the total amount due.
_______________
41 See Sps. Pascual v. Ramos, 433 Phil. 449; 384 SCRA 105 (2002).
42 Barredo v. Leaño, G.R. No. 156627, June 4, 2004, 431 SCRA 106,
113-114; Odyssey Park, Inc. v. Court of Appeals, 345 Phil. 475, 485; 280
SCRA 253, 261 (2001).
43 Supra note 14.
602

Menchavez
Doctrine of Estoppel not applicable

The respondent submits that the petitioners are
estopped from disputing the 4% monthly interest beyond
the six-month stipulated period, since they agreed to pay
this interest on the principal amount under the promissory
note and the board resolution.
We disagree with the respondent’s contention.
We cannot apply the doctrine of estoppel in the present
case since the facts and circumstances, as established by
the record, negate its application. Under the promissory
note,44 what the petitioners agreed to was the payment of a
specific sum of P40,000.00 per month for six months—
not a 4% rate of interest per month for six (6) months
—on a loan whose principal is P1,000,000.00, for the
total amount of P1,240,000.00. Thus, no reason exists to
place the petitioners in estoppel, barring them from raising

their present defenses against a 4% per month interest
after the six-month period of the agreement. The board
resolution,45 on the other hand, simply authorizes
Pantaleon to contract for a loan with a monthly interest of
not more than 4%. This resolution merely embodies the
extent of Pantaleon’s authority to contract and does not
create any right or obligation except as between Pantaleon
and the board. Again, no cause exists to place the
petitioners in estoppel.
Piercing the corporate veil unfounded
We find it unfounded and unwarranted for the lower
courts to pierce the corporate veil of PRISMA.
The doctrine of piercing the corporate veil applies only
in three (3) basic instances, namely: a) when the separate
and
_______________
45 Exhibit “B,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 2.
603
VOL. 614, March 9, 2010 603

Menchavez
distinct corporate personality defeats public convenience,

as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; b) in fraud cases, or when
the corporate entity is used to justify a wrong, protect a
fraud, or defend a crime; or c) is used in alter ego cases, i.e.,
where a corporation is essentially a farce, since it is a mere
alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.46 In the absence
of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be
made personally liable for corporate liabilities.47
In the present case, we see no competent and convincing
evidence of any wrongful, fraudulent or unlawful act on the
part of PRISMA to justify piercing its corporate veil. While
Pantaleon denied personal liability in his Answer, he made
himself accountable in the promissory note “in his personal
capacity and as authorized by the Board Resolution” of
PRISMA.48 With this statement of personal liability and in
the absence of any representation on the part of PRISMA
that the obligation is all its own because of its separate
corporate identity, we see no occasion to consider piercing
the corporate veil as material to the case.
WHEREFORE, in light of all the foregoing, we hereby

REVERSE and SET ASIDE the Decision dated May 5, 2003
of the Court of Appeals in CA-G.R. CV No. 69627. The
petitioners’ loan of P1,000,000.00 shall bear interest of
P40,000.00
_______________
46 General Credit Corporation v. Alsons Development and Investment

Corporation, G.R. No. 154975, January 29, 2007, 513 SCRA 225, 235, 238,
239; PNB v. Ritratto Group, Inc., 414 Phil. 494, 505; 362 SCRA 216, 226
(2001).
47 McLeod v. National Labor Relations Commission, G.R. No. 146667,
January 23, 2007, 512 SCRA 222, 253.
48 Exhibit “C,” Folder II, Exhibits “A” to “E” and Submarkings (for the
Plaintiff), p. 5.
604

Menchavez
per month for six (6) months from December 8, 1993 as

indicated in the promissory note. Any portion of this loan,
unpaid as of the end of the six-month payment period, shall
thereafter bear interest at 12% per annum. The total
amount due and unpaid, including accrued interests, shall
bear interest at 12% per annum from the finality of this
Decision. Let this case be REMANDED to the Regional
Trial Court, Branch 73, Antipolo City for the proper
computation of the amount due as herein directed, with
due regard to the payments the petitioners have already
remitted. Costs against the respondent.
SO ORDERED.
Nachura,** Del Castillo, Abad and Perez, JJ., concur.
Judgment reversed and set aside.
Note.—Jurisprudence empowers courts to equitably

reduce interest rates. (Land Bank of the Philippines vs.
David, 563 SCRA 172 [2008])
——o0o——
_______________
** Designated additional Member of the Second Division in lieu of

Associate Justice Antonio T. Carpio per Raffle dated March 1, 2010.
G.R. No. 183360. September 8, 2014.*

ROLANDO C. DE LA PAZ,** petitioner, vs. L & J
DEVELOPMENT COMPANY, INC., respondent.
Civil Law; Interest Rates; Jurisprudence holds that for

interest to be due and payable, two conditions must concur: a)
express stipulation for the payment of interest; and b) the
agreement to pay interest is reduced in writing.—Under Article
1956 of the Civil Code, no interest shall be due unless it has been
expressly stipulated in writing. Jurisprudence on the matter also
holds that for interest to be due and payable, two conditions must
concur: a) express stipulation for the payment of interest; and b)
the agreement to pay interest is reduced in writing.
Same; Same; Usury Law; At present, usury has been legally
nonexistent in view of the suspension of the Usury Law by Central
Bank Circular No. 905 S. 1982. Even so, not all interest rates
levied upon loans are permitted by the courts as they have the
power to equitably reduce unreasonable interest rates.—Indeed at
present, usury has been legally nonexistent in view of the
suspension of the Usury Law by Central Bank Circular No. 905 S.
1982. Even so, not all interest rates levied upon loans are
permitted by the courts as they have the power to equitably
reduce unreasonable interest rates. In Trade & Investment
Development Corporation of the Philippines v. Roblett Industrial
Construction Corporation, 490 SCRA 1 (2006), we said: While the
Court recognizes the right of the parties to enter into contracts
and who are expected to comply with their terms and obligations,
this rule is not absolute. Stipulated interest rates are illegal if
they are unconscionable and the Court is allowed to temper
interest rates when necessary. In exercising this vested power to
determine what is iniquitous and unconscionable, the Court must
consider the circumstances of each case. What may be iniquitous
and unconscionable in one case, may be just in another.
_______________
* SECOND DIVISION.
* * Also spelled as “Dela Paz” in some parts of the records.
365
VOL. 734, SEPTEMBER 8, 2014 365
De la Paz vs. L ###amp### J Development Company, Inc.
http://www.central.com.ph/sfsreader/session/000001670e196b66ed9577f1003600fb002c009e/t/?o=False 1/14
Same; Same; Time and again, it has been ruled in a plethora

of cases that stipulated interest rates of 3% per month and higher,
are excessive, iniquitous, unconscionable and exorbitant. Such
the law.—Time and again, it has been ruled in a plethora of cases
that stipulated interest rates of 3% per month and higher, are
excessive, iniquitous, unconscionable and exorbitant. Such
the law. The Court, however, stresses that these rates shall be
invalidated and shall be reduced only in cases where the terms of
the loans are open-ended, and where the interest rates are
applied for an indefinite period. Hence, the imposition of a specific
sum of P40,000.00 a month for six months on a P1,000,000.00
loan is not considered unconscionable. In the case at bench, there
is no specified period as to the payment of the loan. Hence,
levying 6% monthly or 72% interest per annum is “definitely
outrageous and inordinate.”
Same; Same; Central Bank Circular No. 799; Pursuant to
Central Bank Circular No. 799 S. 2013 which took effect on July 1,
2013, the interest imposed by the Court of Appeals (CA) must be
accordingly modified. The P226,000.00 which Rolando is ordered
to pay L&J shall earn an interest of 6% per annum from the
finality of this Decision.—Pursuant to Central Bank Circular No.
799 S. 2013 which took effect on July 1, 2013, the interest
imposed by the CA must be accordingly modified. The
P226,000.00 which Rolando is ordered to pay L&J shall earn an
interest of 6% per annum from the finality of this Decision.

Cabeza & Partners Law Offices for petitioner.
Salonga, Hernandez & Mendoza for respondent.
366

DEL CASTILLO, J.:

“No interest shall be due unless it has been expressly
stipulated in writing.”1
This is a Petition for Review on Certiorari2 assailing the
February 27, 2008 Decision3 of the Court of Appeals (CA)
in C.A.-G.R. S.P. No. 100094, which reversed and set aside
the Decision4 dated April 19, 2007 of the Regional Trial
Court (RTC), Branch 192, Marikina City in Civil Case No.
06-1145-MK. The said RTC Decision affirmed in all
respects the Decision5 dated June 30, 2006 of the
Metropolitan Trial Court (MeTC), Branch 75, Marikina
City in Civil Case No.
05-7755, which ordered respondent L & J Development
Company (L&J) to pay petitioner Architect Rolando C. De

La Paz (Rolando) its principal obligation of P350,000.00,
plus 12% interest per annum reckoned from the filing of
the Complaint until full payment of the obligation.
Likewise assailed is the CA’s June 6, 2008 Resolution6
which denied Rolando’s Motion for Reconsideration.
Factual Antecedents
On December 27, 2000, Rolando lent P350,000.00
without any security to L&J, a property developer with
Atty. Esteban Salonga (Atty. Salonga) as its President and
General Manager. The loan, with no specified maturity
date, carried a 6% monthly interest, i.e., P21,000.00. From
December 2000 to
_______________
1 Civil Code, Article 1956.

2 Rollo, pp. 10-18.
3 CA Rollo, pp. 82-89; penned by Associate Justice Lucas P. Bersamin
(now a member of this Court) and concurred in by Associate Justices
Portia Aliño-Hormachuelos and Estela M. Perlas-Bernabe (now also a
member of this Court).
4 Id., at pp. 18-26; penned by Judge Geraldine C. Fiel-Macaraig.
5 Id., at pp. 39-43; penned by Judge Alex E. Ruiz.
6 Id., at p. 106.
367
VOL. 734, SEPTEMBER 8, 2014 367

August 2003, L&J paid Rolando a total of P576,000.007

representing interest charges.
As L&J failed to pay despite repeated demands, Rolando
filed a Complaint8 for Collection of Sum of Money with
Damages against L&J and Atty. Salonga in his personal
capacity
_______________
7 Id., at pp. 45-46. A total of 30 payments, L & J paid the following:

Date Check No. Amount
12/27/2000 SB 302190 P21,000.00
1/29/2001 MBTC 435175 21,000.00
3/01/2001 SB 302232 21,000.00
4/30/2001 SB 302296 21,000.00
5/29/2001 SB 302341 21,000.00
6/30/2001 SB 302369 21,000.00
7/30/2001 MBTC 3160280305 21,000.00
8/29/2001 MBTC 3160280332 21,000.00
9/27/2001 MBTC 3160280349 21,000.00
10/29/2001 MBTC 3160280387 21,000.00
11/29/2001 MBTC 3160280421 21,000.00
12/18/2001 MBTC 3160280430 21,000.00

1/29/2002 MBTC 3160280474 21,000.00
2/28/2002 MBTC 3160280501 21,000.00
3/25/2002 MBTC 3160280517 21,000.00
4/29/2002 MBTC 3160280552 21,000.00
5/31/2002 MBTC 3160280588 21,000.00
7/02/2002 MBTC 3160280600 21,000.00
8/06/2002 MBTC 3160280627 21,000.00
8/29/2002 MBTC 3160280648 21,000.00
10/02/2002 MBTC 3160280666 21,000.00
11/12/2002 MBTC 3160280683 21,000.00
1/06/03 21,000.00
1/31/03 21,000.00
3/06/2003 ATB 435323 21,000.00
4/15/2003 16,000.00
5/14/2003 5,000.00
7/04/2003 MBTC 435345 5,000.00
8/04/2003 10,000.00
8/14/2003 15,000.00
Total P576,000.00
8 Id., at pp. 28-34.
368

before the MeTC, docketed as Civil Case No. 05-7755.

Rolando alleged, among others, that L&J’s debt as of
January 2005, inclusive of the monthly interest, stood at
P772,000.00; that the 6% monthly interest was upon Atty.
Salonga’s suggestion; and, that the latter tricked him into
parting with his money without the loan transaction being
reduced into writing.
In their Answer,9 L&J and Atty. Salonga denied
Rolando’s allegations. While they acknowledged the loan as
a corporate debt, they claimed that the failure to pay the
same was due to a fortuitous event, that is, the financial
difficulties brought about by the economic crisis. They
further argued that Rolando cannot enforce the 6%
monthly interest for being unconscionable and shocking to
the morals. Hence, the payments already made should be
applied to the P350,000.00 principal loan.
During trial, Rolando testified that he had no
communication with Atty. Salonga prior to the loan
transaction but knew him as a lawyer, a son of a former
Senator, and the owner of L&J which developed Brentwood
Subdivision in Antipolo where his associate Nilo Velasco
(Nilo) lives. When Nilo told him that Atty. Salonga and
L&J needed money to finish their projects, he agreed to
lend them money. He personally met with Atty. Salonga
and their meeting was cordial.
He narrated that when L&J was in the process of

borrowing the P350,000.00 from him, it was Arlene San
Juan (Arlene), the secretary/treasurer of L&J, who
negotiated the terms and conditions thereof. She said that
the money was to finance L&J’s housing project. Rolando
claimed that it was not he who demanded for the 6%
monthly interest. It was L&J and Atty. Salonga, through
Arlene, who insisted on paying the said interest as they
asserted that the loan was only a short-term one.
_______________
9 Id., at pp. 35-38.
369
VOL. 734, SEPTEMBER 8, 2014 369

Ruling of the Metropolitan Trial Court

The MeTC, in its Decision10 of June 30, 2006, upheld the
6% monthly interest. In so ruling, it ratiocinated that since
L&J agreed thereto and voluntarily paid the interest at
such rate from 2000 to 2003, it is already estopped from
impugning the same. Nonetheless, for reasons of equity,
the said court reduced the interest rate to 12% per annum
on the remaining principal obligation of P350,000.00. With
regard to Rolando’s prayer for moral damages, the MeTC
denied the same as it found no malice or bad faith on the
part of L&J in not paying the obligation. It likewise
relieved Atty. Salonga of any liability as it found that he
merely acted in his official capacity in obtaining the loan.
The MeTC disposed of the case as follows:
WHEREFORE, premises considered, judgment is hereby

rendered in favor of the plaintiff, Arch. Rolando C. Dela Paz, and
against the defendant, L & J Development Co., Inc., as follows:
a) ordering the defendant L & J Development Co., Inc. to pay
plaintiff the amount of Three Hundred Fifty Thousand Pesos
(P350,000.00) representing the principal obligation, plus interest
at the legal rate of 12% per annum to be computed from January
20, 2005, the date of the filing of the complaint, until the whole
obligation is fully paid;
b) ordering the defendant L & J Development Co., Inc. to pay
plaintiff the amount of Five Thousand Pesos (P5,000.00) as and
for attorney’s fees; and
c) to pay the costs of this suit.
SO ORDERED.11
_______________
10 Id., at pp. 39-43.

11 Id., at p. 43.
370

Ruling of the Regional Trial Court

L&J appealed to the RTC. It asserted in its appeal
memorandum12 that from December 2000 to March 2003, it
paid monthly interest of P21,000.00 based on the agreed-
upon interest rate of 6% monthly and from April 2003 to
August 2003, interest payments in various amounts.13 The
total of interest payments made amounts to P576,000.00 —
an amount which is even more than the principal
obligation of P350,000.00
L&J insisted that the 6% monthly interest rate is
unconscionable and immoral. Hence, the 12% per annum
legal interest should have been applied from the time of the
constitution of the obligation. At 12% per annum interest
rate, it asserted that the amount of interest it ought to pay
from December 2000 to March 2003 and from April 2003 to
August 2003, only amounts to P105,000.00. If this amount
is deducted from the total interest payments already made,
which is P576,000.00, the amount of P471,000.00 appears
to have been paid over and above what is due. Applying the
rule on compensation, the principal loan of P350,000.00
should be set-off against the P471,000.00, resulting in the
complete payment of the principal loan.
Unconvinced, the RTC, in its April 19, 2007 Decision,14
affirmed the MeTC Decision, viz.:
WHEREFORE, premises considered, the Decision appealed

from is hereby AFFIRMED in all respects, with costs against the
appellant.
SO ORDERED.15
_______________
12 Id., at pp. 44-53.

13 Supra note 7.
14 CA Rollo, pp. 18-26.
15 Id., at p. 26.
371
VOL. 734, SEPTEMBER 8, 2014 371

Ruling of the Court of Appeals

Undaunted, L&J went to the CA and echoed its
arguments and proposed computation as proffered before
the RTC.
16
In a Decision dated February 27, 2008, the CA
reversed and set aside the RTC Decision.
The CA stressed that the parties failed to stipulate in
writing the imposition of interest on the loan. Hence, no
interest shall be due thereon pursuant to Article 1956 of
the Civil Code.17 And even if payment of interest has been
stipulated in writing, the 6% monthly interest is still
outrightly illegal and unconscionable because it is contrary
to morals, if not against the law. Being void, this cannot be
ratified and may be set up by the debtor as defense. For
these reasons, Rolando cannot collect any interest even if
L&J offered to pay interest. Consequently, he has to return
all the interest payments of P576,000.00 to L&J.
Considering further that Rolando and L&J thereby
became creditor and debtor of each other, the CA applied
the principle of legal compensation under Article 1279 of
the Civil Code.18
_______________
16 Id., at pp. 82-89.

17 Article 1956. No interest shall be due unless it has been expressly
stipulated in writing.
18 Article 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
372

Accordingly, it set off the principal loan of P350,000.00

against the P576,000.00 total interest payments made,
leaving an excess of P226,000.00, which the CA ordered
Rolando to pay L&J plus interest. Thus:
WHEREFORE, the DECISION DATED APRIL 19, 2007 is

REVERSED and SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando
C. Dela Paz is ordered to pay to the petitioner the amount of
P226,000.00, plus interest of 12% per annum from the finality of
this decision.
Costs of suit to be paid by respondent Dela Paz.
SO ORDERED.19
In his Motion for Reconsideration,20 Rolando argued

that the circumstances exempt both the application of
Article 1956 and of jurisprudence holding that a 6%
monthly interest is unconscionable, unreasonable, and
exorbitant. He alleged that Atty. Salonga, a lawyer, should
have taken it upon himself to have the loan and the
stipulated rate of interest documented but, by way of legal
maneuver, Atty. Salonga, whom he fully trusted and relied
upon, tricked him into believing that the undocumented
and uncollateralized loan was within legal bounds. Had
Atty. Salonga told him that the stipulated interest should
be in writing, he would have readily assented.
Furthermore, Rolando insisted that the 6% monthly
interest rate could not be unconscionable as in the first
place, the interest was not imposed by the creditor but was
in fact offered by the borrower, who also dictated all the
terms of the loan. He stressed that in cases where interest
rates were declared unconscionable, those meant to be
protected by such declaration are helpless borrowers which
is not the case here.
_______________
19 CA Rollo, p. 88.

20 Id., at pp. 93-99.
373
VOL. 734, SEPTEMBER 8, 2014 373

Still, the CA denied Rolando’s motion in its Resolution21

of June 6, 2008.
Hence, this Petition.
The Parties’ Arguments
Rolando argues that the 6% monthly interest rate
should not have been invalidated because Atty. Salonga
took advantage of his legal knowledge to hoodwink him
into believing that no document was necessary to reflect
the interest rate. Moreover, the cases anent unconscionable
interest rates that the CA relied upon involve lenders who
imposed the excessive rates, which are totally different
from the case at bench where it is the borrower who
decided on the high interest rate. This case does not fall
under a scenario that ‘enslaves the borrower or that leads
to the hemorrhaging of his assets’ that the courts seek to
prevent.
L&J, in controverting Rolando’s arguments, contends
that the interest rate is subject of negotiation and is agreed
upon by both parties, not by the borrower alone.
Furthermore, jurisprudence has nullified interest rates on
loans of 3% per month and higher as these rates are
contrary to morals and public interest. And while Rolando
raises bad faith on Atty. Salonga’s part, L&J avers that

such issue is a question of fact, a matter that cannot be
raised under Rule 45.
Issue
The Court’s determination of whether to uphold the
judgment of the CA that the principal loan is deemed paid
is dependent on the validity of the monthly interest rate
imposed. And in determining such validity, the Court must
necessarily delve into matters regarding a) the form of the
agreement of interest under the law; and b) the alleged
unconscionability of the interest rate.
_______________
21 Id., at p. 106.
374

Our Ruling
The Petition is devoid of merit.
The lack of a written stipulation
to pay interest on the loaned amount
disallows a creditor from charging
monetary interest.
Under Article 1956 of the Civil Code, no interest shall be
due unless it has been expressly stipulated in writing.
Jurisprudence on the matter also holds that for interest to
be due and payable, two conditions must concur: a) express
stipulation for the payment of interest; and b) the
agreement to pay interest is reduced in writing.
Here, it is undisputed that the parties did not put down
in writing their agreement. Thus, no interest is due. The
collection of interest without any stipulation in writing is
prohibited by law.22
But Rolando asserts that his situation deserves an
exception to the application of Article 1956. He blames
Atty. Salonga for the lack of a written document, claiming
that said lawyer used his legal knowledge to dupe him.
Rolando thus imputes bad faith on the part of L&J and
Atty. Salonga. The Court, however, finds no deception on
the part of L&J and Atty. Salonga. For one, despite the
lack of a document stipulating the payment of interest,
L&J nevertheless devotedly paid interests on the loan. It
only stopped when it suffered from financial difficulties
that prevented it from continuously paying the 6% monthly
rate. For another, regardless of Atty. Salonga’s profession,
Rolando who is an architect and an educated man himself
could have been a more reasonably prudent person under
the circumstances. To top it all, he
_______________
22 Siga-an v. Villanueva, 596 Phil. 760, 769; 576 SCRA 696, 704-705
(2009).
375
VOL. 734, SEPTEMBER 8, 2014 375

admitted that he had no prior communication with Atty.

Salonga. Despite Atty. Salonga being a complete stranger,
he immediately trusted him and lent his company
P350,000.00, a significant amount. Moreover, as the
creditor, he could have requested or required that all the
terms and conditions of the loan agreement, which include
the payment of interest, be put down in writing to ensure
that he and L&J are on the same page. Rolando had a
choice of not acceding and to insist that their contract be
put in written form as this will favor and safeguard him as
a lender. Unfortunately, he did not. It must be stressed
that “[c]ourts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts, or annul
the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally
incompetent.”23
It may be raised that L&J is estopped from questioning
the interest rate considering that it has been paying
Rolando interest at such rate for more than two and a half
years. In fact, in its pleadings before the MeTC and the
RTC, L&J merely prayed for the reduction of interest from
6% monthly to 1% monthly or 12% per annum. However, in
Ching v. Nicdao,24 the daily payments of the debtor to the
lender were considered as payment of the principal amount
of the loan because Article 1956 was not complied with.
This was notwithstanding the debtor’s admission that the
payments made were for the interests due. The Court
categorically stated therein that “[e]stoppel cannot give
validity to an act that is prohibited by law or one that is
against public policy.”
_______________
23 Vales v. Villa, 35 Phil. 769, 788 (1916).

24 G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.
376

Even if the payment of interest has

been reduced in writing, a 6% monthly
interest rate on a loan is unconscionable,
regardless of who between the parties
proposed the rate.
Indeed at present, usury has been legally nonexistent in
view of the suspension of the Usury Law25 by Central Bank
Circular No. 905 S. 1982.26 Even so, not all interest rates
levied upon loans are permitted by the courts as they have
the power to equitably reduce unreasonable interest rates.
In Trade & Investment Development Corporation of the
Philippines v. Roblett Industrial Construction
Corporation,27 we said:
While the Court recognizes the right of the parties to enter into
contracts and who are expected to comply with their terms and
obligations, this rule is not absolute. Stipulated interest rates are
illegal if they are unconscionable and the Court is allowed to
temper interest rates when necessary. In exercising this vested
power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case. What may be
iniquitous and unconscionable in one case, may be just in another.
x x x28
Time and again, it has been ruled in a plethora of cases

that stipulated interest rates of 3% per month and higher,
are excessive, iniquitous, unconscionable and exorbitant.
Such
_______________
25 Act No. 2655 as amended by Presidential Decree 116.

26 Section 1 states: The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any money,
goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether
natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.
27 523 Phil. 360; 490 SCRA 1 (2006).
28 Id., at p. 366; p. 6.
377
VOL. 734, SEPTEMBER 8, 2014 377

stipulations are void for being contrary to morals, if not

against the law.29 The Court, however, stresses that these
rates shall be invalidated and shall be reduced only in
cases where the terms of the loans are open-ended, and
where the interest rates are applied for an indefinite
period. Hence, the imposition of a specific sum of
P40,000.00 a month for six months on a P1,000,000.00 loan
is not considered unconscionable.30 In the case at bench,

there is no specified period as to the payment of the loan.
Hence, levying 6% monthly or 72% interest per annum is
“definitely outrageous and inordinate.”31
The situation that it was the debtor who insisted on the
interest rate will not exempt Rolando from a ruling that
the rate is void. As this Court cited in Asian Cathay
Finance and Leasing Corporation v. Gravador,32 “[t]he
imposition of an unconscionable rate of interest on a money
debt, even if knowingly and voluntarily assumed, is
immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man.”33 Indeed,
“voluntariness does not make the stipulation on [an
unconscionable] interest valid.”34
As exhaustibly discussed, no monetary interest is due
Rolando pursuant to Article 1956. The CA thus correctly
adjudged that the excess interest payments made by L&J
should be applied to its principal loan. As computed by the
CA, Ro-
_______________
29 Macalinao v. Bank of the Philippine Islands, G.R. No. 175490,

September 17, 2009, 600 SCRA 67, 77, citing Chua v. Timan, G.R. No.
170452, August 13, 2008, 562 SCRA 146, 149-150.
30 Prisma Construction & Development Corporation v. Menchavez,
G.R. No. 160545, March 9, 2010, 614 SCRA 590, 599.
31 Spouses Solangon v. Salazar, 412 Phil. 816, 823; 360 SCRA 379,
385 (2001).
32 G.R. No. 186550, July 5, 2010, 623 SCRA 517.
33 Id., at p. 524.
34 Menchavez v. Bermudez, G.R. No. 185368, October 11, 2012, 684
SCRA 168, 178.
378

lando is bound to return the excess payment of P226,000.00

to L&J following the principle of solutio indebiti.35
However, pursuant to Central Bank Circular No. 799 S.
2013 which took effect on July 1, 2013,36 the interest
imposed by the CA must be accordingly modified. The
P226,000.00 which Rolando is ordered to pay L&J shall
earn an interest of 6% per annum from the finality of this
Decision.
WHEREFORE, the Decision dated February 27, 2008 of
the Court of Appeals in C.A.-G.R. S.P. No. 100094 is hereby
AFFIRMED with MODIFICATION that petitioner
Rolando C. De La Paz is ordered to pay respondent L & J
Development Company the amount of P226,000.00, plus
interest of 6% per annum from the finality of this Decision

until fully paid.
SO ORDERED.
Carpio*** (Chairperson), Brion, Villarama, Jr.**** and

Leonen, JJ., concur.
Judgment affirmed with modification.
Notes.—Stipulated interest rates are illegal if they are

unconscionable and courts are allowed to temper interest
rates when necessary. (RGM Industries, Inc. vs. United
Pacific Capital Corporation, 675 SCRA 400 [2012])
_______________
35 Civil Code, Article 2154. If something is received when there is no

right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
36 Issued on June 21, 2013; It provides that the rate of interest for the
loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of
interest, shall be six percent (6%) per annum.
* ** Designated Acting Chief Justice per Special Order No. 1770 dated
August 28, 2014.
* *** Designated acting member per Special Order No. 1767 dated
August 27, 2014.
379
VOL. 734, SEPTEMBER 8, 2014 379

Central Bank (CB) Circular No. 905 did not repeal nor
in anyway amend the Usury Law but simply suspended the
latter’s effectivity; that a Central Bank (CB) Circular
cannot repeal a law, for only a law can repeal another law;
that by virtue of CB Circular No. 905, the Usury Law has
been rendered ineffective; and Usury Law has been legally
nonexistent in our jurisdiction. (Advocates for Truth in
Lending, Inc. vs. Bangko Sentral Monetary Board, 688
SCRA 530 [2013])
——o0o——

Dio vs. Japor
*
G.R. No. 154129. July 8, 2005.
TERESITA DIO, petitioner, vs. SPOUSES

1
VIRGILIO and
LUZ ROCES JAPOR and MARTA JAPOR, respondents.
Loans; Interest Rates; Usury; While Central Bank Circular

No. 905, which took effect on 1 January 1983, effectively removed
the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity, nothing in said Circular grants lenders
carte blanche authority to impose interest rates which would result
in enslavement of their borrowers or to the hemorrhaging of their
assets.—Central Bank Circular No. 905, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates
for both secured and unsecured loans, regardless of maturity.
However, nothing in said Circular grants lenders carte blanche
authority to impose interest rates which would result in the
enslavement of their borrowers or to the hemorrhaging of their
assets. While a stipulated rate of interest may not technically and
necessarily be usurious under Circular No. 905, usury now being
legally non-existent in our jurisdiction, nonetheless, said rate may
be equitably reduced should the same be found to be iniquitous,
unconscionable, and exorbitant, and hence, contrary to morals
(contra bonos mores), if not against the law. What is iniquitous,
unconscionable, and exorbitant shall depend upon the factual
circumstances of each case.
Same; Same; Same; A combined interest and penalty rate at
10% per month or 120% per annum should be deemed iniquitous,
unconscionable, and inordinate.—In the instant case, the Court of
_______________
* FIRST DIVISION.
1 “Marita” elsewhere in the records.
171
VOL. 463, JULY 8, 2005 171
Dio vs. Japor
http://www.central.com.ph/sfsreader/session/000001670e1b5ba493785bfe003600fb002c009e/t/?o=False 1/10
Appeals found that the 5% interest rate per month and 5%

penalty rate per month for every month of default or delay is in
reality interest rate at 120% per annum. This Court has held that
a stipulated interest rate of 5.5% per month or 66% per annum is
void for being iniquitous or unconscionable. We have likewise
ruled that an interest rate of 6% per month or 72% per annum is
outrageous and inordinate. Conformably to these precedent cases,
a combined interest and penalty rate at 10% per month or 120%
per annum, should be deemed iniquitous, unconscionable, and
inordinate. Hence, we sustain the appellate court when it found
the interest and penalty rates in the Deed of Real Estate
Mortgage in the present case excessive, hence legally
impermissible. Reduction is legally called for now in rates of
interest and penalty stated in the mortgage contract.


Castillo, Laman, Tan, Pantaleon & San Jose for
petitioner.
QUISUMBING, J.:
2
For review on certiorari is the Decision, dated February
22, 2002, of the Court of Appeals, in the consolidated cases
CA-G.R. CV No. 51521 and CA-G.R. SP No. 40457. The
decretal portion read:
“WHEREFORE, premises considered, in CA-G.R. CV No. 51521,

the decision of the trial court is AFFIRMED with
MODIFICATION. Judgment is rendered as follows:
1. Declaring the Real Estate Mortgage to be valid;

2. Fixing the interest at 12% per annum and an additional
1% penalty charge per month such that plaintiffs
_______________
2 CA Rollo, CA-G.R. CV No. 51521, pp. 316-330. Penned by Associate Justice

Eliezer R. De Los Santos, with Associate Justices Buenaventura J. Guerrero, and
Rodrigo V. Cosico concurring.
172

Dio vs. Japor
appellants’ contractual obligation under the deed of real estate

mortgage would amount to P1,252,674.00;
3. Directing defendant-appellee Dio to give the surplus of

P2,247,326.00 to plaintiffs-appellants; and
4. Affirming the dissolution of the writ of preliminary

injunction previously issued by the trial court.
The Petition in CA-G.R. SP No. 40457 is DENIED for being
moot and academic.3
SO ORDERED.”
4
Equally assailed in this petition is the Resolution, dated
July 2, 2002, of the appellate court, denying Teresita Dio’s
Motion for Partial Reconsideration of March 19, 2002 and
the Spouses Japor and Marta Japor’s Motion for
Reconsideration dated March 20, 2002.
The antecedent facts are as follows:
Herein respondents Spouses Virgilio Japor and Luz
Roces Japor were the owners of an 845.5 square-meter
residential lot including its improvements, situated in
Barangay Ibabang Mayao, Lucena City, as shown by
Transfer Certificate of Title (TCT) No. T-39514. Adjacent to
the Japor’s lot is another lot owned by respondent Marta
Japor, which consisted of 325.5 square meters and titled
under TCT No. T-15018.
On August 23, 1982, the respondents obtained a loan of
P90,000 from the Quezon Development Bank (QDB), and
as security therefor, they mortgaged the lots covered by
TCT Nos. T-39514 and T-15018 to QDB, as evidenced by a
Deed of Real Estate Mortgage duly executed by and
between the respondents and QDB.
On December 6, 1983, respondents and QDB amended
the Deed of Real Estate Mortgage increasing respondents’
loan to P128,000.
_______________
3 Id., at pp. 329-330.

4 Id., at pp. 492-494.
173
VOL. 463, JULY 8, 2005 173

Dio vs. Japor
The respondents failed to pay their aforesaid loans.

However, before the bank could foreclose on the mortgage,
respondents, thru their broker, one Lucia G. Orian, offered
to mortgage their properties to petitioner Teresita Dio.
Petitioner prepared a Deed of Real Estate Mortgage,
whereby respondents mortgaged anew the two properties
already mortgaged with QDB to secure the timely payment
of a P350,000 loan that respondents had from petitioner
Dio. The Deed of Real Estate Mortgage, though dated
January 1989, was actually executed on February 13, 1989
and notarized on February 17, 1989.
Under the terms of the deed, respondents agreed to pay

the petitioner interest at the rate of five percent (5%) a
month, within a period of two months or until April 14,
1989. In the event of default, an additional interest
equivalent to five percent (5%) of the amount then due, for
every month of delay, would be charged on them.
The respondents failed to settle their obligation to
petitioner on April 14, 1989, the agreed deadline for
settlement.
On August 27, 1991, petitioner made written demands
upon the respondents to pay their debt.
Despite repeated demands, respondents did not pay,
hence petitioner applied for extrajudicial foreclosure of the
mortgage. The auction of the unredeemed properties was
set for February 26, 1992.
Meanwhile, on February 24, 1992, respondents filed an
action for Fixing of Contractual Obligation with Prayer for
Preliminary Mandatory Injunction/Restraining Order,
docketed as Civil Case No. 92-26, with the Regional Trial
Court (RTC) of Lucena City. Respondents prayed that
“judgment be rendered fixing the contractual obligations of
plaintiffs with the5 defendant Dio plus legal or allowable
interests thereon.”
_______________
5 Records, p. 5.
174

Dio vs. Japor
The trial court issued an Order enjoining the auction sale

of the aforementioned mortgaged properties.
On June 15, 1992, the Japors filed a Motion to Admit
Amended Complaint with an attached copy of their
Amended Complaint praying that the Deed of Real Estate
Mortgage dated February 13, 1989 be declared null and
void, but reiterating the plea that the trial court fix the
contractual obligations of the Japors with Dio. The trial
court denied the motion.
On September 27, 1994, respondents filed with the
appellate court, a petition for certiorari, docketed as CA-
G.R. SP No. 35315, praying that the Court of Appeals
direct the trial court to admit their Amended
6
Complaint.
The appellate court denied said petition.
On December 11, 1995, the trial court handed down the
following judgment:
“WHEREFORE, in view of the foregoing considerations, judgment

is rendered:
1. Dismissing the complaint for failure of the plaintiffs to

substantiate their affirmative allegations;
2. Declaring the Real Estate Mortgage (Exhs. “A” to “A-
13”/Exhs. “3” to “3-D”) to be valid and binding as between
the parties, more particularly the plaintiffs Virgilio Japor,
Luz Japor and Marta Japor or the latter’s substituted heir
or heirs, as the case may be;
3. Dissolving the writ of preliminary injunction previously
issued by this Court; and
4. To pay the cost of this suit.
7
SO ORDERED.”
_______________
6 Id., at pp. 918-927. Penned by Associate Justice Ma. Alicia Austria-

Martinez (now a member of this Court), with Associate Justices Pedro A.
Ramirez, and Bernardo Ll. Salas concurring.
7 Id., at pp. 963-964.
175
VOL. 463, JULY 8, 2005 175

Dio vs. Japor
On January 17, 1996, respondents filed their notice of

appeal. On April 26, 1996, they also filed a Petition for
Temporary Restraining Order And/Or Mandatory
Injunction in Aid of Appellate Jurisdiction with the Court
of Appeals.
On May 8, 1996, petitioner Dio as the sole bidder in an
auction purchased the properties for P3,500,000.
On May 9, 1996, the Court of Appeals denied8
respondents’ application for a temporary restraining order.
On October 9, 1996, the appellate court consolidated CA-
G.R. CV No. 51521 and CA-G.R. SP No. 40457.
As stated at the outset, the appellate court affirmed the
decision of the trial court with respect to the validity of the
Deed of Real Estate Mortgage, but modified the interest
and penalty rates for being unconscionable and exorbitant.
Before us, petitioner assigns the following errors
allegedly committed by the appellate court:
THE ALLEGED INIQUITY OF THE STIPULATED INTEREST

AND PENALTY WAS NOT RAISED BEFORE THE TRIAL
COURT NOR ASSIGNED AS AN ERROR IN RESPONDENTS’
APPEAL.
II
THE STIPULATED INTEREST AND PENALTY ARE NOT

“EXCESSIVE, INIQUITOUS, UNCONSCIONABLE,
EXORBITANT AND CONTRARY TO MORAL[S].”
III
PAYMENT OF THE “SURPLUS” OF P2,247,326.00 TO

RESPONDENTS WOULD RESULT IN THEIR UNJUST
ENRICHMENT.
IV
RESPONDENTS’ APPEAL SHOULD9

HAVE BEEN
DISMISSED DUE TO FORUM SHOPPING.
_______________
8 CA Rollo, CA-G.R. SP No. 40457, p. 51.

9 Rollo, pp. 22-23.
176

Dio vs. Japor
Simply stated, the issue is: Did the Court of Appeals err
when it held that the stipulations on interest and penalty
in the Deed of Real Estate Mortgage is contrary to morals,
if not illegal? Corollarily, were respondents entitled to any
“surplus” on the auction sale price?
On10
the main issue, petitioner contends that The Usury
Law has been rendered ineffective by Central Bank
Circular No. 905, series of 1982 and accordingly, usury has
become legally non-existent in this jurisdiction, thus,
interest rates may accordingly be pegged at such levels or
rates as the lender and the borrower may agree upon.
Petitioner avers she has not violated any law considering
she is not engaged in the business of money-lending.
Moreover, she claims she has suffered inconveniences and
incurred expenses for some 13 years now as a result of
respondents’ failure to pay her. Petitioner further points
out that the 5% interest rate was proposed by the
respondents and have only themselves to blame if the
interests and penalties ballooned to its present amount due
to their willful delay and default in payment. The appellate
court thus erred, petitioner now 11
insists, in applying Sps.
Almeda 12 v. Court of Appeals and Medel v. Court of
Appeals to reduce the interest rate to 12% per annum and
the penalty to 1% per month.
Respondents admit they owe petitioner P350,000 and do
not question any lawful interest on their loan but they
maintain that the Deed of Real Estate Mortgage is null and
void since it did not state the true intent of the parties,
which limited the 5% interest rate to only two (2) months
from the date of the loan and which did not provide for
penalties and other charges in the event of default or delay.

Respondents
_______________
10 Act No. 2655 (1916), as amended.

11 G.R. No. 113412, 17 April 1996, 326 Phil. 309; 256 SCRA 292.
12 G.R. No. 131622, 27 November 1998, 359 Phil. 820; 299 SCRA 481.
177
VOL. 463, JULY 8, 2005 177

Dio vs. Japor
vehemently contend that they never consented to the said

stipulations and hence, should not be bound by them.
On the first issue, we are constrained to rule against the
petitioner’s contentions.
Central Bank Circular No. 905, which took effect on
January 1, 1983, effectively removed the ceiling on interest
rates for both secured and unsecured loans, regardless of
maturity. However, nothing in said Circular grants lenders
carte blanche authority to impose interest rates which
would result in the enslavement13of their borrowers or to
the hemorrhaging of their assets. While a stipulated rate
of interest may not technically and necessarily be usurious
under Circular No. 905, 14 usury now being legally non-
existent in our jurisdiction, nonetheless, said rate may be
equitably reduced should the same be found to be
iniquitous, unconscionable, and exorbitant, and hence,
contrary
15
to morals (contra bonos mores), if not against the
law. What is iniquitous, unconscionable, and exorbitant
shall depend upon the factual circumstances of each case.
In the instant case, the Court of Appeals found that the
5% interest rate per month and 5% penalty rate per month
for every month of default or delay is in reality interest
rate at 120% per annum. This Court has held that a
stipulated interest rate of 5.5% per month or 66%16 per
annum is void for being iniquitous or unconscionable. We
have likewise ruled that an interest rate of 6% per month 17
or 72% per annum is outrageous and inordinate.
Conformably to these precedent cases, a combined interest
and penalty rate at 10% per month or 120% per annum,
should be deemed iniquitous, unconscion-
_______________
13 Spouses Solangon v. Salazar, G.R. No. 125944, 29 June 2001, 412

Phil. 816, 822; 360 SCRA 379, 384.
14 People v. Dizon, G.R. No. 120957, 22 August 1996, 329 Phil. 685, 696;
260 SCRA 851 and cases cited therein.
15 Supra, note 12 at p. 830; p. 490.
16 Ibid.
17 Supra, note 13 at p. 823; p. 385.
178

Dio vs. Japor
able, and inordinate. Hence, we sustain the appellate court

when it found the interest and penalty rates in the Deed of
Real Estate Mortgage in the present case excessive, hence
legally impermissible. Reduction is legally called for now in
rates of interest and penalty stated in the mortgage
contract.
What then should the interest and penalty rates be?
The evidence shows that it was indeed the respondents
who proposed the 5% interest rate per month for two (2)
months. Having agreed to said rate, the parties are now
estopped from claiming otherwise. For the succeeding
period after the two months, however, the Court of Appeals
correctly reduced the interest rate to 12% per annum and
the penalty 18 rate to 1% per month, in accordance with
Article 2227 of the Civil Code.
But were 19
respondents entitled to the “surplus” of
P2,247,326 as a result of the “overpricing” in the auction?
We note that the “surplus” was the result of the
computation by the Court of Appeals of respondents’
outstanding liability based on a reduced interest rate of
12% per annum and the reduced penalty rate of 1% per
month. The court a quo then 20proceeded to apply our ruling
in Sulit v. Court of Appeals, to the effect that in case of
surplus in the purchase price, the mortgagee is liable for
such surplus as actually comes into his hands, but where
he sells on credit instead of cash, he must still account for
the proceeds as if the price were paid in cash, for such
surplus stands in the place of the land itself with respect to
liens thereon or vested rights therein particularly those of
the mortgagor or his assigns.
_______________
18 Art. 2227. Liquidated damages, whether intended as an indemnity or

a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
19 Rollo, pp. 54-57.
20 G.R. No. 119247, 17 February 1997, 335 Phil. 914, 928-929; 268
SCRA 441, 445.
179
VOL. 463, JULY 8, 2005 179

Dio vs. Japor
In the instant case, however, there is no “surplus” to speak

of. In adjusting the interest and penalty rates to equitable
and conscionable levels, what the Court did was merely to
reflect the true price of the land in the foreclosure sale. The
amount of the petitioner’s bid merely represented the true
amount of the mortgage debt. No surplus in the purchase
price was thus created to which the respondents as the
mortgagors have a vested right.
WHEREFORE, the Decision dated February 22, 2002, of
the Court of Appeals in the consolidated cases CA-G.R. CV
No. 51521 and CA-G.R. SP No. 40457 is hereby
AFFIRMED with MODIFICATION. The interest rate for
the subject loan owing to QDB, or whoever is now the party
mortgagee, is hereby fixed at five percent (5%) for the first
two (2) months following the date of execution of the Deed
of Real Estate Mortgage, and twelve percent (12%) for the
succeeding period. The penalty rate thereafter shall be
fixed at one percent (1%) per month. Petitioner Teresita
Dio is declared free of any obligation to return to the
respondents, the Spouses Virgilio Japor and Luz Roces
Japor and Marta Japor, any surplus in the foreclosure sale
price. There being no surplus,21
after the court below had
applied our ruling in Sulit, respondents could not legally
claim any overprice from the petitioner, much less the
amount of P2,247,326.00.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Ynares-Santiago and

Azcuna, JJ., concur.
Carpio, J., On Official Leave.
Judgment affirmed with modification.
Notes.—Central Bank Circular No. 905 which took

effect on January 1, 1983, and removed the ceiling on
interest rates
_______________
21 Ibid.
180

Orbeta vs. Sendiong
for secured and unsecured loans, regardless of maturity,

cannot be made to retroactively apply to a contract
executed earlier while the Usury Law was in full force and
effect. (First Metro Investment Corporation vs. Este Del Sol
Mountain Reserve, Inc., 369 SCRA 99 [2001])
A borrower’s accessory duty to pay interest does not give
the lender unrestrained freedom to charge any rate other
than that which was agreed upon—it would be the zenith
of farcicality to specify and agree upon rates that could be

subsequently upgraded at whim by only one party to the
agreement. The “unilateral determination and imposition”
of increased rate is violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code. (New
Sampaguita Builders Construction, Inc. (NSBCI) vs.
Philippine National Bank, 435 SCRA 565 [2004])
——o0o——
G.R. No. 171925. July 23, 2010.*
SOLIDBANK CORPORATION, (now Metropolitan Bank

and Trust Company), petitioner, vs. PERMANENT
HOMES, INCORPORATED, respondent.
Usury Law; Interest Rates; The Usury Law had been rendered
legally ineffective by Resolution No. 224 dated 3 December 1982 of
the Monetary Board of the Central Bank, and later by Central
Bank Circular No. 905 which took effect on 1 January 1983; These
circulars removed the ceiling on interest rates for secured and
unsecured loans regardless of maturity; the effect of these circulars
is to allow the parties to agree on any interest that may be charged
on a loan, the virtual repeal of the Usury Law is within the range
of judicial notice which courts are bound to take into account.—
The Usury Law had been rendered legally ineffective by
Resolution No. 224 dated 3 December 1982 of the Monetary Board
of the Central Bank, and later by Central Bank Circular No. 905
which took effect on 1 January 1983. These circulars removed the
ceiling on interest rates for secured and unsecured loans
regardless of maturity. The effect of these circulars is to allow the
parties to agree on any interest that may be charged on a loan.
The virtual repeal of the Usury Law is within the range of judicial
notice which courts are bound to take into account. Although
interest rates are no longer subject to a ceiling, the lender still
does not have an unbridled license to impose increased interest
rates. The lender and the borrower should agree on the imposed
rate, and such imposed rate should be in writing.
Civil Law; Obligations and Contracts; Obligations arising
from contracts may have the force of law between the parties, there
must be a mutuality between the parties based on their essential
equality; A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one
of the contracting parties is void.—In order that obligations
arising from contracts may have the force of law between the
parties, there must be a mutuality between the parties based on
their essential equality. A contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties is
_______________
* SECOND DIVISION.
276
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Solid Bank Corporation vs. Permanent Homes, Incorporated
void. There was no showing that either Solidbank or Permanent

coerced each other to enter into the loan agreements. The terms of
the Omnibus Line Agreement and the promissory notes were
mutually and freely agreed upon by the parties.

Epifanio C. Sedigo for petitioner.
Alberto II Borbon Reyes for respondent.
CARPIO, J.:
G.R. No. 171925 is a petition for review1 assailing the
Decision2 promulgated on 29 June 2005 by the Court of
Appeals (appellate court) as well as the Resolution3
promulgated on 14 March 2006 in CA-G.R. CV No. 75926.
The appellate court granted the petition filed by
Permanent Homes, Incorporated (Permanent) and reversed
the decision of the Regional Trial Court of Makati City,
Branch 58 (trial court) dated 5 July 2002 in Civil Case No.
98-654. The appellate court ordered Solidbank Corporation
(Solidbank) and Permanent to enter into an express
agreement about the applicable interest rates on
Permanent’s loan. Solidbank was also ordered to render an
accounting of Permanent’s payments, not to impose
interest on interest upon Permanent’s loans, and to release
the remaining amount available under Permanent’s
omnibus credit line.
_______________
1 Under Rule 45 of the 1997 Rules of Civil Procedure.

2 Rollo, pp. 43-65. Penned by Associate Justice Danilo B. Pine, with
Associate Justices Rodrigo V. Cosico and Arcangelita Romilla-Lontok,
concurring.
3 Id., at pp. 67-68. Penned by Associate Justice Rodrigo V. Cosico, with
Associate Justices Josefina Guevara-Salonga and Arcangelita Romilla-
Lontok, concurring.
277
VOL. 625, JULY 23, 2010 277

Solid Bank Corporation vs. Permanent Homes,
Incorporated
The Facts
The appellate court narrated the facts as follows:
“The records disclose that PERMANENT HOMES is a real

estate development company, and to finance its housing project
known as the “Buena Vida Townhomes” located within Merville
Subdivision, Parañaque City, it applied and was subsequently
granted by SOLIDBANK with an “Omnibus Line” credit facility in
the total amount of SIXTY MILLION PESOS. Of the entire loan,
FIFTY NINE MILLION as [sic] time loan for a term of up to three
hundred sixty (360) days, with interest thereon at prevailing
market rates, and subject to monthly repricing. The remaining
ONE MILLION was available for domestic bills purchase.
To secure the aforesaid loan, PERMANENT HOMES initially
mortgaged three (3) townhouse units within the Buena Vida
project in Parañaque. At the time, however, the instant complaint
was filed against SOLIDBANK, a total of thirty six (36)
townhouse units were mortgaged with said bank.
Of the 60 million available to PERMANENT HOMES, it
availed of a total of 41.5 million pesos, covered by three (3)
promissory notes, which contain the following provisions, thus:
“xxx
5. We/I irrevocably authorize Solidbank to increase or
decrease at any time the interest rate agreed in this Note or
Loan on the basis of, among others, prevailing rates in the
local or international capital markets. For this purpose,
We/I authorize Solidbank to debit any deposit or placement
account with Solidbank belonging to any one of us. The
adjustment of the interest rate shall be effective from the
date indicated in the written notice sent to us by the bank,
or if no date is indicated, from the time the notice was sent.
6. Should We/I disagree to the interest rate
adjustment, We/I shall prepay all amounts due under this
Note or Loan within thirty (30) days from the receipt by
anyone of us of the written notice. Otherwise, We/I shall be
deemed to have given our consent to the interest rate
adjustment.”
Contrary, however, to the specific provisions as afore-quoted,
there was a standing agreement by the parties that any increase
or
278

decrease in interest rates shall be subject to the mutual

agreement of the parties.
For the first loan availment of PERMANENT HOMES on
March 20, 1997, in the amount of 19.6 MILLION, from the initial
interest rate of 14.25% per annum (p.a.), the same was increased
15% p.a. effective May 19, 1997; it was again increased to 26%
p.a. effective July 18, 1997. It was thereafter reduced to 20% p.a.
effective August 18, 1997, and then increased to 24% p.a. effective
September 17, 1997. The rate was increased further to 30% p.a.
effective October 17, 1997, then decreased to 27% p.a. on
November 17, 1997, and again increased to 34% p.a. effective
December 17, 1997. The rate then decreased to 30% p.a. on

January 16, 1998.
For the second loan availment in the amount of 18 million, the
rate was initially pegged at 15.75% p.a. on June 24, 1997. A
month later, the rate increased to 23.5% p.a. It thereafter
decreased to 20% p.a. effective August 24, 1997, but again
increased to 22.5% p.a. effective September 24, 1997. For the next
month, the rate surged to 30% p.a., and decreased to 27% p.a. for
the month of November. The rate again surged to 34% p.a. for the
month of December, and was decreased to 30% p.a. from January
22, 1998 to February 20, 1998.
For the third loan availment on July 15, 1997, in the amount of
3.9 million, the interest rate was initially pegged at 35% p.a., but
this was decreased to 21% p.a. from August 14 until September
11, 1997. The rate increased slightly to 23% p.a. on September
12, 1997, and surged to 27% p.a. on October 13, 1997. The rate
went down slightly to 27% p.a. for the month of November, and to
26% p.a. for the month of December. The rate, however, again
surged to 30% p.a. on January 12, 1998 before settling at 29%
p.a. for the month of February.
It is [Permanent’s] stand that SOLIDBANK unilaterally and
arbitrarily accelerated the interest rates without any declared
basis of such increases, of which PERMANENT HOMES had not
agreed to, or at the very least, been informed of. This is contrary
to their earlier agreement that any interest rate changes will be
subject to mutual agreement of the parties. PERMANENT
HOMES further admits that it was not able to protest such
arbitrary increases at the time they were imposed by
SOLIDBANK, for fear that SOLIDBANK might cut off the credit
facility it extended to PERMANENT HOMES. Permanent was
then in the midst of the construction of its
279
VOL. 625, JULY 23, 2010 279

project in Merville, Parañaque City, and SOLIDBANK knew that

it was relying substantially on the credit facility the latter
extended to it.
[Permanent] thus filed a case before the trial court seeking the
following: (1) the annulment of the increases in interest rates on
the loans it obtained from SOLIDBANK, on the ground that it
was violative of the principle of mutuality of agreement of the
parties, as enunciated in Article 1409 of the New Civil Code, (2)
the fixing of the interest rates at the applicable interest rate, and
(3) for the trial court to order SOLIDBANK to make an
accounting of the payments it made, so as to determine the
amount of refund PERMANENT is entitled to, as well as to order
SOLIDBANK to release the remaining available balance of the
loan it extended to PERMANENT. In addition, [Permanent] prays
for the payment of compensatory, moral and exemplary damages.
SOLIDBANK, on the other hand, avers that PERMANENT
HOMES has no cause of action against it, in view of the pertinent
provisions of the Omnibus Credit Line and the promissory notes

agreed to and signed by PERMANENT HOMES. Thus, in
accordance with said provisions, SOLIDBANK was authorized to,
upon due notice, periodically adjust the interest rates on
PERMANENT HOMES’ loan availments during the monthly
interest repricing dates, depending on the changes in prevailing
interest rates in the local and international capital markets. In
fact, SOLIDBANK avers that four (4) days before July 15, 1997,
the Bangko Sentral ng Pilipinas (BSP) declared that it could no
longer support the Philippine currency from external speculative
forces, hence, the local currency was allowed to seek its own
exchange rate level. As a result of the volatile exchange rate ratio,
banks were then hesitant to extend loans, and in some instances
that it granted loans, they had to ensure that they will not be at
the losing end of the deal, so to speak, by the repricing of the
interest rates every month. SOLIDBANK insists that
PERMANENT HOMES should not be allowed to renege on its
contractual obligations, as it freely and voluntarily bound itself to
the provisions of the Omnibus Credit Line and the promissory
notes.
PERMANENT HOMES presented as witnesses Jacqueline S.
Lim, its Vice President and Chief Financial Officer, Engr. Rey A.
Romasanta, its Executive Vice President and Chief Operating
Officer, and Martha Julia Flores, its Treasury Officer.
380

On March 24, 1998, the trial court issued a temporary

restraining order (TRO), after a summary hearing, which enjoined
SOLIDBANK from implementing and collecting the increases in
interest rates and from initiating any action, including the
foreclosure of the mortgaged properties.
Ms. Lim’s testimony centered on PERMANENT HOMES’
allegations that the repricing of the interest rates was done by
SOLIDBANK without any written agreement entered into
between the parties. In fact, Ms. Lim accounted that
SOLIDBANK will merely advise them of the interest rate for the
period, after said period had already commenced, and at times
very late in the period, by fax messages. When PERMANENT
HOMES called SOLIDBANK’s attention to the seemingly surging
rates it imposed on its loan, SOLIDBANK will merely answer that
it was the bank’s policy, without offering any basis for such
increase. Furthermore, Ms. Lim also mentioned SOLIDBANK’s
alleged practice of imposing interest on unpaid interest, at the
highest rate of 30% p.a. Ms. Lim also presented a tabulation,
which presents the number of days their billing statements were
sent late, from the time the interest period started. It is
PERMANENT HOMES’ stand that since the purpose of the
billing statements was to inform them beforehand of the
applicable interest rate for the period, the late billings will clearly
show SOLIDBANK’s arbitrary imposition of the repriced interest

rates, as well as its indifference to PERMANENT HOMES’ plight.
To illustrate, for the first loan availment in the amount of
P19.6 million, the billing statements which should have notified
PERMANENT HOMES of the repriced interest rates were faxed
to PERMANENT HOMES between eighteen (18) to thirty-three
(33) days late. For the second loan availment in the amount of
P18 million, the faxed billings were late between six (6) to twenty-
one (21) days, and one instance where PERMANENT HOMES
received no billing at all. For the third loan availment in the
amount of P3.9 million, the faxed billings were late between seven
(7) to twenty-nine (29) days, and also an instance where
PERMANENT HOMES received no billing at all.
This practice, according to Ms. Lim, clearly affected its
operations, as the completion of its construction project was
unnecessarily delayed, to its prejudice and its buyers. This was
the import of the testimony of PERMANENT HOMES’ second
witness, Engr. Rey A. Romasanta. According to Engr. Rey, the
target date of completion
281
VOL. 625, JULY 23, 2010 281

was August 1997, but in view of the shortage of funds by reason of

SOLIDBANK’s refusal for PERMANENT HOMES to make
further availments on its omnibus credit line, the project was
completed only on February 1998.
PERMANENT HOMES’ third and final witness was Martha
Julia Flores, its Treasury Officer, who explained that as such, it
was her who received the late billings from SOLIDBANK. She
would also call up SOLIDBANK to ask what the repriced interest
rate for the coming interest period, to no avail, as SOLIDBANK
will merely fax its billings almost always, as abovementioned, late
in the period. Ms. Flores admitted that she prepared the
tabulation presented before the court, which showed how late
SOLIDBANK’s billings were sent to PERMANENT HOMES, as
well as the computation of interest rates that SOLIDBANK had
allegedly overcharged on its loan, vis-a-vis the average of the high
and the low published lending rates of SOLIDBANK.
SOLIDBANK, to establish its defense, presented its lone
witness, Mr. Cesar Lugtu, who testified to the effect that,
contrary to PERMANENT HOMES’ assertions that it was not
promptly informed of the repriced interest rates, SOLIDBANK’s
officers verbally advised PERMANENT HOMES of the repriced
rates at the start of the period, and even added that their
transaction[s] were based on trust. Aside from these allegations,
however, no written memorandum or note was presented by
SOLIDBANK to support their assertion that PERMANENT
HOMES was timely advised of the repriced interests.”4
The Trial Court’s Ruling
On 5 July 2002, the trial court promulgated its Decision

in favor of Solidbank. The trial court ratiocinated and ruled
thus:
“It becomes crystal clear that there is sufficient proof to show

that the instant case was instituted by [Permanent] as an after-
thought and as an obvious subterfuge intended to completely lay
on the defendant the blame for the debacle of its Buena Vida
project. An afterthought because the records of the case show that
the complaint
_______________
4 Id., at pp. 43-49.
282

was filed in March 16, 1998, already after it was having

difficulty making the amortization payments, the last of which
being in February 1998. A subterfuge because plaintiff, instead of
blaming itself and its own business judgment that went sour,
would rather put the blame on [Solidbank], taking advantage of
every conceivable gray area of its contract with [Solidbank] to
avoid its own liabilities. In fact, this complaint was made the very
basis for [Permanent] to altogether stop the payment of its loan
from [Solidbank] including the interest payment (TSN, May 07,
1998, p. 60).
xxxx
WHEREFORE, finding the complaint not impressed with
merit, judgment is hereby rendered dismissing the said
complaint. The Counterclaim is likewise dismissed for lack of
evidence to support the same.
SO ORDERED.”5
Permanent filed an appeal before the appellate court.
The Appellate Court’s Ruling
The appellate court granted Permanent’s appeal, and set

aside the trial court’s ruling. The appellate court not only
recognized the validity of escalation clauses, but also
underscored the necessity of a basis for the increase in
interest rates and of the principle of mutuality of contracts.
The dispositive portion of the appellate court’s decision
reads, thus:
“THE FOREGOING CONSIDERED, the instant appeal is

hereby GRANTED, the assailed decision dated July 5, 2002 is
REVERSED and SET ASIDE, and a new one is hereby entered as
follows:
(1) Unless the parties herein subsequently enter into an
express agreement regarding the applicable interest rates on
PERMANENT HOMES’ loan availments subsequent to the initial

thirty-
_______________
5 Id., at pp. 164, 171.
283
VOL. 625, JULY 23, 2010 283

day (30) period, the legal rate of twelve percent (12%) per annum
is hereby FIXED, to be applied on the outstanding balance of the
loan;
(2) SOLIDBANK is ordered to render an accounting of all the
payments made by PERMANENT HOMES, and in case there is
excess payment by reason of the wrongful imposition of the
repriced interest rates, to apply such amount to the interest
payment at the legal rate, and thereafter to the outstanding
principal amount;
(3) SOLIDBANK is directed not to impose penalties,
particularly interest on interest, upon PERMANENT HOMES’
loan, there being no evidence that the latter was in default on its
payments;
(4) SOLIDBANK is hereby ordered to release the remaining
amount available under the omnibus credit line, subject, however,
to availability of funds on the part of SOLIDBANK.
SO ORDERED.”6
The appellate court resolved to deny Solidbank’s Motion

for Reconsideration for lack of merit.7
The Issues
Solidbank raised the following issues in their petition:
“(A) Whether the Honorable Court of Appeals was correct in ruling

that the increases in the interest rates on [Permanent’s] loans are
void for having been unilaterally imposed without basis.
(B) Whether the Honorable Court of Appeals was correct in ordering
the parties to enter into an express agreement regarding the
applicable interest rates on Permanent’s loan availments
subsequent to the initial thirty-day (30) period.
(C) Whether the Honorable Court of Appeals was correct in ruling
that [Permanent] is entitled to attorney’s fees not-
_______________
6 Id., at pp. 63-64.

7 Id., at pp. 67-68.
284

Incorporated
withstanding the absence of bad faith or malice on the part

of [Solidbank].”8
The Court’s Ruling
The petition has merit.

The Usury Law had been rendered legally ineffective by
Resolution No. 224 dated 3 December 1982 of the Monetary
Board of the Central Bank, and later by Central Bank
Circular No. 905 which took effect on 1 January 1983.
These circulars removed the ceiling on interest rates for
secured and unsecured loans regardless of maturity. The
effect of these circulars is to allow the parties to agree on
any interest that may be charged on a loan. The virtual
repeal of the Usury Law is within the range of judicial
notice which courts are bound to take into account.9
Although interest rates are no longer subject to a ceiling,
the lender still does not have an unbridled license to
impose increased interest rates. The lender and the
borrower should agree on the imposed rate, and such
imposed rate should be in writing.
The three promissory notes between Solidbank and
Permanent all contain the following provisions:
“5. We/I irrevocably authorize Solidbank to increase or

decrease at any time the interest rate agreed in this Note or
Loan on the basis of, among others, prevailing rates in the
local or international capital markets. For this purpose,
We/I authorize Solidbank to debit any deposit or placement
account with Solidbank belonging to any one of us. The
adjustment of the interest rate shall be effective from the
date indicated in the written notice sent to us by the bank,
or if no date is indicated, from the time the notice was sent.
6. Should We/I disagree to the interest rate adjustment,
We/I shall prepay all amounts due under this Note or Loan
within
_______________
8 Id., at p. 18.
9 Philippine National Bank v. Spouses Encina, G.R. No. 174055, 12 February
2008, 544 SCRA 608.
285
VOL. 625, JULY 23, 2010 285

thirty (30) days from the receipt by anyone of us of the

written notice. Otherwise, We/I shall be deemed to have
given our consent to the interest rate adjustment.”
The stipulations on interest rate repricing are valid

because (1) the parties mutually agreed on said
stipulations; (2) repricing takes effect only upon
Solidbank’s written notice to Permanent of the new interest
rate; and (3) Permanent has the option to prepay its loan if
Permanent and Solidbank do not agree on the new interest
rate. The phrases “irrevocably authorize,” “at any time”
and “adjustment of the interest rate shall be effective from
the date indicated in the written notice sent to us by the
bank, or if no date is indicated, from the time the notice
was sent,” emphasize that Permanent should receive a
written notice from Solidbank as a condition for the
adjustment of the interest rates.
In order that obligations arising from contracts may
have the force of law between the parties, there must be a
mutuality between the parties based on their essential
equality.10 A contract containing a condition which makes
its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties is void.11 There was no
showing that either Solidbank or Permanent coerced each
other to enter into the loan agreements. The terms of the
Omnibus Line Agreement and the promissory notes were
mutually and freely agreed upon by the parties.
Moreover, Solidbank’s range of lending rates were
consistent with “prevailing rates in the local or
international capital markets.” Permanent presented a
tabulation12 of the range of Solidbank’s lending rates, as
reported to Bangko Sentral ng
_______________
10 Philippine National Bank v. Court of Appeals, G.R. No. 88880, 30

April 1991, 196 SCRA 536, 545.
11 See Garcia, et al. v. Rita Legarda, Inc., 128 Phil. 590; 21 SCRA 555
(1967).
12 Records, Vol. II, p. 95.
286

Incorporated
Pilipinas and compared the lending rates with the interest

rates charged by Solidbank on Permanent’s loans, thus:
Solidbank’s
range of
lending rates
as per BSP
records
High Low Interest rates Excess Interest
charged by Rate Over the
Solidbank on Average of High

Permanent’s and Low Rates
loans
Sept. 25.0% 22.0% 23.0%
12,
1997
Sept. 27.0% 24.0% 24.0%
17,
1997
Sept. 26.0% 23.0% 22.5%
22,
1997
Oct. 29.0% 26.0% 28.0%
13,
1997
Oct. 30.0% 27.0% 30.0%
17,
1997
Oct. 32.0% 29.0% 30.0%
22,
1997
Nov. 28.0% 25.0% 27.0%
12,
1997
Nov. 28.0% 25.0% 27.0%
17,
1997
Nov. 27.0% 24.0% 27.0%
21,
1997
Dec. 25.0% 23.0% 26.0% 2.0%
12,
1997
Dec. 25.0% 23.0% 34.0% 10.0%
17,
1997
Dec. 25.0% 23.0% 32.0% 8.0%
22,
1997
Jan. 26.0% 24.0% 30.0% 5.0%
12,
1998
Jan. 28.0% 25.0% 30.0% 3.5%
16,
1998
Jan. 28.0% 25.0% 30.0% 3.5%
22,
1998
Feb. 27.0% 24.0% 30.0% 3.5%
9,
1998
Feb. 27.0% 24.0% 29.0% 4.5%
11,
1998
Feb. 27.0% 24.0% 30.0% 4.5%
12,
1998
The repriced interest rates from 12 September to 21

November 1997 conformed to the range of Solidbank’s
lending rates to other borrowers. The 12 December 1997 to
12 Febru-
287
VOL. 625, JULY 23, 2010 287

Incorporated
ary 1998 repriced interest rates were not unconscionably

out of line with the upper range of lending rates to other
borrowers. The interest rate repricing happened at the
height of the Asian financial crises in late 1997, when
banks clamped down on lendings because of higher credit
risks across industries, particularly the real estate
industry.
We also recognize that Solidbank admitted that it did
not promptly send Permanent written repriced rates, but
rather verbally advised Permanent’s officers over the phone
at the start of the period. Solidbank did not present any
written memorandum to support its allegation that it
promptly advised Permanent of the change in interest
rates.13 Solidbank advised Permanent on the repriced
interest rate applicable for the 30-day interest period only
after the period had begun. Permanent presented a
tabulation which showed that Solidbank either did not
send a billing statement, or sent a billing statement 6 to 33
days late.14 We reproduce the tabulation below:
PN #435 – P19.6MM
Reference Interest Period Date Billing Number of
No. Statements days Billing
were faxed to Statement
Permanent was Late
1 03/20/97 04/18/97 04/17/97 28
2 04/18/97 05/19/97 05/16/97 28
05/19/97 06/19/97 no statement
received
3 06/19/97 07/18/97 07/12/97 23
4 07/18/97 08/18/97 08/05/97 18
5 08/18/97 09/17/97 09/10/97 23
_______________
13 Id., at p. 49.
14 Id., at p. 59; Records, Vol. II, p. 85.
288

Incorporated
6 09/17/97 10/17/97 10/06/97 19

7 10/17/97 11/17/97 11/11/97 25
8 11/17/97 12/17/97 12/12/97 25
9 12/17/97 01/16/98 01/09/98 23
14 01/16/98 02/20/98 02/18/98 33

PN #969 – P18MM
Reference Interest Period Date Billing Number of
No. Statements days Billing
were faxed to Statement
Permanent was Late
3 06/24/97 07/24/97 07/12/97 18
4 07/24/97 08/22/97 08/05/97 12
5 08/22/97 09/22/97 09/10/97 19
6 09/22/97 10/22/97 10/06/97 14
7 10/22/97 11/21/97 11/11/97 20
8 11/21/97 12/22/97 12/12/97 21
9 12/22/97 01/22/98 01/09/98 18
01/22/98 02/12/97 no state-
ment re-
ceived
14 02/12/98 02/20/98 02/18/98 6

PN #1077 – P3.9MM
Reference Interest Period Date Number
No. Billing of days
Statements Billing
were faxed Statement
to was Late
Permanent
10 07/15/97 08/14/97 08/14/97 30
11 08/14/97 08/26/97 08/26/97 12

289
VOL. 625, JULY 23, 2010 289

Incorporated
5 08/26/97 09/12/97 09/10/97 15

6 09/12/97 10/13/97 10/06/97 24
7 10/13/97 11/12/97 11/11/97 29
12 11/12/97 12/12/97 12/10/97 28
9 12/12/97 01/12/98 01/09/98 28
13 01/12/98 02/09/98 02/09/98 28
02/09/98 02/11/98 no statement
received
14 02/11/98 03/13/98 02/18/98 7
We rule that Solidbank’s computation of the interest due

from Permanent should be adjusted to take effect only upon
Permanent’s receipt of the written notice from Solidbank.
WHEREFORE, we GRANT the petition in part. We SET
ASIDE the Decision of the Court of Appeals promulgated
on 29 June 2005 as well as the Resolution promulgated on
14 March 2006 in CA-G.R. CV No. 75926 and AFFIRM the
decision of the Regional Trial Court of Makati City, Branch
58 dated 5 July 2002 in Civil Case No. 98-654 with the
MODIFICATION that the repricing of the interest rates

should take effect only upon Permanent Homes,
Incorporated’s receipt of the written notice from Solidbank
Corporation of the adjustment in interest rate. The records
of this case are therefore remanded to the trial court for the
computation of the proper interest payments based on the
dates of receipt of written notice.
SO ORDERED.
Nachura, Peralta, Del Castillo**and Abad, JJ., concur.
Petition granted in part, judgment and resolution set

aside.
_______________
** Designated additional member per Raffle dated 7 July 2010.
G.R. No. 169975. March 18, 2010.*
PAN PACIFIC SERVICE CONTRACTORS, INC. and

RICARDO F. DEL ROSARIO, petitioners, vs. EQUITABLE
PCI BANK (formerly THE PHILIPPINE COMMERCIAL
INTERNATIONAL BANK), respondent.
Contracts; Parol Evidence Rule; The agreement or the contract

between the parties is the best evidence of the intention of the
parties.—It is settled that the agreement or the contract between
the parties is the formal expression of the parties’ rights, duties,
and obligations. It is the best evidence of the intention of the
parties. Thus, when the terms of an agreement have been reduced
to writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their successors
in interest, no evidence of such terms other than the contents of
the written agreement.
Same; Same; When the terms of a contract are clear and leave
no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations governs.—The CA went beyond the
intent of the parties by requiring respondent to give its consent to
the imposition of interest before petitioners can hold respondent
liable for interest at the current bank lending rate. This is
erroneous. A review of Section 2.6 of the Agreement and Section
60.10 of the General Conditions shows that the consent of the
respondent is not needed for the imposition of interest at the
current bank lending rate, which occurs upon any delay in
payment. When the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal
meaning of its stipulations governs. In these cases, courts have no
authority to alter a contract by construction or to make a new
contract for the parties. The Court’s duty is confined to the
interpretation of the contract which the parties have made for
themselves without regard to its wisdom or folly as the court
cannot supply material stipulations or read into the contract
words which it does not contain. It is only when the contract is
vague and ambiguous that courts are permitted to resort to
construction of its terms and determine the intention of the
parties.
_______________
* SECOND DIVISION.
103
http://www.central.com.ph/sfsreader/session/000001670e1e3573335329c4003600fb002c009e/t/?o=False 1/13
VOL. 616, MARCH 18, 2010 103
Pan Pacific Service Contractors, Inc. vs. Equitable PCI Bank

Same; Interest Rates; No interest shall be due unless it has
been expressly stipulated in writing.—Article 1956 of the Civil
Code, which refers to monetary interest, specifically mandates
that no interest shall be due unless it has been expressly
stipulated in writing. Therefore, payment of monetary interest is
allowed only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for the payment of
interest was reduced in writing. The concurrence of the two
conditions is required for the payment of monetary interest.

Lameyra Law Office for petitioner.
Balane, Tamase, Alampay Law Office for respondent.
CARPIO, J.:
The Case
Pan Pacific Service Contractors, Inc. and Ricardo F. Del

Rosario (petitioners) filed this Petition for Review1
assailing the Court of Appeals’ (CA) Decision2 dated 30
June 2005 in CA-G.R. CV No. 63966 as well as the
Resolution3 dated 5 October 2005 denying the Motion for
Reconsideration. In the assailed decision, the CA modified
the 12 April 1999 Decision4 of the Regional Trial Court of
Makati City, Branch 59 (RTC)
_______________
1 Under Rule 45 of the Rules of Court.

2 Penned by Associate Justice Josefina Guevara-Salonga with
Associate Justices Ruben T. Reyes, and Fernanda Lampas-Peralta,
concurring.
3 Penned by Associate Justice Josefina Guevara-Salonga with
Associate Justices Ruben T. Reyes, and Fernanda Lampas-Peralta,
concurring.
4 Penned by RTC Judge Lucia Violago-Isnani.
104

Pan Pacific Service Contractors, Inc. vs. Equitable PCI
Bank
by ordering Equitable PCI Bank5 (respondent) to pay

petitioners P1,516,015.07 with interest at the legal rate of
12% per annum starting 6 May 1994 until the amount is

fully paid.
The Facts
Pan Pacific Service Contractors, Inc. (Pan Pacific) is

engaged in contracting mechanical works on
airconditioning system. On 24 November 1989, Pan Pacific,
through its President, Ricardo F. Del Rosario (Del Rosario),
entered into a contract of mechanical works (Contract) with
respondent for P20,688,800. Pan Pacific and respondent
also agreed on nine change orders for P2,622,610.30. Thus,
the total consideration for the whole project was
P23,311,410.30.6 The Contract stipulated, among others,
that Pan Pacific shall be entitled to a price adjustment in
case of increase in labor costs and prices of materials under
paragraphs 70.17 and 70.28 of the “General
_______________
5 Formerly The Philippine Commercial International Bank and now

Banco De Oro Universal Bank.
6 Rollo, p. 23.
7 Changes in Cost and Legislation
70.1 Increase or Decrease of Cost
There shall be added to or deducted from the Contract Price such sums
in respect of rise or fall in the cost of labour and/or materials or any other
matters affecting the cost of the execution of the Works as may be
determined.
8 70.2 Subsequent Legislation
If, after the date 28 days prior to the latest date of submission of
tenders for the Contract there occur in the country in which the Works are
being or are to be executed changes to any National or State Statute,
Ordinance, Decree or other Law or any regulation or by-law of any local or
other duly constituted authority, or the introduction of any such State
Statute, Ordinance, Decree, Law, regulation or by-law which causes
additional or reduced cost to the contractor, other than under Sub-Clause
70.1, in the execution of the Contract, such additional or reduced cost
shall, after due consultation with the Owner and Contractor, be
determined by the Engineer and
105
VOL. 616, MARCH 18, 2010 105

Bank
Conditions for the Construction of PCIB Tower II

Extension” (the escalation clause).9
Pursuant to the contract, Pan Pacific commenced the
mechanical works in the project site, the PCIB Tower II
extension building in Makati City. The project was
completed in June 1992. Respondent accepted the project
on 9 July 1992.10In 1990, labor costs and prices of
materials escalated. On 5 April 1991, in accordance with

the escalation clause, Pan Pacific claimed a price
adjustment of P5,165,945.52. Respondent’s appointed
project engineer, TCGI Engineers, asked for a reduction in
the price adjustment. To show goodwill, Pan Pacific
reduced the price adjustment to P4,858,548.67.11
On 28 April 1992, TCGI Engineers recommended to
respondent that the price adjustment should be pegged at
P3,730,957.07. TCGI Engineers based their evaluation of
the price adjustment on the following factors:
1. Labor Indices of the Department of Labor and Employment.

2. Price Index of the National Statistics Office.
3. PD 1594 and its Implementing Rules and Regulations as
amended, 15 March 1991.
4. Shipping Documents submitted by PPSCI.
5. Sub-clause 70.1 of the General Conditions of the Contract
Documents.12
_______________
shall be added to or deducted from the Contract Price and the Engineer
shall notify the Contractor accordingly, with a copy to the Owner.
9 Rollo, p. 20.
10 Id., at p. 21.
11 Id.
12 Records, Vol. 1, p. 340.
106

Bank
Pan Pacific contended that with this recommendation,

respondent was already estopped from disclaiming liability
of at least P3,730,957.07 in accordance with the escalation
clause.13
Due to the extraordinary increases in the costs of labor
and materials, Pan Pacific’s operational capital was
becoming inadequate for the project. However, respondent
withheld the payment of the price adjustment under the
escalation clause despite Pan Pacific’s repeated demands.14
Instead, respondent offered Pan Pacific a loan of P1.8
million. Against its will and on the strength of respondent’s
promise that the price adjustment would be released soon,
Pan Pacific, through Del Rosario, was constrained to
execute a promissory note in the amount of P1.8 million as
a requirement for the loan. Pan Pacific also posted a surety
bond. The P1.8 million was released directly to laborers
and suppliers and not a single centavo was given to Pan
Pacific.15
Pan Pacific made several demands for payment on the

price adjustment but respondent merely kept on promising
to release the same. Meanwhile, the P1.8 million loan
matured and respondent demanded payment plus interest
and penalty. Pan Pacific refused to pay the loan. Pan
Pacific insisted that it would not have incurred the loan if
respondent released the price adjustment on time. Pan
Pacific alleged that the promissory note did not express the
true agreement of the parties. Pan Pacific maintained that
the P1.8 million was to be considered as an advance
payment on the price adjustment. Therefore, there was
really no consideration for the promissory note; hence, it is
null and void from the beginning.16
Respondent stood firm that it would not release any
amount of the price adjustment to Pan Pacific but it would
offset the price adjustment with Pan Pacific’s outstanding
_______________
13 Rollo, p. 21.
14 Id.
15 Id.
16 Id.
107
VOL. 616, MARCH 18, 2010 107

Bank
balance of P3,226,186.01, representing the loan, interests,

penalties and collection charges.17
Pan Pacific refused the offsetting but agreed to receive
the reduced amount of P3,730,957.07 as recommended by
the TCGI Engineers for the purpose of extrajudicial
settlement, less P1.8 million and P414,942 as advance
payments.18
On 6 May 1994, petitioners filed a complaint for
declaration of nullity/annulment of the promissory note,
sum of money, and damages against the respondent with
the RTC of Makati City, Branch 59. On 12 April 1999, the
RTC rendered its decision, the dispositive portion of which
reads:
“WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiffs and against the defendant as follows:
1. Declaring the promissory note (Exhibit “B”) null and void;
2. Ordering the defendant to pay the plaintiffs the following
amounts:
a. P1,389,111.10 representing unpaid balance of the
adjustment price, with interest thereon at the legal rate of
twelve (12%) percent per annum starting May 6, 1994, the
date when the complaint was filed, until the amount is fully
paid;
b. P100,000.00 representing moral damages;
c. P50,000.00 representing exemplary damages; and
d. P50,000.00 as and for attorney’s fees.
3. Dismissing defendant’s counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.”19
_______________
17 Id., at p. 23.
18 Id., at p. 22.
19 Id., at p. 52.
108

Bank
On 23 May 1999, petitioners partially appealed the RTC

Decision to the CA. On 26 May 1999, respondent appealed
the entire RTC Decision for being contrary to law and
evidence. In sum, the appeals of the parties with the CA
are as follows:
1. With respect to the petitioners, whether the
RTC erred in deducting the amount of P126,903.97
from the balance of the adjusted price and in
awarding only 12% annual interest on the amount
due, instead of the bank loan rate of 18% compounded
annually beginning September 1992.
2. With respect to respondent, whether the RTC
erred in declaring the promissory note void and in
awarding moral and exemplary damages and
attorney’s fees in favor of petitioners and in
dismissing its counterclaim.
In its decision dated 30 June 2005, the CA modified the
RTC decision, with respect to the principal amount due to
petitioners. The CA removed the deduction of P126,903.97
because it represented the final payment on the basic
contract price. Hence, the CA ordered respondent to pay
P1,516,015.07 to petitioners, with interest at the legal rate
of 12% per annum starting 6 May 1994.20
On 26 July 2005, petitioners filed a Motion for Partial
Reconsideration seeking a reconsideration of the CA’s
Decision imposing the legal rate of 12%. Petitioners
claimed that the interest rate applicable should be the 18%
bank lending rate. Respondent likewise filed a Motion for
Reconsideration of the CA’s decision. In a Resolution dated
5 October 2005, the CA denied both motions.
Aggrieved by the CA’s Decision, petitioners elevated the
case before this Court.
_______________
20 Id., at pp. 33-34.
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VOL. 616, MARCH 18, 2010 109

Bank

The Issue
Petitioners submit this sole issue for our consideration:
Whether the CA, in awarding the unpaid balance of the
price adjustment, erred in fixing the interest rate at 12%
instead of the 18% bank lending rate.
Ruling of the Court
We grant the petition.

This Court notes that respondent did not appeal the
decision of the CA. Hence, there is no longer any issue as to
the principal amount of the unpaid balance on the price
adjustment, which the CA correctly computed at
P1,516,015.07. The only remaining issue is the interest
rate applicable for respondent’s delay in the payment of the
balance of the price adjustment.
The CA denied petitioners’ claim for the application of
the bank lending rate of 18% compounded annually
reasoning, to wit:
“Anent the 18% interest rate compounded annually, while it is

true that the contract provides for an interest at the current bank
lending rate in case of delay in payment by the Owner, and the
promissory note charged an interest of 18%, the said proviso does
not authorize plaintiffs to unilaterally raise the interest rate
without the other party’s consent. Unlike their request for price
adjustment on the basic contract price, plaintiffs never informed
nor sought the approval of defendant for the imposition of 18%
interest on the adjusted price. To unilaterally increase the
interest rate of the adjusted price would be violative of the
principle of mutuality of contracts. Thus, the Court maintains the
legal rate of twelve percent per annum starting from the date of
judicial demand. Although the contract provides for the period
when the recommendation of the TCGI Engineers as to the price
adjustment would be binding on the parties, it was established,
however, that part of the adjusted price demanded by plaintiffs
was already disbursed as early as 28 Febru-
110

Pan Pacific Service Contractors, Inc. vs. Equitable PCI Bank
ary 1992 by defendant bank to their suppliers and laborers for

their account.”21
In this appeal, petitioners allege that the contract

between the parties consists of two parts, the Agreement22
and the General Conditions,23 both of which provide for
interest at the bank lending rate on any unpaid amount
due under the contract. Petitioners further claim that there
is nothing in the contract which requires the consent of the
respondent to be given in order that petitioners can charge
the bank lending rate.24 Specifically, petitioners invoke
Section 2.5 of the Agreement and Section 60.10 of the
General Conditions as follows:
Agreement
2.5 If any payment is delayed, the CONTRACTOR may
charge interest thereon at the current bank lending
rates, without prejudice to OWNER’S recourse to any other
remedy available under existing law.25
General Conditions
60.10Time for payment
The amount due to the Contractor under any interim certificate
issued by the Engineer pursuant to this Clause, or to any term of
the Contract, shall, subject to clause 47, be paid by the Owner to
the Contractor within 28 days after such interim certificate has
been delivered to the Owner, or, in the case of the Final Certificate
referred to in Sub-Clause 60.8, within 56 days, after such Final
Certificate has been delivered to the Owner. In the event of the
failure of the Owner to make payment within the times stated, the
Owner shall pay to the Con-
_______________
21 Id., at p. 33.
22 Records, Vol. 1, pp. 41-56. Agreement for the Construction of PCIB
Tower II Extension (Mechanical Works).
23 Id., at pp. 57-114. General Conditions for the Construction of PCIB
Tower II Extension.
24 Rollo, p. 10.
111
VOL. 616, MARCH 18, 2010 111

Bank
tractor interest at the rate based on banking loan rates

prevailing at the time of the signing of the contract upon all
sums unpaid from the date by which the same should have
been paid. The provisions of this Sub-Clause are without
prejudice to the Contractor’s entitlement under Clause
69.26 (Emphasis supplied)
Petitioners thus submit that it is automatically entitled

to the bank lending rate of interest from the time an
amount is determined to be due thereto, which respondent
should have paid. Therefore, as petitioners have already
proven their entitlement to the price adjustment, it
necessarily follows that the bank lending interest rate of
18% shall be applied.27
On the other hand, respondent insists that under the
provisions of 70.1 and 70.2 of the General Conditions, it is
stipulated that any additional cost shall be determined by
the Engineer and shall be added to the contract price after
due consultation with the Owner, herein respondent.
Hence, there being no prior consultation with the
respondent regarding the additional cost to the basic
contract price, it naturally follows that respondent was
never consulted or informed of the imposition of 18%
interest rate compounded annually on the adjusted price.28
A perusal of the assailed decision shows that the CA
made a distinction between the consent given by the owner
of the project for the liability for the price adjustments, and
the consent for the imposition of the bank lending rate.
Thus, while the CA held that petitioners consulted
respondent for price adjustment on the basic contract price,
petitioners, nonetheless, are not entitled to the imposition
of 18% interest on the adjusted price, as petitioners never
informed or sought the approval of respondent for such
imposition.29
_______________
26 Id., at p. 101.
27 Rollo, p. 11.
28 Id., at pp. 66-67.
29 Id., at p. 33.
112

Bank
We disagree.
It is settled that the agreement or the contract between
the parties is the formal expression of the parties’ rights,
duties, and obligations. It is the best evidence of the
intention of the parties. Thus, when the terms of an
agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no
evidence of such terms other than the contents of the
written agreement.30
The escalation clause of the contract provides:
CHANGES IN COST AND LEGISLATION

70.1 Increase or Decrease of Cost
There shall be added to or deducted from the Contract Price
such sums in respect of rise or fall in the cost of labor and/or
materials or any other matters affecting the cost of the
execution of the Works as may be determined.
70.2 Subsequent Legislation
If, after the date 28 days prior to the latest date of
submission of tenders for the Contract there occur in the
country in which the Works are being or are to be executed
changes to any National or State Statute, Ordinance,
Decree or other Law or any regulation or bye-law (sic) of
any local or other duly constituted authority, or the
introduction of any such State Statute, Ordinance, Decree,
Law, regulation or bye-law (sic) which causes additional or
reduced cost to the contractor, other than under Sub-Clause
70.1, in the execution of the Contract, such additional or
reduced cost shall, after due consultation with the Owner
and Contractor, be determined by the Engineer and shall be
added to or deducted from the Contract Price and the
Engineer shall notify the Contractor accordingly, with a
copy to the Owner.31
_______________
30 Section 9, Rule 130, Rules of Court.

113
VOL. 616, MARCH 18, 2010 113

Bank
In this case, the CA already settled that petitioners

consulted respondent on the imposition of the price
adjustment, and held respondent liable for the balance of
P1,516,015.07. Respondent did not appeal from the decision
of the CA; hence, respondent is estopped from contesting
such fact.
However, the CA went beyond the intent of the parties
by requiring respondent to give its consent to the
imposition of interest before petitioners can hold
respondent liable for interest at the current bank lending
rate. This is erroneous. A review of Section 2.6 of the
Agreement and Section 60.10 of the General Conditions
shows that the consent of the respondent is not needed for
the imposition of interest at the current bank lending rate,
which occurs upon any delay in payment.
When the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the
literal meaning of its stipulations governs. In these cases,
courts have no authority to alter a contract by construction
or to make a new contract for the parties. The Court’s duty

is confined to the interpretation of the contract which the
parties have made for themselves without regard to its
wisdom or folly as the court cannot supply material
stipulations or read into the contract words which it does
not contain. It is only when the contract is vague and
ambiguous that courts are permitted to resort to
construction of its terms and determine the intention of the
parties.32
The escalation clause must be read in conjunction with
Section 2.5 of the Agreement and Section 60.10 of the
General Conditions which pertain to the time of payment.
Once the parties agree on the price adjustment after due
consultation in compliance with the provisions of the
escalation clause, the agreement is in effect an amendment
to the original contract, and gives rise to the liability of
respondent to pay the adjusted costs. Under Section 60.10
of the General Conditions,
_______________
32 Spouses Barrera v. Spouses Lorenzo, 438 Phil. 42, 49-50; 389 SCRA
329, 333 (2002).
114

Bank
the respondent shall pay such liability to the petitioner

within 28 days from issuance of the interim certificate.
Upon respondent’s failure to pay within the time provided
(28 days), then it shall be liable to pay the stipulated
interest.
This is the logical interpretation of the agreement of the
parties on the imposition of interest. To provide a contrary
interpretation, as one requiring a separate consent for the
imposition of the stipulated interest, would render the
intentions of the parties nugatory.
Article 1956 of the Civil Code, which refers to monetary
interest, specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing.
Therefore, payment of monetary interest is allowed only if:
(1) there was an express stipulation for the
payment of interest; and
(2) the agreement for the payment of interest was
reduced in writing. The concurrence of the two
conditions is required for the payment of monetary
interest.33
We agree with petitioners’ interpretation that in case of
default, the consent of the respondent is not needed in
order to impose interest at the current bank lending rate.
Applicable Interest Rate
Under Article 2209 of the Civil Code, the appropriate

measure for damages in case of delay in discharging an
obligation consisting of the payment of a sum of money is
the payment of penalty interest at the rate agreed upon in
the contract of the parties. In the absence of a stipulation of
a particular rate of penalty interest, payment of additional
interest at a rate equal to the regular monetary interest
becomes due and payable. Finally, if no regular interest
had
_______________
33 Siga-an v. Villanueva, G.R. No. 173227, 20 January 2009, 576 SCRA

696, 704-705.
115
VOL. 616, MARCH 18, 2010 115

Bank
been agreed upon by the contracting parties, then the

damages payable will consist of payment of legal interest
which is 6%, or in the case of loans or forbearances of
money, 12% per annum.34 It is only when the parties to a
contract have failed to fix the rate of interest or when such
amount is unwarranted that the Court will apply the 12%
interest per annum on a loan or forbearance of money.35
The written agreement entered into between petitioners
and respondent provides for an interest at the current bank
lending rate in case of delay in payment and the
promissory note charged an interest of 18%.
To prove petitioners’ entitlement to the 18% bank
lending rate of interest, petitioners presented the
promissory note36 prepared by respondent bank itself. This
promissory note, although declared void by the lower courts
because it did not express the real intention of the parties,
is substantial proof that the bank lending rate at the time
of default was 18% per annum. Absent any evidence of
fraud, undue influence or any vice of consent exercised by
petitioners against the respondent, the interest rate agreed
upon is binding on them.37
WHEREFORE, we GRANT the petition. We SET ASIDE
the Decision and Resolution of the Court of Appeals in CA-
G.R. CV No. 63966. We ORDER respondent to pay
petitioners P1,516,015.07 with interest at the bank lending
rate of 18% per annum starting 6 May 1994 until the
amount is fully paid.
SO ORDERED.
Brion, Del Castillo, Abad and Perez, JJ., concur.
_______________
34 Castelo v. Court of Appeals, 314 Phil. 1, 20; 244 SCRA 180, 190
(1995).
35 Gobonseng v. Unibancard Corporation, G.R. No. 160026, 10
December 2007, 539 SCRA 564, 569-570.
36 Records, Vol. 1, pp. 329-332.
37 Spouses Pascual v. Ramos, 433 Phil. 449, 461; 384 SCRA 105, 115
(2002).
G.R. No. 189871. August 13, 2013.*
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or

FELIPE BORDEY, JR., respondents.
Labor Law; Termination of Employment; Illegal Dismissals;

By the nature of an illegal dismissal case, the reliefs continue to
add up until full satisfaction, as expressed under Article 279 of the
Labor Code.—No essential change is made by a recomputation as
this step is a necessary consequence that flows from the nature of
the illegality of dismissal declared by the Labor Arbiter in that
decision. A recomputation (or an original computation, if no
previous computation has been made) is a part of the law —
specifically, Article 279 of the Labor Code and the established
jurisprudence on this provision — that is read into the decision.
By the nature of an illegal dismissal case, the reliefs continue to
add up until full satisfaction, as expressed under Article 279 of
the Labor Code. The recomputation of
_______________
* EN BANC.
440
Nacar vs. Gallery Frames
the consequences of illegal dismissal upon execution of the

decision does not constitute an alteration or amendment of the
final decision being implemented. The illegal dismissal ruling
stands; only the computation of monetary consequences of this
dismissal is affected, and this is not a violation of the principle of
immutability of final judgments.
Same; Same; Same; Article 279 of the Labor Code provides for
the consequences of illegal dismissal in no uncertain terms,
qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed.—That the
amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when
it continued to seek recourses against the Labor Arbiter’s
decision. Article 279 provides for the consequences of illegal
dismissal in no uncertain terms, qualified only by jurisprudence
in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the
http://www.central.com.ph/sfsreader/session/000001670e204b72bac55837003600fb002c009e/t/?o=False 1/18
illegal dismissal decision becomes the reckoning point instead of

the reinstatement that the law decrees. In allowing separation
pay, the final decision effectively declares that the employment
relationship ended so that separation pay and backwages are to
be computed up to that point.
Interest Rates; In the absence of an express stipulation as to
the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits and
the rate allowed in judgments shall no longer be twelve percent
(12%) per annum — as reflected in the case of Eastern Shipping
Lines vs. Court of Appeals, 234 SCRA 78 (1994), and Subsection
X305.1 of the Manual of Regulations for Banks and Sections
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for
Non-Bank Financial Institutions, before its amendment by BSP-
MB Circular No. 799 — but will now be six percent (6%) per
annum effective July 1, 2013.—In the absence of an express
stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any
money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum — as reflected in
the case of Eastern Shipping Lines, Inc. v. Court of Appeals, 234
SCRA 78 (1994) and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions, before its
441
VOL. 703, AUGUST 13, 2013 441
amendment by BSP-MB Circular No. 799 — but will now be six

percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively
and not retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013. Come
July 1, 2013 the new rate of six percent (6%) per annum shall be
the prevailing rate of interest when applicable.
Same; Monetary Board; The Bangko Sentral ng Pilipinas-
Monetary Board may prescribe the maximum rate or rates of
interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority
such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions.—In
the recent case of Advocates for Truth in Lending, Inc. and
Eduardo B. Olaguer v. Bangko Sentral Monetary Board, 688
SCRA 530 (2013), this Court affirmed the authority of the BSP-
MB to set interest rates and to issue and enforce Circulars when
it ruled that “the BSP-MB may prescribe the maximum rate or
rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for
loans of low priority such as consumer loans, as well as such loans
made by pawnshops, finance companies and similar credit

institutions. It even authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial
intermediaries.”
Same; When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in
writing; In the absence of stipulation, the rate of interest shall be
6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.—When the obligation is breached, and it
consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
442
Same; When an obligation, not constituting a loan or

forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum.—When an obligation, not constituting a
loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages, except when or
until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
Same; When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest, shall
be 6% per annum from such finality until its satisfaction.—When
the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 6% per annum
from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

Carlo A. Domingo for petitioner.
Cabio Law Office and Associates for respondent.
443
VOL. 703, AUGUST 13, 2013 443

PERALTA, J.:
This is a petition for review on certiorari assailing the
Decision1 dated September 23, 2008 of the Court of Appeals
(CA) in CA-G.R. SP No. 98591, and the Resolution2 dated
October 9, 2009 denying petitioner’s motion for
reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive
dismissal before the Arbitration Branch of the National
Labor Relations Commission (NLRC) against respondents
Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as
NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a
Decision3 in favor of petitioner and found that he was
dismissed from employment without a valid or just cause.
Thus, petitioner was awarded backwages and separation
pay in lieu of reinstatement in the amount of P158,919.92.
The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed

to discharge the burden of showing that complainant was
dismissed from employment for a just or valid cause. All the more,
it is clear from the records that complainant was never afforded
due process before he was terminated. As such, we are perforce
constrained to grant complainant’s prayer for the payments of
separation pay in lieu of reinstatement to his former position,
considering the strained relationship between the parties, and his
apparent reluctance to be reinstated, computed only up to
promulgation of this decision as follows:
_______________
1 Penned by Associate Justice Vicente S. E. Veloso, with Associate
Justices Rebecca De Guia-Salvador and Ricardo R. Rosario, concurring;
Rollo, pp. 33-48.
2 Id., at p. 32.
3 Id., at pp. 79-84.
444

SEPARATION PAY
Date Hired = August 1990
Rate = P198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
P198.00 x 26 days x 8 months = P41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = P196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
P196.00/day x 12.36 mos. = P62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = P62,986.00
P198.00 x 26 days x 6.4 mos. = P32,947.20
T O T A L = P95.933.76
xxxx
WHEREFORE, premises considered, judgment is hereby
rendered finding respondents guilty of constructive dismissal and
are therefore, ordered:
1. To pay jointly and severally the complainant the amount of
sixty-two thousand nine hundred eighty-six pesos and
56/100 (P62,986.56) Pesos representing his separation pay;
2. To pay jointly and severally the complainant the amount of
nine (sic) five thousand nine hundred thirty-three and
36/100 (P95,933.36) representing his backwages; and
3. All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
_______________
4 Id., at pp. 82-84. (Emphasis supplied.)
445
VOL. 703, AUGUST 13, 2013 445

Respondents appealed to the NLRC, but it was

dismissed for lack of merit in the Resolution5 dated
February 29, 2000. Accordingly, the NLRC sustained the
decision of the Labor Arbiter. Respondents filed a motion
for reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on
Certiorari before the CA. On August 24, 2000, the CA
issued a Resolution dismissing the petition. Respondents
filed a Motion for Reconsideration, but it was likewise
denied in a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme
Court, docketed as G.R. No. 151332. Finding no reversible
error on the part of the CA, this Court denied the petition
in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that
the resolution became final and executory on May 27,
2002.9 The case was, thereafter, referred back to the Labor
Arbiter. A pre-execution conference was consequently
scheduled, but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for
Correct Computation, praying that his backwages be
computed from the date of his dismissal on January 24,
1997 up to the finality of the Resolution of the Supreme
Court on May 27, 2002.11 Upon recomputation, the
Computation and Examination Unit of the NLRC arrived
at an updated amount in the sum of P471,320.31.12
_______________
5 Id., at pp. 85-93.
6 Resolution dated July 24, 2000, id., at pp. 94-96.
7 Rollo, p. 35.
8 Id., at pp. 35-36.
9 Id., at p. 36.
10 Id., at p. 100.
11 Id.
12 Id., at p. 101.
446

On December 2, 2002, a Writ of Execution13 was issued

by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of P471,320.31. Respondents
filed a Motion to Quash Writ of Execution, arguing, among
other things, that since the Labor Arbiter awarded
separation pay of P62,986.56 and limited backwages of
P95,933.36, no more recomputation is required to be made
of the said awards. They claimed that after the decision
becomes final and executory, the same cannot be altered or
amended anymore.14 On January 13, 2003, the Labor
Arbiter issued an Order15 denying the motion. Thus, an
Alias Writ of Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on
June 30, 2003 issued a Resolution17 granting the appeal in
favor of the respondents and ordered the recomputation of
the judgment award.
On August 20, 2003, an Entry of Judgment was issued
declaring the Resolution of the NLRC to be final and
executory. Consequently, another pre-execution conference
was held, but respondents failed to appear on time.
Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed

judgment award in the sum of P471,320.31.18
The records of the case were again forwarded to the
Computation and Examination Unit for recomputation,
where the judgment award of petitioner was reassessed to
be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued
ordering respondents to pay him the original amount as de-
_______________
13 Id., at pp. 97-102.
14 Id., at p. 37.
15 Id., at pp. 103-108.
16 Id., at pp. 109-113.
17 Id., at pp. 114-117.
18 Id., at p. 101.
447
VOL. 703, AUGUST 13, 2013 447

termined by the Labor Arbiter in his Decision dated

October 15, 1998, pending the final computation of his
backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias
Writ of Execution to satisfy the judgment award that was
due to petitioner in the amount of P147,560.19, which
petitioner eventually received.
Petitioner then filed a Manifestation and Motion
praying for the recomputation of the monetary award to
include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20
granting the motion, but only up to the amount of
P11,459.73. The Labor Arbiter reasoned that it is the
October 15, 1998 Decision that should be enforced
considering that it was the one that became final and
executory. However, the Labor Arbiter reasoned that since
the decision states that the separation pay and backwages
are computed only up to the promulgation of the said
decision, it is the amount of P158,919.92 that should be
executed. Thus, since petitioner already received
P147,560.19, he is only entitled to the balance of
P11,459.73.
Petitioner then appealed before the NLRC,21 which
appeal was denied by the NLRC in its Resolution22 dated
September 27, 2006. Petitioner filed a Motion for
Reconsideration, but it was likewise denied in the
Resolution23 dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the
CA, docketed as CA-G.R. SP No. 98591.
_______________
19 Id., at p. 40.
20 Id., at pp. 65-69.
21 Id., at pp. 70-74.
22 Id., at pp. 60-64.
23 Id., at pp. 58-59.
448

On September 23, 2008, the CA rendered a Decision24

denying the petition. The CA opined that since petitioner
no longer appealed the October 15, 1998 Decision of the
Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to enforce
the said judgment. Consequently, it can no longer be
modified in any respect, except to correct clerical errors or
mistakes. Petitioner filed a Motion for Reconsideration, but
it was denied in the Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE
OF DISCRETION AND DECIDED CONTRARY TO LAW IN
UPHOLDING THE QUESTIONED RESOLUTIONS OF THE
NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005
ORDER OF LABOR ARBITER MAGAT MAKING THE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998
DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO
AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26
Petitioner argues that notwithstanding the fact that

there was a computation of backwages in the Labor
Arbiter’s decision, the same is not final until reinstatement
is made or until finality of the decision, in case of an award
of separation pay. Petitioner maintains that considering
that the October 15, 1998 decision of the Labor Arbiter did
not become final and executory until the April 17, 2002
Resolution of the Supreme Court in G.R. No. 151332 was
entered in the Book of Entries on May 27, 2002, the
reckoning point for the compu-
_______________
24 Id., at pp. 33-48.
25 Id., at p. 32.
26 Id., at p. 27.
449
VOL. 703, AUGUST 13, 2013 449

tation of the backwages and separation pay should be on

May 27, 2002 and not when the decision of the Labor
Arbiter was rendered on October 15, 1998. Further,
petitioner posits that he is also entitled to the payment of
interest from the finality of the decision until full payment
by the respondents.
On their part, respondents assert that since only
separation pay and limited backwages were awarded to
petitioner by the October 15, 1998 decision of the Labor
Arbiter, no more recomputation is required to be made of
said awards. Respondents insist that since the decision
clearly stated that the separation pay and backwages are
“computed only up to [the] promulgation of this decision,”
and considering that petitioner no longer appealed the
decision, petitioner is only entitled to the award as
computed by the Labor Arbiter in the total amount of
P158,919.92. Respondents added that it was only during
the execution proceedings that the petitioner questioned
the award, long after the decision had become final and
executory. Respondents contend that to allow the further
recomputation of the backwages to be awarded to petitioner
at this point of the proceedings would substantially vary
the decision of the Labor Arbiter as it violates the rule on
immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session
Delights Ice Cream and Fast Foods v. Court of Appeals
(Sixth Division),27 wherein the issue submitted to the Court
for resolution was the propriety of the computation of the
awards made, and whether this violated the principle of
immutability of judgment. Like in the present case, it was
a distinct feature of the judgment of the Labor Arbiter in
the above-cited case that the decision already provided for
the computation of the payable separation pay and
backwages due and did not further order the computation
of the monetary awards up to the time of the finality of the
judgment. Also in Session Delights, the
_______________
27 G.R. No. 172149, February 8, 2010, 612 SCRA 10.
450

dismissed employee failed to appeal the decision of the

labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-

computation in the course of execution of the labor arbiter’s
original computation of the awards made, pegged as of the
time the decision was rendered and confirmed with
modification by a final CA decision, is legally proper. The
question is posed, given that the petitioner did not
immediately pay the awards stated in the original labor
arbiter’s decision; it delayed payment because it continued
with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final
decision in this case proceeds from the way the original
labor arbiter framed his decision. The decision consists
essentially of two parts.
The first is that part of the decision that cannot now be
disputed because it has been confirmed with finality. This is
the finding of the illegality of the dismissal and the awards
of separation pay in lieu of reinstatement, backwages,
attorney’s fees, and legal interests.
The second part is the computation of the awards made.
On its face, the computation the labor arbiter made shows
that it was time-bound as can be seen from the figures used
in the computation. This part, being merely a computation
of what the first part of the decision established and
declared, can, by its nature, be re-computed. This is the
part, too, that the petitioner now posits should no longer be
re-computed because the computation is already in the
labor arbiter’s decision that the CA had affirmed. The public
and private respondents, on the other hand, posit that a re-
computation is necessary because the relief in an illegal
dismissal decision goes all the way up to reinstatement if
reinstatement is to be made, or up to the finality of the
decision, if separation pay is to be given in lieu
reinstatement.
That the labor arbiter’s decision, at the same time that it
found that an illegal dismissal had taken place, also made a
computation of the award, is understandable
451
VOL. 703, AUGUST 13, 2013 451

in light of Section 3, Rule VIII of the then NLRC Rules of

Procedure which requires that a computation be made. This
Section in part states:
[T]he Labor Arbiter of origin, in cases involving
monetary awards and at all events, as far as
practicable, shall embody in any such decision or
order the detailed and full amount awarded.
Clearly implied from this original computation is its
currency up to the finality of the labor arbiter’s decision. As
we noted above, this implication is apparent from the terms
of the computation itself, and no question would have arisen
had the parties terminated the case and implemented the

decision at that point.
However, the petitioner disagreed with the labor
arbiter’s findings on all counts — i.e., on the finding of
illegality as well as on all the consequent awards made.
Hence, the petitioner appealed the case to the NLRC which,
in turn, affirmed the labor arbiter’s decision. By law, the
NLRC decision is final, reviewable only by the CA on
jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC
decision on jurisdictional grounds through a timely filed
Rule 65 petition for certiorari. The CA decision, finding that
NLRC exceeded its authority in affirming the payment of
13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for
execution.
It was at this point that the present case arose. Focusing
on the core illegal dismissal portion of the original labor
arbiter’s decision, the implementing labor arbiter ordered
the award re-computed; he apparently read the figures
originally ordered to be paid to be the computation due had
the case been terminated and implemented at the labor
arbiter’s level. Thus, the labor arbiter re-computed the
award to include the separation pay and the backwages due
up to the finality of the CA decision that fully terminated
the case on the merits. Unfortunately, the labor arbiter’s
approved computation went beyond the finality of the CA
decision (July 29, 2003) and
452

included as well the payment for awards the final CA

decision had deleted — specifically, the proportionate 13th
month pay and the indemnity awards. Hence, the CA issued
the decision now questioned in the present petition.
We see no error in the CA decision confirming that a
recomputation is necessary as it essentially considered the
labor arbiter’s original decision in accordance with its basic
component parts as we discussed above. To reiterate, the
first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the
awards or monetary consequences of the illegal dismissal,
computed as of the time of the labor arbiter’s original
decision.28
Consequently, from the above disquisitions, under the

terms of the decision which is sought to be executed by the
petitioner, no essential change is made by a recomputation
as this step is a necessary consequence that flows from the
nature of the illegality of dismissal declared by the Labor
Arbiter in that decision.29 A recomputation (or an original
computation, if no previous computation has been made) is

a part of the law — specifically, Article 279 of the Labor
Code and the established jurisprudence on this provision —
that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor
Code. The recomputation of the consequences of illegal
dismissal upon execution of the decision does not constitute
an alteration or amendment of the final decision being
implemented. The illegal dismissal ruling stands; only the
computation of monetary consequences of this dismissal is
affected, and this is not a violation of the principle of
immutability of final judgments.30
_______________
28 Session Delights Ice Cream and Fast Foods v. Court of Appeals
(Sixth Division), supra, at pp. 21-23.
29 Id., at p. 25.
30 Id., at pp. 25-26.
453
VOL. 703, AUGUST 13, 2013 453

That the amount respondents shall now pay has greatly

increased is a consequence that it cannot avoid as it is the
risk that it ran when it continued to seek recourses against
the Labor Arbiter’s decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms,
qualified only by jurisprudence in its interpretation of
when separation pay in lieu of reinstatement is allowed.
When that happens, the finality of the illegal dismissal
decision becomes the reckoning point instead of the
reinstatement that the law decrees. In allowing separation
pay, the final decision effectively declares that the
employment relationship ended so that separation pay and
backwages are to be computed up to that point.31
Finally, anent the payment of legal interest. In the
landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,32 the Court laid down the guidelines regarding the
manner of computing legal interest, to wit:

concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it
consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be

12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil
Code.
_______________
31 Id., at p. 26.
32 G.R. No. 97412, July 12, 1994, 234 SCRA 78.
454

2. When an obligation, not constituting a loan or

forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand
can be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to
run only from the date the judgment of the court is
made (at which time the quantification of damages
may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a
sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a
forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas

Monetary Board (BSP-MB), in its Resolution No. 796 dated
May 16, 2013, approved the amendment of Section 234 of
Circular No.
_______________
33 Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at pp. 95-97.
(Citations omitted; italics in the original).
34 SECTION 2. The rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in judg-
455
VOL. 703, AUGUST 13, 2013 455

905, Series of 1982 and, accordingly, issued Circular No.

799,35 Series of 2013, effective July 1, 2013, the pertinent
portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16

May 2013, approved the following revisions governing the
rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982:
Section 1. The rate of interest for the loan or
forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be
six percent (6%) per annum.
Section 2. In view of the above, Subsection
X305.136 of the Manual of Regulations for Banks and
Sections 4305Q.1,37 4305S.338
_______________
ments, in the absence of express contract as to such rate of interest, shall
continue to be twelve percent (12%) per annum.
35 Rate of interest in the absence of stipulation; Dated June 21, 2013.
36 § X305.1 Rate of interest in the absence of stipulation. The rate of
interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of expressed contract as to such rate of
interest, shall be twelve percent (12%) per annum.
37 The Section is under Q Regulations or Regulations Governing Non-Bank
Financial Institutions Performing Quasi-Banking Functions. It reads:
§ 4305Q.1 (2008 - 4307Q.6) Rate of interest in the absence of stipulation.
The rate of interest for the loan or forbearance of any money, goods or credit and
the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be twelve percent (12%) per annum.
38 The Section is under S Regulations or Regulations Governing Non-Stock
Savings and Loan Associations. It reads:
§ 4305S.3 Interest in the absence of contract. In the absence of express
contract, the rate of interest for the loan or forbear
456

and 4303P.139 of the Manual of Regulations for Non-

Bank Financial Institutions are hereby amended
accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express

stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of
any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per

annum — as reflected in the case of Eastern Shipping
Lines40 and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB
Circular No. 799 — but will now be six percent (6%) per
annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the
twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate of
six percent (6%) per annum shall be the prevailing rate of
interest when applicable.
Corollarily, in the recent case of Advocates for Truth in
Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board,41 this Court affirmed the authority of the
BSP-MB to set interest rates and to issue and enforce
Circu-
_______________
ance of any money, goods or credit and the rate allowed in judgment shall
be twelve percent (12%) per annum.
39 The Section is under P Regulations or Regulations Governing

Pawnshops. It reads:
§ 4303P.1 Rate of interest in the absence of stipulation. The rate
of interest for a loan or forbearance of money in the absence of an
expressed contract as to such rate of interest, shall be twelve percent
(12%) per annum. (Circular No. 656 dated 02 June 2009)
40 Supra note 32, at pp. 95-97.
41 G.R. No. 192986, January 15, 2013, 688 SCRA 530, 547.
457
VOL. 703, AUGUST 13, 2013 457

lars when it ruled that “the BSP-MB may prescribe the

maximum rate or rates of interest for all loans or renewals
thereof or the forbearance of any money, goods or credits,
including those for loans of low priority such as consumer
loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial
intermediaries.”
Nonetheless, with regard to those judgments that have
become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.
To recapitulate and for future guidance, the

guidelines laid down in the case of Eastern Shipping
Lines42 are accordingly modified to embody BSP-MB
Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on “Damages” of the Civil
Code govern in determining the measure of recoverable
damages.
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall
_______________
42 Supra note 32.
458

be 6% per annum to be computed from default, i.e.,

from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand
can be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to
run only from the date the judgment of the court is
made (at which time the quantification of damages
may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of

money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance
of credit.
And, in addition to the above, judgments that have
become final and executory prior to July 1, 2013, shall not
be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision
dated September 23, 2008 of the Court of Appeals in CA-
G.R. SP
459
VOL. 703, AUGUST 13, 2013 459

No. 98591, and the Resolution dated October 9, 2009 are

REVERSED and SET ASIDE. Respondents are
ORDERED to PAY petitioner:
(1) backwages computed from the time petitioner was
illegally dismissed on January 24, 1997 up to May 27,
2002, when the Resolution of this Court in G.R. No. 151332
became final and executory;
(2) separation pay computed from August 1990 up to
May 27, 2002 at the rate of one month pay per year of
service; and
(3) interest of twelve percent (12%) per annum of the
total monetary awards, computed from May 27, 2002 to
June 30, 2013 and six percent (6%) per annum from July 1,
2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make
another recomputation of the total monetary benefits
awarded and due to petitioner in accordance with this
Decision.
SO ORDERED.
Sereno (CJ.), Carpio, Velasco, Jr., Leonardo-De Castro,

Brion, Bersamin, Del Castillo, Abad, Villarama, Jr., Perez,
Mendoza, Reyes, Perlas-Bernabe and Leonen, JJ., concur.
Judgment and resolution reversed and set aside.
Notes.—There is nothing in Republic Act No. 7653 or in

Republic Act No. 8791 which explicitly allows an appeal of
the decisions of the Bangko Sentral ng Pilipinas (BSP)
Monetary Board to the Court of Appeals. (United Coconut
Planters Bank vs. E. Ganzon, Inc., 591 SCRA 321 [2009])
Court is of the view that the Monetary Board approval is
not required for Philippine Deposit Insurance Corporation
(PDIC) to conduct an investigation on the Banks.
(Philippine Deposit Insurance Corporation [PDIC] vs.

Philippine Countryside Rural Bank, Inc., 640 SCRA 322
[2011])
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11/14/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 225

268 SUPREME COURT REPORTS ANNOTATED

PILIPINAS BANK, petitioner, vs. THE HON. COURT OF

Obligations; Interest Rates; CB Circular No. 416.—Note that

VOL. 225, AUGUST 12, 1993 269

Pilipinas Bank vs. Court of Appeals

Same; Same; Same; Restitution contemplated by Sec. 5 of Rule

PETITION for certiorari to review the resolution of the

The facts are stated in the opinion of the Court.

This is a petition for certiorari under Rule 45 of the Revised

270 SUPREME COURT REPORTS ANNOTATED

the total consideration of the Dacion en Pago, in favor of

Petitioner, while admitting the execution of the Dacion

“1) P2,300,000.00 the total amount assigned by

On March 22, 1985, petitioner appealed the decision of the

VOL. 225, AUGUST 12, 1993 271

the final judgment of the main case in CA-G.R. No. 06017.

affirmed the Order dated October 30, 1986 of the Court of

“1. The defendant-appellant Pilipinas Bank, formerly

(a) The sum of Two Million Three Hundred Thousand

2. Constantino Bautista is absolved of personal

Petitioner filed a motion for extension of time to file a

272 SUPREME COURT REPORTS ANNOTATED

withdrawn on August 13, 1990.

“a) The ‘legal rate’ of interest on the principal award of

VOL. 225, AUGUST 12, 1993 273

b) The imposition of such ‘legal rate’ of interest on the

In its Resolution promulgated on March 14, 1991, the

“a) The legal rate of interest on the principal award of

SO ORDERED” (Rollo, pp. 35-36).

In this appeal, petitioner claims that the Court of Appeals

(1) In ruling that the legal rate of interest on the

The Court of Appeals was of the theory that the action in

274 SUPREME COURT REPORTS ANNOTATED

Case No. 239-A filed by private respondent against

“Art. 2209. If the obligation consists in the payment of a sum of

Presidential Decree No. 116 authorized the Monetary

“SECTION 1. The rate of interest for the loan or forbearance of

VOL. 225, AUGUST 12, 1993 275

Acting on the authority vested on it by the Usury Law, as

“By virtue of the authority granted to it under Section 1 of Act

Note that Circular No. 416, fixing the rate of interest at

276 SUPREME COURT REPORTS ANNOTATED

The said amount was a portion of the P7,776,335.69 which

VOL. 225, AUGUST 12, 1993 277

of Appeals that the surety bond given to secure the advance

Cruz (Chairman), Griño-Aquino, Davide, Jr. and

Petition granted. Appealed resolution modified.

Note.—The adjusted rate mentioned in Circular No. 416

© Copyright 2018 Central Book Supply, Inc. All rights reserved.

G.R. No. 192986. January 15, 2013.*

ADVOCATES FOR TRUTH IN LENDING, INC. and

Remedial Law; Special Civil Actions; Certiorari; A petition for

VOL. 688, JANUARY 15, 2013 531

Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary

by the judgment in the suit or the party entitled to the avails of

532 SUPREME COURT REPORTS ANNOTATED

Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary

prescribe the maximum rate or rates of interest for all loans or

VOL. 688, JANUARY 15, 2013 533

Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary

tled that nothing in CB Circular No. 905 grants lenders a carte

enslave their borrowers or lead to a hemorrhaging of their assets.

SPECIAL CIVIL ACTION in the Supreme Court.