ADVOCATES FOR TRUTH IN LENDING, INC.
and which banks may charge for all types of loans and
EDUARDO B. OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD,
represented by its Chairman, GOVERNOR
ARMANDO M. TETANGCO, JR., and its incumbent
members: JUANITA D. AMATONG, ALFREDO C.
ANTONIO, PETER FA VILA, NELLY F.
VILLAFUERTE, IGNACIO R. BUNYE and CESAR
V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of
transcendental importance to the public, filed directly
with this Court this Petition for Certiorari under Rule
65 of the 1997 Rules of Court, seeking to declare that
the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB), replacing the Central Bank Monetary Board (CB-
MB) by virtue of Republic Act (R.A.) No. 7653, has no
authority to continue enforcing Central Bank Circular
No. 905,1 issued by the CB-MB in 1982, which
"suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc."
(AFTIL) is a non-profit, non-stock corporation
organized to engage in pro bono concerns and
activities relating to money lending issues. It was
incorporated on July 9, 2010,2 and a month later, it
filed this petition, joined by its founder and president,
Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of
the Philippines on June 15, 1948, empowered the CB-
MB to, among others, set the maximum interest rates
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.
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:
Credit Transactions Cases | Compiled by treeng| 1
 removing the applicable ceilings on specific interest
rates. Thus, Sections 5, 9 and 10 of CB Circular No.
Sec. 1-a. The Monetary Board is hereby authorized to
905 amended Book I, Subsections 1303, 1349, 1388.1
prescribe the maximum rate or rates of interest for the
of the Manual of Regulations, by removing the ceilings
loan or renewal thereof or the forbearance of any
for interest and other charges, commissions, premiums,
money, goods or credits, and to change such rate or
and fees applicable to commercial banks; Sections 12
rates whenever warranted by prevailing economic and
and 17 removed the interest ceilings for thrift banks
social conditions: Provided, That changes in such rate
(Book II, Subsections 2303, 2349); Sections 19 and 21
or rates may be effected gradually on scheduled dates
removed the ceilings applicable to rural banks (Book
announced in advance.
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
In the exercise of the authority herein granted the 4303Q.9, 4303N.1, 4303P).4
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
On June 14, 1993, President Fidel V. Ramos signed
pawnshops, finance companies and other similar credit
into law R.A. No. 7653 establishing the Bangko
institutions although the rates prescribed for these
Sentral ng Pilipinas (BSP) to replace the CB. The
institutions need not necessarily be uniform. The
repealing clause thereof, Section 135, reads:
Monetary Board is also authorized to prescribe
different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes,
Sec. 135. Repealing Clause. — Except as may be
or loans of financial intermediaries. (Underlining and
provided for in Sections 46 and 132 of this Act,
emphasis ours)
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
In its Resolution No. 2224 dated December 3, 1982,3
amended, or parts thereof, which may be inconsistent
the CB-MB issued CB Circular No. 905, Series of
with the provisions of this Act are hereby repealed.
1982, effective on January 1, 1983. Section 1 of the
Presidential Decree No. 1792 is likewise repealed.
Circular, under its General Provisions, removed the
ceilings on interest rates on loans or forbearance of any
money, goods or credits, to wit:
Petition for Certiorari

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

To justify their skipping the hierarchy of courts and
premiums, fees and other charges, on a loan or
going directly to this Court to secure a writ of
forbearance of any money, goods, or credits, regardless
certiorari, petitioners contend that the transcendental
of maturity and whether secured or unsecured, that
importance of their Petition can readily be seen in the
may be charged or collected by any person, whether
issues raised therein, to wit:
natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as
amended. (Underscoring and emphasis ours)
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
The Circular then went on to amend Books I to IV of
of credit transactions and forbearance of money, goods
the CB’s "Manual of Regulations for Banks and Other
or credit beyond the limits prescribed in the Usury
Financial Intermediaries" (Manual of Regulations) by
Law;
Credit Transactions Cases | Compiled by treeng| 2
 effected gradually and on scheduled dates; that nothing
in P.D. No. 1684 authorized the CB-MB to lift or
b) If so, whether the CB-MB exceeded its authority
suspend the limits of interest on all credit transactions,
when it issued CB Circular No. 905, which removed all
when it issued CB Circular No. 905. They further insist
interest ceilings and thus suspended Act No. 2655 as
that under Section 109 of R.A. No. 265, the authority
regards usurious interest rates;
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.
c) Whether under R.A. No. 7653, the new BSP-MB
may continue to enforce CB Circular No. 905.5
Thus, according to petitioners, CB Circular No. 905,
which was promulgated without the benefit of any
Petitioners attached to their petition copies of several prior public hearing, is void because it violated Article
Senate Bills and Resolutions of the 10th Congress, 5 of the New Civil Code, which provides that "Acts
which held its sessions from 1995 to 1998, calling for executed against the provisions of mandatory or
investigations by the Senate Committee on Banks and prohibitory laws shall be void, except when the law
Financial Institutions into alleged unconscionable itself authorizes their validity."
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,
They further claim that just weeks after the issuance of
respectively, sought to amend Act No. 2655 by fixing
CB Circular No. 905, the benchmark 91-day Treasury
the rates of interest on loans and forbearance of credit;
bills (T-bills),13 then known as "Jobo" bills14 shot up
Philippine Senate Resolution (SR) No. 1053,8 10739
to 40% per annum, as a result. The banks immediately
and 1102,10 filed by Senators Ramon B. Magsaysay,
followed suit and re-priced their loans to rates which
Jr., Gregorio B. Honasan and Franklin M. Drilon,
were even higher than those of the "Jobo" bills.
respectively, urged the aforesaid Senate Committee to
Petitioners thus assert that CB Circular No. 905 is also
investigate ways to curb the high commercial interest
unconstitutional in light of Section 1 of the Bill of
rates then obtaining in the country; Senator Ernesto
Rights, which commands that "no person shall be
Maceda filed SB No. 1151 to prohibit the collection of
deprived of life, liberty or property without due process
more than two months of advance interest on any loan
of law, nor shall any person be denied the equal
of money; and Senator Raul Roco filed SR No. 114411
protection of the laws."
seeking an investigation into an alleged cartel of
commercial banks, called "Club 1821", reportedly
behind the regime of high interest rates. The petitioners
Finally, petitioners point out that R.A. No. 7653 did
also attached news clippings12 showing that in
not re-enact a provision similar to Section 109 of R.A.
February 1998 the banks’ prime lending rates, or
No. 265, and therefore, in view of the repealing clause
interests on loans to their best borrowers, ranged from
in Section 135 of R.A. No. 7653, the BSP-MB has
26% to 31%.
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
Petitioners contend that under Section 1-a of Act No.
suspend Act No. 2655 and continue enforcing CB
2655, as amended by P.D. No. 1684, the CB-MB was
Circular No. 905.
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
Ruling
change such rates whenever warranted by prevailing
economic and social conditions, the changes to be
Credit Transactions Cases | Compiled by treeng| 3
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for
certiorari, as well as to grant due course thereto, is
addressed to the sound discretion of the court.15 A
petition for certiorari being an extraordinary remedy,
the party seeking to avail of the same must strictly
observe the procedural rules laid down by law, and
non-observance thereof may not be brushed aside as
mere technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari
is directed against a tribunal exercising judicial or
quasi-judicial functions.17 Judicial functions are
exercised by a body or officer clothed with authority to
determine what the law is and what the legal rights of
the parties are with respect to the matter in
controversy. Quasi-judicial function is a term that
applies to the action or discretion of public
administrative officers or bodies given the authority to
investigate facts or ascertain the existence of facts,
hold hearings, and draw conclusions from them as a
basis for their official action using discretion of a
judicial nature.18
The CB-MB (now BSP-MB) was created to perform
executive functions with respect to the establishment,
operation or liquidation of banking and credit
institutions, and branches and agencies thereof.19 It
does not perform judicial or quasi-judicial functions.
Certainly, the issuance of CB Circular No. 905 was
done in the exercise of an executive function.
Certiorari will not lie in the instant case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a
court of justice on a given question." In private suits,
Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that "every action must be prosecuted or
defended in the name of the real party in interest," who
is "the party who stands to be benefited or injured by
the judgment in the suit or the party entitled to the
avails of the suit." Succinctly put, a party’s standing is
based on his own right to the relief sought.21
Even in public interest cases such as this petition, the
Court has generally adopted the "direct injury" test that
the person who impugns the validity of a statute must
have "a personal and substantial interest in the case
such that he has sustained, or will sustain direct injury
as a result."22 Thus, while petitioners assert a public
right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to
make out a sufficient interest in the vindication of the
public order and the securing of relief. It is significant
that in this petition, the petitioners do not allege that
they sustained any personal injury from the issuance of
CB Circular No. 905.
Petitioners also do not claim that public funds were
being misused in the enforcement of CB Circular No.
905. In Kilosbayan, Inc. v. Morato,23 involving the on-
line lottery contract of the PCSO, there was no
allegation that public funds were being misspent,
which according to the Court would have made the
action a public one, "and justify relaxation of the
requirement that an action must be prosecuted in the
name of the real party-in-interest." The Court held,
moreover, that the status of Kilosbayan as a people’s
organization did not give it the requisite personality to
question the validity of the contract. Thus:
Petitioners do not in fact show what particularized
interest they have for bringing this suit. It does not
detract from the high regard for petitioners as civic
leaders to say that their interest falls short of that
required to maintain an action under the Rule 3, Sec.
2.24
Credit Transactions Cases | Compiled by treeng| 4
C. The Petition raises no issues of transcendental
importance.
In the 1993 case of Joya v. Presidential Commission on
Good Government,25 it was held that no question
involving the constitutionality or validity of a law or
governmental act may be heard and decided by the
court unless there is compliance with the legal
requisites for judicial inquiry, namely: (a) that the
question must be raised by the proper party; (b) that
there must be an actual case or controversy; (c) that the
question must be raised at the earliest possible
opportunity; and (d) that the decision on the
constitutional or legal question must be necessary to
the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court
summarized the requirements before taxpayers, voters,
concerned citizens, and legislators can be accorded a
standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal
disbursement of public funds or that the tax measure is
unconstitutional;
(3) for voters, there must be a showing of obvious
interest in the validity of the election law in question;
(4) for concerned citizens, there must be a showing that
the issues raised are of transcendental importance
which must be settled early; and
(5) for legislators, there must be a claim that the
official action complained of infringes upon their
prerogatives as legislators.
While the Court may have shown in recent decisions a
certain toughening in its attitude concerning the
question of legal standing, it has nonetheless always
made an exception where the transcendental
importance of the issues has been established,
notwithstanding the petitioners’ failure to show a direct
injury.27 In CREBA v. ERC,28 the Court set out the
following instructive guides as determinants on
whether a matter is of transcendental importance,
namely: (1) the character of the funds or other assets
involved in the case; (2) the presence of a clear case of
disregard of a constitutional or statutory prohibition by
the public respondent agency or instrumentality of the
government; and (3) the lack of any other party with a
more direct and specific interest in the questions being
raised. Further, the Court stated in Anak Mindanao
Party-List Group v. The Executive Secretary29 that the
rule on standing will not be waived where these
determinants are not established.
In the instant case, there is no allegation of misuse of
public funds in the implementation of CB Circular No.
905. Neither were borrowers who were actually
affected by the suspension of the Usury Law joined in
this petition. Absent any showing of transcendental
importance, the petition must fail.
More importantly, the Court notes that the instant
petition adverted to the regime of high interest rates
which obtained at least 15 years ago, when the banks’
prime lending rates ranged from 26% to 31%,30 or
even 29 years ago, when the 91-day Jobo bills reached
40% per annum. In contrast, according to the BSP, in
the first two (2) months of 2012 the bank lending rates
averaged 5.91%, which implies that the banks’ prime
lending rates were lower; moreover, deposit interests
on savings and long-term deposits have also gone very
low, averaging 1.75% and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the
savings rates must be approaching 0%.1âwphi1 In the
auctions held on November 12, 2012, the rates of 3-
month, 6-month and 1-year T-bills have dropped to
0.150%, 0.450% and 0.680%, respectively.32
Credit Transactions Cases | Compiled by treeng| 5
According to Manila Bulletin, this very low interest
regime has been attributed to "high liquidity and strong
investor demand amid positive economic indicators of
the country."33
While the Court acknowledges that cases of
transcendental importance demand that they be settled
promptly and definitely, brushing aside, if we must,
technicalities of procedure,34 the delay of at least 15
years in the filing of the instant petition has actually
rendered moot and academic the issues it now raises.
For its part, BSP-MB maintains that the petitioners’
allegations of constitutional and statutory violations of
CB Circular No. 905 are really mere challenges made
by petitioners concerning the wisdom of the Circular. It
explains that it was in view of the global economic
downturn in the early 1980’s that the executive
department through the CB-MB had to formulate
policies to achieve economic recovery, and among
these policies was the establishment of a market-
oriented interest rate structure which would require the
removal of the government-imposed interest rate
ceilings.35
D. The CB-MB merely suspended the effectivity of the
Usury Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury
Law pursuant to P.D. No. 1684 has long been
recognized and upheld in many cases. As the Court
explained in the landmark case of Medel v. CA,36
citing several cases, CB Circular No. 905 "did not
repeal nor in anyway amend the Usury Law but simply
suspended the latter’s effectivity;"37 that "a CB
Circular cannot repeal a law, [for] only a law can
repeal another law;"38 that "by virtue of CB Circular
No. 905, the Usury Law has been rendered
ineffective;"39 and "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged
as lender and borrower may agree upon."40
In First Metro Investment Corp. v. Este Del Sol
Mountain Reserve, Inc.41 cited in DBP v. Perez,42 we
also belied the contention that the CB was engaged in
self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in
any way amend the Usury Law but simply suspended
the latter’s effectivity. The illegality of usury is wholly
the creature of legislation. A Central Bank Circular
cannot repeal a law. Only a law can repeal another law.
x x x.43
In PNB v. Court of Appeals,44 an escalation clause in
a loan agreement authorized the PNB to unilaterally
increase the rate of interest to 25% per annum, plus a
penalty of 6% per annum on past dues, then to 30% on
October 15, 1984, and to 42% on October 25, 1984.
The Supreme Court invalidated the rate increases made
by the PNB and upheld the 12% interest imposed by
the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than
allow contracting parties to stipulate freely regarding
any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or
credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated. x x x.45
Thus, according to the Court, by lifting the interest
ceiling, CB Circular No. 905 merely upheld the
parties’ freedom of contract to agree freely on the rate
of interest. It cited Article 1306 of the New Civil Code,
under which the contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public
policy.
E. The BSP-MB has authority to enforce CB Circular
No. 905.
Credit Transactions Cases | Compiled by treeng| 6
Section 1 of CB Circular No. 905 provides that "The
rate of interest, including commissions, premiums, fees
and other charges, on a loan or forbearance of any
money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or
collected by any person, whether natural or juridical,
shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended." It does not
purport to suspend the Usury Law only as it applies to
banks, but to all lenders.
Petitioners contend that, granting that the CB had
power to "suspend" the Usury Law, the new BSP-MB
did not retain this power of its predecessor, in view of
Section 135 of R.A. No. 7653, which expressly
repealed R.A. No. 265. The petitioners point out that
R.A. No. 7653 did not reenact a provision similar to
Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No.
265 covered only loans extended by banks, whereas
under Section 1-a of the Usury Law, as amended, the
BSP-MB may prescribe the maximum rate or rates of
interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans,
as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes,
or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope,
whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other
financial institutions. Had R.A. No. 7653 been
intended to repeal Section 1-a of Act No. 2655, it
would have so stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication
are not favored, because laws are presumed to be
passed with deliberation and full knowledge of all laws
existing pertaining to the subject.46 An implied repeal
is predicated upon the condition that a substantial
conflict or repugnancy is found between the new and
prior laws. Thus, in the absence of an express repeal, a
subsequent law cannot be construed as repealing a
prior law unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and old
laws.47 We find no such conflict between the
provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not
authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants
lenders a carte blanche authority to raise interest rates
to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets.48 As held in
Castro v. Tan:49
The imposition of an unconscionable rate of interest on
a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has
no support in law, in principles of justice, or in the
human conscience nor is there any reason whatsoever
which may justify such imposition as righteous and as
one that may be sustained within the sphere of public
or private morals.50
Stipulations authorizing iniquitous or unconscionable
interests have been invariably struck down for being
contrary to morals, if not against the law.51 Indeed,
under Article 1409 of the Civil Code, these contracts
are deemed inexistent and void ab initio, and therefore
cannot be ratified, nor may the right to set up their
illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious
interest does not affect the lender’s right to recover the
principal of a loan, nor affect the other terms thereof.52
Credit Transactions Cases | Compiled by treeng| 7
Thus, in a usurious loan with mortgage, the right to
foreclose the mortgage subsists, and this right can be
exercised by the creditor upon failure by the debtor to
pay the debt due. The debt due is considered as without
the stipulated excessive interest, and a legal interest of
12% per annum will be added in place of the excessive
interest formerly imposed,53following the guidelines
laid down in the landmark case of Eastern Shipping
Lines, Inc. v. Court of Appeals,54 regarding the
manner of computing legal interest:
II. With regard particularly to an award of interest in
the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand
can be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made
(at which time the quantification of damages may be
deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall,
in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-
Chan v. Court of Appeals, 56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on
the imposition of interest, if proper, and the applicable
rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or
forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of
money, goods, or credit, while the 6% per annum
under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay
in the performance of obligations in general," with the
application of both rates reckoned "from the time the
complaint was filed until the [adjudged] amount is
fully paid." In either instance, the reckoning period for
the commencement of the running of the legal interest
shall be subject to the condition "that the courts are
vested with discretion, depending on the equities of
each case, on the award of interest."57 (Citations
omitted)
WHEREFORE, premises considered, the Petition for
certiorari is DISMISSED.
SO ORDERED.
Credit Transactions Cases | Compiled by treeng| 8
AURELIO G. BRIONES, plaintiff-appellee,
vs.
PRIMITIVO P. CAMMAYO, ET AL., defendants-
appellants.
Carlos J. Antiporda for plaintiff-appellee.
Manuel A. Cammayo for defendants-appellants.
DIZON, J.:
On February 22, 1962, Aurelio G. Briones filed an
action in the Municipal Court of Manila against
Primitivo, Nicasio, Pedro, Hilario and Artemio, all
surnamed Cammayo, to recover from them, jointly and
severally, the amount of P1,500.00, plus damages,
attorney's fees and costs of suit. The defendants
answered the complaint with specific denials and the
following special defenses and compulsory
counterclaim:
By way of —
SPECIAL DEFENSES
Defendants allege:
4. Defendants executed the real estate mortgage,
Annex "A" of the complaint, as security for the loan of
P1,200.00 given to defendant Primitivo P. Cammayo
upon the usurious agreement that defendant pays to the
plaintiff and that the plaintiff reserve and secure, as in
fact plaintiff reserved and secured himself, out of the
alleged loan of P1,500.00 as interest the sum of
P300.00 for one year;
5. That although the mortgage contract, Annex
"A" was executed for securing the payment of
P1,500.00 for a period of one year, without interest, the
truth and the real fact is that plaintiff delivered to the
defendant Primitivo P. Cammayo only the sum of
P1,200.00 and withheld the sum of P300.00 which was
intended as advance interest for one year;
6. That on account of said loan of P1,200.00,
defendant Primitivo P. Cammayo paid to the plaintiff
during the period from October 1955 to July 1956 the
total sum of P330.00 which plaintiff, illegally and
unlawfully refuse to acknowledge as part payment of
the account but as in interest of the said loan for an
extension of another term of one year;
7. That said contract of loan entered into between
plaintiff and defendant Primitivo P. Cammayo is a
usurious contract and is contrary to law, morals, good
customs, public order or public policy and is, therefore,
in existent and void from the beginning (Art. 1407
Civil Code);
And as —
COMPULSORY COUNTERCLAIM
Defendants replead all their allegations in the
preceding paragraphs;
8. That plaintiff, by taking and receiving interest
in excess of that allowed by law, with full intention to
violate the law, at the expense of the defendants,
committed a flagrant violation of Act 2655, otherwise
known as the Usury Law, causing the defendants
damages and attorney's fees, the amount of which will
be proven at the trial;
9. That this is the second time this same case is
filed before this court, the first having been previously
filed and docketed in this court as Civil Case No.
75845 (Branch VII) and the same was dismissed by the
Credit Transactions Cases | Compiled by treeng| 9
Court of First Instance of Manila on July 13, 1961 in
Civil Case No. 43121 (Branch XVII) and for
repeatedly bringing this case to the court, harassing and
persecuting defendants in that manner, defendants have
suffered mental anguish and anxiety for which they
should be compensated for moral damages.
On September 7, 1962, Briones filed an unverified
reply in which he merely denied the allegations of the
counterclaim. Thereupon the defendants moved for the
rendition of a summary judgment on the ground that,
upon the record, there was no genuine issue of fact
between the parties. The Municipal Court granted the
motion and rendered judgment sentencing the
defendants to pay the plaintiff the sum of P1,500.00,
with interests thereon at the legal rate from February
22, 1962, plus the sum of P150.00 as attorney's fees.
From this judgment, the defendants appealed to the
Court of First Instance of Manila where, according to
the appealed decision, "defendant has asked for
summary judgment and plaintiff has agreed to the
same." (Record on Appeal p. 21). Having found the
motion for summary judgment to be in order, the court
then, proceeded to render judgment as follows:
Judgment is, therefore, rendered, ordering Defendant to
pay plaintiff the sum of P1,180.00 with interest thereon
at the legal rate from October 16, 1962 until fully paid.
This judgment represents Defendant's debt of
P1,500.00 less usurious interest of P120.00 and the
additional sum of P200.00 as attorney's fees or a total
deduction of P320.00. Plaintiff shall pay the costs.
In the present appeal defendants claim that the trial
court erred in sentencing them to pay the principal of
the loan notwithstanding its finding that the same was
tainted with usury, and erred likewise in not dismissing
the case.
It is not now disputed that the contract of loan in
question was tainted with usury. The only questions to
be resolved, therefore, are firstly, whether the creditor
is entitled to collect from the debtor the amount
representing the principal obligation; secondly, in the
affirmative, if he is entitled to collect interests thereon,
and if so, at what rate.
The Usury Law penalizes any person or corporation
who, for any loan or renewal thereof or forbearance,
shall collect or receive a higher rate or greater sum or
value than is allowed by law, and provides further that,
in such case, the debtor may recover the whole interest,
commissions, premiums, penalties and surcharges paid
or delivered, with costs and attorney's fees, in an
appropriate action against his creditor, within two (2)
years after such payment or delivery (Section 6, Act
2655, as amended by Acts 3291 and 3998).
Construing the above provision, We held in Go Chioco
vs. Martinez, 45 Phil. 256 that even if the contract of
loan is declared usurious the creditor is entitled to
collect the money actually loaned and the legal interest
due thereon.
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this
Court likewise declared that, in any event, the debtor in
a usurious contract of loan should pay the creditor the
amount which he justly owes him citing in support of
this ruling its previous decisions in Go Chioco Supra,
Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado
vs. Duque Valgona, 44 Phil. 739.
In all the above cited cases it was recognized and held
that under Act 2655 a usurious contract is void; that the
creditor had no right of action to recover the interest in
excess of the lawful rate; but that this did not mean that
the debtor may keep the principal received by him as
loan — thus unjustly enriching himself to the damage
of the creditor.
Then in Lopez and Javelona vs. El Hogar Filipino, 47
249, We also held that the standing jurisprudence of
this Court on the question under consideration was
clearly to the effect that the Usury Law, by its letter
and spirit, did not deprive the lender of his right to
Credit Transactions Cases | Compiled by treeng| 10
recover from the borrower the money actually loaned
to and enjoyed by the latter. This Court went further to
say that the Usury Law did not provide for the
forfeiture of the capital in favor of the debtor in
usurious contracts, and that while the forfeiture might
appear to be convenient as a drastic measure to
eradicate the evil of usury, the legal question involved
should not be resolved on the basis of convenience.
Other cases upholding the same principle are Palileo
vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554,
January 31, 1964, 10 SCRA 199, 200-202. In the latter
We expressly held that when a contract is found to be
tainted with usury "the only right of the respondent
(creditor) ... was merely to collect the amount of the
loan, plus interest due thereon."
The view has been expressed, however, that the ruling
thus consistently adhered to should now be abandoned
because Article 1957 of the new Civil Code — a
subsequent law — provides that contracts and
stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury, shall be
void, and that in such cases "the power may recover in
accordance with the laws on usury." From this the
conclusion is drawn that the whole contract is void and
that, therefore, the creditor has no right to recover —
not even his capital.
The meaning and scope of our ruling in the cases
mentioned heretofore is clearly stated, and the view
referred to in the preceding paragraph is adequately
answered, in Angel Jose, etc. vs. Chelda Enterprises, et
al. (L-25704, April 24, 1968). On the question of
whether a creditor in a usurious contract may or may
not recover the principal of the loan, and, in the
affirmative, whether or not he may also recover interest
thereon at the legal rate, We said the following:
... .
The court found that there remained due from
defendants an unpaid principal amount of P20,287.50;
that plaintiff charged usurious interests, of which
P1,048.15 had actually been deducted in advance by
plaintiff from the loan; that said amount of P1,048.15
should therefore be deducted from the unpaid principal
of P20,287.50, leaving a balance of P19,247.35 still
payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged,
plaintiff is not barred from collecting the principal of
the loan or its balance of P19,247.35. Accordingly, it
stated in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering
the defendant partnership to pay to the plaintiff the
amount of P19,247.35, with legal interest thereon from
May 29, 1964 until paid, plus an additional sum of
P2,000.00 as damages for attorney's fee; and, in case
the assets of defendant partnership be insufficient to
satisfy this judgment in full, ordering the defendant
David Syjueco to pay to the plaintiff one-half (½) of
the unsatisfied portion of this judgment.
With costs against the defendants.
Appealing directly to Us, defendants raise two
questions of law: (1) In a loan with usurious interest,
may the creditor recover the principal of the loan? (2)
Should attorney's fees be awarded in plaintiff's favor?
Great reliance is made by appellants on Art. 1411 of
the New Civil Code which states:
ART. 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to
the things or the price of the contract.
Credit Transactions Cases | Compiled by treeng| 11
This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with
his promise.
Since, according to the appellants, a usurious loan is
void due to illegality of cause or object, the rule of pari
delicto expressed in Article 1411, supra, applies, so
that neither party can bring action against each other.
Said rule, however, appellants add, is modified as to
the borrower, by express provision of the law (Art.
1413, New Civil Code), allowing the borrower to
recover interest paid in excess of the interest allowed
by the Usury Law. As to the lender, no exception is
made to the rule; hence, he cannot recover on the
contract. So — they continue — the New Civil Code
provisions must be upheld as against the Usury Law,
under which a loan with usurious interest is not totally
void, because of Article 1961 of the New Civil Code,
that: "Usurious contracts shall be governed by the
Usury Law and other special laws, so far as they are
not inconsistent with this Code. (Emphasis ours.) .
We do not agree with such reasoning, Article 1411 of
the New Civil Code is not new; it is the same as Article
1305 of the Old Civil Code. Therefore, said provision
is no warrant for departing from previous interpretation
that, as provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not totally
void only as to the interest.
True, as stated in Article 1411 of the New Civil Code,
the rule of pari delicto applies where a contract's nullity
proceeds from illegality of the cause or object of said
contract.
However, appellants fail to consider that a contract of
loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay interest
thereon.
And said two stipulations are divisible in the sense that
the former can still stand without the latter. Article
1273, Civil Code, attests to this: "The renunciation of
the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the
former in force."
The question therefore to resolve is whether the illegal
terms as to payment of interest likewise renders a
nullity the legal terms as to payments of the principal
debt. Article 1420 of the New Civil Code provides in
this regard: "In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the
latter may be enforced."
In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which
is the cause of the contract (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation
to pay the stipulated interest; hence, being separable,
the latter only should be deemed void, since it is the
only one that is illegal.
Neither is there a conflict between the New Civil Code
and the Usury Law. Under the latter, in Sec. 6, any
person who for a loan shall have paid a higher rate or
greater sum or value than is allowed in said law, may
recover the whole interest paid. The New Civil Code,
in Article 1413 states: "Interest paid in excess of the
interest allowed by the usury laws may be recovered by
the debtor, with interest thereon from the date of
payment." Article 1413, in speaking of "interest paid in
excess of the interest allowed by the usury laws"
means the whole usurious interest; that is, in a loan of
P1,000, with interest of 20% per annum or P200 for
one year, if the borrower pays said P200, the whole
P200 is the usurious interest, not just that part thereof
in excess of the interest allowed by law. It is in this
case that the law does not allow division. The whole
stipulation as to interest is void, since payment of said
interest is illegal. The only change effected, therefore,
by Article 1413, New Civil Code, is not to provide for
Credit Transactions Cases | Compiled by treeng| 12
the recovery of the interest paid in excess of that
allowed by law, which the Usury Law already provided
for, but to add that the same can be recovered "with
interest thereon from the date of payment."
The foregoing interpretation is reached with the
philosophy of usury legislation in mind; to discourage
stipulations on usurious interest, said stipulations are
treated as wholly void, so that the loan becomes one
without stipulation as to payment of interest. It should
not, however, be interpreted to mean forfeiture even of
the principal, for this would unjustly enrich the
borrower at the expense of the lender. Furthermore,
penal sanctions are available against a usurious lender,
as a further deterrence to usury.
The principal debt remaining without stipulation for
payment of interest can thus be recovered by judicial
action. And in case of such demand, and the debtor
incurs in delay, the debt earns interest from the date of
the demand (in this case from the filing of the
complaint). Such interest is not due to stipulation, for
there was none, the same being void. Rather, it is due
to the general provision of law that in obligations to
pay money, where the debtor incurs in delay, he has to
pay interest by way of damages (Art. 2209, Civil
Code). The court a quo therefore, did not err in
ordering defendants to pay the principal debt with
interest thereon at the legal rate, from the date of filing
of the complaint.
In answer to the contention that the forfeiture of the
principal of the usurious loan is necessary to punish the
usurer, We say this: Under the Usury Law there is
already provision for adequate punishment for the
usurer namely, criminal prosecution where, if
convicted, he may be sentence to pay a fine of not less
than P50 nor more than P500, or imprisonment of not
less than 30 days nor more than one year, or both, in
the discretion of the court. He may further be
sentenced to return the entire sum received as interest,
with subsidiary imprisonment in case of non-payment
thereof. lt is, of course, to be assumed that this last
penalty may be imposed only if the return of the entire
sum received as interest had not yet been the subject of
judgment in a civil action involving the usurious
contract of load.
In arriving at the above conclusion We also considered
our decision in Mulet vs. The People of the Philippines
(73 Phil. p. 60), but found that the same does not apply
to the present case. The facts therein involved were as
follows:
On July 25, 1929, Alejandra Rubillos and Espectacion
Rubillos secured from petitioner Miguel Mulet a loan
of P550, payable within 5 years at 30 per cent interest
per annum. In the deed of mortgage executed by the
Rubillos as a security; the sum of P1,375 was made to
appear as the capital of the loan. This amount
obviously represented the actual loan of P550 and the
total interest of P825 computed at 30 per cent per
annum for 5 years. Within four years of following the
execution of the mortgage, the debtors made partial
payments aggregating P278.27, on account of interest.
Thereafter, the debtors paid the whole capital of P550,
due to petitioner's promise to condone the unpaid
interest upon payment of such capital. But to their
surprise, petitioner informed them that they were still
indebted in the sum of P546.73 which represented the
balance of the usurious interest. And in consideration
of this amount, petitioner pressed upon the debtors to
execute in October, 1933, in his favor, a deed of sale
with pacto de retro of a parcel of land, in substitution
of the original mortgage which was cancelled. From
the date of the execution of the new deed up to 1936,
petitioner received, as his share of the products of the
land, the total sum of P480. Prosecuted on November
18, 1936, for the violation of the Usury Law, petitioner
was convicted by the trial court, and on appeal, the
judgment was affirmed by the Court of Appeals. The
instant petition for certiorari is directed at that portion
of the decision of the appellate court ordering
petitioner to return to the offended parties the sum of
P373.27, representing interests received by him in
excess of that allowed by law.
Credit Transactions Cases | Compiled by treeng| 13
It was Mulet's claim that, as the amount of P373.27 had of 6% per annum from the date of the filing of the
been paid more than two years prior to the filing of the complaint. With costs.
complaint for usury against him, its return could no
longer be ordered in accordance with the prescriptive
period provided therefor in Section 6 of the Usury
Law. Said amount was made up of the usurious interest
amounting to P278.27 paid to Mulet, in cash, and the
sum of P480.00 paid to him in kind, from the total of
which two amounts 14% interest allowed by law —
amounting to P385.85 — was deducted. Our decision
was that Mulet should return the amount of P480.00
which represented the value of the produce of the land
sold to him under pacto de retro which, with the unpaid
balance of the usurious interest, was the consideration
of the transaction — meaning the pacto de retro sale.
This Court then said:

... . This last amount is not usurious interest on the

capital of the loan but the value of the produce of the
land sold to petitioner under pacto de retro with the
unpaid balance of the usurious interest (P546.73) as the
consideration of the transaction. This consideration,
because contrary to law, is illicit, and the contract
which results therefrom, null and void. (Art. 1275,
Civil Code). And, under the provisions of article 1305,
in connection with article 1303, of the Civil Code,
when the nullity of a contract arises from the illegality
of the consideration which in itself constitutes a felony,
the guilty party shall be subject to criminal proceeding
while the innocent party may recover whatever he has
given, including the fruits thereof. (emphasis supplied).

It is clear, therefore, that in the Mulet case, the

principal of the obligation had been fully paid by the
debtor to the creditor; that the latter was not sentenced
to pay it back to the former, and that what this Court
declared recoverable by the debtor were only the
usurious interest paid as well as the fruits of the
property sold under pacto de retro.

IN VIEW OF THE FOREGOING, the decision,

appealed from is modified in the sense that appellee
may recover from appellant the principal of the loan
(P1,180.00) only, with interest thereon at the legal rate
Credit Transactions Cases | Compiled by treeng| 14
DANILO D. MENDOZA, also doing business under
the name and style of ATLANTIC EXCHANGE
PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL
BANK, FERNANDO MARAMAG, JR., RICARDO
G. DECEPIDA and BAYANI A. BAUTISTA,
respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Decision1 dated August 8, 1994 of the respondent
Court of Appeals (Tenth Division) in CA-G.R. CV No.
38036 reversing the judgment2 of the Regional Trial
Court (RTC) and dismissing the complaint therein.
Petitioner Danilo D. Mendoza is engaged in the
domestic and international trading of raw materials and
chemicals. He operates under the business name
Atlantic Exchange Philippines (Atlantic), a single
proprietorship registered with the Department of Trade
and Industry (DTI). Sometime in 1978 he was granted
by respondent Philippine National Bank (PNB) a Five
Hundred Thousand Pesos (P500,000.00) credit line and
a One Million Pesos (P1,000,000.00) Letter of
Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for
those which may thereinafter be granted, petitioner
mortgaged to respondent PNB the following: 1) three
(3) parcels of land3 with improvements in F. Pasco
Avenue, Santolan, Pasig; 2) his house and lot in
Quezon City; and 3) several pieces of machinery and
equipment in his Pasig coco-chemical plant.
The real estate mortgage4 provided the following
escalation clause:
(f) The rate of interest charged on the obligation
secured by this mortgage as well as the interest on the
amount which may have been advanced by the
Mortgagee in accordance with paragraph (d) of the
conditions herein stipulated shall be subject during the
life of this contract to such increase within the rates
allowed by law, as the Board of Directors of the
Mortgagee may prescribe for its debtors.
Petitioner executed in favor of respondent PNB three
(3) promissory notes covering the Five Hundred
Thousand Pesos (P500,000.00) credit line, one dated
March 8, 1979 for Three Hundred Ten Thousand Pesos
(P310,000.00); another dated March 30, 1979 for Forty
Thousand Pesos (P40,000.00); and the last dated
September 27, 1979 for One Hundred Fifty Thousand
Pesos (P150,000.00). The said 1979 promissory notes
uniformly stipulated: "with interest thereon at the rate
of 12% per annum, until paid, which interest rate the
Bank may, at any time, without notice, raise within the
limits allowed by law xxx."5
Petitioner made use of his LC/TR line to purchase raw
materials from foreign importers. He signed a total of
eleven (11) documents denominated as "Application
and Agreement for Commercial Letter of Credit,"6 on
various dates from February 8 to September 11, 1979,
which uniformly contained the following clause:
"Interest shall be at the rate of 9% per annum from the
date(s) of the draft(s) to the date(s) of arrival of
payment therefor in New York. The Bank, however,
reserves the right to raise the interest charges at any
time depending on whatever policy it may follow in the
future."7
In a letter dated January 3, 1980 and signed by Branch
Manager Fil S. Carreon Jr., respondent PNB advised
petitioner Mendoza that effective December 1, 1979,
the bank raised its interest rates to 14% per annum, in
line with Central Bank's Monetary Board Resolution
No. 2126 dated November 29, 1979.
Credit Transactions Cases | Compiled by treeng| 15
On March 9, 1981, he wrote a letter to respondent PNB
requesting for the restructuring of his past due accounts
into a five-year term loan and for an additional LC/TR
line of Two Million Pesos (P2,000,000.00).8
According to the letter, because of the shut-down of his
end-user companies and the huge amount spent for the
expansion of his business, petitioner failed to pay to
respondent bank his LC/TR accounts as they became
due and demandable.
Ceferino D. Cura, Branch Manager of PNB
Mandaluyong replied on behalf of the respondent bank
and required petitioner to submit the following
documents before the bank would act on his request: 1)
Audited Financial Statements for 1979 and 1980; 2)
Projected cash flow (cash in - cash out) for five (5)
years detailed yearly; and 3) List of additional
machinery and equipment and proof of ownership
thereof. Cura also suggested that petitioner reduce his
total loan obligations to Three Million Pesos
(P3,000,000.00) "to give us more justification in
recommending a plan of payment or restructuring of
your accounts to higher authorities of the Bank."9
On September 25, 1981, petitioner sent another letter
addressed to PNB Vice-President Jose Salvador,
regarding his request for restructuring of his loans. He
offered respondent PNB the following proposals: 1) the
disposal of some of the mortgaged properties, more
particularly, his house and lot and a vacant lot in order
to pay the overdue trust receipts; 2) capitalization and
conversion of the balance into a 5-year term loan
payable semi-annually or on annual installments; 3) a
new Two Million Pesos (P2,000,000.00) LC/TR line in
order to enable Atlantic Exchange Philippines to
operate at full capacity; 4) assignment of all his
receivables to PNB from all domestic and export sales
generated by the LC/TR line; and 5) maintenance of
the existing Five Hundred Thousand Pesos
(P500,000.00) credit line.
The petitioner testified that respondent PNB
Mandaluyong Branch found his proposal favorable and
recommended the implementation of the agreement.
However, Fernando Maramag, PNB Executive Vice-
President, disapproved the proposed release of the
mortgaged properties and reduced the proposed new
LC/TR line to One Million Pesos (P1,000,000.00).10
Petitioner claimed he was forced to agree to these
changes and that he was required to submit a new
formal proposal and to sign two (2) blank promissory
notes.
In a letter dated July 2, 1982, petitioner offered the
following revised proposals to respondent bank: 1) the
restructuring of past due accounts including interests
and penalties into a 5-year term loan, payable semi-
annually with one year grace period on the principal; 2)
payment of Four Hundred Thousand Pesos
(P400,000.00) upon the approval of the proposal; 3)
reduction of penalty from 3% to 1%; 4) capitalization
of the interest component with interest rate at 16% per
annum; 5) establishment of a One Million Pesos
(P1,000,000.00) LC/TR line against the mortgaged
properties; 6) assignment of all his export proceeds to
respondent bank to guarantee payment of his loans.
According to petitioner, respondent PNB approved his
proposal. He further claimed that he and his wife were
asked to sign two (2) blank promissory note forms.
According to petitioner, they were made to believe that
the blank promissory notes were to be filled out by
respondent PNB to conform with the 5-year
restructuring plan allegedly agreed upon. The first
Promissory Note,11 No. 127/82, covered the principal
while the second Promissory Note,12 No. 128/82,
represented the accrued interest.
Petitioner testified that respondent PNB allegedly
contravened their verbal agreement by 1) affixing dates
on the two (2) subject promissory notes to make them
mature in two (2) years instead of five (5) years as
supposedly agreed upon; 2) inserting in the first
Promissory Note No. 127/82 an interest rate of 21%
instead of 18%; 3) inserting in the second Promissory
Note No. 128/82, the amount stated therein
representing the accrued interest as One Million Five
Hundred Thirty Six Thousand Four Hundred Ninety
Credit Transactions Cases | Compiled by treeng| 16
Eight Pesos and Seventy Three Centavos
(P1,536,498.73) when it should only be Seven
Hundred Sixty Thousand Three Hundred Ninety Eight
Pesos and Twenty Three Centavos (P760,398.23) and
pegging the interest rate thereon at 18% instead of
12%.
The subject Promissory Notes Nos. 127/82 and 128/82
both dated December 29, 1982 in the principal amounts
of Two Million Six Hundred Fifty One Thousand One
Hundred Eighteen Pesos and Eighty Six Centavos (P
2,651,118.86) and One Million Five Hundred Thirty
Six Thousand Seven Hundred Ninety Eight and
Seventy Three Centavos (P1,536,798.73) respectively
and marked Exhibits "BB" and "CC" respectively,
were payable on equal semi-annual amortization and
contained the following escalation clause:
x x x which interest rate the BANK may increase
within the limits allowed by law at any time depending
on whatever policy it may adopt in the future;
Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the
applicable maximum interest rate is reduced by law or
by the Monetary Board. In either case, the adjustment
in the interest rate agreed upon shall take effect on the
effectivity date of the increase or decrease in the
maximum interest rate. x x x
It appears from the record that the subject Promissory
Notes Nos. 127/82 and 128/82 superseded and novated
the three (3) 1979 promissory notes and the eleven (11)
1979 "Application and Agreement for Commercial
Letter of Credit" which the petitioner executed in favor
of respondent PNB.
According to the petitioner, sometime in June 1983 the
new PNB Mandaluyong Branch Manager Bayani A.
Bautista suggested that he sell the coco-chemical plant
so that he could keep up with the semi-annual
amortizations. On three (3) occasions, Bautista even
showed up at the plant with some unidentified persons
who claimed that they were interested in buying the
plant.
Petitioner testified that when he confronted the PNB
management about the two (2) Promissory Notes Nos.
127/82 and 128/82 (marked Exhibits "BB" and "CC"
respectively) which he claimed were improperly filled
out, Bautista and Maramag assured him that the five-
year restructuring agreement would be implemented on
the condition that he assigns 10% of his export
earnings to the Bank.13 In a letter dated August 22,
1983, petitioner Mendoza consented to assign 10% of
the net export proceeds of a Letter of Credit covering
goods amounting to One Hundred Fourteen Thousand
Dollars ($114,000.00).14 However, petitioner claimed
that respondent PNB subsequently debited 14% instead
of 10% from his export proceeds.15
Pursuant to the escalation clauses of the subject two (2)
promissory notes, the interest rate on the principal
amount in Promissory Note No. 127/82 was increased
from 21% to 29% on May 28, 1984, and to 32% on
July 3, 1984 while the interest rate on the accrued
interest per Promissory Note No. 128/82 was increased
from 18% to 29% on May 28, 1984, and to 32% on
July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory
Notes Nos. 127/82 and 128/82 (Exhibits "BB" and
"CC") as they fell due. Respondent PNB extra-
judicially foreclosed the real and chattel mortgages,
and the mortgaged properties were sold at public
auction to respondent PNB, as highest bidder, for a
total of Three Million Seven Hundred Ninety Eight
Thousand Seven Hundred Nineteen Pesos and Fifty
Centavos (P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a
complaint for specific performance, nullification of the
extra-judicial foreclosure and damages against
respondents PNB, Fernando Maramag Jr., Ricardo C.
Decepida, Vice-President for Metropolitan Branches,
and Bayani A. Bautista. He alleged that the
Credit Transactions Cases | Compiled by treeng| 17
Extrajudicial Foreclosure Sale of the mortgaged
properties was null and void since his loans were
The trial court also ordered respondent PNB to grant
restructured to a five-year term loan; hence, it was not
petitioner Mendoza an additional Two Million Pesos
yet due and demandable; that the escalation clauses in
(P2,000,000.00) loan in order for him to have the
the subject two (2) Promissory Notes Nos. 127/82 and
necessary capital to resume operation. It also ordered
128/82 were null and void, that the total amount
respondents PNB, Bayani A. Bautista and Ricardo C.
presented by PNB as basis of the foreclosure sale did
Decepida to pay to petitioner actual damages in the
not reflect the actual loan obligations of the plaintiff to
amount of Two Million One Hundred Thirteen
PNB; that Bautista purposely delayed payments on his
Thousand Nine Hundred Sixty One Pesos
exports and caused delays in the shipment of materials;
(P2,113,961.00) and the peso equivalent of Six
that PNB withheld certain personal properties not
Thousand Two Hundred Fifteen Dollars ($6,215.00) at
covered by the chattel mortgage; and that the
the prevailing foreign exchange rate on October 11,
foreclosure of his mortgages was premature so that he
1983; and exemplary damages in the amount of Two
was unable to service his foreign clients, resulting in
Hundred Thousand Pesos (P200,000.00).
actual damages amounting to Two Million Four
Thousand Four Hundred Sixty One Pesos (P
2,004,461.00).
Respondent PNB appealed this decision of the trial
court to the Court of Appeals. And the Court of
Appeals reversed the decision of the trial court and
On March 16, 1992, the trial court rendered judgment
dismissed the complaint. Hence, this petition.
in favor of the petitioner and ordered the nullification
of the extrajudicial foreclosure of the real estate
mortgage, the Sheriff’s sale of the mortgaged real
properties by virtue of consolidation thereof and the It is the petitioner’s contention that the PNB
cancellation of the new titles issued to PNB; that PNB management restructured his existing loan obligations
vacate the subject premises in Pasig and turn the same to a five-year term loan and granted him another Two
over to the petitioner; and also the nullification of the Million Pesos (P2,000,000.00) LC/TR line; that the
extrajudicial foreclosure and sheriff's sale of the Promissory Notes Nos. 127/82 and 128/82 evidencing
mortgaged chattels, and that the chattels be returned to a 2-year restructuring period or with the due maturity
petitioner Mendoza if they were removed from his date "December 29, 1984" were filled out fraudulently
Pasig premises or be paid for if they were lost or by respondent PNB, and contrary to his verbal
rendered unserviceable. agreement with respondent PNB; hence, his
indebtedness to respondent PNB was not yet due and
the extrajudicial foreclosure of his real estate and
chattel mortgages was premature. On the other hand,
The trial court also ordered respondent PNB to
respondent PNB denies that petitioner's loan
restructure to five-years petitioner's principal loan of
obligations were restructured to five (5) years and
Two Million Six Hundred Fifty One Thousand One
maintains that the subject two (2) Promissory Notes
Hundred Eighteen Pesos and Eighty Six Centavos
Nos. 127/82 and 128/82 were filled out regularly and
(P2,651,118.86) and the accumulated capitalized
became due as of December 29, 1984 as shown on the
interest on the same in the amount of Seven Hundred
face thereof.
Sixty Thousand Three Hundred Eighty Nine Pesos and
Twenty Three Centavos (P760,389.23) as of December
1982, and that respondent PNB should compute the
additional interest from January 1983 up to October 15, Respondent Court of Appeals held that there is no
1984 only when respondent PNB took possession of evidence of a promise from respondent PNB,
the said properties, at the rate of 12% and 9% admittedly a banking corporation, that it had accepted
respectively. the proposals of the petitioner to have a five-year
Credit Transactions Cases | Compiled by treeng| 18
restructuring of his overdue loan obligations. It found
and held, on the basis of the evidence adduced, that
"appellee's (Mendoza) communications were mere
proposals while the bank's responses were not
categorical that the appellee's request had been
favorably accepted by the bank."
Contending that respondent PNB had allegedly
approved his proposed five-year restructuring plan,
petitioner presented three (3) documents executed by
respondent PNB officials. The first document is a letter
dated March 16, 1981 addressed to the petitioner and
signed by Ceferino D. Cura, Branch Manager of PNB
Mandaluyong, which states:
x x x In order to study intelligently the feasibility of
your above request, please submit the following
documents/papers within thirty (30) days from the date
thereof, viz:
1. Audited Financial Statements for 1979 and 1980;
2. Projected cash flow (cash in - cash out) for five
years detailed yearly; and
3. List of additional machinery and equipment and
proof of ownership thereof.
We would strongly suggest, however, that you reduce
your total obligations to at least P3 million (principal
and interest and other charges) to give us more
justification in recommending a plan of payment or
restructuring of your accounts to higher authorities of
this bank.
The second document is a letter dated May 11, 1981
addressed to Mr. S. Pe Benito, Jr., Managing Director
of the Technological Resources Center and signed by
said PNB Branch Manager, Ceferino D. Cura.
According to petitioner, this letter showed that
respondent PNB seriously considered the restructuring
of his loan obligations to a five-year term loan, to wit:
xxx
At the request of our client, we would like to furnish
you with the following information pertinent to his
accounts with us:
xxx
We are currently evaluating the proposal of the client
to re-structure his accounts with us into a five-year
plan.
We hope that the above information will guide you in
evaluating the proposals of Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981
addressed to petitioner and signed by PNB Assistant
Vice-President Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations were
granted and carried in the books of our Mandaluyong
Branch, we would suggest that your requests and
proposals be directed to Ceferino Cura, Manager of our
said Branch.
We feel certain that Mr. Cura will be pleased to discuss
matters of mutual interest with you.
Credit Transactions Cases | Compiled by treeng| 19
xxx
Petitioner also presented a letter which he addressed to
Mr. Jose Salvador, Vice-President of the Metropolitan
Branches of PNB, dated September 24, 1981, which
reads:
Re: Restructuring of our Account into a 5-year Term
Loan and Request for the Establishment of a P2.0
Million LC/TR Line
Dear Sir:
In compliance with our discussion last September 17,
we would like to formalize our proposal to support our
above requested assistance from the Philippine
National Bank.
xxx
Again we wish to express our sincere appreciation for
your open-minded approach towards the solution of
this problem which we know and will be beneficial and
to the best interest of the bank and mutually
advantageous to your client.
xxx
Petitioner argues that he submitted the requirements
according to the instructions given to him and that
upon submission thereof, his proposed five-year
restructuring plan was deemed automatically approved
by respondent PNB.
We disagree.
Nowhere in those letters is there a categorical
statement that respondent PNB had approved the
petitioner’s proposed five-year restructuring plan. It is
stretching the imagination to construe them as evidence
that his proposed five-year restructuring plan has been
approved by the respondent PNB which is admittedly a
banking corporation. Only an absolute and unqualified
acceptance of a definite offer manifests the consent
necessary to perfect a contract.16 If anything, those
correspondences only prove that the parties had not
gone beyond the preparation stage, which is the period
from the start of the negotiations until the moment just
before the agreement of the parties.17
There is nothing in the record that even suggests that
respondent PNB assented to the alleged five-year
restructure of petitioner’s overdue loan obligations to
PNB. However, the trial court ruled in favor of
petitioner Mendoza, holding that since petitioner has
complied with the conditions of the alleged oral
contract, the latter may not renege on its obligation to
honor the five-year restructuring period, under the rule
of promissory estoppel. Citing Ramos v. Central
Bank,18 the trial court said:
The broad general rule to the effect that a promise to
do or not to do something in the future does not work
an estoppel must be qualified, since there are numerous
cases in which an estoppel has been predicated on
promises or assurances as to future conduct. The
doctrine of ‘promissory estoppel’ is by no means new,
although the name has been adopted only in
comparatively recent years. According to that doctrine,
an estoppel may arise from the making of a promise,
even though without consideration, if it was intended
that the promise should be relied upon and in fact it
was relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or would
result in other injustice. In this respect, the reliance by
the promisee is generally evidenced by action or
forbearance on his part, and the idea has been
expressed that such action or forbearance would
reasonably have been expected by the promissor. xxx
Credit Transactions Cases | Compiled by treeng| 20
The doctrine of promissory estoppel is an exception to
the general rule that a promise of future conduct does
Petitioner claims that the two (2) subject Promissory
not constitute an estoppel. In some jurisdictions, in
Notes Nos. 127/82 and 128/82 were signed by him in
order to make out a claim of promissory estoppel, a
blank with the understanding that they were to be
party bears the burden of establishing the following
subsequently filled out to conform with his alleged oral
elements: (1) a promise reasonably expected to induce
agreements with PNB officials, among which is that
action or forebearance; (2) such promise did in fact
they were to become due only after five (5) years. If
induce such action or forebearance, and (3) the party
petitioner were to be believed, the PNB officials
suffered detriment as a result.19
concerned committed a fraudulent act in filling out the
subject two (2) promissory notes in question. Private
transactions are presumed to be fair and regular.24 The
It is clear from the forgoing that the doctrine of
burden of presenting evidence to overcome this
promissory estoppel presupposes the existence of a
presumption falls upon petitioner. Considering that
promise on the part of one against whom estoppel is
petitioner imputes a serious act of fraud on respondent
claimed. The promise must be plain and unambiguous
PNB, which is a banking corporation, this court will
and sufficiently specific so that the Judiciary can
not be satisfied with anything but the most convincing
understand the obligation assumed and enforce the
evidence. However, apart from petitioner's self-serving
promise according to its terms.20 For petitioner to
verbal declarations, we find no sufficient proof that the
claim that respondent PNB is estopped to deny the
subject two (2) Promissory Notes Nos. 127/82 and
five-year restructuring plan, he must first prove that
128/82 were completed irregularly. Therefore, we rule
respondent PNB had promised to approve the plan in
that the presumption has not been rebutted.
exchange for the submission of the proposal. As
discussed earlier, no such promise was proven,
therefore, the doctrine does not apply to the case at bar.
Besides, it could be gleaned from the record that the
A cause of action for promissory estoppel does not lie
petitioner is an astute businessman who took care to
where an alleged oral promise was conditional, so that
reduce in writing his business proposals to the
reliance upon it was not reasonable.21 It does not
respondent bank. It is unthinkable that the same person
operate to create liability where it does not otherwise
would commit the careless mistake of leaving his
exist.22
subject two (2) promissory notes in blank in the hands
of other persons. As the respondent Court of Appeals
correctly pointed out:
Since there is no basis to rule that petitioner's overdue
loan obligations were restructured to mature in a period
of five (5) years, we see no other option but to respect
Surely, plaintiff-appellee who is a C.P.A and a Tax
the two-year period as contained in the two (2) subject
Consultant (p. 3 TSN, January 9, 1990) will insist that
Promissory Notes Nos. 127/82 and 128/82, marked as
the details of the two promissory notes he and his wife
Exhibits "BB" and "CC" respectively which
executed in 1982 should be specific to enable them to
superseded and novated all prior loan documents
make the precise computation in the event of default as
signed by petitioner in favor of respondent PNB.
in the case at bench. In fact, his alleged omission as a
Petitioner argues, in his memorandum, that
C.P.A. and a Tax Consultant to insist that the two
"respondent Court of Appeals had no basis in saying
promissory notes be filled up on important details like
that the acceptance of the five-year restructuring is
the rates of interest is inconsistent with the legal
totally absent from the record."23 On the contrary, the
presumption of a person who takes ordinary care of his
subject Promissory Notes Nos. 127/82 and 128/82 are
concerns (Section 3 (c), Rule 131, Revised Rules on
clear on their face that they were due on December 29,
Evidence).
1984 or two (2) years from the date of the signing of
the said notes on December 29, 1982.
Credit Transactions Cases | Compiled by treeng| 21
As pointed out by the Court of Appeals, Orlando
Montecillo, Chief, Loans and Discounts, PNB
Mandaluyong Branch, testified that the said
Promissory Notes Nos. 127/82 and 128/82 were
completely filled out when Danilo Mendoza signed
them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan
restructuring theory, petitioner contends that
respondent PNB's action of withholding 10% from his
export proceeds is proof that his proposal had been
accepted and the contract had been partially executed.
He claims that he would not have consented to the
additional burden if there were no corresponding
benefit. This contention is not well taken. There is no
credible proof that the 10% assignment of his export
proceeds was not part of the conditions of the two-year
restructuring deal. Considering that the resulting
amount obtained from this assignment of export
proceeds was not even enough to cover the interest for
the corresponding month,25 we are hard-pressed to
construe it as the required proof that respondent PNB
allegedly approved the proposed five-year restructuring
of petitioner’s overdue loan obligations.
It is interesting to note that in his Complaint, petitioner
made no mention that the assignment of his export
proceeds was a condition for the alleged approval of
his proposed five-year loan restructuring plan. The
Complaint merely alleged that "plaintiff in a sincere
effort to make payments on his obligations agreed to
assign 10% of his export proceeds to defendant PNB."
This curious omission leads the court to believe that
the alleged link between the petitioner’s assignment of
export proceeds and the alleged five-year restructuring
of his overdue loans was more contrived than real.
It appears that respondent bank increased the interest
rates on the two (2) subject Promissory Notes Nos.
127/82 and 128/82 without the prior consent of the
petitioner. The petitioner did not agree to the increase
in the stipulated interest rate of 21% per annum on
Promissory Note No. 127/82 and 18% per annum on
Promissory Note No. 128/82. As held in several cases,
the unilateral determination and imposition of
increased interest rates by respondent bank is violative
of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code.26 As held in one
case:27
It is basic that there can be no contract in the true sense
in the absence of the element of agreement, or of
mutual assent of the parties. If this assent is wanting on
the part of one who contracts, his act has no more
efficacy than if it had been done under duress or by a
person of unsound mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification,
especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be
gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture.
It has been held that no one receiving a proposal to
change a contract to which he is a party is obliged to
answer the proposal, and his silence per se cannot be
construed as an acceptance.28 Estoppel will not lie
against the petitioner regarding the increase in the
stipulated interest on the subject Promissory Notes
Nos. 127/82 and 128/82 inasmuch as he was not even
informed beforehand by respondent bank of the change
in the stipulated interest rates. However, we also note
that the said two (2) subject Promissory Notes Nos.
127/82 and 128/82 expressly provide for a penalty
charge of 3% per annum to be imposed on any unpaid
amount when due.
Petitioner prays for the release of some of his
movables29 being withheld by respondent PNB,
alleging that they were not included among the chattels
he mortgaged to respondent bank. However, petitioner
did not present any proof as to when he acquired the
subject movables and hence, we are not disposed to
believe that the same were "after-acquired" chattels not
covered by the chattel and real estate mortgages.
Credit Transactions Cases | Compiled by treeng| 22
 fact "immovables by destination" under Art. 415 (5) of
the Civil Code.31 It is an established rule that a
In asserting its rights over the subject movables,
mortgage constituted on an immovable includes not
respondent PNB relies on a common provision in the
only the land but also the buildings, machinery and
two (2) subject Promissory Notes Nos. 127/82 and
accessories installed at the time the mortgage was
128/82 which states:
constituted as well as the buildings, machinery and
accessories belonging to the mortgagor, installed after
the constitution thereof.32
In the event that this note is not paid at maturity or
when the same becomes due under any of the
provisions hereof, we hereby authorized the BANK at
Petitioner also contends that respondent PNB’s bid
its option and without notice, to apply to the payment
prices for this foreclosed properties in the total amount
of this note, any and all moneys, securities and things
of Three Million Seven Hundred Ninety Eight
of value which may be in its hands on deposit or
Thousand Seven Hundred Nineteen Pesos and Fifty
otherwise belonging to me/us and for this purpose. We
Centavos (P3,798,719.50), were allegedly
hereby, jointly and severally, irrevocably constitute
"unconscionable and shocking to the conscience of
and appoint the BANK to be our true Attorney-in-Fact
men". He claims that the fair market appraisal of his
with full power and authority for us in our name and
foreclosed plant site together with the improvements
behalf and without prior notice to negotiate, sell and
thereon located in Pasig, Metro Manila amounted to
transfer any moneys securities and things of value
Five Million Four Hundred Forty One Thousand Six
which it may hold, by public or private sale and apply
Hundred Fifty Pesos (P5,441,650.00) while that of his
the proceeds thereof to the payment of this note.
house and lot in Quezon City amounted to Seven
Hundred Twenty Two Thousand Pesos (P722,000.00)
per the appraisal report dated September 20, 1990 of
It is clear, however, from the above-quoted provision Cuervo Appraisers, Inc.33 That contention is not well
of the said promissory notes that respondent bank is taken considering that:
authorized, in case of default, to sell "things of value"
belonging to the mortgagor "which may be on its hands
for deposit or otherwise belonging to me/us and for this
1. The total of the principal amounts alone of
purpose." Besides the petitioner executed not only a
petitioner’s subject Promissory Notes Nos. 127/82 and
chattel mortgage but also a real estate mortgage to
128/82 which are both overdue amounted to Four
secure his loan obligations to respondent bank.
Million One Hundred Eighty Seven Thousand Nine
Hundred Seventeen Pesos and Fifty Nine Centavos (P
4,187,917.59).
A stipulation in the mortgage, extending its scope and
effect to after-acquired property is valid and binding
where the after-acquired property is in renewal of, or in
2. While the appraisal of Cuervo Appraisers, Inc. was
substitution for, goods on hand when the mortgage was
undertaken in September 1990, the extrajudicial
executed, or is purchased with the proceeds of the sale
foreclosure of petitioner’s real estate and chattel
of such goods.30 As earlier pointed out, the petitioner
mortgages have been effected way back on October 15,
did not present any proof as to when the subject
1984, October 23, 1984 and December 21, 1984.34
movables were acquired.
Common experience shows that real estate values
especially in Metro Manila tend to go upward due to
developments in the locality.1âwphi1.nêt
More importantly, respondent bank makes a valid
argument for the retention of the subject movables.
Respondent PNB asserts that those movables were in
Credit Transactions Cases | Compiled by treeng| 23
3. In the public auction/foreclosure sales, respondent
PNB, as mortgagee, was not obliged to bid more than
its claims or more than the amount of petitioner’s loan
obligations which are all overdue. The foreclosed real
estate and chattel mortgages which petitioner earlier
executed are accessory contracts covering the
collaterals or security of his loans with respondent
PNB. The principal contracts are the Promissory Notes
Nos. 127/82 and 128/82 which superseded and novated
the 1979 promissory notes and the 1979 eleven (11)
Applications and Agreements for Commercial Letter of
Credit.

Finally, the record shows that petitioner did not even

attempt to tender any redemption price to respondent
PNB, as highest bidder of the said foreclosed real
estate properties, during the one-year redemption
period.

In view of all the foregoing, it is our view and we hold

that the extrajudicial foreclosure of petitioner’s real
estate and chattel mortgages was not premature and
that it was in fact legal and valid.

WHEREFORE, the petition is hereby DENIED. The

challenged Decision of the Court of Appeals in CA-
G.R. CV No. 38036 is AFFIRMED with modification
that the increase in the stipulated interest rates of 21%
per annum and 18% per annum appearing on
Promissory Notes Nos. 127/82 and 128/82 respectively
is hereby declared null and void.

Credit Transactions Cases | Compiled by treeng| 24

DEVELOPMENT BANK OF THE PHILIPPINES,
petitioner, vs. BONITA O. PEREZ and ALFREDO
PEREZ, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari seeking to
reverse and set aside the Decision[1] of the Court of
Appeals (CA) dated February 28, 2001, and to reinstate
the Decision of the Regional Trial Court (RTC),
Makati City, Branch 145, in Civil Case No. 12057, as
modified by trial courts Order dated June 11, 1993.
The Antecedents
On April 28, 1978, petitioner Development Bank of the
Philippines (DBP) sent a letter to respondent Bonita
Perez, informing the latter of the approval of an
industrial loan amounting to P214,000.00 for the
acquisition of machinery and equipment and for
working capital, and an additional industrial loan
amounting to P21,000.00 to cover unforeseen price
escalation.[2]
On May 18, 1978, the respondents were made to sign
four promissory notes covering the total amount of the
loan, P235,000.00. Three promissory notes for
P24,000.00, P48,000.00, and P142,000.00,
respectively, were executed, totaling P214,000.00.
These promissory notes were all due on August 31,
1988.[3] A fourth promissory note due on September
19, 1988 was, likewise, executed to cover the
additional loan of P21,000.00.[4] The promissory notes
were to be paid in equal quarterly amortizations and
were secured by a mortgage contract covering real and
personal properties.[5]
On September 6, 1978, the petitioner sent a letter[6] to
the respondents informing them of the terms for the
payment of the P214,000.00 industrial loan. On
November 8, 1978, the petitioner sent another letter[7]
to the respondents informing them about the terms and
conditions of their additional P21,000.00 industrial
loan.
Due to the respondents' failure to comply with their
amortization payments, the petitioner decided to
foreclose the mortgages that secured the obligation.
However, in a Letter[8] dated October 7, 1981, Mrs.
Perez requested for a restructuring of their account due
to difficulties they were encountering in collecting
receivables.
On April 1, 1982, the petitioner informed the
respondents that it had approved the restructuring of
their accounts.[9] The loan was restructured, and on
May 6, 1982, the respondents signed another
promissory note in the amount of P231,000.00 at
eighteen percent (18%) interest per annum, payable
quarterly at P12,553.27, over a period of ten years. The
promissory note stated in part:
PROMISSORY NOTE
P231,000.00 Makati, Metro Manila, May 6, 1982
On or before May 7, 1992, for value received, I/we,
jointly and severally, promise to pay the
DEVELOPMENT BANK OF THE PHILIPPINES, or
order at its office at Makati, Metro Manila, Philippines,
the sum of TWO HUNDRED THIRTY-ONE
THOUSAND PESOS (P231,000.00), Philippine
Currency, with interest at the rate of EIGHTEEN per
centum (18%) per annum. Before the date of maturity,
we hereby bind ourselves to make partial payments, the
first payment to be made on August 7, 1982 and the
subsequent payments on the 7th day of every three (3)
months thereafter, and each of all such payments shall
be TWELVE THOUSAND FIVE HUNDRED FIFTY-
Credit Transactions Cases | Compiled by treeng| 25
THREE and 27/100 PESOS (P12,553.27) which shall
cover amortizations on the principal and interest at the
above-mentioned rate.
This loan shall be subject to penalty charges and
additional interest as follows:
On loan with amortizations or portions thereof in
arrears irrespective of age.
Additional interest at the basic loan interest rate per
annum computed on total amortizations past due
irrespective of age.
PLUS
Penalty charge of 8% per annum computed on total
amortizations in arrears irrespective of age.
The DBP further reserves the right to increase, with
notice to the mortgagor, the rate of interest on the loan
as well as all other fees and charges on loans and
advances pursuant to such policy as it may adopt from
time to time during the period of the loan; Provided
that the rate of interest on the loan shall be reduced in
the event that the applicable maximum rate of interest
is reduced by law or by the Monetary Board; Provided,
further, that the adjustment in the rate of interest shall
take effect on or after the effectivity of the increase or
decrease in the maximum rate of interest.
In case of non-payment of the amount of this note or
any portion of it on demand, when due, or any other
amount or amounts due on account of this note, the
entire obligation shall become due and demandable,
and if, for the enforcement of the payment thereof, the
DEVELOPMENT BANK OF THE PHILIPPINES, is
constrained to entrust the case to its attorneys, I/we,
jointly and severally, bind myself/ourselves to pay for
attorney's fees, as provided for in the mortgage
contract, in addition to the legal fees and other
incidental expenses. In the event of foreclosure of the
mortgage securing this note, I/we further bind
myself/ourselves, jointly and severally, to pay the
deficiency , if any.
SIGNED IN THE PRESENCE OF:
illegible SGD. SGD.
illegible BONITA ANG ORDIALES ALFREDO
PEREZ
(Bonita O. Perez)
This Promissory Note supersedes the Promissory Note
dated May 18, 1978 and stands secured by a mortgage
contract executed by the above parties on the same
date, subject to the following terms and conditions.[10]
As stated in the promissory note, the first amortization
was due on August 7, 1982, and the succeeding
amortizations, every quarter thereafter. However, the
respondents made their first payment amounting to
P15,000.00[11] only on April 20, 1983 or after the
lapse of three quarters.[12] Their second payment,
which should have been paid on November 7, 1982,
was made on December 2, 1983 and only in the
amount of P5,000.00. The third payment was then
made at the time when the ninth quarterly amortization
should have been paid. After this, the respondents
completely stopped paying.[13] The total payments
they made after the restructure of the loan amounted to
P35,000.00 only.[14]
This failure to meet the quarterly amortization of the
loan prompted the petitioner to institute foreclosure
proceedings on the mortgages. The sale of the
Credit Transactions Cases | Compiled by treeng| 26
properties covered by the mortgage contract was
scheduled on October 30, 1985.[15]
On October 24, 1985, the respondents filed a
Complaint[16] for the nullification of the new
promissory note with damages and preliminary
prohibitory injunction. The complaint alleged that the
petitioner restructured the respondents obligation in
bad faith by requiring them to sign another promissory
note for P231,000.00 without considering the total
payments made on the loan amounting to P224,383.43.
The respondents claimed that the petitioner failed to
explain to them how it had arrived at the amount of the
restructured loan. The respondents also alleged that the
petitioner failed to furnish them with a disclosure
statement as required by Rep. Act No. 3765, also
known as the Truth in Lending Act, prior to the
consummation of the transaction. They averred that the
interest imposed on the said transaction was usurious.
They, likewise, alleged that the new promissory note
constituted a novation of the previous obligations.
In its answer, the petitioner denied the allegations and
averred that the claim for violation of the disclosure
requirement under Rep. Act No. 3765 was not within
the jurisdiction of the RTC and was barred by
prescription. By way of compulsory counterclaim, the
petitioner prayed that the respondents be ordered to
pay their obligation, plus exemplary damages and
costs.[17] During trial, the petitioner presented a
Statement of Account dated September 14, 1990,
showing that the total amount of the obligation as of
September 15, 1990 was P1,384,465.71.[18]
On October 25, 1985, the trial court ordered the
petitioner to desist from holding the public auction of
the respondents properties. The trial court issued an
Order on April 25, 1986 to maintain the status quo.
In its Decision dated May 10, 1993, the court a quo
upheld the validity of the new promissory note and
ordered the respondents to pay their obligation. The
dispositive portion reads:
WHEREFORE, judgment is rendered dismissing the
complaint for failure of plaintiffs to prove their causes
of action by clear preponderance of evidence, with
costs against them.
The order issued on April 25, 1986, ordering the
defendant Bank to maintain the status quo and
suspending the auction sale, is hereby set aside.
Defendant Bank's counterclaim is hereby granted, and
plaintiffs are hereby ordered to pay the former the sum
of One Million Three Hundred Eighty-four Thousand
Four Hundred Sixty-five Pesos and Seventy-one
Centavos (P1,384,465.71), representing the latter's
obligation as of September 15, 1990, with interest
thereon at the legal rate of twelve (12%) percent per
annum pursuant to Sec. 2 of CB Circular No. 905;
(Sagrador vs. Valderrama, supra), from September 15,
1990 up to full payment of said sum. The other
counterclaim for exemplary damages is hereby
dismissed.
SO ORDERED.[19]
Upon the petitioners motion for reconsideration, the
trial court issued an order[20] amending the dispositive
portion of its decision by changing the rate of interest
to eighteen percent (18%) per annum.
Dissatisfied, the respondents appealed to the CA. On
February 28, 2001, the CA rendered a decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, the Decision
dated May 10, 1993, docketed as Civil Case No. 12057
by the Regional Trial Court of Makati, Branch 145, is
hereby MODIFIED in the sense that the amount of
P1,384,465.71 as of September 1990 is SET ASIDE
and the formula mandated by Central Bank Circular
Credit Transactions Cases | Compiled by treeng| 27
No. 158 should be applied by the trial court in
computing the total obligation and liability of
The petitioner raises the following grounds in the
appellants. All the other parts of the assailed decision
instant petition:
are AFFIRMED in toto.

1. Whether or not the Honorable Court of Appeals

SO ORDERED.[21]
had decided this instant case in a way not in accord
with the spirit and intent of Republic Act No. 3765,
otherwise known as the Truth in Lending Act, when it
The CA found that the respondents did not voluntarily
declared that "the trial court should have applied the
sign the restructured promissory note as they were only
formula provided by Central Bank Circular No. 158,
forced to sign it for fear of having their mortgaged
series of 1963, as provided above to arrive at the total
property foreclosed by the bank. It ruled that the
obligations of appellants less the amounts paid by
restructured promissory note which was prepared by
appellants as evidenced by the vouchers and receipts
the petitioner alone was a contract of adhesion which
attached to the records;"
violates the rule on mutuality of contracts.

2. Whether or not the conclusion of the Honorable

Nonetheless, the CA held that the trial court should
Court of Appeals stating that the private respondents
have used the formula prescribed by paragraph 3,[22]
did not voluntarily sign the restructured promissory
Sec. 2(i), Central Bank (CB) Circular No. 158, Rules
note is entirely grounded on speculations and/or
and Regulations Implementing Rep. Act No. 3765, in
surmises or conjectures;
computing the total obligation of the respondents
considering that Sec. 3(a) thereof provides that it
applies to any loans, mortgages, deeds of trust,
3. Whether or not the Honorable Court of Appeals
advances and discounts.[23] The CA also held that
failed to notice certain relevant facts which if it had
since the loan is secured by a mortgage contract, the
been considered would change its finding that the
eighteen percent (18%) interest rate was excessive and
restructured promissory note was prepared by the
usurious under CB Circular No. 817. According to the
appellee Bank alone;
appellate court, CB Circular No. 905, series of 1982,
simply suspended the effectivity of the Usury Law; it
did not authorize either party to unilaterally raise the
interest without the other party's consent.[24] Finally, 4. Whether or not the Honorable Court of Appeals
the CA concluded that there was neither basis nor failed to notice certain relevant facts which if it had
explanation as to how the measly amount of been considered would change its finding that the
P214,000.00 in 1972, restructured to P231,000.00 in amount of P1,384,465.71 as of September 15, 1990 has
1982, ballooned to P1,384,465.71 as of September 15, neither basis at all nor any explanation how this
1990.[25] amount came to existence;

Both parties moved to reconsider the said decision. The
CA denied the said motions in a Resolution dated May
31, 2001.
The Present Petition
5. Whether or not the conclusion of the Honorable
Court of Appeals stating that petitioner DBP failed to
follow Central Bank Circular No. 158 is grounded
entirely on speculation and surmises or conjecture.
And whether or not this finding is contradicted by
another finding of the same court; and

Credit Transactions Cases | Compiled by treeng| 28

 belies the petitioners claim that they voluntarily signed
the new promissory note.
6. Whether or not this Honorable Court of Appeals
committed grave abuse of discretion when it ruled that
pursuant to Central Bank Circular No. 817 the 18%
We agree with the petitioner.
interest per annum agreed upon by the parties in the
restructured promissory note is usurious, and that the
same should be reduced to 12% being the legal rate of
interest.[26] In petitions for review on certiorari as a mode of
appeal under Rule 45 of the Rules of Court, the
petitioner can raise only questions of law the Supreme
Court is not the proper venue to consider a factual
In a nutshell, the issues in this case are as follows: (1)
issue as it is not a trier of facts.[29] A departure from
whether the new promissory note is voidable for not
the general rule may be warranted where the findings
having been voluntarily signed by the respondents and
of fact of the Court of Appeals are contrary to the
for being a contract of adhesion; (2) whether the
findings and conclusions of the trial court, or when the
interest rate agreed upon by the parties in the new
same is unsupported by the evidence on record.[30]
promissory note is usurious; (3) whether Central Bank
Circular No. 158 should be applied in computing the
total obligations of the respondents; and (4) the amount
of the total obligation of the respondents. In the instant case, there was no evidence showing that
the respondents signed the new promissory note
through mistake, violence, intimidation, undue
influence, or fraud. The respondents merely alleged
The petition is partly meritorious.
that they were forced to restructure their loan for fear
of having their mortgaged properties foreclosed.
However, it is axiomatic that this would not amount to
Anent the first issue, the petitioner points out that the
vitiated consent. The last paragraph of Article 1335 of
respondents admitted to having signed the new
the New Civil Code specifically states that a threat to
promissory note. It avers that there was no evidence on
enforce ones claim through competent authority, if the
record showing that the signing of the new promissory
claim is just or legal, does not vitiate consent.
note was attended by mistake, violence, intimidation,
Foreclosure of mortgaged properties in case of default
undue influence, or fraud. The petitioner posits that the
in payment of a debtor is a legal remedy afforded by
respondents claim of having been forced to sign the
law to a creditor. Hence, a threat to foreclose the
restructured note for fear of having their mortgaged
mortgage would not, per se, vitiate consent.
property foreclosed cannot serve as legal basis to
conclude that the respondents did not voluntarily sign
the new promissory note.[27] The petitioner maintains
The CA noted that the petitioner prepared the new
that a perusal of the evidence would reveal that the
promissory note on its own and that the only
new promissory note was the result of the mutual
participation of the respondents was to sign the same.
agreement of the parties and, as such, is not a contract
The CA concluded, therefore, that the new promissory
of adhesion.[28]
note was a contract of adhesion.

On the other hand, the respondents argue that this is a

A contract of adhesion is so-called because its terms
question of fact which is not subject to review by this
are prepared by only one party while the other party
Court. According to the respondents, the fact that the
merely affixes his signature signifying his adhesion
restructured loan proved disadvantageous to them
thereto.[31] While we accede to the appellate courts
conclusion that the new promissory note was in the
Credit Transactions Cases | Compiled by treeng| 29
nature of a contract of adhesion, we cannot fathom
how this can further the respondents case. In discussing
the consequences of a contract of adhesion, we held in
Rizal Commercial Banking Corporation v. Court of
Appeals:[32]
It bears stressing that a contract of adhesion is just as
binding as ordinary contracts. It is true that we have,
on occasion, struck down such contracts as void when
the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal
footing. Nevertheless, contracts of adhesion are not
invalid per se; they are not entirely prohibited. The one
who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent.[33]
On the second issue, the CA held that under CB
Circular No. 817, if the loan is secured by a registered
real estate, the interest of eighteen percent (18%) is
usurious. The petitioner, however, argues that usury
has become legally inexistent with the promulgation of
CB Circular No. 905.[34] It contends that the interest
rate should be eighteen percent (18%), the interest rate
they agreed upon.[35] For their part, the respondents
argue that the Central Bank engaged in self-legislation
in enacting CB Circular No. 905.
We agree with the ruling of the CA. It is elementary
that the laws in force at the time the contract was made
generally govern the effectivity of its provision.[36]
We note that the new promissory note was executed on
May 6, 1982, prior to the effectivity of CB Circular
No. 905 on January 1, 1983. At that time, The Usury
Law, Act No. 2655, as amended by Presidential Decree
No. 116, was still in force and effect.
Under the Usury Law, no person shall receive a rate of
interest, including commissions, premiums, fines and
penalties, higher than twelve percent (12%) per annum
or the maximum rate prescribed by the Monetary
Board for a loan secured by a mortgage upon real
estate the title to which is duly registered.[37]
In this case, by specific provision in the new
promissory note, the restructured loan continued to be
secured by the same mortgage contract executed on
May 18, 1978 which covered real and personal
properties of the respondents. We, therefore, find the
eighteen percent (18%) interest rate plus the additional
interest and penalty charges of eighteen percent (18%)
and eight percent (8%), respectively, to be highly
usurious.
In usurious loans, the entire obligation does not
become void because of an agreement for usurious
interest; the unpaid principal debt still stands and
remains valid, but the stipulation as to the usurious
interest is void. Consequently, the debt is to be
considered without stipulation as to the interest.[38] In
the absence of an express stipulation as to the rate of
interest, the legal rate at twelve percent (12%) per
annum shall be imposed.[39]
Neither is the contention of the respondents that the
Central Bank engaged in self-legislation correct. As we
held in First Metro Investment Corporation v. Este Del
Sol Mountain Reserve, Inc.: [40]
Central Bank Circular No. 905 did not repeal nor in
any way amend the Usury Law but simply suspended
the latter's effectivity. The illegality of usury is wholly
the creature of legislation. A Central Bank Circular
cannot repeal a law. Only a law can repeal another law.
Thus, retroactive application of a Central Bank
Circular cannot, and should not, be presumed.[41]
On the third issue, the petitioner argues that CB
Circular No. 158 does not prescribe a formula in
computing a debtor's monetary obligation, but merely
provides for the formula in computing the simple
annual rate. It contends that the amount of the debtor's
obligation must be computed in accordance with the
Credit Transactions Cases | Compiled by treeng| 30
interest rate, charges, and manner of computation Appeals and Order dated June 11, 1993 of the Regional
agreed upon by the parties.[42] Trial Court, Makati City, Branch 145, are AFFIRMED
WITH MODIFICATION. The case is hereby
REMANDED to the trial court for determination of the
We agree. The total obligation of the respondents must total amount of the respondents' obligation according
be computed according to the terms and conditions to the reduced interest rate of twelve percent (12%) per
agreed upon. The formula provided under paragraph 3, annum.
Sec. 2(i), CB Circular No. 158 cannot be used in
computing the total obligation of the respondents
because it merely applies to the computation of the
simple annual rate. Simple annual rate is the uniform
percentage which represents the ratio, on an annual
basis, between the finance charges and the amount to
be financed.[43] It is one of the items required to be
disclosed under the Truth in Lending Act pursuant to
the States policy to protect its citizens from lack of
awareness of the true cost of credit.[44]

Finally, we find that the records are insufficient to

enable us to determine the total amount of the
respondents obligation. It is not even clear how much
the respondents have already paid on the restructured
loans and when such payments were made. The
receipts presented in evidence by the respondents only
showed that they paid P15,000.00 on April 20, 1983
and P5,000.00 on December 2, 1983.[45] On the other
hand, Mr. Roberto Balarao, who is assigned to the
Traffic and Processing Department of the petitioner,
testified that a third payment was made, but failed to
state the amount.[46] Another witness, Carmen
Chamen, an account officer of the petitioner, testified
that after the restructuring of the account, the total
payment made was P35,000.00.[47]

Moreover, considering our previous conclusion that the

interest rates prescribed under the new promissory note
are usurious, the statement of account presented by the
petitioner is no longer pertinent. It must be stressed
that such statement of account was arrived at based on
the usurious interest rates. Hence, the total amount of
the obligation must necessarily be recomputed.

IN LIGHT OF ALL THE FOREGOING, the assailed

Decision dated February 28, 2001 of the Court of
Credit Transactions Cases | Compiled by treeng| 31
 letter dated January 5, 2004 from respondent BPI,
demanding payment of the amount of one hundred
ILEANA DR. MACALINAO, G.R. No. 175490
Petitioner, forty-one thousand five hundred eighteen pesos and
Present: thirty-four centavos (PhP 141,518.34), as follows:
- versus - YNARES-SANTIAGO, J.,
Chairperson, Statem Previo Purcha Penal Fina Balanc
CHICO-NAZARIO,
ent us ses ty nce e Due
BANK OF THE PHILIPPINE ISLANDS, VELASCO, JR.,Date Balanc (Paym Inter Char
Respondent. NACHURA, and e ents) est ges
PERALTA, JJ.10/27/ 94,843 559.7 3,061 98,456
. 2002 .70 2 .99 .41
Promulgated: 11/27/ 98,465 (15,00 0 2,885 86,351
September 17,2002
2009 .41 0) .61 .02
x-----------------------------------------------------------------
12/31/ 86,351 30,308. 259.0 2,806 119,75
------------------------x
2002 .02 80 5 .41 2.28
1/27/2 119,75 618.2 3,891 124,23
003 2.28 3 .07 4.58
DECISION
2/27/2 124,23 990.9 4,037 129,26
003 4.58 3 .62 3.13
VELASCO, JR., J.: 3/27/2 129,26 (18,00 298.7 3,616 115,17
003 3.13 0.00) 2 .05 7.90
4/27/2 115,17 644.2 3,743 119,56
003 7.90 6 .28 5.44
The Case 5/27/2 119,56 (10,00 402.9 3,571 113,54
003 5.44 0.00) 5 .71 0.10
6/29/2 113,54 8,362.5 323.5 3,607 118,83
Before us is a Petition for Review on Certiorari 003 0.10 0 7 .32 3.49
under Rule 45 of the Rules of Court seeking to reverse (7,000.
and set aside the June 30, 2006 Decision[1] of the Court 00)
7/27/2 118,83 608.0 3,862 123,37
of Appeals (CA) and its November 21, 2006
003 3.49 7 .09 5.65
Resolution[2] denying petitioners motion for 8/27/2 123,37 1,050 4,009 128,43
reconsideration. 003 5.65 .20 .71 5.56
9/28/2 128,43 1,435 4,174 134,04
003 5.56 .51 .16 5.23
The Facts 10/28/
2003
11/28/
Petitioner Ileana Macalinao was an approved 2003
12/28/
cardholder of BPI Mastercard, one of the credit card 2003
facilities of respondent Bank of the Philippine Islands 1/27/2 141,51 8,491 4,599 154,60
004 8.34 .10 .34 8.78
(BPI).[3] Petitioner Macalinao made some purchases
through the use of the said credit card and defaulted in
paying for said purchases. She subsequently received a
Credit Transactions Cases | Compiled by treeng| 32

Under the Terms and Conditions Governing the
Issuance and Use of the BPI Credit and BPI Mastercard,
the charges or balance thereof remaining unpaid after
the payment due date indicated on the monthly
Statement of Accounts shall bear interest at the rate of
3% per month and an additional penalty fee equivalent
to another 3% per month. Particularly:
8. PAYMENT OF CHARGES
BCC shall furnish the Cardholder a
monthly Statement of Account (SOA)
and the Cardholder agrees that all
charges made through the use of the
CARD shall be paid by the Cardholder as
stated in the SOA on or before the last
day for payment, which is twenty (20)
days from the date of the said SOA, and
such payment due date may be changed
to an earlier date if the Cardholders
account is considered overdue and/or
with balances in excess of the approved
credit limit, or to such other date as may
be deemed proper by the CARD issuer
with notice to the Cardholder on the
same monthly SOA. If the last day fall on
a Saturday, Sunday or a holiday, the last
day for the payment automatically
becomes the last working day prior to
said payment date. However,
notwithstanding the absence or lack of
proof of service of the SOA of the
Cardholder, the latter shall pay any and
all charges made through the use of the
CARD within thirty (30) days from date
or dates thereof. Failure of the
Cardholder to pay the charges made
through the CARD within the payment
period as stated in the SOA or within
thirty (30) days from actual date or dates
of purchase whichever occur earlier,
shall render him in default without the
necessity of demand from BCC, which
the Cardholder expressly waives. The
charges or balance thereof remaining
unpaid after the payment due date
indicated on the monthly Statement of
Accounts shall bear interest at the rate
of 3% per month for BPI Express
Credit, BPI Gold Mastercard and an
additional penalty fee equivalent to
another 3% of the amount due for
every month or a fraction of a months
delay. PROVIDED that if there occurs
any change on the prevailing market
rates, BCC shall have the option to adjust
the rate of interest and/or penalty fee due
on the outstanding obligation with prior
notice to the cardholder. The Cardholder
hereby authorizes BCC to
correspondingly increase the rate of such
interest [in] the event of changes in the
prevailing market rates, and to charge
additional service fees as may be deemed
necessary in order to maintain its service
to the Cardholder. A CARD with
outstanding balance unpaid after thirty
(30) days from original billing statement
date shall automatically be suspended,
and those with accounts unpaid after
ninety (90) days from said original
billing/statement date shall
automatically be cancel (sic), without
prejudice to BCCs right to suspend or
cancel any card anytime and for
whatever reason. In case of default in his
obligation as provided herein,
Cardholder shall surrender his/her card
to BCC and in addition to the interest and
penalty charges aforementioned , pay the
following liquidated damages and/or
fees (a) a collection fee of 25% of the
amount due if the account is referred to a
collection agency or attorney; (b) service
fee for every dishonored check issued by
the cardholder in payment of his account
without prejudice, however, to BCCs
right of considering Cardholders
account, and (c) a final fee equivalent to
25% of the unpaid balance, exclusive of
litigation expenses and judicial cost, if
the payment of the account is enforced
though court action. Venue of all civil
suits to enforce this Agreement or any
other suit directly or indirectly arising
from the relationship between the parties
as established herein, whether arising
from crimes, negligence or breach
Credit Transactions Cases | Compiled by treeng| 33
 thereof, shall be in the process of courts
of the City of Makati or in other courts at
the option of BCC.[4] (Emphasis
supplied.)
For failure of petitioner Macalinao to settle her
obligations, respondent BPI filed with the Metropolitan
Trial Court (MeTC) of Makati City a complaint for a
sum of money against her and her husband, Danilo SJ.
Macalinao. This was raffled to Branch 66 of the MeTC
and was docketed as Civil Case No. 84462 entitled Bank
of the Philippine Islands vs. Spouses Ileana
Dr. Macalinao and Danilo SJ. Macalinao.[5]
In its Decision dated August 2, 2004, the MeTC
ruled in favor of respondent BPI and ordered petitioner
Macalinao and her husband to pay the amount of PhP
141,518.34 plus interest and penalty charges of 2% per
month, to wit:
WHEREFORE, finding merit in
the allegations of the complaint
supported by documentary evidence,
judgment is hereby rendered in favor of
the plaintiff, Bank of the Philippine
Islands and against defendant-spouses
Ileana DR Macalinao and Danilo SJ
Macalinaoby ordering the latter to pay
the former jointly and severally the
following:

In said complaint, respondent BPI prayed for the 1. The amount of

PESOS: ONE HUNDRED
payment of the amount of one hundred fifty-four FORTY ONE THOUSAND
thousand six hundred eight pesos and seventy-eight FIVE HUNDRED EIGHTEEN
AND 34/100 (P141,518.34) plus
centavos (PhP 154,608.78) plus 3.25% finance charges interest and penalty charges of
and late payment charges equivalent to 6% of the 2% per month from January 05,
2004 until fully paid;
amount due from February 29, 2004 and an amount 2. P10,000.00 as and by way
equivalent to 25% of the total amount due as attorneys of attorneys fees; and
3. Cost of suit.
fees, and of the cost of suit.[6]
SO ORDERED.[11]

After the summons and a copy of the complaint

were served upon petitioner Macalinao and her husband,
Only petitioner Macalinao and her husband
they failed to file their Answer.[7] Thus, respondent BPI
appealed to the Regional Trial Court (RTC)
moved that judgment be rendered in accordance with
of Makati City, their recourse docketed as Civil Case
Section 6 of the Rule on Summary Procedure.[8] This
No. 04-1153. In its Decision dated October 14, 2004, the
was granted in an Order dated June 16,
RTC affirmed in toto the decision of the MeTC and
2004.[9] Thereafter, respondent BPI submitted its
held:
documentary evidence.[10]

In any event, the sum of

P141,518.34 adjudged by the trial court
appeared to be the result of a
Credit Transactions Cases | Compiled by treeng| 34
 recomputation at the reduced rate of 2%
per month. Note that the total amount
sought by the plaintiff-appellee was
P154,608.75 exclusive of finance charge
of 3.25% per month and late payment
charge of 6% per month.
WHEREFORE, the appealed
decision is hereby affirmed in toto.
No pronouncement as to costs.
SO ORDERED.[12]
Unconvinced, petitioner Macalinao filed a
petition for review with the CA, which was docketed as
CA-G.R. SP No. 92031. The CA affirmed with
modification the Decision of the RTC:
WHEREFORE, the appealed
decision
is AFFIRMED but MODIFIED with
respect to the total amount due and
interest rate. Accordingly, petitioners
are jointly and severally ordered to pay
respondent Bank of the Philippine
Islands the following:
1. The amount of One
Hundred Twenty
Six Thousand Seven
Hundred Six Pesos
and Seventy
Centavos plus
interest and penalty
charges of 3% per
month from January
5, 2004 until fully
paid;
2. P10,000.00 as and
by way of attorneys
fees; and
3. Cost of Suit.
SO ORDERED.[13]
Although sued jointly with her husband,
petitioner Macalinao was the only one who filed the
petition before the CA since her husband already passed
away on October 18, 2005.[14]
In its assailed decision, the CA held that the
amount of PhP 141,518.34 (the amount sought to be
satisfied in the demand letter of respondent BPI) is
clearly not the result of the re-computation at the
reduced interest rate as previous higher interest rates
were already incorporated in the said amount. Thus, the
said amount should not be made as basis in computing
the total obligation of petitioner Macalinao. Further, the
CA also emphasized that respondent BPI should not
compound the interest in the instant case absent a
stipulation to that effect. The CA also held, however,
that the MeTC erred in modifying the amount of interest
rate from 3% monthly to only 2% considering that
petitioner Macalinao freely availed herself of the credit
card facility offered by respondent BPI to the general
public. It explained that contracts of adhesion are not
invalid per se and are not entirely prohibited.
Petitioner Macalinaos motion for
reconsideration was denied by the CA in its Resolution
dated November 21, 2006. Hence, petitioner Macalinao
is now before this Court with the following assigned
errors:
I.
THE REDUCTION OF INTEREST
RATE, FROM 9.25% TO 2%, SHOULD
BE UPHELD SINCE THE
STIPULATED RATE OF INTEREST
WAS UNCONSCIONABLE AND
INIQUITOUS, AND THUS ILLEGAL.
II.
Credit Transactions Cases | Compiled by treeng| 35
 THE COURT OF APPEALS
ARBITRARILY MODIFIED THE
REDUCED RATE OF INTEREST
FROM 2% TO 3%, CONTRARY TO
THE TENOR OF ITS OWN
DECISION.
III.
THE COURT A QUO, INSTEAD OF
PROCEEDING WITH A Governing the Issuance and Use of the BPI Credit
RECOMPUTATION, SHOULD HAVE
DISMISSED THE CASE FOR
FAILURE OF RESPONDENT BPI TO
PROVE THE CORRECT AMOUNT OF
PETITIONERS OBLIGATION, OR IN
THE ALTERNATIVE, REMANDED
THE CASE TO THE LOWER
COURT FOR RESPONDENT BPI TO
PRESENT PROOF OF THE CORRECT
AMOUNT THEREOF.
Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per
Month or 36% Per Annum Should Be Reduced to
2% Per Month or 24% Per Annum
In its Complaint, respondent BPI originally
imposed the interest and penalty charges at the rate of
9.25% per month or 111% per annum. This was declared
as unconscionable by the lower courts for being clearly
excessive, and was thus reduced to 2% per month or
24% per annum. On appeal, the CA modified the rate of
interest and penalty charge and increased them to 3%
per month or 36% per annum based on the Terms and
Conditions Governing the Issuance and Use of the BPI
Credit Card, which governs the transaction between
petitioner Macalinao and respondent BPI.
In the instant petition, Macalinao claims that the
interest rate and penalty charge of 3% per month
imposed by the CA is iniquitous as the same translates
to 36% per annum or thrice the legal rate of
interest.[15] On the other hand, respondent BPI asserts
that said interest rate and penalty charge are reasonable
as the same are based on the Terms and Conditions
Card.[16]
We find for petitioner. We are of the opinion that
the interest rate and penalty charge of 3% per month
should be equitably reduced to 2% per month or 24%
per annum.
Indeed, in the Terms and Conditions Governing
the Issuance and Use of the BPI Credit Card, there was
a stipulation on the 3% interest rate. Nevertheless, it
should be noted that this is not the first time that this
Court has considered the interest rate of 36% per annum
as excessive and unconscionable. We held in Chua vs.
Timan:[17]
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
Credit Transactions Cases | Compiled by treeng| 36
 interest rates for both secured and 3% per month or 36% per annum, in addition to regular
unsecured loans, regardless of maturity,
nothing in the said circular could interests, is indeed iniquitous and unconscionable.
possibly be read as granting carte
blanche authority to lenders to raise
interest rates to levels which would Thus, under the circumstances, the Court finds it
either enslave their borrowers or lead to equitable to reduce the interest rate pegged by the CA at
a hemorrhaging of their assets. 1.5% monthly to 1% monthly and penalty charge fixed
(Emphasis supplied.)
by the CA at 1.5% monthly to 1% monthly or a total of
2% per month or 24% per annum in line with the
Since the stipulation on the interest rate is void, prevailing jurisprudence and in accordance with Art.
it is as if there was no express contract thereon. Hence, 1229 of the Civil Code.
courts may reduce the interest rate as reason and equity
demand.[18]
There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for Further
The same is true with respect to the penalty Reception of Evidence
charge. Notably, under the Terms and Conditions
Governing the Issuance and Use of the BPI Credit Card,
Petitioner Macalinao claims that the basis of the
it was also stated therein that respondent BPI shall
re-computation of the CA, that is, the amount of PhP
impose an additional penalty charge of 3% per month.
94,843.70 stated on the October 27, 2002 Statement of
Pertinently, Article 1229 of the Civil Code states:
Account, was not the amount of the principal obligation.
Thus, this allegedly necessitates a re-examination of the
Art. 1229. The judge shall
evidence presented by the parties. For this reason,
equitably reduce the penalty when the
principal obligation has been partly or petitioner Macalinao further contends that the dismissal
irregularly complied with by the debtor. of the case or its remand to the lower court would be a
Even if there has been no performance,
more appropriate disposition of the case.
the penalty may also be reduced by the
courts if it is iniquitous or
unconscionable.
Such contention is untenable. Based on the
In exercising this power to determine what is
records, the summons and a copy of the complaint were
iniquitous and unconscionable, courts must consider the
served upon petitioner Macalinao and her husband on
circumstances of each case since what may be iniquitous
May 4, 2004. Nevertheless, they failed to file their
and unconscionable in one may be totally just and
Answer despite such service. Thus, respondent BPI
equitable in another.[19]
moved that judgment be rendered
accordingly.[21] Consequently, a decision was rendered
In the instant case, the records would reveal that by the MeTC on the basis of the evidence submitted by
petitioner Macalinao made partial payments to respondent BPI. This is in consonance with Sec. 6 of the
respondent BPI, as indicated in her Billing Revised Rule on Summary Procedure, which states:
Statements.[20] Further, the stipulated penalty charge of

Credit Transactions Cases | Compiled by treeng| 37

 Sec. 6. Effect of failure to
answer. Should the defendant fail to
answer the complaint within the
period above provided,
court, motu proprio, or on motion of
the plaintiff, shall render judgment as
may be warranted by the facts alleged
in the complaint and limited to what is
prayed for therein: Provided, however,
that the court may in its discretion reduce
the amount of damages and attorneys
fees claimed for being excessive or
otherwise unconscionable. This is
without prejudice to the applicability of
Section 3(c), Rule 10 of the Rules of
Court, if there are two or more
defendants. (As amended by the 1997
Rules of Civil Procedure; emphasis
supplied.)
record. Furthermore, barring a showing that the factual
findings
the
complained of are totally devoid of support in
the record or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings
must stand, for this Court is not expected or required to
examine or contrast the evidence submitted by the
parties.[22]
In view of the ruling that only 1% monthly
interest and 1% penalty charge can be applied to the
beginning balance of PhP 94,843.70, this Court finds the
following computation more appropriate:

Considering the foregoing rule, respondent BPI

should not be made to suffer for petitioner Macalinaos
failure to file an answer and concomitantly, to allow the
latter to submit additional evidence by dismissing or
remanding the case for further reception of evidence.
Significantly, petitioner Macalinao herself admitted the
existence of her obligation to respondent BPI, albeit
with reservation as to the principal amount. Thus, a
dismissal of the case would cause great injustice to
respondent BPI. Similarly, a remand of the case for
further reception of evidence would unduly prolong the
proceedings of the instant case and render inutile the
proceedings conducted before the lower courts.

Significantly, the CA correctly used the

beginning balance of PhP 94,843.70 as basis for the re-
computation of the interest considering that this was the
first amount which appeared on the Statement of
Account of petitioner Macalinao. There is no other
amount on which the re-computation could be based, as
can be gathered from the evidence on

Credit Transactions Cases | Compiled by treeng| 38

 Statement Previous Purchases Balance Interest Penalty Total
Date Balance (Payments) (1%) Charge Amount
(1%) Due for
the Month
10/27/2002 94,843.70 94,843.70 948.44 948.44 96,740.58
11/27/2002 94,843.70 (15,000) 79,843.70 798.44 798.44 81,440.58
12/31/2002 79,843.70 30,308.80 110,152.50 1,101.53 1,101.53 112,355.56
1/27/2003 110,152.50 110,152.50 1,101.53 1,101.53 112,355.56
2/27/2003 110,152.50 110,152.50 1,101.53 1,101.53 112,355.56
3/27/2003 110,152.50 (18,000.00) 92,152.50 921.53 921.53 93,995.56
4/27/2003 92,152.50 92,152.50 921.53 921.53 93,995.56
5/27/2003 92,152.50 (10,000.00) 82,152.50 821.53 821.53 83,795.56
6/29/2003 82,152.50 8,362.50 83,515.00 835.15 835.15 85,185.30
(7,000.00)
7/27/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
8/27/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
9/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
10/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
11/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
12/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
1/27/2004 83,515.00 83,515.00 835.15 835.15 85,185.30
TOTAL 83,515.00 14,397.26 14,397.26 112,309.52

WHEREFORE, the petition is PARTLY GRANTED.

The CA Decision dated June 30, 2006 in CA-G.R. SP
No. 92031 is hereby MODIFIED with respect to the
total amount due, interest rate, and penalty charge.
Accordingly, petitioner Macalinao is ordered to pay
respondent BPI the following:

(1) The amount of one hundred twelve thousand three

hundred nine pesos and fifty-two centavos (PhP
112,309.52) plus interest and penalty charges of 2%
per month from January 5, 2004 until fully paid;

(2) PhP 10,000 as and by way of attorneys fees; and

(3) Cost of suit.

Credit Transactions Cases | Compiled by treeng| 39


EASTERN ASSURANCE AND SURETY
CORPORATION (EASCO), petitioner, vs. HON.
COURT OF APPEALS, HON. TEOFISTO L.
CALUMPANG, in his capacity as Presiding Judge of
the Regional Trial Court of Dumaguete City, Branch
40, and VICENTE TAN, respondents. ULANDU
DECISION
MENDOZA, J.:
This is a petition for review of the decision of the
Court of Appeals,[1] the dispositive portion of which
reads:[2]
WHEREFORE, the petition is hereby GIVEN DUE
COURSE and is GRANTED. The legal interest rate to
be paid by petitioner EASCO to the private respondent
is 6% per annum on the amount due corresponding to
the period from June 26, 1981 to August 24, 1993; and
12% per annum beginning August 25, 1993 until the
money judgment shall have been fully paid. No
pronouncement as to costs.
SO ORDERED.
The facts of the case are as follows:
On April 9, 1981, private respondent Vicente Tan
insured his building in Dumaguete City against fire
with petitioner Eastern Assurance and Surety
Corporation (EASCO) for P250,000.00. On June 26,
1981, the building was destroyed by fire. As his claim
for indemnity was refused, private respondent filed a
complaint for breach of contract with damages against
petitioner. The Regional Trial Court, Branch 40,
Dumaguete City, to which the case was assigned
rendered judgment as follows:[3]
WHEREFORE, judgment is rendered in favor of
plaintiff [private respondent Vicente Tan] and ordering
defendant [petitioner EASCO]
1. To pay plaintiff the sum of Two Hundred Fifty
Thousand (P250,000.00) Pesos representing the fire
insurance claim of plaintiff plus legal rate of interest
from June 26, 1981 until fully paid;
2. To pay plaintiff the sum of Twenty Thousand
(P20,000.00) Pesos as attorneys fees;
3. To pay plaintiff all expenses incurred when he went
to Manila with his lawyer regarding his insurance
claim;
4. To pay plaintiff Twenty Thousand Pesos
(P20,000.00) Pesos as moral damages and Twenty
Thousand (P20,000.00) Pesos as exemplary damages.
SO ORDERED.
Petitioner appealed to the Court of Appeals, which, on
July 30, 1993, affirmed the decision of the trial court
with modification by disallowing the award of moral
and exemplary damages, attorneys fees and litigation
expenses. As no further appeal was taken from the
decision of the Court of Appeals, the same became
final and executory on August 25, 1993. Thereupon,
petitioner tendered payment of the money judgment in
the amount of P250,000.00 plus interest of 6% per
annum from June 26, 1981 to July 30, 1993. However,
private respondent refused to accept payment on the
ground that the applicable legal rate of interest was
12% per annum. Subsequently, private respondent
brought the matter to the Insurance Commission. On
Credit Transactions Cases | Compiled by treeng| 40
February 27, 1995, the parties agreed before the
hearing officer of the commission that the interest
should be computed from June 26, 1981 to September
30, 1994. Petitioner would file with the trial court a
motion to fix the legal rate of interest attaching thereto
a check in the amount of P250,000.00 with 6% interest
per annum. Scs daad
Accordingly, on March 17, 1995, petitioner filed the
necessary motion in court, attaching thereto a
managers check for P448,750.00 representing the
principal sum plus 6% interest per annum for the
period June 26, 1981 to September 30, 1994. On May
10, 1995, the trial court issued the assailed resolution
fixing the rate of interest at 12% per annum, the
dispositive portion of which reads:[4]
WHEREFORE, premises considered, this Court hereby
resolve[s] that:
1. The legal rate of interest imposable on the principal
sum of P250,000.00 should be twelve (12%) per
annum from June 26, 1981 to September 30, 1994,
which is the cut-off date agreed upon by the parties;
2. That the managers check issued by the defendant in
the amount of P448,750.00 in favor of the plaintiff is
considered as partial satisfaction of the writ of
execution; and
3. Defendant to pay immediately to plaintiff the unpaid
balance of interest of the principal amount of
P250,000.00 equivalent to 6% per annum from June
26, 1981 to September 30, 1994.
Petitioner filed a motion for reconsideration which
was, however, denied by the trial court. Thus, on
August 30, 1995, petitioner went to the Court of
Appeals on certiorari, and on November 14, 1996, the
appellate court rendered a decision. Noting that the
case was for breach of contract for the payment of
damages for the loss or destruction of property and not
for collection of a loan or forbearance of money, the
Court of Appeals ruled, on the authority of Eastern
Shipping Lines, Inc. v. Court of Appeals,[5] that the
interest rate on the amount due should be 6% per
annum from June 26, 1981 to August 24, 1993, and
12% per annum beginning August 25, 1993 (the date
the decision of the trial court became final and
executory) until the money judgment is paid. Sup rema
Hence, this petition. Petitioner contends that[6] -
I. The Appellate Court glaringly committed an error of
law in its assailed decision when it wrongfully applied
the aforecited paragraph 3 of the suggested rules of
thumb for future guidance [as formulated in Eastern
Shipping Lines, Inc. v. Court of Appeals, 234 SCRA
78 (1994)] and unlawfully ignored or disregarded the
agreed cut-off date for the payment of the legal rate of
interest on the amount due, contrary to the
manifestations/admissions of the parties as well as the
stand of the respondent Judge in resolving the issue of
applicable legal rate of interest thereon.
II. The application of the abovequoted paragraph 3 of
the suggested rules of thumb in the computation of the
applicable legal rate of interest embodied in the
dispositive part of the assailed decision is tantamount
to a "modification of a judgment that is at its execution
stage." It is also an "addition" amounting to a material
alteration of the same judgment which had been
satisfied only at 6% percent interest per annum from
June 26, 1981 up to September 30, 1994 (the agreed
cut-off date). Hence, it cannot be allowed and is null
and void.
Petitioners contentions are without merit.
First. In Eastern Shipping Lines, Inc. v. Court of
Appeals,[7] it was held:
Credit Transactions Cases | Compiled by treeng| 41

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.
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: Juris
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.
Unquestionably, this case falls under the rule stated in
paragraph 3. The question is whether this rule can be
applied to this case. Petitioner contends that paragraph
3 cannot be applied to this case considering that the
decision of July 30, 1993 of the Court of Appeals,
affirming the decision of the trial court, became final
and executory on August 25, 1993, whereas the
decision in Eastern Shipping Lines, Inc. was rendered
only on July 22, 1994. Petitioner argues that the rules
stated in that case were in fact made for "future
guidance" of courts and, thus, to apply paragraph 3 to
the case at bar is to sanction the modification of a
judgment which is already final and executory.
Contrary to petitioners contention, Eastern Shipping
Lines, Inc. did not lay down any new rules; all that was
made was to state a comprehensive summary of
existing rules on the computation of legal interest. In
fact, earlier in the case of Nakpil and Sons v. Court of
Appeals,[8] the Court allowed the imposition of 12%
legal interest per annum on money judgment from the
date of its finality until fully paid. Strictly speaking,
therefore, there was no retroactive application of the
rules in this case. Sc juris
Nor was there modification of judgment in fixing the
legal rate of interest at 12% precisely because the
subject case arose when the trial court failed to specify
in its decision the rate of the legal interest to be
imposed on the money judgment.
Second. Petitioner argues that the parties agreed on the
"cut-off date" for the payment of legal interest, and that
is from June 26, 1981 to September 30, 1984, which
the Court of Appeals should have respected. Private
Credit Transactions Cases | Compiled by treeng| 42
respondent disputes the existence of the alleged
agreement of the parties. He claims that he merely
agreed to refer the issue of the applicable rate of legal
interest to the trial court for resolution.[9]

We are inclined to believe the claim of petitioner. The

resolution of May 10, 1995 of the trial court referred to
such an agreement, and private respondent never
questioned this resolution. The trial courts finding on
this point is binding. Hence, the payment of 12% legal
interest per annum should commence from August 25,
1993, the date the decision of the trial court became
final, up to September 30, 1994, the agreed "cut-off-
date" for the payment of legal interest.

WHEREFORE, the questioned decision is AFFIRMED

with the only MODIFICATION that petitioner is
ordered to pay interest on the amount due at the rate of
12% legal interest per annum from August 25, 1993 to
September 30, 1994.

SO ORDERED.

Credit Transactions Cases | Compiled by treeng| 43

FIRST METRO INVESTMENT CORPORATION,
petitioner, vs. ESTE DEL SOL MOUNTAIN
RESERVE, INC., VALENTIN S. DAEZ, JR.,
MANUEL Q. SALIENTES, MA. ROCIO A. DE
VEGA, ALEXANDER G. ASUNCION, ALBERTO*
M. LADORES, VICENTE M. DE VERA, JR., and
FELIPE B. SESE, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Decision[1] of the Court of Appeals[2] dated
November 8, 1999 in CA-G.R. CV No. 53328
reversing the Decision[3] of the Regional Trial Court
of Pasig City, Branch 159 dated June 2, 1994 in Civil
Case No. 39224. Essentially, the Court of Appeals
found and declared that the fees provided for in the
Underwriting and Consultancy Agreements executed
by and between petitioner First Metro Investment
Corp. (FMIC) and respondent Este del Sol Mountain
Reserve, Inc. (Este del Sol) simultaneously with the
Loan Agreement dated January 31, 1978 were mere
subterfuges to camouflage the usurious interest
charged by petitioner FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner FMIC
granted respondent Este del Sol a loan of Seven
Million Three Hundred Eighty-Five Thousand Five
Hundred Pesos (P7,385,500.00) to finance the
construction and development of the Este del Sol
Mountain Reserve, a sports/resort complex project
located at Barrio Puray, Montalban, Rizal.[4]
Under the terms of the Loan Agreement, the proceeds
of the loan were to be released on staggered basis.
Interest on the loan was pegged at sixteen (16%)
percent per annum based on the diminishing balance.
The loan was payable in thirty-six (36) equal and
consecutive monthly amortizations to commence at the
beginning of the thirteenth month from the date of the
first release in accordance with the Schedule of
Amortization.[5] In case of default, an acceleration
clause was, among others, provided and the amount
due was made subject to a twenty (20%) percent one-
time penalty on the amount due and such amount shall
bear interest at the highest rate permitted by law from
the date of default until full payment thereof plus
liquidated damages at the rate of two (2%) percent per
month compounded quarterly on the unpaid balance
and accrued interests together with all the penalties,
fees, expenses or charges thereon until the unpaid
balance is fully paid, plus attorneys fees equivalent to
twenty-five (25%) percent of the sum sought to be
recovered, which in no case shall be less than Twenty
Thousand Pesos (P20,000.00) if the services of a
lawyer were hired.[6]
In accordance with the terms of the Loan Agreement,
respondent Este del Sol executed several documents[7]
as security for payment, among them, (a) a Real Estate
Mortgage dated January 31, 1978 over two (2) parcels
of land being utilized as the site of its development
project with an area of approximately One Million
Twenty-Eight Thousand and Twenty-Nine (1,028,029)
square meters and particularly described in TCT Nos.
N-24332 and N-24356 of the Register of Deeds of
Rizal, inclusive of all improvements, as well as all the
machineries, equipment, furnishings and furnitures
existing thereon; and (b) individual Continuing
Suretyship agreements by co-respondents Valentin S.
Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega,
Alexander G. Asuncion, Alberto M. Ladores, Vicente
M. De Vera, Jr. and Felipe B. Sese, all dated February
2, 1978, to guarantee the payment of all the obligations
of respondent Este del Sol up to the aggregate sum of
Seven Million Five Hundred Thousand Pesos
(P7,500,000 00) each.[8]
Respondent Este del Sol also executed, as provided for
by the Loan Agreement, an Underwriting Agreement
on January 31, 1978 whereby petitioner FMIC shall
Credit Transactions Cases | Compiled by treeng| 44
underwrite on a best-efforts basis the public offering of petitioners Statement of Account dated June 23,
One Hundred Twenty Thousand (120,000) common 1980,[11] to wit:
shares of respondent Este del Sols capital stock for a
one-time underwriting fee of Two Hundred Thousand
Pesos (P200,000.00). In addition to the underwriting STATEMENT OF ACCOUNT OF
fee, the Underwriting Agreement provided that for
supervising the public offering of the shares,
respondent Este del Sol shall pay petitioner FMIC an ESTE DEL SOL MOUNTAIN RESERVE, INC.
annual supervision fee of Two Hundred Thousand
Pesos (P200,000.00) per annum for a period of four (4)
consecutive years. The Underwriting Agreement also AS OF JUNE 23, 1980
stipulated for the payment by respondent Este del Sol
to petitioner FMIC a consultancy fee of Three Hundred
Thirty-Two Thousand Five Hundred Pesos PARTICULARS AMOUNT
(P332,500.00) per annum for a period of four (4)
consecutive years. Simultaneous with the execution of
and in accordance with the terms of the Underwriting Total amount due as of 11-22-78 per
Agreement, a Consultancy Agreement was also
executed on January 31, 1978 whereby respondent Este
del Sol engaged the services of petitioner FMIC for a
revised amortization schedule dated
fee as consultant to render general consultancy
services.[9]
1-3-78 P7,999,631.42
In three (3) letters all dated February 22, 1978
petitioner billed respondent Este del Sol for the
Interest on P7,999,631.42 @ 16% p.a. from
amounts of [a] Two Hundred Thousand Pesos
(P200,000.00) as the underwriting fee of petitioner
FMIC in connection with the public offering of the
11-22-78 to 2-22-79 (92 days) 327,096.04
common shares of stock of respondent Este del Sol; [b]
One Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00) as consultancy fee for a period of four
(4) years; and [c] Two Hundred Thousand Pesos Balance 8,326,727.46
(P200,000.00) as supervision fee for the year beginning
February, 1978, in accordance to the Underwriting
Agreement.[10] The said amounts of fees were deemed One time penalty of 20% of the entire unpaid
paid by respondent Este del Sol to petitioner FMIC
which deducted the same from the first release of the
loan. obligations under Section 6.02 (ii) of

Since respondent Este del Sol failed to meet the Loan Agreement 1,665,345.49
schedule of repayment in accordance with a revised
Schedule of Amortization, it appeared to have incurred
a total obligation of Twelve Million Six Hundred Past due interest under Section 6.02 (iii)
Seventy-Nine Thousand Six Hundred Thirty Pesos and
Ninety-Eight Centavos (P12,679,630.98) per the
Credit Transactions Cases | Compiled by treeng| 45
of loan Agreement:
@ 19% p.a. from 2-22-79 to 11-30-79
(281 days) 1,481,879.93
@ 21% p.a. from 11-30-79 to 6-23-80
(206 days) 1,200,714.10
Other charges publication of extra judicial
foreclosure of REM made on
5-23-80 & 6-6-80 4,964.00
Total Amount Due and Collectible as of
June 23, 1980 P12,679,630.98
Accordingly, petitioner FMIC caused the extrajudicial
foreclosure of the real estate mortgage on June 23,
1980.[12] At the public auction, petitioner FMIC was
the highest bidder of the mortgaged properties for Nine
Million Pesos (P9,000,000.00). The total amount of
Three Million One Hundred Eighty-Eight Thousand
Six Hundred Thirty Pesos and Seventy-Five Centavos
(P3,188,630.75) was deducted therefrom, that is, for
the publication fee for the publication of the Sheriffs
Notice of Sale, Four Thousand Nine Hundred Sixty-
Four Pesos (P4,964.00); for Sheriffs fees for
conducting the foreclosure proceedings, Fifteen
Thousand Pesos (P15,000.00); and for Attorneys fees,
Three Million One Hundred Sixty-Eight Thousand Six
Hundred Sixty-Six Pesos and Seventy-Five Centavos
(P3,168,666.75). The remaining balance of Five
Million Eight Hundred Eleven Thousand Three
Hundred Sixty-Nine Pesos and Twenty-Five Centavos
(P5,811,369.25) was applied to interests and penalty
charges and partly against the principal, due as of June
23, 1980, thereby leaving a balance of Six Million
Eight Hundred Sixty-Three Thousand Two Hundred
Ninety-Seven Pesos and Seventy-Three Centavos
(P6,863,297.73) on the principal amount of the loan as
of June 23, 1980.[13]
Failing to secure from the individual respondents, as
sureties of the loan of respondent Este del Sol by virtue
of their continuing surety agreements, the payment of
the alleged deficiency balance, despite individual
demands sent to each of them,[14] petitioner instituted
on November 11, 1980 the instant collection
suit[15]against the respondents to collect the alleged
deficiency balance of Six Million Eight Hundred Sixty-
Three Thousand Two Hundred Ninety-Seven Pesos
and Seventy-Three Centavos (P6,863,297.73) plus
interest thereon at twenty-one (21%) percent per
annum from June 24, 1980 until fully paid, and twenty-
five (25%) percent thereof as and for attorneys fees and
costs.
In their Answer, the respondents sought the dismissal
of the case and set up several special and affirmative
defenses, foremost of which is that the Underwriting
and Consultancy Agreements executed simultaneously
with and as integral parts of the Loan Agreement and
which provided for the payment of Underwriting,
Consultancy and Supervision fees were in reality
subterfuges resorted to by petitioner FMIC and
imposed upon respondent Este del Sol to camouflage
the usurious interest being charged by petitioner
FMIC.[16]
The petitioner FMIC presented as its witnesses during
the trial: Cesar Valenzuela, its former Senior Vice-
President, Felipe Neri, its Vice-President for
Marketing, and Dennis Aragon, an Account Manager
of its Account Management Group, as well as
documentary evidence. On the other hand, co-
respondents Vicente M. De Vera, Jr. and Valentin S.
Credit Transactions Cases | Compiled by treeng| 46
Daez, Jr., and Perfecto Doroja, former Senior Manager respondent Este del Sol, based on the following
and Assistant Vice-President of FMIC, testified for the computation:[17]
respondents.

A: DUE TO THE [PETITIONER]

After the trial, the trial court rendered its decision in
favor of petitioner FMIC, the dispositive portion of
which reads: Principal of Loan P7,382,500.00

WHEREFORE, judgment is hereby rendered in favor Add: 20% one-time

of plaintiff and against defendants, ordering defendants
jointly and severally to pay to plaintiff the amount of
P6,863,297.73 plus 21% interest per annum, from June Penalty 1,476,500.00
24, 1980, until the entire amount is fully paid, plus the
amount equivalent to 25% of the total amount due, as
attorneys fees, plus costs of suit. Attorneys fees 900,000.00 P9,759,000.00

Defendants counterclaims are dismissed, for lack of Less: Proceeds of foreclosure

merit.

Sale 9,000,000.00
Finding the decision of the trial court unacceptable,
respondents interposed an appeal to the Court of
Appeals. On November 8, 1999, the appellate court Deficiency P 759,000.00
reversed the challenged decision of the trial court. The
appellate court found and declared that the fees
provided for in the Underwriting and Consultancy B. DUE TO [RESPONDENT ESTE DEL SOL]
Agreements were mere subterfuges to camouflage the
excessively usurious interest charged by the petitioner
FMIC on the loan of respondent Este del Sol; and that
Return of usurious interest in the form of:
the stipulated penalties, liquidated damages and
attorneys fees were excessive, iniquitous,
unconscionable and revolting to the conscience, and
Underwriting fee P 200,000.00
declared that in lieu thereof, the stipulated one time
twenty (20%) percent penalty on the amount due and
ten (10%) percent of the amount due as attorneys fees
Supervision fee 200,000.00
would be reasonable and suffice to compensate
petitioner FMIC for those items. Thus, the appellate
court dismissed the complaint as against the individual
respondents sureties and ordered petitioner FMIC to Consultancy fee 1,330,000.00
pay or reimburse respondent Este del Sol the amount of
Nine Hundred Seventy-One Thousand Pesos
(P971,000.00) representing the difference between Total amount due Este P 1,730,000.00
what is due to the petitioner and what is due to

Credit Transactions Cases | Compiled by treeng| 47

The appellee is, therefore, obliged to return to the
appellant Este del Sol the difference of P971,000.00 or
(P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate
courts adverse decision. However, this was denied in a
Resolution[18]dated February 9, 2000 of the appellate
court.
Hence, the instant petition anchored on the following
assigned errors:[19]
THE APPELLATE COURT HAS DECIDED
QUESTIONS OF SUBSTANCE IN A WAY NOT IN
ACCORD WITH LAW AND WITH APPLICABLE
DECISIONS OF THIS HONORABLE COURT
WHEN IT:
a] HELD THAT ALLEGEDLY THE
UNDERWRITING AND CONSULTANCY
AGREEMENTS SHOULD NOT BE CONSIDERED
SEPARATE AND DISTINCT FROM THE LOAN
AGREEMENT, AND INSTEAD, THEY SHOULD
BE CONSIDERED AS A SINGLE CONTRACT.
b] HELD THAT THE UNDERWRITING AND
CONSULTANCY AGREEMENTS ARE MERE
SUBTERFUGES TO CAMOUFLAGE THE
USURIOUS INTEREST CHARGED BY THE
PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES
OF PETITIONERS WITNESSES ON THE
SERVICES PERFORMED BY PETITIONER.
d] REFUSED TO CONSIDER THE FACT [i] THAT
RESPONDENTS HAD WAIVED THEIR RIGHT TO
SEEK RECOVERY OF THE AMOUNTS THEY
PAID TO PETITIONER, AND [ii] THAT
RESPONDENTS HAD ADMITTED THE VALIDITY
OF THE UNDERWRITING AND CONSULTANCY
AGREEMENTS.
e] MADE AN ERRONEOUS COMPUTATION ON
SUPPOSEDLY WHAT IS DUE TO EACH PARTY
AFTER THE FORECLOSURE SALE, AS SHOWN
IN PP. 34-35 OF THE ASSAILED DECISION, EVEN
GRANTING JUST FOR THE SAKE OF
ARGUMENT THAT THE APPELLATE COURT
WAS CORRECT IN STIGMATIZING [i] THE
PROVISIONS OF THE LOAN AGREEMENT THAT
REFER TO STIPULATED PENALTIES,
LIQUIDATED DAMAGES AND ATTORNEYS
FEES AS SUPPOSEDLY EXCESSIVE,
INIQUITOUS AND UNCONSCIONABLE AND
REVOLTING TO THE CONSCIENCE AND [ii] THE
UNDERWRITING, SUPERVISION AND
CONSULTANCY SERVICES AGREEMENT AS
SUPPOSEDLY MERE SUBTERFUGES TO
CAMOUFLAGE THE USURIOUS INTEREST
CHARGED UPON THE RESPONDENT ESTE BY
PETITIONER.
f] REFUSED TO CONSIDER THE FACT THAT
RESPONDENT ESTE, AND THUS THE
INDIVIDUAL RESPONDENTS, ARE STILL
OBLIGATED TO THE PETITIONER.
Petitioner essentially assails the factual findings and
conclusion of the appellate court that the Underwriting
and Consultancy Agreements were executed to conceal
a usurious loan. Inquiry upon the veracity of the
appellate courts factual findings and conclusion is not
the function of this Court for the Supreme Court is not
a trier of facts. Only when the factual findings of the
trial court and the appellate court are opposed to each
other does this Court exercise its discretion to re-
examine the factual findings of both courts and weigh
which, after considering the record of the case, is more
in accord with law and justice.
Credit Transactions Cases | Compiled by treeng| 48
After a careful and thorough review of the record
including the evidence adduced, we find no reason to
a) The Underwriting and Consultancy Agreements are
depart from the findings of the appellate court.
both dated January 31, 1978 which is the same date of
the Loan Agreement.[26] Furthermore, under the
Underwriting Agreement payment of the supervision
First, there is no merit to petitioner FMICs contention
and consultancy fees was set for a period of four (4)
that Central Bank Circular No. 905 which took effect
years[27] to coincide ultimately with the term of the
on January 1, 1983 and removed the ceiling on interest
Loan Agreement.[28] This fact means that all the said
rates for secured and unsecured loans, regardless of
agreements which were executed simultaneously were
maturity, should be applied retroactively to a contract
set to mature or shall remain effective during the same
executed on January 31, 1978, as in the case at bar, that
period of time.
is, while the Usury Law was in full force and effect. It
is an elementary rule of contracts that the laws, in force
at the time the contract was made and entered into,
b) The Loan Agreement dated January 31, 1978
govern it.[20] More significantly, Central Bank
stipulated for the execution and delivery of an
Circular No. 905 did not repeal nor in any way amend
underwriting agreement[29]and specifically mentioned
the Usury Law but simply suspended the latters
that such underwriting agreement is a condition
effectivity.[21] The illegality of usury is wholly the
precedent[30]for petitioner FMIC to extend the loan to
creature of legislation. A Central Bank Circular cannot
respondent Este del Sol, indicating and as admitted by
repeal a law. Only a law can repeal another law.[22]
petitioner FMICs employees,[31] that such
Thus, retroactive application of a Central Bank
Underwriting Agreement is part and parcel of the Loan
Circular cannot, and should not, be presumed.[23]
Agreement.[32]

Second, when a contract between two (2) parties is

c) Respondent Este del Sol was billed by petitioner on
evidenced by a written instrument, such document is
February 28, 1978 One Million Three Hundred Thirty
ordinarily the best evidence of the terms of the
Thousand Pesos (P1,330,000.00)[33] as consultancy
contract. Courts only need to rely on the face of written
fee despite the clear provision in the Consultancy
contracts to determine the intention of the parties.
Agreement that the said agreement is for Three
However, this rule is not without exception.[24] The
Hundred Thirty-Two Thousand Five Hundred Pesos
form of the contract is not conclusive for the law will
(P332,500.00) per annum for four (4) years and that
not permit a usurious loan to hide itself behind a legal
only the first year consultancy fee shall be due upon
form. Parol evidence is admissible to show that a
signing of the said consultancy agreement.[34]
written document though legal in form was in fact a
device to cover usury. If from a construction of the
whole transaction it becomes apparent that there exists
a corrupt intention to violate the Usury Law, the courts d) The Underwriting, Supervision and Consultancy
should and will permit no scheme, however ingenious, fees in the amounts of Two Hundred Thousand Pesos
to becloud the crime of usury.[25] (P200,000.00), Two Hundred Thousand Pesos
(P200,000.00) and One Million Three Hundred Thirty
Thousand Pesos (P1,330,000.00), respectively, were
billed by petitioner to respondent Este del Sol on
In the instant case, several facts and circumstances
February 22, 1978,[35] that is, on the same occasion of
taken altogether show that the Underwriting and
the first partial release of the loan in the amount of
Consultancy Agreements were simply cloaks or
Two Million Three Hundred Eighty-Two Thousand
devices to cover an illegal scheme employed by
Five Hundred Pesos (P2,382,500.00).[36] It is from
petitioner FMIC to conceal and collect excessively
this first partial release of the loan that the said
usurious interest, and these are:
Credit Transactions Cases | Compiled by treeng| 49
corresponding bills for Underwriting, Supervision and
Consultancy fees were deducted and apparently paid,
thus, reverting back to petitioner FMIC the total
amount of One Million Seven Hundred Thirty
Thousand Pesos (P1,730,000.00) as part of the amount
loaned to respondent Este del Sol.[37]
e) Petitioner FMIC was in fact unable to organize an
underwriting/selling syndicate to sell any share of
stock of respondent Este del Sol and much less to
supervise such a syndicate, thus failing to comply with
its obligation under the Underwriting Agreement.[38]
Besides, there was really no need for an Underwriting
Agreement since respondent Este del Sol had its own
licensed marketing arm to sell its shares and all its
shares have been sold through its marketing arm.[39]
f) Petitioner FMIC failed to comply with its obligation
under the Consultancy Agreement,[40] aside from the
fact that there was no need for a Consultancy
Agreement, since respondent Este del Sols officers
appeared to be more competent to be consultants in the
development of the projected sports/resort
complex.[41]
All the foregoing established facts and circumstances
clearly belie the contention of petitioner FMIC that the
Loan, Underwriting and Consultancy Agreements are
separate and independent transactions. The
Underwriting and Consultancy Agreements which
were executed and delivered contemporaneously with
the Loan Agreement on January 31, 1978 were exacted
by petitioner FMIC as essential conditions for the grant
of the loan. An apparently lawful loan is usurious when
it is intended that additional compensation for the loan
be disguised by an ostensibly unrelated contract
providing for payment by the borrower for the lenders
services which are of little value or which are not in
fact to be rendered, such as in the instant case.[42] In
this connection, Article 1957 of the New Civil Code
clearly provides that:
Art. 1957. Contracts and stipulations, under any cloak
or device whatever, intended to circumvent the laws
against usury shall be void. The borrower may recover
in accordance with the laws on usury.
In usurious loans, the entire obligation does not
become void because of an agreement for usurious
interest; the unpaid principal debt still stands and
remains valid but the stipulation as to the usurious
interest is void, consequently, the debt is to be
considered without stipulation as to the interest.[43]
The reason for this rule was adequately explained in
the case of Angel Jose Warehousing Co., Inc. v. Child
Enterprises[44]where this Court held:
In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which
is the cause of the contract (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation
to pay the stipulated interest; hence, being separable,
the latter only should be deemed void, since it is the
only one that is illegal.
Thus, the nullity of the stipulation on the usurious
interest does not affect the lenders right to receive back
the principal amount of the loan. With respect to the
debtor, the amount paid as interest under a usurious
agreement is recoverable by him, since the payment is
deemed to have been made under restraint, rather than
voluntarily.[45]
This Court agrees with the factual findings and
conclusion of the appellate court, to wit:
We find the stipulated penalties, liquidated damages
and attorneys fees, excessive, iniquitous and
unconscionable and revolting to the conscience as they
hardly allow the borrower any chance of survival in
case of default. And true enough, ESTE folded up
when the appellee extrajudicially foreclosed on its
(ESTEs) development project and literally closed its
offices as both the appellee and ESTE were at the time
Credit Transactions Cases | Compiled by treeng| 50
holding office in the same building. Accordingly, we
hold that 20% penalty on the amount due and 10% of
the proceeds of the foreclosure sale as attorneys fees
would suffice to compensate the appellee, especially so
because there is no clear showing that the appellee
hired the services of counsel to effect the foreclosure; it
engaged counsel only when it was seeking the recovery
of the alleged deficiency.
Lastly, there is no merit to petitioner FMICs contention
that the appellate court erred in awarding an amount
allegedly not asked nor prayed for by respondents.
Whether the exact amount of the relief was not
expressly prayed for is of no moment for the reason
that the relief was plainly warranted by the allegations
of the respondents as well as by the facts as found by
the appellate court. A party is entitled to as much relief
as the facts may warrant.[47]

Attorneys fees as provided in penal clauses are in the

nature of liquidated damages. So long as such
stipulation does not contravene any law, morals, or
public order, it is binding upon the parties.
Nonetheless, courts are empowered to reduce the
amount of attorneys fees if the same is iniquitous or
unconscionable.[46] Articles 1229 and 2227 of the
New Civil Code provide that:
In view of all the foregoing, the Court is convinced that
the appellate court committed no reversible error in its
challenged Decision.
WHEREFORE, the instant petition is hereby DENIED,
and the assailed Decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.

Art. 1229. The judge shall equitably reduce the penalty

when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable.

Art. 2227. Liquidated damages, whether intended as an

indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable.

In the case at bar, the amount of Three Million One

Hundred Eighty-Eight Thousand Six Hundred Thirty
Pesos and Seventy-Five Centavos (P3,188,630.75) for
the stipulated attorneys fees equivalent to twenty-five
(25%) percent of the alleged amount due, as of the date
of the auction sale on June 23, 1980, is manifestly
exorbitant and unconscionable. Accordingly, we agree
with the appellate court that a reduction of the
attorneys fees to ten (10%) percent is appropriate and
reasonable under the facts and circumstances of this
case.

Credit Transactions Cases | Compiled by treeng| 51

INVESTORS FINANCE CORPORATION, petitioner,
vs. AUTOWORLD SALES CORPORATION, and
PIO BARRETTO REALTY DEVELOPMENT
CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
INVESTORS FINANCE CORPORATION seeks a
review of the Decision of the Court of Appeals which
ruled that the financing firm had entered into a
usurious loan transaction with Autoworld Sales
Corporation, thus entitling the latter to reimbursement
of excess interest payments amounting to
P2,586,035.44.[1]
Petitioner Investors Finance Corporation, then known
also as FNCB Finance (now doing business under the
name of Citytrust Finance Corporation), is a financing
company doing business with private respondent
Autoworld Sales Corporation
(AUTOWORLD) since 1975. Anthony Que, president
of AUTOWORLD, also held the same position at its
affiliate corporation, private respondent Pio Barretto
Realty Corporation (BARRETTO).
Sometime in August 1980 Anthony Que, in behalf of
AUTOWORLD, applied for a direct loan with FNCB.
However, since the Usury Law imposed an interest rate
ceiling at that time, FNCB informed Anthony Que that
it was not engaged in direct lending; consequently,
AUTOWORLD's request for loan was denied.
But sometime thereafter, FNCBs Assistant Vice
President, Mr. Leoncio Araullo, informed Anthony
Que that although it could not grant direct loans it
could extend funds to AUTOWORLD by purchasing
any of its outstanding receivables at a discount. After a
series of negotiations the parties agreed to execute an
Installment Paper Purchase ("IPP") transaction to
enable AUTOWORLD to acquire the additional capital
it needed. The mechanics of the proposed IPP
transaction was -
(1) First, Pio Barretto (BARRETTO) would execute a
Contract to Sell a parcel of land in favor of
AUTOWORLD for P12,999,999.60 payable in sixty
(60) equal monthly installments of P216,666.66.
Consequently, BARRETTO would acquire
P12,999,999.60 worth of receivables from
AUTOWORLD;
(2) FNCB would then purchase the receivables worth
P12,999,999.60 from BARRETTO at a discounted
value of P6,980,000.00 subject to the condition that
such amount would be flowed back to AUTOWORLD;
(3) BARRETTO, would in turn, execute a Deed of
Assignment (in favor of FNCB) obliging
AUTOWORLD to pay the installments of the
P12,999,999.60 purchase price directly to FNCB;[2]
and
(4) Lastly, to secure the payment of the receivables
under the Deed of Assignment, BARRETTO would
mortgage the property subject of the sale to FNCB.
On 17 November 1980 FNCB informed
AUTOWORLD that its Executive Committee
approved the proposed IPP transaction.[3] The lawyers
of FNCB then drafted the contracts needed and
furnished Anthony Que with copies thereof.[4]
On 9 February 1981 the parties signed three (3)
contracts to implement the IPP transaction:
Credit Transactions Cases | Compiled by treeng| 52
(1) Contract to Sell whereby BARRETTO sold a parcel
of land to AUTOWORLD, situated in San Miguel,
Manila, together with the improvements thereon,
covered by TCT No. 129763 for the price of
P12,999,999.60 payable in sixty (60) consecutive and
equal monthly installments of P216,666.66.
(2) Deed of Assignment whereby BARRETTO
assigned and sold in favor of FNCB all its rights, title
and interest to all the money and other receivables due
from AUTOWORLD under the Contract to Sell,
subject to the condition that the assignee (FNCB) has
the right of recourse against the assignor
(BARRETTO) in the event that the payor
(AUTOWORLD) defaulted in the payment of its
obligations.
(3) Real Estate Mortgage whereby BARRETTO, as
assignor, mortgaged the property subject of the
Contract to Sell to FNCB as security for payment of its
obligation under the Deed of Assignment.[5]
After the three (3) contracts were concluded
AUTOWORLD started paying the monthly
installments to FNCB.
On 18 June 1982 AUTOWORLD transacted with
FNCB for the second time obtaining a loan of
P3,000,000.00 with an effective interest rate of 28%
per annum.[6] AUTOWORLD and BARRETTO, as
co-makers, then signed a promissory note in favor of
FNCB worth P5,604,480.00 payable in sixty (60)
consecutive monthly installments of P93,408.00.[7] To
secure the promissory note, AUTOWORLD mortgaged
a parcel of land located in Sampaloc, Manila, to
FNCB.[8] Thereafter, AUTOWORLD began paying
the installments.
In December 1982, after paying nineteen (19) monthly
installments of P216,666.66 on the first transaction
(IPP worth P6,980,000.00) and three (3) monthly
installments of P93,408.00 on the second transaction
(loan worth P3,000,000.00), AUTOWORLD advised
FNCB that it intended to preterminate the two (2)
transactions by paying their outstanding balances in
full. It then requested FNCB to provide a computation
of the remaining balances. FNCB sent AUTOWORLD
its computation requiring it to pay a total amount of
P10,026,736.78, where P6,784,551.24 was the amount
to settle the first transaction while P3,242,165.54 was
the amount to settle the second transaction.[9]
On 20 December 1982 AUTOWORLD wrote FNCB
that it disagreed with the latters computation of its
outstanding balances.[10] On 27 December 1982
FNCB replied that it would only be willing to reconcile
its accounting records with AUTOWORLD upon
payment of the amounts demanded.[11] Thus, despite
its objections, AUTOWORLD reluctantly paid FNCB
P10,026,736.78 through its UCPB account.[12]
On 5 January 1983 AUTOWORLD asked FNCB for a
refund of its overpayments in the total amount of
P3,082,021.84.[13] According to AUTOWORLD, it
overpaid P2,586,035.44 to settle the first transaction
and P418,262.00 to settle the second transaction.[14]
The parties attempted to reconcile their accounting
figures but the subsequent negotiations broke down
prompting AUTOWORLD to file an action before the
Regional Trial Court of Makati to annul the Contract to
Sell, the Deed of Assignment and the Real Estate
Mortgage all dated 9 February 1981. It likewise prayed
for the nullification of the Promissory Note dated 18
June 1982 and the Real Estate Mortgage dated 24 June
1982.
In its complaint, AUTOWORLD alleged that the
aforementioned contracts were only perfected to
facilitate a usurious loan and therefore should be
annulled. FNCB should refund the amounts of
P2,586,035.44 as excess payment for the first
transaction and P418,262.00 as excess payment for the
second transaction. AUTOWORLD also asked for
Credit Transactions Cases | Compiled by treeng| 53
P500,000.00 as exemplary damages and P100,000.00
as attorneys fees.
FNCB argued that the contracts dated 9 February 1981
were not executed to hide a usurious loan. Instead, the
parties entered into a legitimate Installment Paper
Purchase ("IPP") transaction, or purchase of
receivables at a discount, which FNCB could legally
engage in as a financing company. With regard to the
second transaction, the existence of a usurious interest
rate had no bearing on the P3,000,000.00 loan since at
the time it was perfected on 18 January 1982 Central
Bank Circular No. 871 dated 21 July 1981 had
effectively lifted the ceiling rates for loans having a
period of more than three hundred sixty-five (365)
days. FNCB also prayed for P2,000,000.00 as moral
damages and P500,000.00 as attorneys fees.
On 18 January 1985 FNCB filed a Third-Party
Complaint against BARRETTO based on the Deed of
Assignment, which expressly provided that FNCB as
assignee had a right of recourse against BARRETTO
as assignor in case AUTOWORLD defaulted in its
payments.[15]
BARRETTO countered that it could not be held liable
for AUTOWORLD's alleged default in its payments
since the Deed of Assignment, together with the
Contract to Sell and the Real Estate Mortgage, was
simulated and perfected only to facilitate a usurious
loan. It prayed for P1,600,000.00 as damages and
P100,000.00 as attorneys fees.[16]
On 11 July 1988 the Regional Trial Court of Makati
ruled in favor of FNCB declaring that the parties
voluntarily and knowingly executed a legitimate "IPP"
transaction or the discounting of receivables.
AUTOWORLD was not entitled to any reimbursement
since it was unable to prove the existence of a usurious
loan. On the other hand, it was ordered to pay FNCB
P50,000.00 for attorney's fees.[17]
The Court of Appeals modified the decision of the trial
court and concluded that the IPP transaction,
comprising of the three (3) contracts perfected on 9
February 1981, was merely a scheme employed by the
parties to disguise a usurious loan. It ordered the
annulment of the contracts and required FNCB to
reimburse AUTOWORLD P2,586,035.44 as excess
interest payments over the 12% ceiling rate. However,
with regard to the second transaction, the appellate
court ruled that at the time it was executed the ceiling
rates imposed by the Usury Law had already been
lifted thus allowing the parties to stipulate any rate of
interest.[18] The appellate court deleted the award of
P50,000.00 as attorney's fees in favor of FNCB
explaining that the filing of the complaint against
FNCB was exercised in good faith. Hence, this petition
of FNCB.
We stress at the outset that this petition concerns itself
only with the first transaction involving the alleged
"IPP" worth P6,980,000.00, which was implemented
through the three (3) contracts of 9 February 1981. As
to the second transaction, which involves the
P3,000,000.00 loan, we agree with the appellate court
that it was executed when the ceiling rates of interest
had already been removed, hence the parties were free
to fix any interest rate.
The pivotal issue therefore is whether the three (3)
contracts all dated 9 February 1981 were executed to
implement a legitimate Installment Paper Purchase
(IPP) transaction or merely to conceal a usurious loan.
Generally, the courts only need to rely on the face of
written contracts to determine the intention of the
parties. However, the law will not permit a usurious
loan to hide itself behind a legal form. Parol evidence
is admissible to show that a written document though
legal in form was in fact a device to cover usury. If
from a construction of the whole transaction it
becomes apparent that there exists a corrupt intention
to violate the Usury Law, the courts should and will
permit no scheme, however ingenious, to becloud the
crime of usury.[19] The following circumstances show
that such scheme was indeed employed:
Credit Transactions Cases | Compiled by treeng| 54
 This serves to inform you of the various application of
the proceeds (P6,980,000.00) of your real estate
First, petitioner claims that it was never a party to the
transaction per your authorization/letter dated 2.10.81:
Contract to Sell between AUTOWORLD and
BARRETTO.[20] As far as it was concerned, it merely
purchased receivables at a discount from BARRETTO
1. P1,937,884.20 - Paid to Paramount Finance Corp. on
as evidenced by the Deed of Assignment dated 9
Feb 16, 1981, inclusive of P2.00 SC for Managers
February 1981. Whether the Contract to Sell was
Check.
fictitious or not would have no effect on its right to
claim the receivables of BARRETTO from
AUTOWORLD since the two contracts were entirely
separate and distinct from each other. 2. P111,818.87 - Paid to Agcaoili and Associates of
Feb. 16, 1981 inclusive of P2.00 SC for Managers
Check for the preparation of documents, legal review ,
registration and transfer of ownership.
Curiously however, petitioner admitted that its lawyers
were the ones who drafted all the three (3) contracts
involved[21]which were executed on the same day.[22]
Also, petitioner was the one who procured the services 3. P3,179,700.00 - Paid to FNCB Finance on Feb. 20,
of the Asian Appraisal Company to determine the fair 1981 for full payment of DB transaction (Account No.
06156)
market value of the land to be sold way back in
September of 1980 or six (6) months prior to the
sale.[23] If it were true that petitioner was never privy
to the Contract to Sell, then why was it interested in 4 P3,108.40 - Payment for the appraisal fee conducted
appraising the lot six (6) months prior to the sale? And by the Asian Appraisal Company. Inc.
why did petitioners own lawyers prepare the Contract
to Sell? Obviously, petitioner actively participated in
the sale to ensure that the appraised lot would serve as 5. P100.00 - Payment for the title search fee conducted
adequate collateral for the usurious loan it gave to by Agcaoili and Associates.
AUTOWORLD.

6. P2,500.00 - Payment for legal and professional fee

Second, petitioner insists that the 9 February 1981 (Agcaoili and Associates)
transaction was a legitimate IPP transaction where it
only bought the receivables of BARRETTO from
AUTOWORLD amounting to P12,999,999.60 at a 7. P638,601.60 - Payment to FNCB Finance for the
discounted price of P6,980,000.00. However, per partial payment of DB transaction (Account No. 40150
instruction of petitioner in its letter to BARRETTO - sold units)
dated 17 November 1980 the whole purchase price of
the receivables was to be "flowed back" to
AUTOWORLD.[24] And in its subsequent letter of 24 8. P122,640.00 - Payment to FNCB Finance for the
February 1981 petitioner also gave instructions on how partial payment of DB transaction (Account No.
BARRETTO should apply the proceeds worth 406149 - sold units)
P6,980,000.00, thus -

9. P983,646.93 - Balance after application, Payable to

Gentlemen: Pio Barreto Dev. Inc.

Credit Transactions Cases | Compiled by treeng| 55

P6,980,000.00 - Total
Should you need any clarification on the matter, please
do not hesitate to call on the undersigned.
Very truly yours,
L.V. Araullo, Asst Vice-President[25]
It can be seen that out of the nine (9) items of
appropriation stated above, Item Nos. 2 - 8 had to be
returned to petitioner. Thus, in compliance with the
aforesaid letter, BARRETTO had to yield
P4,058,468.47 of the P6,980,000.00 to petitioner to
settle some of AUTOWORLD's previous debts to
it.[26] Any remaining amount after the application of
the proceeds would then be surrendered to
AUTOWORLD in compliance with the letter of 17
November 1980; none went to BARRETTO.
The foregoing circumstances confirm that the
P6,980,000.00 was really an indirect loan extended to
AUTOWORLD so that it could settle its previous debts
to petitioner. Had petitioner entered into a legitimate
purchase of receivables, then BARRETTO, as seller,
would have received the whole purchase price, and free
to dispose of such proceeds in any manner it wanted. It
would not have been obliged to follow the
"Application of Proceeds" stated in petitioners letter.
Third, in its 17 November 1980 letter to BARRETTO,
petitioner itself designated the proceeds of the "IPP"
transaction as a loan.[27] In that letter, petitioner stated
that the loan proceeds amounting to P6,980,000.00
would be released to BARRETTO only upon
submission of the documents it required. And as
previously mentioned, one of the required documents
was a letter agreement between BARRETTO and
AUTOWORLD stipulating that the P6,980,000.00
should be flowed back to AUTOWORLD. If it were a
genuine IPP transaction then petitioner would not have
designated the money to be released as loan proceeds
and BARRETTO would have been the end recipient of
such proceeds with no obligation to turn them over to
AUTOWORLD.
Fourth, after the interest rate ceilings were lifted on 21
July 1981 petitioner extended on 18 June 1982 a direct
loan of P3,000,000.00 to AUTOWORLD. This time
however, with no more ceiling rates to hinder it,
petitioner imposed a 28% effective interest rate on the
loan.[28] And no longer having a need to cloak the
exorbitant interest rate, the promissory note evidencing
the second transaction glaringly bore the 28% interest
rate on its face.[29] We are therefore of the impression
that had there been no interest rate ceilings in 1981,
petitioner would not have resorted to the fictitious IPP
transaction; instead, it would have directly loaned the
money to AUTOWORLD with an interest rate higher
than 12%. Gregorio Anonas, Senior Vice President of
petitioner, effectively admitted that it only employed
discounting of receivables due to the ceiling rates
imposed by the Usury Law. Thus he testified -
Q: And is it not a fact further that FNCB Finance at the
time could not or would not want to extend direct loan
because of a ceiling fixed by the Usury Law on
interest?
A: We havent at that time giving direct loan, it is a
discounting business.
Q: You mean never have you extended direct loan?
A: We did at a certain period of time and then we
stopped, we go to discounting business because we
transferred to direct loan.
Credit Transactions Cases | Compiled by treeng| 56
Q: After the ceiling was removed, ceiling on interest
was removed, you again, FNCB, extended direct loan,
correct?
A: Yes, sir.
Q: Shall we say that the reason why you did not extend
direct loan was because you did not want to be
confined on the ceiling on interest under Usury Law?
A: Probably yes, because as you know the cost, in the
operating cost of finance company is extremely
different from a bank and we cannot survive, and this
normally has been the case.
Q: And so, therefore, the only way you could generate
more income for your company would be to encourage
discounting of receivables?
A: That was our business. It is not to generate more
income, that is our business. x x x x [30]
Thus, although the three (3) contracts seemingly show
at face value that petitioner only entered into a
legitimate discounting of receivables, the
circumstances cited prove that the P6,980,000.00 was
really a usurious loan extended to AUTOWORLD.
Petitioner anchors its defense on Sec. 7 of the Usury
Law which states -
Provided, finally, That nothing herein contained shall
be construed to prevent the purchase by an innocent
purchaser of a negotiable mercantile paper, usurious or
otherwise, for valuable consideration before maturity,
when there has been no intention on the part of said
purchaser to evade the provisions of the Act and said
purchase was not a part of the original usurious
transaction. In any case however, the maker of said
note shall have the right to recover from said original
holder the whole interest paid by him thereon and, in
any case of litigation, also the costs and such attorneys
fees as may be allowed by the court.
Indeed, the Usury Law recognizes the legitimate
purchase of negotiable mercantile paper by innocent
purchasers. But even the law has anticipated the
potential abuse of such transactions to conceal usurious
loans. Thus, the law itself made a qualification. It
would recognize legitimate purchase of negotiable
mercantile paper, whether usurious or otherwise, only
if the purchaser had no intention of evading the
provisions of the Usury Law and that the purchase was
not a part of the original usurious transaction.
Otherwise, the law would not hesitate to annul such
contracts. Thus, Art. 1957 of the Civil Code provides -
Contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws on usury
shall be void. The borrower may recover in accordance
with the laws on usury.
In the case at bar, the attending factors surrounding the
execution of the three (3) contracts on 9 February 1981
clearly establish that the parties intended to transact a
usurious loan. These contracts should therefore be
declared void. Having declared the transaction between
the parties as void, we are now tasked to determine
how much reimbursement AUTOWORLD is entitled
to. The Court of Appeals, adopting the computation of
AUTOWORLD in its plaintiff-appellants brief, ruled -
According to plaintiff-appellant, defendant-appellee
was able to collect P3,921,217.78[31] in interests from
appellant. This is not denied by the appellee.
Computed at 12% the effective interest should have
been P1,545,400.00.[32] Hence, appellant may recover
P2,586,035.44,[33] representing overpayment arising
from usurious interest rate charged by appellee.[34]
Credit Transactions Cases | Compiled by treeng| 57
While we do not dispute the appellate courts finding
that the first transaction was a usurious loan, we do not
agree with the amount of reimbursement awarded to
AUTOWORLD. Indeed, it erred in awarding only the
interest paid in excess of the 12% ceiling. In usurious
loans, the creditor can always recover the principal
debt.[35] However, the stipulation on the interest is
considered void thus allowing the debtor to claim the
whole interest paid. In a loan of P1,000.00 with interest
at 20% per annum or P200.00 per year, if the borrower
pays P200.00, the whole P200.00 would be considered
usurious interest, not just the portion thereof in excess
of the interest allowed by law. [36]
In the instant case, AUTOWORLD obtained a loan of
P6,980,000.00. Thereafter, it paid nineteen (19)
consecutive installments of P216,666.66 amounting to
a total of P4,116,666.54, and further paid a balance of
P6,784,551.24 to settle it. All in all, it paid the
aggregate amount of P10,901,217.78 for a debt of
P6,980,000.00. For the 23-month period of the
existence of the loan covering the period February
1981 to January 1982, AUTOWORLD paid a total of
P3,921,217.78 in interests.[37] Applying the 12%
interest ceiling rate mandated by the Usury Law,
AUTOWORLD should have only paid a total of
P1,605,400.00 in interests.[38] Hence, AUTOWORLD
is entitled to recover the whole usurious interest
amounting to P3, 921,217.78.
We are not unaware of Sanchez v. Buenviaje[39]
where the Court allowed the usurer to recover legal
interest on the principal amount loaned. But such
interest arose from the debtors delay in paying the
principal from the time of the creditors demand. That is
the reason why legal interest was counted only from
the time the creditor filed his complaint for the
recovery of a debt. In this case however, the debtor
was never in delay. As a matter of fact,
AUTOWORLD paid the principal of P6,980,000.00
and the whole usurious interest of P3,921,217.88 upon
petitioners insistent demand. Thus, the case of Sanchez
v. Buenviaje herein cited will not apply to petitioner
and it will not be entitled to legal interest on the
amount of the principal loan.
Under Sec. 6 of the Usury Law, AUTOWORLD is also
entitled to reasonable attorneys fees and costs -
SEC. 6. Any person or corporation who, for any such
loan or renewal thereof or forbearance, shall have paid
or delivered a higher rate or greater sum or value than
is hereinbefore allowed, to be taken or received, may
recover the whole interest, commission, premiums,
penalties and surcharges paid or delivered with costs
and attorneys fees in such sum as may be allowed by
the court in an action against a person or corporation
who took or received them if such action is brought
within two years after such payment or delivery
(emphasis ours).
Although the Court has discretion to fix the amount of
attorney's fees, it has no discretion to deny it
altogether. Thus, in Delgado v. Valgona,[40] we held -
When the right of action to recover interest paid upon a
usurious contract is established, a reasonable attorneys
fee should be allowed as a matter of course, the same
as costs are awarded. The purpose of the law is to
encourage persons who have suffered from contracts of
this character to come into court and vindicate their
rights, and the imposition upon the usurer of the
obligation to pay attorneys fee will serve at once as an
encouragement to the oppressed and as a wholesome
deterrent to the taking of usurious interests.
Quite obviously, Anthony Que, the President of
AUTOWORLD, actively and knowingly participated
in the execution of the usurious loan transaction. As a
seasoned businessman he must have been aware of the
consequences of his business dealings. But, although
we find his actions extremely reprehensible, we must
abide by the principle laid down in Go Chioco v.
Martinez[41] where we held that the pari delicto rule
does not apply to usury cases which entitle the
borrower to recover the whole interest paid; otherwise,
the avowed policy of discouraging usurious
Credit Transactions Cases | Compiled by treeng| 58
transactions would not be served, for the mere
invocation of the pari delicto rule would allow the
usurer to reap the benefits of his unlawful act.

WHEREFORE, the assailed Decision of the Court of

Appeals dated 24 May 1996 declaring the 9 February
1981 transaction as a usurious loan is AFFIRMED,
subject to the MODIFICATION that petitioner
Investors Finance Corporation is ordered to pay private
respondent Autoworld Sales Corporation the amount of
P3,921,217.78 representing the entire usurious interest
it paid on the 9 February 1981 loan, as well as
P50,000.00 as attorney's fees and the costs.

Credit Transactions Cases | Compiled by treeng| 59

PATERNO R. PLANTILLA, complainant, vs.
RODRIGO G. BALIWAG, Sheriff IV, Regional Trial
Court of San Pablo City (Branch 30), respondent.
DECISION
PANGANIBAN, J.:
Before placing a writ of execution in the hands of a
sheriff, the judge issuing the writ not the sheriff
enforcing it must compute to the last centavo the exact
amounts due thereunder, including interests, costs,
damages, rents or profits. For determining the rate of
interest himself, respondent sheriff must be sanctioned.
The Case
Before us is an Administrative Complaint filed by
retired Col. Paterno R. Plantilla, charging Rodrigo G.
Baliwag (Sheriff IV, Regional Trial Court of San Pablo
City, Branch 30), with serious irregularities in the
implementation of the Writ of Execution dated January
16, 1998.[1]
Pertinent portions of the subject Writ addressed to
respondent sheriff are reproduced hereunder:
NOW, THEREFORE, you are hereby commanded to
enforce and execute the dispositive portion of the
Decision, particularly paragraphs 1, 2, 3 and x x x
paragraph 4, ordering all the defendants to pay, jointly
and severally, the sum of P8,000.00 as attorneys fees
and to pay the costs of suit. You are further directed to
make a return of your proceedings thereon within (30)
days thereafter until the judgment is fully satisfied.
WITNESS the Honorable MARIVIC T. BALISI-
UMALI, Judge of this Court, this 16th day of January,
1998 at the City of San Pablo.
Sgd.
MARISSA L. GOZO
Acting Branch Clerk of Court
The dispositive portion of the Decision subject of the
Writ reads as follows:
WHEREFORE, premises considered, in the interest of
justice, this Court hereby renders judgment in favor of
Milagros Suiza, one of the plaintiffs herein, married to
Teodoro Cautivo, the other plaintiff herein, and against
Mariano L. Orga and Eva R. Plantilla, Valeriano R.
Plantilla, Jr. and Vicente Castillo, the defendants
herein, by, to wit:
1. declaring the existence of a tenancy relationship,
under the share tenancy system, over the parcel of land,
consisting of 10.2198 hectares, which is the
landholding in question in this case, as hereinabove
described, between Mariano L. Orga and Eva R.
Plantilla, husband and wife to each other, as
landholders, and Milagros Suiza, married to Teodoro
Cautivo, as share-tenant thereof, with aid of labor
available from the members of her immediate farm
household;
2. ordering Mariano L. Orga and Eva R. Plantilla,
husband and wife to each other, as landholders of the
aforementioned landholding in question in this case,
being the present and actual owners thereof, to
reinstate and/or maintain Milagros Suiza, married to
Cautivo, as share-tenant thereof, with aid of labor
available from members of her immediate farm
Credit Transactions Cases | Compiled by treeng| 60
household, in peaceful possession and cultivation
thereof;
3. ordering the five (5) defendants herein, Oscar
Chipongian, Mariano L. Orga and Eva R. Plantilla,
husband and wife to each other, Valeriano R. Plantilla,
Jr. and Vicente Castillo, to pay, jointly and severally,
Milagros Suiza, married to Teodoro Cautivo, the latters
unrealized shares from the harvests of coconut fruits in
the landholding in question in this case from the month
of August 1979 until she shall have been reinstated [in]
the amount of One Thousand Pesos (P1,000.00),
Philippine Currency per harvest, with legal interest
thereon until fully paid;
4. ordering the five (5) defendants herein, Oscar
Chipongian, Mariano L. Orga and Eva R. Plantilla,
husband and wife to each other, Valeriano R. Plantilla,
Jr. and Vicente Castillo, to pay, jointly and severally,
to plaintiffs attorneys fees in the amount of [e]ight
[t]housand [p]esos (P8,000), Philippine [c]urrency; and
to pay the costs of suit.
In his Letter-Complaint dated May 11, 1999, Colonel
Plantilla averred that he was the administrator of
Spouses Mariano L. Orga and Eva R. Plantilla, the
judgment debtors. Complainant further stated:
On September 7, 1998 and after placing the plaintiff
Milagros Suiza in possession of the subject
landholding, Sheriff Rodrigo G. Baliwag served the
Writ of Execution upon me. He did not serve the Writ
on the defendants Mariano L. Orga and Eva R.
Plantilla, although he knows their present address.
Sheriff Baliwag also gave me a letter dated September
22, 1998, copy of which is attached as Annex B, to
which is attached a statement of the account
purportedly payable by defendants Mariano L. Orga
and Eva R. Plantilla in the total amount of
P481,340.00, allegedly representing the share of
plaintiff Milagros Suiza in the coconut harvest from
August 1979 until January 1998 at P1,000.00 with
eight (8) harvests per year, with interest at the rate of
12% per annum or a total of 222%, plus attorneys fees
in the amount of P8,000.00.
Sheriff Baliwag also formally demanded [from] me the
payment of the amount of P481,340.00 per letter dated
January 25, 1999, copy of which is attached as Annex
C. Per Notice of Levy On Execution, also dated
January 25, 1999, copy of which is attached as Annex
D, Sheriff Baliwag levied upon the rights, interests and
participation of defendants Mariano L. Orga and Eva
R. Plantilla in the subject landholding registered in
their names under Transfer Certificate No. T-87223
issued by the Office of the Register of Deeds of
Laguna. The levy was annotated on T.C.T. No. T-
87223 on January 26, 1999.
Sheriff Baliwag certified to having served the
questioned Writ of Execution upon me, not upon
defendants Mariano L. Orga and Eva R. Plantilla,
having made demands upon me for payment, and
causing the levy on T.C.T. No. T. 87223, per Partial
Sheriffs Return (Levy on Execution) dated February
10, 1999, copy of which is attached as Annex E.
Sheriff Baliwag set the public auction of the sale of the
land covered by T.C.T. No. T. 87223 on May 12, 1999
at 10:00 oclock in the morning at the main entrance of
Don Tomas Dizon Hall of Justice, San Pablo City, per
Notice of Auction of Sale dated March 2, 1999, copy
of which is attached as Annex F.
Both the dispositive portion of the Decision and the
writ of execution do not state that there are eight (8)
harvests per year. However, Sheriff Baliwag took it
upon himself to specify the number of harvests to be
eight (8) per year.
Sheriff Baliwag also imposed on the amount of
P1,000.00 at eight (8) harvests per year or a total of
P8,000.00 interest at the rate of 12% per annum from
Credit Transactions Cases | Compiled by treeng| 61
the month of August beginning 1979 and every year
thereafter. But the dispositive portion of the decision
merely directs the payment of P1,000.00 per harvest
with legal interest thereon until fully paid, without
specifying whether it should be 6% or 12% per annum,
and the date from which the said interest should be
computed. Since the amount of P1,000.00 per harvest
adjudged in favor of plaintiff Milagros Suiza is in the
form of damages, the rate of interest should be 6% per
annum, not 12% as assessed by Sheriff Baliwag.
Since the harvest of the coconut is made about every 2
months, the legal interest on the amount of P1,000.00
should be computed from the time of each harvest, not
from the month of August. However, Sheriff Baliwag
imposed legal interest at the rate of 12% per annum on
the full amount of P8,000.00 from August of each
yearly period to cover the subsequent harvests
extending until the month of July of the next year. In
effect, the share of P1,000.00 already earns interest
even it is made [sic].
Sheriff Baliwag also failed to give defendants Mariano
L. Orga and Eva R. Plantilla or myself as their
Administrator the option to choose the property or part
thereof which may be levied upon sufficient to satisfy
the judgment. Immediately upon making a demand for
payment of the amount of P481,340.00, Sheriff
Baliwag levied upon the subject landholding covered
under T.C.T. No. T-87223, with an area of more than
ten (10) hectares. The land is worth millions of pesos
much more than the amount of P481,340.00.
Sheriff Baliwag did not give the defendants Mariano L.
Orga and Eva R. Plantilla the notice of auction sale,
opting to give the notice to me only.
Although Sheriff Baliwag formally demanded from me
the payment of the total amount of P481,340.00, he
failed to state in the Notice of Levy On Execution,
Annex D, and the Notice of Auction Sale, Annex F, the
amount for which the subject landholding has been
levied, and for which the same shall be sold at public
auction. I do not know if the Notice of Auction Sale
has been published in a newspaper of general
publication in Laguna.
In his Comment, respondent denied the charges against
him. His averments were summarized by the Office of
the Court Administrator (OCA) as follows:
a) a copy of the Writ of Execution was sent to the
defendants-spouses in their residence in the U.S.A.
However, it was returned to him due to insufficient
address. The address of the defendants was admitted in
their answer to the complaint;
b) notice to the complainant even without notice to the
defendants-spouses is sufficient by reason of the
General Power of Attorney granted by the latter to the
former;
c) he did not take it upon himself to specify the number
of harvests as eight (8) per year. The issue of the
number of harvest[s] per year was raised during the
hearing in the RTC which pronounced that there were
eight (8) harvests per year. Defendants even brought
this issue before the Honorable Court of Appeals
which sustained the RTCs findings. The decision of the
Court of Appeals was affirmed by the First Division of
the Honorable Supreme Court (Annex 2 and 3);
d) as regards the imposition of 12% interest, he
believes that there being no more usury law, the
amount of 12% interest per annum is legal and that the
computation thereof should start from August 1979
considering that the plaintiffs were ejected from the
subject land immediately after its sale in July 1979;
e) as to his alleged failure to give the defendants or the
complainant as the administrator the option to choose
which portion of the subject land will be levied upon to
satisfy the judgment and [as to] the value of the levied
Credit Transactions Cases | Compiled by treeng| 62
property [being] much more than the monetary
judgment, he explains that a demand letter has been
sent to Col. Plantilla as Administrator. However,
complainant failed to communicate with him relative to
this matter. Moreover, the assessed value of the subject
landholding is not sufficient to satisfy the judgment of
P481,340.00;
f) the notice of auction sale has been published in
Laguna Newsweek, a newspaper of general publication
in the Province of Laguna starting from June 10, 1999
(Annex 5 and 6); and
g) he was merely performing his duty when he
implemented the subject Writ of Execution and the
enforcement thereof was done in good faith.[2]
OCA Report and Recommendation
Finding respondent liable for fixing the interest rate at
12 percent per annum starting from August 1979, the
OCA recommended that he be fined P5,000. It found
the other charges devoid of merit. Pertinent portions of
the OCA Report are reproduced below:
As to the charge that respondent, on his own, specified
the number of harvests to be eight (8) per year, the
same is untenable.
It has been clearly established during the proceedings
of the case in the trial court that the number of harvests
were eight per year. Dissatisfied, the defendants
appealed to the Court of Appeals. In a decision
promulgated on December 22, 1994 in CA G.R. SP.
No. 30205-CAR, the Court of Appeals affirmed the
lower courts decision minus the award of moral and
exemplary damages.
Undaunted, the defendants went to the Honorable
Supreme Court on a petition for review on certiorari
which the High Court denied in a resolution
promulgated on September 4, 1995. This resolution
became final and executory on December 29, 1995, per
Entry of Judgment on that date.
In a desperate attempt to escape the mandate of the
final executory judgment, defendants filed with the
Court of Appeals a petition for certiorari arguing that
the dispositive portion of the decision, more
specifically that which awards P1,000.00 per harvest
and the number of harvests defendants have made per
year is vague and ambiguous. On February 25, 1997,
the Court of Appeals denied the petition.
With regard to the complaint that respondent failed to
give the defendant[s]-spouses or herein complainant, as
administrator, the option to choose the property or part
thereof that should be levied and that it was sold far
below the zonal value, we find respondents act to be in
accordance with the Rules of Court on the matter of
execution of judgment. Respondent demanded from the
complainant, as the administrator of the properties of
the defendants, the total obligation which the latter
ha[d] to pay to the plaintiffs. Since the complainant
failed to produce the money, respondent sheriff was
justified in levying the subject property for sale at
public auction. As to the inadequacy of the purchase
price, there is no evidence adduce[d] by the
complainant to support such allegation.
Under Section 9 (b) of Rule 39 of the 1997 Rules of
Civil Procedure, a sheriff is under obligation to enforce
the execution of a money judgment by levying on all
the property, real and personal of every name and
nature whatsoever, and which may be disposed of for
value, of the judgment debtor not exempt from
execution, sufficient to satisfy the judgment. In the
exercise of this mandate, a sheriff performs only a
ministerial function.
Credit Transactions Cases | Compiled by treeng| 63
Finally, the allegations of the complainant that
respondent failed to furnish defendants a copy of the
notice of auction sale and to publish said notice in a
newspaper of general circulation in Laguna deserve
scant consideration. Records reveal that the said notice
was mailed to the defendants-spouses in their residence
in the United States but was returned due to
insufficient address. Said notice was likewise served
on the complainant as administrator. Notice to the
complainant is sufficient being the administrator of the
properties of the defendants-spouses. Furthermore, said
notice of auction sale was published in the Laguna
Newsweek, a newspaper of general circulation in
Laguna.
We however find fault on the part of respondent in
imposing 12% interest and in decreeing that this shall
be computed from August 1979. The obligations to pay
the unrealized share of the harvest as decreed in the
dispositive portion of the decision in SP 8264 does not
constitute a loan or forbearance of money. The
obligation is in the nature of damages for delayed
payment, hence the interest should have been 6% only.
Similarly, the interest shall accrue only from the date
of the judgment (Eastern Shipping Lines vs. Court of
Appeals, 234 SCRA 78, 96).
RECOMMENDATION: Respectfully submitted for
the consideration of the Honorable Court is our
recommendation that the instant administrative case be
REDOCKETED as a regular administrative matter and
that respondent be FINED in the amount of Five
Thousand Pesos (P5,000.00) with a WARNING that a
repetition of the [same or a] similar offense shall be
dealt with more severely.
This Courts Ruling
We agree with the OCA.
Respondent Sheriffs Responsibility and Liability
Admittedly, and clearly from the records, the Writ of
Execution addressed to respondent sheriff did not
specifically state the exact total amount of interests,
costs, damages, rents or profits due. Despite its lack of
specificity, the Writ directed the sheriff to execute
paragraph 3 of the dispositive portion of the Decision.
In order to implement the said provision which was
also mentioned in the Writ, respondent sheriff, on his
own, computed the exact total amount due from the
defendants. He, however, erred by computing at 12
instead of 6 -- percent per annum the interest on the
plaintiffs total share of the harvest from 1979.
The question now is, should respondent be penalized
for not knowing that the rate applicable in this case
was 6 percent, not 12 percent? And for then uniformly
applying it from 1979, without regard for the exact
time when each P1,000 share was to be given?
In Windsor Steel Mfg. Co., Inc. v. Court of Appeals,[3]
this Court dealt with this question in this wise:
Leaving to the Sheriff, as held by the Court of Appeals,
the determination of the exact amount due under the
Writ would be tantamount to vesting such officer with
judicial powers. He would have to receive evidence to
determine the exact amount owed. In his hands would
be placed a broad discretion that can only delay and
open the door to possible abuse. The orderly
administration of justice requires x x x the amount on
execution to be determined judicially and the duties of
the Sheriff confined to purely ministerial ones.
Section 8, Rule 39 of the 1997 Rules of Civil
Procedure, categorically provides that a writ of
execution must specifically state the amount of
interest.
Credit Transactions Cases | Compiled by treeng| 64
Sec. 8. Issuance, form and contents of a writ of
execution.

xxxxxxxxx

(e) In all cases, the writ of execution shall specifically

state the amount of the interest, costs, damages, rents,
or profits due as of the date of the issuance of the writ,
aside from the principal obligation under the judgment.
For this purpose, the motion for execution shall specify
the amounts of the foregoing reliefs sought by the
movant. (Emphasis supplied.)

The Court is aware that, during the execution stage,

matters dealing with the correct computation of
amounts due from one party to another are commonly
known causes of disputes that have often resulted in
the filing of more lawsuits. Specifically, computations
of amounts due under the writ are not always cut and
dried. There is often, as in this case, a need to refer to
provisions of law, jurisprudence and evidence in order
to arrive at the correct amount due under a writ of
execution. Thus, the judge who rendered the

Credit Transactions Cases | Compiled by treeng| 65


RIZAL COMMERCIAL BANKING
CORPORATION, petitioner,
vs.
ALFA RTW MANUFACTURING
CORPORATION, BA FINANCE
CORPORATION, NORTH AMERICAN
GARMENTS CORPORATION, JOHNNY TENG,
RAMON LEE, ANTONIO LACDAO, RAMON
LUY and ALFA INTEGRATED TEXTILE
MILLS, respondents.
SANDOVAL-GUTIERREZ, J.:
Petitioner for review on certiorari assailing the decision
of the Court of Appeals in CA-G.R. C.V. no. 42293.
On March 12, 1982, Rizal Banking Corporation
(RCBC) filed with the Regional Trial Court of Makati,
Branch 145, Civil Case No. 2624 for a sum of money
against Alfa RTW Manufacturing Corporation, Johnny
Teng, Ramon Lee, Antonio Lacdao, Ramon Luy and
Alfa Integrated Textile Mills. Asserting a superior right
over the property involved in the suit, North Atlantic
Garments Corporation filed a complaint in
intervention. BA Finance Corporation, claiming as
mortgagee of the same property, filed an answer in
intervention. After hearing, the trial court rendered
judgment on August 19, 1991, the dispositive
portion1 of which reads:
"WHEREFORE, judgment is rendered in favor
of plaintiff as follows:
1. Ordering all defendants to pay, jointly and
severally, to plaintiff the amount of Eighteen
Million Nine Hundred Sixty-one Thousand
Three Hundred Seventy-two Pesos and Forty-
three Centavos (P18,961,372.43), Philippine
Currency, (inclusive of interest, service
charges, litigation expenses and attorney’s
fees), with interest thereon at the legal rate from
February 15, 1988 until fully paid. The
proceeds from the sale of defendant Alfa’s
ready to wear apparel, in the sum of
P73,133.70, should be deducted from the
principal obligation of P18,961,372.43;
2. Declaring that the respective liens of
intervenors BA Finance Corporation and North
American Garments Corporation over the
properties attached by the sheriff are inferior to
that of plaintiff.
3. Ordering defendants and intervenors to pay
the proportionate costs.
"SO ORDERED."
On appeal, the Court of Appeals affirmed with
modification2 the RTC decision, thus:
"WHEREFORE, premises considered, the
decision appealed from is hereby AFFIRMED,
with the modification that instead of
P18,961,372.43, all the defendants are hereby
ordered to pay, jointly and severally to plaintiff
the amount of P3,060,406.25, Philippine
Currency, inclusive of stipulated interest,
service charges, litigation expenses and
attorney’s fees, with interest thereon at the legal
rate from February 15, 1988, until fully paid.
"All other disquisitions of the trial court are
hereby AFFIRMED.
"SO ORDERED."
In this petition, RCBC questions the Court of Appeals
decision insofar as it modified the RTC decision by
decreasing the award in its favor from P18,961.372.43
to P3,060,406.25. In assailing the Court of Appeals
decision, petitioner RCBC raises a question of law, that
is, whether or not the Court of Appeals can deviate
from the provisions of the contract between the parties,
which contract is the law between them.
The facts as summarized by the Court of Appeals are:
"From the records of the case, it appears that
defendant Alfa RTW Manufacturing
Corporation (Alfa RTW), on separate instances,
had applied for and was granted by the plaintiff
Rizal Commercial Banking Corporation
(RCBC) four Letters of Credit (RO-80/2487,
RO-80/2789, RO-80/D-1795 and RO-81/D-
1800 marked as Exhibits "A", "D", "G", and
"J", respectively) to facilitate its purchase of
Credit Transactions Cases | Compiled by treeng| 66
 raw materials for its garments business. Upon
such letters of credit, corresponding bills of
exchange (Exhibits "B", "E", "H", and "K") of
various amounts were drawn, and charged to
the account of said defendants.
The defendant Alfa RTW, in turn, had executed
four Trust Receipts (Exhibits "C", "F", "I" and
"L"), stipulating that it had received in trust for
the plaintiff bank the goods and merchandise
described therein, and which were purchased
with the drawings upon the letters of credit.
When the obligations upon the said commercial
documents became due, the plaintiff demanded
payment of the defendants’ undertakings, citing
two documents allegedly executed by the
individual defendants Johnny Teng, Ramon
Lee, Antonio D. Lacdao and Ramon Uy and
Alfa Integrated Textile Mills Inc. (Alfa ITM),
labeled Comprehensive Surety Agreements
(Exhibits "N" and "M") dated September 8,
1978 and October 10, 1979.
Under such Comprehensive Surety
Agreements, it was essentially agreed that for
and in consideration of any existing
indebtedness to plaintiff bank of defendant Alfa
RTW and/or in order to induce the plaintiff
bank at any time thereafter to make loans or
advances or increases thereof or to extend
credit in any other manner to or for the account
of defendant, Alfa ITM and the signatory
officers agreed to guarantee in joint and several
capacity the punctual payment at maturity to
plaintiff bank of any and all such indebtedness
and/or other obligations and also any and all
indebtedness of every kind which was then or
may thereafter become due or owing to plaintiff
bank by the defendant Alfa RTW, together with
any and all expenses of collection, etc.,
provided, however, that the liability of
individual defendants and defendant Alfa
Integrated Textile Mills, Inc. thereunder shall
not exceed the sum of P4,000,000.00 and
P7,500,000.00 and such interest as may accrue
thereon and expenses as may be incurred by
plaintiff bank. (p. 4, Complaint)"
Petitioner RCBC contends that the Court of Appeals
erred in awarding to it the minimal sum of
P3,060,406.25 instead of P18,961,372.43 granted by
the trial court.
The rule is well settled that the jurisdiction of this
Court in cases brought before it from the Court of
Appeals via Rule 45 of the 1997 Rules of Civil
Procedure, as amended, is limited to reviewing errors
of law. Findings of fact of the latter court are
conclusive, except in a number of instances. In Siguan
vs. Lim3 this Court enumerated those instances when
the factual findings of the Court of Appeals are not
deemed conclusive, to wit: (1) when the conclusion is a
finding grounded entirely on speculations, surmises or
conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on
a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both the
appellant and appellee; (7) when the findings are
contrary to those of the trial court; (8) when the
findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner’s
main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are
premised on the supposed absence of evidence and
contradicted by the evidence on record.
In the case at bar, exception No. 6 is present. Here, the
Court of Appeals made findings "contrary to the
admissions" of the parties. We refer to the terms and
conditions agreed upon by petitioner RCBC and
respondent borrowers in the Trust Receipts4 and the
Comprehensive Surety Agreements.5
Significantly, the validity of those contracts is not
being questioned. It follows that the very terms and
conditions of the same contracts become the law
between the parties.
Herein lies the reversible error on the part of the Court
of Appeals. When it ruled that only P3,060,406.25
should be awarded to petitioner RCBC, the Appellate
Court disregarded the parties’ stipulations in their
contracts of loan, more specifically, those pertaining to
the agreed (1) interest rates, (2) service charges and (3)
penalties in case of any breach thereof.6 Indeed, the
Court of Appeals failed to apply this time-honored
doctrine:
Credit Transactions Cases | Compiled by treeng| 67
 "That which is agreed to in a contract is the law
between the parties. Thus, obligations arising
from contracts have the force of law between
the contracting parties and should be complied
with in good faith."7
"The Court cannot vary the terms and
conditions therein stipulated unless such
stipulation is contrary to law, morals, good
customs, public order or public policy."8
In relation to the determination and computation of
interest payments, this Court, in Eastern Shipping
Lines, Inc. vs. Court of Appeals,9 through Mr. Justice
Jose C. Vitug, held:
"The ostensible discord is not difficult to
explain. The factual circumstances may have
called for different applications, guided by the
rule that the courts are vested with discretion,
depending on the equities of each case, on the
award of interest. Nonetheless, it may not be
unwise, by way of clarification and
reconciliation, to suggest the following rules of
thumb for future guidance.
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.
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.." (Emphasis supplied).
The case now before us involves an obligation arising
from a letter of credit-trust receipt transaction. Under
this arrangement, a bank extends to a borrower a loan
covered by the letter of credit, with the trust receipt as
security of the loan.10 A trust receipt is "a security
transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of
Credit Transactions Cases | Compiled by treeng| 68
merchandise, and who may not be able to acquire
credit except thru utilization, as collateral, of the
merchandise imported or purchased."11
In contracts contained in trust receipts, the contracting
parties may establish agreements, terms and conditions
they may deem advisable, provided they are not
contrary to law, morals or public order.12 In the case at
bar, there are specific amounts of interest, service
charges and penalties agreed upon by the parties.
Pertinent provisions in the four (4) trust receipts (TR.
No. 1909, TR. No. 1932, TR. No. 1732, and TR No.
2065)13 read:
"All obligations of the undersigned under this
Trust Receipt shall bear interest at the rate of
sixteen per centum (16%) per annum plus
service charge of two per centum (2%) per
annum from the date of the execution of this
Trust Receipt until paid. It is expressly agreed
and understood that regardless of the maturity
date hereof, I/we hereby authorize the said
Bank to correspondingly increase the interest of
this Trust Receipt to the extent allowed by law
without notice to me/us whenever the Central
Bank of the Philippines raises the interest on
borrowings of Banks or the interest provided
for in the Usury Law, or whenever, in the sole
judgment of the holder of this Trust Receipt is
warranted by the increase in money market
rates or by similar events.
Without prejudice to the criminal action that
may be brought by the Bank against the
entrustee by reason of default or breach of this
Trust Receipt, I/we agree to pay a penalty
and/or liquidated damages equivalent to six per
centum (6%) per annum of the amount due and
unpaid.
In the event of the bringing of any action or suit
by you or any default of the undersigned
hereunder: I/we shall on demand pay you
reasonable attorney’s and other fees and cost of
collection, which shall in no case be less than
ten per centum (10%) of the value of the
property and the amount involved by the action
or suit.
If there are two or more signatories on this
Trust Receipt, our obligations hereunder shall
in all cases be joint and several."
Applying the above-quoted rules of thumb in the
computation of interest, as enunciated by this Court in
Eastern Shipping Lines, Inc.,14 the principal amount of
loans corresponding to each trust receipt must earn an
interest at the rate of sixteen percent (16%) per
annum15 with the stipulated service charge of two
percent (2%) per annum on the loan principal or the
outstanding balance thereof,16 from the date of
execution until finality of this Decision.17 A penalty of
six percent (6%) per annum of the amount due and
unpaid must also be imposed computed from the date
of demand (in this case on March 9, 1982),18 until
finality of Judgment.19 The interest of 16% percent per
annum, as long as unpaid, also earns interest, computed
from the date of the filing of the complaint (March 12,
1982) until finality of this Court’s Decision.20 From
such date of finality, the total unpaid amount (principal
+ interest + service charge + penalty + interest on the
interest) computed shall earn interest of 12% per
annum until satisfied.1âwphi1.nêt
The Court of Appeals awarded only the sum of
P3,060,406.25 as it was the amount prayed for in the
complaint. The Appellate Court, however, failed to
consider that the complaint was filed on March 12,
1982, or just a year after the execution of the trust
receipts. The computed interests then, the service
charge, the penalty and the attorney’s fees
corresponded only to one year. The interest on the
interest could not have been computed then since the
finality of judgment could not yet be ascertained.
Significantly, from the filing of the complaint on
March 12, 1982 up to the time the Appellate Court’s
decision was promulgated, on May 14, 1998, there had
been a lapse of sixteen years. The computed interest in
1982 would no longer be true in 1998. What the
Appellate Court should have done then was to compute
the total amount due in accordance with the rules of
thumb laid down by this Court in Eastern Shipping
Lines, Inc.,21 the resulting formula of which is as
follows:
TOTAL AMOUNT DUE = principal + interest
+ service charge + penalty + interest on interest
Credit Transactions Cases | Compiled by treeng| 69
 Interest = principal x 16 % per annum x no. of
years from date of execution until finality of
judgment

Service charge = principal x 2% per annum x

no. of years from date of execution until finality
of judgment

Penalty = principal x 6% per annum x no. of

years from demand (March 9, 1982) until
finality of judgment

Interest on interest = Interest computed as of

the filing of the complaint (March 12, 1982) x
12% x no. of years until finality of judgment

Attorney’s fees is 10% of the total amount

computed as of finality of judgment

Total amount due as of the date of finality of

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

The total amount due corresponding to each of the four

(4) contracts of loan may be easily determined by the
trial court through a simple mathematical computation
based on the formula specified above. Mathematics is
an exact science, the application of which needs no
further proof from the parties.

WHEREFORE, the petition is hereby GRANTED.

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

SO ORDERED.

Credit Transactions Cases | Compiled by treeng| 70

G.R. No. 109087 May 9, 2001
RODZSSEN SUPPLY CO. INC., petitioner,
vs.
FAR EAST BANK & TRUST CO., respondent.
PANGANIBAN, J.:
When both parties to a transaction are mutually
negligent in the performance of their obligations, the
fault of one cancels the negligence of the other. Thus,
their rights and obligations may be determined
equitably. No one shall enrich oneself at the expense of
another.1âwphi1.nêt
The Case
Before us is a Petition for Review on Certiorari1 under
Rule 45 of the Rules of Court, assailing the January 21,
1993 Decision2 of the Court of Appeals3 (CA) in CA-
GR CV No. 26045. The challenged Decision affirmed
with modification the ruling of the Regional Trial
Court of Bacolod City in Civil Case No. 2296. The CA
ruled as follows:
"WHEREFORE, the decision under appeal
should be, as it is hereby affirmed in all its
aspects, except for the deletion of paragraph 2
of its dispositive portion, which paragraph shall
be replaced by a new paragraph which shall
read as follows:
'2. ordering the defendant to pay the
plaintiff the sum equivalent to 10% of
the total amount due and collectible, as
attorney's fees; and'
"No pronouncement as to costs."4
On the other hand, the trial court had rendered this
judgment:
"1. Ordering the defendant to pay the plaintiff
the sum of P76,000.00, representing the
principal amount being claimed in this action,
plus interest thereon at the rate of 12% per
annum counted from October 1979 until fully
paid;
"2. Ordering the defendant to pay the plaintiff
the sum equivalent to 25% of the total amount
due and collectible; and
"3. Ordering the defendant to pay the costs of
the suit."5
The Facts
The factual and procedural antecedents of the case are
summarized by the Court of Appeals as follows:
"In the complaint from which the present
proceedings originated, it is alleged that on
January 15, 1979, defendant Rodzssen Supply,
Inc. opened with plaintiff Far East Bank and
Trust Co. a 30-day domestic letter of credit, LC
No. 52/0428/79-D, in the amount of
P190,000.00 in favor of Ekman and Company,
Inc. (Ekman) for the purchase from the latter of
five units of hydraulic loaders, to expire on
February 15, 1979; that subsequent
amendments extended the validity of said LC
up to October 16, 1979; that on March 16,
1979, three units of the hydraulic loaders were
delivered to defendant for which plaintiff on
March 26, 1979, paid Ekman the sum of
P114,000.00, which amount defendant paid
plaintiff before the expiry date of the LC; that
the shipment of the remaining two units of
hydraulic loaders valued at P76,000.00 sent by
Ekman was 'readily received by the defendant'
before the expiry date [of] subject LC; that
upon Ekman's presentation of the documents
for the P76,000.00 'representing final
negotiation' on the LC before the expiry date,
and 'after a series of negotiations', plaintiff paid
to Ekman the amount of P76,000.00; and that
upon plaintiff's demand on defendant to pay for
said amount (P76,000.00), defendant' refused to
pay ... without any valid reason'. Plaintiff prays
for judgment ordering defendant to pay the
abovementioned P76,000.00 plus due interest
thereon, plus 25% of the amount of the award
as attorney's fees.
"In the Answer, defendant interposed, inter alia,
by way of special and affirmative defenses that
plaintiff ha[d] no cause of action against
defendant; that there was a breach of contract
by plaintiff who in bad faith paid Ekman,
Credit Transactions Cases | Compiled by treeng| 71
 knowing that the two units of hydraulic loaders
had been delivered to defendant after the expiry
date of subject LC; and that in view of the
breach of contract, defendant offered to return
to plaintiff the two units of hydraulic loaders,
'presently still with the defendant' but plaintiff
refused to take possession thereof.
"The trial court's ruling that plaintiff [was]
entitled to recover from defendant the amount
of P76,000.00 was based on its following
findings/conclusions: (1) under the contract of
sale of the five loaders between Ekman and
defendant, upon Ekman's delivery to, and
acceptance by, defendant of the two remaining
units of the five loaders, defendant became
liable to Ekman for the payment of said two
units. However, as defendant did not pay
Ekman, the latter pressed plaintiff for the
payment of said two loaders in the amount of
P76,000.00. In the honest belief that it was still
under obligation to Ekman for said amount,
considering that Ekman had presented all the
necessary documents, plaintiff voluntarily paid
the said amount to Ekman. Plaintiff's x x x
voluntary and lawful act of payment g[a]ve rise
to a quasi-contract between plaintiff and
defendant; and if defendant should escape
liability for said amount, the result would be to
allow defendant to enrich itself at plaintiff's
expense x x x.
"x x x. While defendant, indeed offered to
return the two loaders to plaintiff, x x x this
offer was made 3 years after defendant's receipt
of the goods, when plaintiff pressed for
payment. By said voluntary acceptance of the
two loaders, estoppel works against defendant
who should have refused delivery of, and/or
immediately offered to return, the goods.
"Accordingly, judgment was rendered in favor
of the plaintiff and against the defendant x x
x."6
The CA Ruling
The CA rejected petitioner's imputation of bad faith
and negligence to respondent bank for paying for the
two hydraulic loaders, which had been delivered after
the expiration of the subject letter of credit. The
appellate court pointed out that petitioner received the
equipment after the letter of credit had expired. "To
absolve defendant from liability for the price of the
same," the CA explained, "is to allow it to get away
with its unjust enrichment at the expense of the
plaintiff."
Hence, this Petition.7
Issues
Petitioner presents the following issues for resolution:
"1. Whether or not it is proper for a banking
institution to pay a letter of credit which has
long expired or been cancelled.
"2. Whether or not respondent courts were
correct in their conclusion that there was a
consummated sale between petitioner and
Ekman Co.
"3. Whether or not Respondent Court of
Appeals was correct in evading the issues
raised in the appeal that under the trust receipt,
petitioner was merely the depositary of private
respondent with respect to the goods covered
by the trust receipt."8
The Court's Ruling
We affirm the Court of Appeals, but lower the interest
rate to only 6 percent and delete the award of attorney's
fees.
First Issue:
Efficacy of Letter of Credit
Petitioner asserts that respondent bank was negligent in
paying for the two hydraulic loaders, when it no longer
had any obligation to do so in view of the expiration
and cancellation of the Letter of Credit.
Petitioner Rodzssen Supply Inc. applied for and
obtained an irrevocable 30-day domestic Letter of
Credit from Far East Bank and Trust Company Inc. on
January 15, 1979, in favor of Ekman and Company
Inc., in order to finance the purchase of five units of
hydraulic loaders in the amount of P190,000.
Credit Transactions Cases | Compiled by treeng| 72
Originally set to expire on February 15, 1979, the
subject Letter of Credit was amended several times to
extend its validity until October 16, 1979.
The Letter of Credit expressly restricted the negotiation
to respondent bank and specifically instructed Ekman
and Company Inc. to tender the following documents:
(1) delivery receipt duly acknowledged by the buyer,
(2) accepted draft, and (3) duly signed commercial
invoices. Likewise, the instrument contained a
provision with regard to its expiration date.8
For the first three hydraulic loaders that were
delivered, the bank paid the amount specified in the
letter of credit. The present dispute pertains only to the
last two hydraulic loaders.
Clearly, the bank paid Ekman when the former was no
longer bound to do so under the subject Letter of
Credit. The records show that respondent paid the
latter P76,000 for the last two hydraulic loaders on
March 14, 1980,10 five months after the expiration of
the Letter of Credit on October 16, 1979.11 In fact, on
December 27, 1979, the bank had informed Rodzssen
of the cancellation of the commercial paper and
credited P22,800 to the account of the latter. The
amount represented the marginal deposit, which
petitioner had been required to put up for the
unnegotiated portion of the Letter of Credit -- P76,000
for the two hydraulic loaders.12
The subject Letter of Credit had become invalid upon
the lapse of the period fixed therein.13 Thus,
respondent should not have paid Ekman; it was not
obliged to do so. In the same vein, of no moment was
Ekman's presentation, within the prescribed period, of
all the documents necessary for collection, as the Letter
of Credit had already expired and had in fact been
cancelled.
Second Issue:
Was Petitioner Liable to Respondent?
Be that as it may, we agree with the CA that petitioner
should pay respondent bank the amount the latter
expended for the equipment belatedly delivered by
Ekman and voluntarily received and kept by petitioner.
Respondent bank's right to seek recovery from
petitioner is anchored, not upon the inefficacious Letter
of Credit, but on Article 2142 of the Civil Code which
reads as follows:
"Certain lawful, voluntary and unilateral acts
give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly
enriched or benefited at the expense of
another."
Indeed, equitable considerations behoove us to allow
recovery by respondent. True, it erred in paying
Ekman, but petitioner itself was not without fault in the
transaction. It must be noted that the latter had
voluntarily received and kept the loaders since October
1979.
Petitioner claims that it accepted the late delivery of
the equipment, only because it was bound to accept it
under the company's trust receipt arrangement with
respondent bank.
Granting that petitioner was bound under such
arrangement to accept the late delivery of the
equipment, we note its unexplained inaction for almost
four years with regard to the status of the ownership or
possession of the loaders. Bewildering was its lack of
action to validate the ownership and possession of the
loaders, as well as its stolidity over the purported failed
sales transaction. Significant too is the fact that it
formalized its offer to return the two pieces of
equipment only after respondent's demand for
payment, which came more than three years after it
accepted delivery.
When both parties to a transaction are mutually
negligent in the performance of their obligations, the
fault of one cancels the negligence of the other and, as
in this case, their rights and obligations may be
determined equitably under the law proscribing unjust
enrichment.
Payment of Interest
We, however, disagree with both the CA and the trial
court's imposition of 12 percent interest on the sum to
be paid by petitioner. In Eastern Shipping Lines v.
CA,14 the Court laid down the following guidelines in
the imposition of interest:
"x x x xxx xxx
Credit Transactions Cases | Compiled by treeng| 73
 2. When an obligation, not constituting a loan Appeals AFFIRMED with the
or forbearance of money, is breached, an following MODIFICATIONS:
interest on the amount of damages awarded
may be imposed at the discretion of the court at 1. Petitioner Rodzssen Supply Co., Inc.
the rate of 6% per annum. No interest, however, is ORDERED to reimburse Respondent Far
shall be adjudged on unliquidated claims or East Bank and Trust Co., Inc. P76,000 plus
damages except when or until the demand can interest thereon at the rate of 6 percent per
be established with reasonable certainty. annum computed from April 7, 1983. After this
Accordingly, where the demand is established judgment becomes final, the interest shall be 12
with reasonable certainty, the interest shall percent per annum.
begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil 2. The award of attorney's fees in favor of
Code) but when such certainty cannot be so respondent is DELETED.
reasonably established at the time the demand
is made, the interest shall begin to run only 3. No prono
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."

Although the sum of money involved in this case was

payable to a bank, the present factual milieu clearly
shows that it was not a loan or forbearance of money.
Thus, pursuant to established jurisprudence and Article
2009 of the Civil Code, petitioner is bound to pay
interest at 6 percent per annum, computed from April
7, 1983, the time respondent bank demanded payment
from petitioner. From the finality of the judgment until
its satisfaction, the interest shall be 12 percent per
annum.1âwphi1.nêt

Attorney's Fees

Considering that negligence is imputable to both

parties, both should bear their respective costs of the
suit. We also delete the award of attorney's fees in
favor of respondent bank.15

WHEREFORE, the Petition is DENIED and the

assailed Decision of the Court of
Credit Transactions Cases | Compiled by treeng| 74

G.R. No. 125944 - June 29, 2001
SPOUSES DANILO SOLANGON and URSULA
SOLANGON,petitioners, v. JOSE AVELINO
SALAZAR, respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, as amended, of the
decision of the Court of Appeals in CA-G.R. CV No.
37899, affirming the decision of the Regional Trial
Court, Branch 16, Malolos, Bulacan, in Civil Case No.
375-M-91, "Spouses Danilo and Ursula Solangon vs.
Jose Avelino Salazar" for annulment of mortgage. The
dispositive portion of the RTC decision reads:
"WHEREFORE, judgment is hereby rendered against
the plaintiffs in favor of the defendant Salazar, as
follows:
1. Ordering the dismissal of the complaint;
2. Ordering the dissolution of the preliminary
injunction issued on July 8, 1991;
3. Ordering the plaintiffs to pay the defendant the
amount of P10,000.00 by way of attorney's fees; and
4. To pay the costs.
SO ORDERED."1
The facts as summarized by the Court of Appeals in its
decision being challenged are:
"On August 22, 1986, the plaintiffs-appellants
executed a deed or real estate mortgage in which they
mortgaged a parcel of land situated in Sta. Maria,
Bulacan, in favor of the defendant-appellee, to secure
payment of a loan of P60,000.00 payable within a
period of four (4) months, with interest thereon at the
rate of 6% per month (Exh. "B").
On May 27, 1987, the plaintiffs-appellants executed a
deed of real estate mortgage in which they mortgaged
the same parcel of land to the defendant-appellee, to
secure payment of a loan of P136,512.00, payable
within a period of one (1) year, with interest thereon at
the legal rate (Exh. "1").
On December 29, 1990, the plaintiffs-appellants
executed a deed of real estate mortgage in which they
mortgaged the same parcel of land in favor of
defendant-appellee, to secure payment of a loan in the
amount of P230,000.00 payable within a period of four
(4) months, with interest thereon at the legal rate (Exh.
"2", Exh. "C").
This action was initiated by the plaintiffs-appellants to
prevent the foreclosure of the mortgaged property.
They alleged that they obtained only one loan form the
defendant-appellee, and that was for the amount of
P60,000.00, the payment of which was secured by the
first of the above-mentioned mortgages. The
subsequent mortgages were merely continuations of
the first one, which is null and void because it provided
for unconscionable rate of interest. Moreover, the
defendant-appellee assured them that he will not
foreclose the mortgage as long as they pay the
stipulated interest upon maturity or within a reasonable
time thereafter. They have already paid the defendant-
appellee P78,000.00 and tendered P47,000.00 more,
but the latter has initiated foreclosure proceedings for
their alleged failure to pay the loan P230,000.00 plus
interest.
On the other hand, the defendant-appellee Jose Avelino
Salazar claimed that the above-described mortgages
were executed to secure three separate loans of
P60,000.00 P136,512.00 and P230,000.00, and that the
first two loans were paid, but the last one was not. He
denied having represented that he will not foreclose the
mortgage as long as the plaintiffs-appellants pay
interest."
In their petition, spouses Danilo and Ursula Solangon
ascribe to the Court of Appeals the following errors:
1. The Court of Appeals erred in holding that three (3)
mortgage contracts were executed by the parties
instead of one (1);
2. The Court of Appeals erred in ruling that a loan
obligation secured by a real estate mortgage with an
interest of 72% per cent per annum or 6% per month is
not unconscionable;
Credit Transactions Cases | Compiled by treeng| 75
4. The Court of Appeals erred in holding that the loan
of P136,512.00 HAS NOT BEEN PAID when the
mortgagee himself states in his ANSWER that the
same was already paid; and
5. The Court of Appeals erred in not resolving the
SPECIFIC ISSUES raised by the appellants.
In his comment, respondent Jose Avelino Salazar avers
that the petition should not be given due course as it
raises questions of facts which are not allowed in a
petition for review on certiorari.
We find no merit in the instant petition.
The core of the present controversy is the validity of
the third contract of mortgage which was foreclosed.
Petitioners contend that they obtained from respondent
Avelino Salazar only one (1) loan in the amount of
P60,000.00 secured by the first mortgage of August
1986. According to them, they signed the third
mortgage contract in view of respondent's assurance
that the same will not be foreclosed. The trial court,
which is in the best position to evaluate the evidence
presented before it, did not give credence to petitioners'
corroborated testimony and ruled:
"The testimony is improbable. The real estate mortgage
was signed not only by Ursula Solangon but also by
her husband including the Promissory Note appended
to it. Signing a document without knowing its contents
is contrary to common experience. The uncorroborated
testimony of Ursula Solangon cannot be given
weight."2
Petitioners likewise insist that, contrary to the finding
of the Court of appeals, they had paid the amount of
P136,512.00, or the second loan. In fact, such payment
was confirmed by respondent Salazar in his answer to
their complaint.
It is readily apparent that petitioners are raising issues
of fact in this petition. In a petition for review under
Rule 45 of the 1997 Rules of Civil Procedure, as
amended, only questions of law may be raised and they
must be distinctly set forth. The settled rule is that
findings of fact of the lower courts (including the Court
of Appeals) are final and conclusive and will not be
reviewed on appeal except: (1) when the conclusion is
a finding grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on
a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case
and such findings are contrary to the admission of both
appellant and appellee; (6) when the findings of the
Court of Appeals are contrary to those of the trial
court; and (7) when the findings of fact are conclusions
without citation of specific evidence on which they are
based.3
None of these instances are extant in the present case.
Parenthetically, petitioners are questioning the rate of
interest involved here. They maintain that the Court of
Appeals erred in decreeing that the stipulated interest
rate of 72% per annum or 6% per month is not
unconscionable.
The Court of Appeals, in sustaining the stipulated
interest rate, ratiocinated that since the Usury Law had
been repealed by Central Bank Circular No. 905 there
is no more maximum rate of interest and the rate will
just depend on the mutual agreement of the parties.
Obviously, this was in consonance with our ruling
in Liam Law v. Olympic Sawmill Co.4
The factual circumstances of the present case require
the application of a different jurisprudential instruction.
While the Usury Law ceiling on interest rates was
lifted by C.B. Circular No. 905, nothing in the said
circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their
assets.5 In Medel v. Court of Appeals,6 this court had
the occasion to rule on this question - whether or not
the stipulated rate of interest at 5.5% per month on a
loan amounting to P500,000.00 is usurious. While
decreeing that the aforementioned interest was not
usurious, this Court held that the same must be
equitably reduced for
being iniquitous, unconscionable and exorbitant, thus:
"We agree with petitioners 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
Credit Transactions Cases | Compiled by treeng| 76
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 v. Court of
Appeals, the Court reiterated the ruling that 'by virtue
of CB Circular 905, the Usury Law has been rendered
ineffective.' 'Usury Law 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. The courts shall reduce
equitably liquidated damages, whether intended as
an indemnity or a penalty if they are iniquitous or
unconscionable." (Emphasis supplied)

In the case at bench, petitioners stand on a worse

situation. They are required to pay the stipulated
interest rate of 6%per month or 72% per annum which
is definitely outrageous and inordinate. Surely, it is
more consonant with justice that the said interest rate
be reduced equitably. An interest of 12% per annum is
deemed fair and reasonable.

WHEREFORE, the appealed decision of the Court of

Appeals is AFFIRMED subject to
the MODIFICATION that the interest rate of 72% per
annum is ordered reduced to 12 % per annum.

Credit Transactions Cases | Compiled by treeng| 77

SPOUSES SILVESTRE and CELIA
PASCUAL, petitioners, vs. RODRIGO V.
RAMOS, respondent.
DECISION
DAVIDE, JR., C.J.:
Before us is a petition for review
on certiorari assailing the 5 November 1999
Decision[1] and the 18 August 2000 Resolution[2] of the
Court of Appeals in CA G.R. CV No. 52848. The
former affirmed the 5 June 1995 and 7 September 1995
Orders of the Regional Trial Court, Malolos, Bulacan,
Branch 21, in Civil Case No. 526-M-93, and the latter
denied petitioners motion for reconsideration.
The case at bar stemmed from the petition[3] for
consolidation of title or ownership filed on 5 July 1993
with the trial court by herein respondent Rodrigo V.
Ramos (hereafter RAMOS) against herein petitioners,
Spouses Silvestre and Celia Pascual (hereafter the
PASCUALs). In his petition, RAMOS alleged that on 3
June 1987, for and in consideration of P150,000, the
PASCUALs executed in his favor a Deed of Absolute
Sale with Right to Repurchase over two parcels of land
and the improvements thereon located in Bambang,
Bulacan, Bulacan, covered by Transfer Certificate of
Title (TCT) No. 305626 of the Registry of Deeds of
Bulacan. This document was annotated at the back of
the title. The PASCUALs did not exercise their right to
repurchase the property within the stipulated one-year
period; hence, RAMOS prayed that the title or
ownership over the subject parcels of land and
improvements thereon be consolidated in his favor.
In their Answer,[4] the PASCUALs admitted having
signed the Deed of Absolute Sale with Right to
Repurchase for a consideration of P150,000 but averred
that what the parties had actually agreed upon and
entered into was a real estate mortgage. They further
alleged that there was no agreement limiting the period
within which to exercise the right to repurchase and that
they had even overpaid RAMOS. Furthermore, they
interposed the following defenses: (a) the trial court had
no jurisdiction over the subject or nature of the petition;
(b) RAMOS had no legal capacity to sue; (c) the cause
of action, if any, was barred by the statute of limitations;
(d) the petition stated no cause of action; (e) the claim
or demand set forth in RAMOSs pleading had been paid,
waived, abandoned, or otherwise extinguished; and (f)
RAMOS has not complied with the required
confrontation and conciliation before the barangay.
By way of counterclaim, the PASCUALs prayed
that RAMOS be ordered to execute a Deed of
Cancellation, Release or Discharge of the Deed of
Absolute Sale with Right to Repurchase or a Deed of
Real Estate Mortgage; deliver to them the owners
duplicate of TCT No. T-305626; return the amount they
had overpaid; and pay each of them moral damages and
exemplary damages in the amounts of P200,000
and P50,000, respectively, plus attorneys fees
of P100,000; appearance fee of P1,500 per hearing;
litigation expenses; and costs of suit.
After the pre-trial, the trial court issued an
order[5] wherein it identified the following issues: (1)
whether the Deed of Absolute Sale with Right to
Repurchase is an absolute sale or a mere mortgage; (2)
whether the PASCUALs have paid or overpaid the
principal obligation; (3) whether the ownership over the
parcel of land may be consolidated in favor of RAMOS;
and (4) whether damages may be awarded.
Among the documents offered in evidence by
RAMOS during the trial on the merits was a document
denominated as Sinumpaang Salaysay[6] signed by
RAMOS and Silvestre Pascual, but not notarized. The
contents of the document read:
Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong
gulang, may asawa at kasalukuyang naninirahan sa
Bambang, Bulacan, Bulacan, ay nagsasabing buong
katotohanan at sumusumpa sa aking mga salaysay sa
kasulatang ito:
1. Na ngayong June 3, 1987 dahil sa
aking matinding pangangailangan
ng puhunan ay lumapit ako
at nakiusap kay Rodrigo Ramos ng
Taal, Pulilan, Bulacan na pautangin
ako ng halagang P150,000.00.
2. Na aming napagkasunduan na ang
nasabing utang ay babayaran ko ng
tubo ng seven
percent (7%) o P10,500.00 isang
buwan (7% per month).
3. Na bilang sangla (collateral security)
sa aking utang, kami ay
nagkasundo na mag-execute ng Deed
Credit Transactions Cases | Compiled by treeng| 78
 of Sale with Right to Repurchase para
sa aking bahay at lupa (TCT No.
305626) sa Bo. Taliptip, Bambang,
Bulacan, Bulacan ngayong June 3,
1987 at binigyan ako ni Mr. Ramos ng
isang taon hanggang June 3, 1988
upang mabiling muli ang
aking isinanla sa kaniya sa
kasunduang babayaran kong lahat
ang capital na P150,000.00 pati na
ang P10,500.00 na tubo buwan
buwan.
4. Na bilang karagdagang condition, si
RODRIGO RAMOS ay pumayag sa
aking kahilingan na kung sakali na
hindi ko mabayaran ng buo ang aking
pagkakautang (Principal plus
interest) sa loob ng isang taon mula
ngayon, ang nakasanglang bahay at
lupa ay hindi muna niya iilitin
(foreclose) o ipalilipat sa pangalan
niya at hindi muna kamipaaalisin sa
tinitirhan naming bahay hanggat ang
tubo (interest) na P10,500.00 ay
nababayaran ko buwan buwan.
5. Na ako ay sumasang-ayon
sa kundisyon ni Rodrigo Ramos
na pagkatapos ng isang taon
mula ngayon hanggangJune 3, 1988
at puro interest lamang ang
aking naibabayad buwan-buwan,
kung sakaling hindi ako
makabayadng tubo for six (6)
consecutive months (1/2
year after June 3, 1988 (6 na buwang
hindi bayad ang interest ang utang
ko) si Rodrigo Ramos ay binibigyan
ko ng karapatan at kapangyarihan na
mag-mayari ng aming bahay at
lupa at kami ng aking pamilya ay
kusang loob na aalis sa nasabing
bahay at lupa na lumalabas
na ibinenta ko sa kaniya dahil hindi
ako nakasunod sa aming mga
pinagkasunduang usapan.
6. At bilang finale ng aming kasunduan,
ako ay nangangako na hindi
maghahabol ng ano mang sukli sa
pagkakailitng aming bahay at
lupa kung sakali mang dumating sa
ganuong pagkakataon o sitwasyon o
di kayaymagsasampa ng reklamo
kanino man.
Bilang pagsang-ayon sa mga nasabing kasunduan,
kami ay lumagda sa ibaba nito kalakip ng aming mga
pangalan ngayong ika-3 ng Hunyo, 1987.
(Sgd.)Rodrigo Ramos Sgd.) Silvestre Pascual
Nagpautang Umutang
For their part, the PASCUALs presented
documentary evidence consisting of acknowledgment
receipts[7] to prove the payments they had made.
The trial court found that the transaction between
the parties was actually a loan in the amount
of P150,000, the payment of which was secured by a
mortgage of the property covered by TCT No.
305626. It also found that the PASCUALs had made
payments in the total sum of P344,000, and that with
interest at 7% per annum, the PASCUALs had overpaid
the loan by P141,500. Accordingly, in its Decision[8] of
15 March 1995 the trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor
of the defendants and against the plaintiff in the
following manner:
1. Dismissing the plaintiffs petition;
2. Directing the Register of Deeds to cancel
the annotation of the Deed of Sale with
Right to Repurchase on the dorsal side
of TCT No. 305626;
3. Awarding the defendants the sum
of P141,500.00 as overpayment on
the loan and interests;
4. Granting the defendants attorneys fee in
the sum of P15,000.00 and P3,000.00 for
litigation expenses.
With costs against the plaintiff.
RAMOS moved for the reconsideration of the
decision, alleging that the trial court erred in using an
Credit Transactions Cases | Compiled by treeng| 79
interest rate of 7% per annum in the computation of the
total amount of obligation because what was expressly
stipulated in the Sinumpaang Salaysaywas 7% per
month. The total interest due from 3 June 1987 to 3
April 1995 was P987,000. Deducting therefrom the
interest payments made in the sum of P344,000, the
amount of P643,000 was still due as interest. Adding the
latter to the principal sum of P150,000, the total amount
due from the PASCUALs as of 3 April 1995
was P793,000.
Finding merit in the motion for reconsideration,
which was not opposed by the PASCUALs, the trial
court issued on 5 June 1995 an Order[9] modifying its
decision by deleting the award of P141,500 to the
PASCUALs as overpayment of the loan and interest and
ordering them to pay RAMOS P511,000 representing
the principal loan plus interest. The trial court
acknowledged that it had inadvertently declared the
interest rate to be 7% per annum when, in fact,
the Sinumpaang Salaysay stipulated 7% per month. It
noted that during trial, the PASCUALs never disputed
the stipulated interest rate. However, the court declared
that the 7% per month interest is too burdensome and
onerous. Invoking the protective mantle of Article 24 of
the Civil Code, which mandates the courts to be vigilant
for the protection of a party at a disadvantage due to his
moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the trial court
unilaterally reduced the interest rate from 7% per month
to 5% per month. Thus, the interest due from 3 June
1987 to 3 April 1995 was P705,000. Deducting
therefrom the payments made by the PASCUALs in the
amount of P344,000, the net interest due
was P361,000. Adding thereto the loan principal
of P150,000, the total amount due from the PASCUALs
was P511,000.
Aggrieved by the modification of the decision, the
PASCUALs filed a motion to reconsider the Order of 5
June 1995. They alleged that the motion for
reconsideration filed by RAMOS was a mere scrap of
paper because they received a copy of said motion only
a day before the hearing, in violation of the 3-day-notice
rule. Moreover, they had already paid the interests and
had in fact overpaid the principal sum
of P150,000. Besides, RAMOS, being an individual,
could not charge more than 1% interest per month or
12% per annum; and, the interest of either 5% or 7% a
month is exorbitant, unconscionable, unreasonable,
usurious and inequitable.
RAMOS opposed the motion of the
PASCUALs. He contended that the non-compliance
with the 3-day-notice rule was cured when the trial court
gave them an opportunity to file their opposition, but
despite the lapse of the period given them, no opposition
was filed. It is not correct to say that he was not allowed
to collect more than 1% per month interest considering
that with the moratorium on the Usury Law, the
allowable interest is that agreed upon by the parties. In
the absence of any evidence that there was fraud, force
or undue influence exerted upon the PASCUALs when
they entered into the transaction in question, their
agreement embodied in the Sinumpaang
Salaysay should be respected. Furthermore, the trial
court had already reduced the interest rate to 5% per
month, a rate which is not exorbitant, unconscionable,
unreasonable and inequitable.
Their motion for reconsideration having been
denied in the Order[10] of 7 September 1995, the
PASCUALs seasonably appealed to the Court of
Appeals. They pointed out that since the only prayer of
RAMOS in his petition was to have the title or
ownership over the subject land and the improvements
thereon consolidated in his favor and he did not have
any prayer for general relief, the trial court had no basis
in ordering them to pay him the sum of P511,000.
In its Decision[11] of 5 November 1999, the Court of
Appeals affirmed in toto the trial courts Orders of 5 June
1995 and 7 September 1995. It ruled that while
RAMOSs petition for consolidation of title or ownership
did not include a prayer for the payment of the balance
of the petitioners obligation and a prayer for general
relief, the issue of whether there was still a balance from
the amount loaned was deemed to have been raised in
the pleadings by virtue of Section 5, Rule 10 of the Rules
of Court, which provides that [w]hen issues not raised
by the pleadings are tried with the express or implied
consent of the parties, they shall be treated in all respects
as if they had been raised in the pleadings. In the course
of the trial, receipts were presented by the PASCUALs
evidencing the payments they had made. Taken in
conjunction with the Sinumpaang Salaysay which
specified the interest rate at 7% per month, a
mathematical computation readily leads to the
conclusion that there is still a balance due from the
PASCUALs, even at a reduced interest rate of 5%
interest per month.
With the denial of their motion for reconsideration
of the decision by the Court of Appeals, the PASCUALs
Credit Transactions Cases | Compiled by treeng| 80
filed before us the instant petition raising the sole issue favorable aspect of the courts declaration that the
of whether they are liable for 5% interest per month document is actually an equitable mortgage but also the
from 3 June 1987 to 3 April 1995.Invoking this Courts necessary consequence of such declaration, that is, that
ruling in Medel v. Court of Appeals,[12] they argue that interest on the loan as stipulated by the parties in that
the 5% per month interest is excessive, iniquitous, same document should be paid. Besides, when RAMOS
unconscionable and exorbitant. Moreover, respondent moved for a reconsideration of the 15 March 1995
should not be allowed to collect interest of more than Decision of the trial court pointing out that the interest
1% per month because he tried to hide the real rate to be used should be 7% per month, the PASCUALs
transaction between the parties by imposing upon them never lifted a finger to oppose the claim. Admittedly, in
to sign a Deed of Absolute Sale with Right to their Motion for Reconsideration of the Order of 5 June
Repurchase. 1995, the PASCUALs argued that the interest rate,
whether it be 5% or 7%, is exorbitant, unconscionable,
For his part, RAMOS contends that the issue raised
unreasonable, usurious and inequitable. However, in
by petitioners cannot be entertained anymore because it
their Appellants Brief, the only argument raised by the
was neither raised in the complaint nor ventilated during
PASCUALs was that RAMOSs petition did not contain
the trial. In any case, there was nothing illegal on the
a prayer for general relief and, hence, the trial court had
rate of interest agreed upon by the parties, since the
no basis for ordering them to pay RAMOS P511,000
ceilings on interest rates prescribed under the Usury
representing the principal and unpaid interest. It was
Law had expressly been removed, and hence parties are
only in their motion for the reconsideration of the
left freely at their discretion to agree on any rate of
decision of the Court of Appeals that the PASCUALs
interest. Moreover, there was no scheme to hide a
made an issue of the interest rate and prayed for its
usurious transaction.RAMOS then prays that the
reduction to 12% per annum.
challenged decision and resolution be affirmed and that
petitioners be further ordered to pay legal interest on the In Manila Bay Club Corp. v. Court of
interest due from the time it was demanded. Appeals,[13] this Court ruled that if an issue is raised only
in the motion for reconsideration of the decision of the
We see at once the proclivity of the PASCUALs to
Court of Appeals, the effect is that it is as if it was never
change theory almost every step of the case.
duly raised in that court at all.
By invoking the decision in Medel v. Court of
Our ruling in Medel v. Court of Appeals[14] is not
Appeals, the PASCUALs are actually raising as issue
applicable to the present case. In that case, the
the validity of the stipulated interest rate. It must be
excessiveness of the stipulated interest at the rate of 5.5
stressed that they never raised as a defense or as basis
% per month was put in issue by the defendants in the
for their counterclaim the nullity of the stipulated
Answer. Moreover, in addition to the interest, the
interest. While overpayment was alleged in the Answer,
debtors were also required, as per stipulation in the
no ultimate facts which constituted the basis of the
promissory note, to pay service charge of 2% per annum
overpayment was alleged. In their pre-trial brief, the
and a penalty charge of 1% per month plus attorneys fee
PASCUALs made a long list of issues, but not one of
of equivalent to 25% of the amount due. In the case at
them touched on the validity of the stipulated interest
bar, there is no other stipulation for the payment of an
rate. Their own evidence clearly shows that they have
extra amount except interest on the principal loan. Thus,
agreed on, and have in fact paid interest at, the rate of
taken in conjunction with the stipulated service charge
7% per month. Exhibits 1 to 8 specifically mentioned
and penalty, the interest rate of 5.5% in the Medel case
that the payments made were for the interest due on
was found to be excessive, iniquitous, unconscionable,
theP150,000 loan of the PASCUALs. In the course of
exorbitant and hence, contrary to morals, thereby
the trial, the PASCUALs never put in issue the validity
making such stipulation null and void.
of the stipulated interest rate.
Considering the variance in the factual
After the trial court sustained petitioners claim that
circumstances of the Medel case and the instant case, we
their agreement with RAMOS was actually a loan with
are not prepared to apply the former lest it be construed
real estate mortgage, the PASCUALs should not be
that we can strike down anytime interest rates agreed
allowed to turn their back on the stipulation in that
upon by parties in a loan transaction.
agreement to pay interest at the rate of 7% per
month. The PASCUALs should accept not only the
Credit Transactions Cases | Compiled by treeng| 81
 It is a basic principle in civil law that parties are but because he has been defeated or
bound by the stipulations in the contracts voluntarily overcome illegally. Men may do foolish things, make
entered into by them.Parties are free to stipulate terms ridiculous contracts, use miserable judgment, and lose
and conditions which they deem convenient provided money by then indeed, all they have in the world; but
they are not contrary to law, morals, good customs, not for that alone can the law intervene and
public order, or public policy.[15] restore.There must be, in addition, a violation of law,
the commission of what the law knows as
The interest rate of 7% per month was voluntarily
an actionable wrong, before the courtsare authorized to
agreed upon by RAMOS and the PASCUALs. There is
lay hold of the situation and remedy it.[16]
nothing from the records and, in fact, there is no
allegation showing that petitioners were victims of fraud
With the suspension of the Usury Law and the
when they entered into the agreement with
removal of interest ceiling, the parties are free to
RAMOS. Neither is there a showing that in their
stipulate the interest to be imposed on loans. Absent any
contractual relations with RAMOS, the PASCUALs
evidence of fraud, undue influence, or any vice of
were at a disadvantage on account of their moral
consent exercised by RAMOS on the PASCUALs, the
dependence, ignorance, mental weakness, tender age or
interest agreed upon is binding upon them. This Court is
other handicap, which would entitle them to the vigilant
not in a position to impose upon parties contractual
protection of the courts as mandated by Article 24 of the
stipulations different from what they have agreed
Civil Code. Apropos in our ruling in Vales vs. Villa:
upon. As declared in the decision of Cuizon v. Court of
Appeals,[17]
All men are presumed to be sane and normal and
subject to be moved by substantially the same
It is not the province of the court to alter a contract by
motives. When of age and sane, they must take care of
construction or to make a new contract for the parties;
themselves. In their relations with others in the
its duty is confined to the interpretation of the one
business of life, wits, sense, intelligence, training,
which they have made for themselves without regard to
ability and judgment meet and clash and contest,
its wisdom or folly as the court cannot supply material
sometimes with gain and advantage to all, sometimes
stipulations or read into the contract words which it
to a few only, with loss and injury to others. In these
does not contain.
contests men must depend upon themselves upon their
own abilities, talents, training, sense, acumen,
Thus, we cannot supplant the interest rate, which was
judgment. The fact that one may be worsted by
reduced to 5% per month without opposition on the part
another, of itself, furnishes no cause of complaint. One
of RAMOS.
man cannot complain because another is more able, or
better trained, or has better sense or judgment than he We are not persuaded by the argument of the
has; and when the two meet on a fair field the inferior PASCUALs that since RAMOS tried to hide the real
cannot murmur if the battle goes against him. The law transaction by imposing upon them the execution of a
furnishes no protection to the inferior simply because Deed of Absolute Sale with Right to Repurchase, he
he is inferior, any more than it protects the strong should not be allowed to collect more than 1% per
because he is strong. The law furnishes protection to month interest. It is undisputed that simultaneous with
both alike to one no more or less than to the other. It the execution of the said deed was the execution of
makes no distinction between the wise and the foolish, the Sinumpaang Salaysay, which set forth the true
the great and the small, the strong and the weak. The agreement of the parties. The PASCUALs cannot then
foolish may lose all they have to the wise; but that does claim that they did not know the real transaction.
not mean that the law will give it back to them again.
RAMOSs claim that the interest due should earn
Courts cannot follow one every step of his life and
legal interest cannot be acted upon favorably because he
extricate him from bad bargains, protect him from
did not appeal from the Order of the trial court of 5 June
unwise investments, relieve him from one-sided
1995, which simply ordered the payment by the
contracts, or annul the effects of foolish acts. Courts
PASCUALs of the amount of P511,000 without interest
cannot constitute themselves guardians of persons who
thereon. No relief can be granted a party who does not
are not legally incompetent. Courts operate not because
appeal.[18] Therefore, the order of the trial court should
one person has been defeated or overcome by another,
stand.
Credit Transactions Cases | Compiled by treeng| 82
 Incidentally, we noticed that in the Memorandum
filed by RAMOS, the ruling in Vales v. Valle was
reproduced by his counsel without the proper
citation. Such act constitutes plagiarism. Atty. Felimon
B. Mangahas is hereby warned that a repetition of such
act shall be dealt with accordingly.
WHEREFORE, in view of all the foregoing, the
petition is DENIED. The assailed decision of the Court
of Appeals in CA-G.R. CV No. 52848
is AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.

Credit Transactions Cases | Compiled by treeng| 83

G.R. No. L-57314 November 29, 1983
TEODORO SANCHEZ, petitioner,
vs.
HON. CARLOS R. BUENVIAJE, Presiding Judge,
Branch VII, Court of First Instance of Camarines
Sur, Iriga City, and ALEJO
SANCHEZ, respondents.
Andres C. Regalado for petitioner.
The Solicitor General for respondents.
ABAD SANTOS, J.:ñé+.£ªwph!1
This is a petition to review a decision rendered by the
defunct Court of First Instance of Camarines Sur,
Branch VII, with following factual background.
On August 25, 1976, Alejo Sanchez sued Teodoro
Sanchez and Leonor Santilles in the Municipal Court
of Bato, Camarines Sur, for the recovery of P2,000.00
which the latter had promised to pay in two notes. Said
notes also contained stipulations for interest at the rate
of 10% per month The Municipal Court rendered
judgment ordering Teodoro Sanchez only to pay to
Alejo Sanchez P2,000.00 plus interest thereon at the
legal rate from the filing of the complaint.
Teodoro appealed to the Court of First Instance of
Camarines Sur which rendered the following
judgment: têñ.£îhqwâ£
WHEREFORE, the judgment rendered
by the lower court is hereby
AFFIRMED with modification as to
costs. Judgment is hereby rendered,
ordering the defendant to pay his
indebtedness to plaintiff in the total sum
of P2,000.00, plus interest thereon at the
legal rate from the firing of the
complaint in this case to actual
payment. Defendant to pay double the
costs of this suit. (Rollo p. 30.)
In his petition for review, Teodoro claims that in a loan
with usurious interest both the loan and the usurious
interest are void.
Alejo was required to comment on the petition but it
appears that he died sometime in the latter part of 1980
and the early part of 1981. (Rollo, p. 42.) Accordingly,
his children were impleaded as respondents and
required to file comment which they failed to do
despite notice to them.
The absence of comment on the part of the private
respondents notwithstanding, We resolve the petition
without any difficulty.
It is now well-settled that: "the Usury Law (Act No.
2655), by its letter and spirit, does not deprive the
lender of his right to recover of the borrower the
money actually loaned this only in the case that the
interest collected is usurious. The law, as it is now,
does not provide for the forfeiture of the capital in
favor of the debtor in usurious contract ... (Lopez and
Javelona vs. El Hogar Filipino, 47 Phil. 249, 275
[1925].)
True it is that in Briones vs. Cammayo, L-23559, Oct.
4, 1971; 41 SCRA 404, Chief Justice Concepcion and
now Chief Justice Fernando concurred with Justice
Castro who opined that both loan and usurious interest
are void. However, it must be emphasized that eight
other justices maintained that only the usurious interest
is void but not the principal obligation.
WHEREFORE, finding the judgment sought to be
reviewed to be in accordance with law, the petition is
hereby dismissed for lack of merit with costs against
the petitioner.
SO ORDERED.1äwphï1.ñët
Concepcion, Jr., Guerrero, De Castro and Escolin JJ.,
concur.
Credit Transactions Cases | Compiled by treeng| 84
 G.R. No. 195166, July 08, 2015
SPOUSES SALVADOR ABELLA AND ALMA
ABELLA, Petitioners, v. SPOUSES ROMEO
ABELLA AND ANNIE ABELLA, Respondents.
DECISION
LEONEN, J.:
This resolves a Petition for Review on Certiorari under
Rule 45 of the Rules of Court praying that judgment be
rendered reversing and setting aside the September 30,
2010 Decision1 and the January 4, 2011 Resolution2 of
the Court of Appeals Nineteenth Division in CA-G.R.
CV No. 01388. The Petition also prays that
respondents Spouses Romeo and Annie Abella be
ordered to pay petitioners Spouses Salvador and Alma
Abella 2.5% monthly interest plus the remaining
balance of the amount loaned.
The assailed September 30, 2010 Decision of the Court
of Appeals reversed and set aside the December 28,
2005 Decision3 of the Regional Trial Court, Branch 8,
Kalibo, Aklan in Civil Case No. 6627. It directed
petitioners to pay respondents P148,500.00 (plus
interest), which was the amount respondents
supposedly overpaid. The assailed January 4, 2011
Resolution of the Court of Appeals denied petitioners'
Motion for Reconsideration.
The Regional Trial Court's December 28, 2005
Decision ordered respondents to pay petitioners the
supposedly unpaid loan balance of P300,000.00 plus
the allegedly stipulated interest rate of 30% per annum,
as well as litigation expenses and attorney's
fees.4redarclaw
On July 31, 2002, petitioners Spouses Salvador and
Alma Abella filed a Complaint5 for sum of money and
damages with prayer for preliminary attachment
against respondents Spouses Romeo and Annie Abella
before the Regional Trial Court, Branch 8, Kalibo,
Aklan. The case was docketed as Civil Case No.
6627.6redarclaw
In their Complaint, petitioners alleged that respondents
obtained a loan from them in the amount of
P500,000.00. The loan was evidenced by an
acknowledgment receipt dated March 22, 1999 and
was payable within one (1) year. Petitioners added that
respondents were able to pay a total of P200,000.00—
P100,000.00 paid on two separate occasions—leaving
an unpaid balance of P300,000.00.7redarclaw
In their Answer8 (with counterclaim and motion to
dismiss), respondents alleged that the amount involved
did not pertain to a loan they obtained from petitioners
but was part of the capital for a joint venture involving
the lending of money.9redarclaw
Specifically, respondents claimed that they were
approached by petitioners, who proposed that if
respondents were to "undertake the management of
whatever money [petitioners] would give them,
[petitioners] would get 2.5% a month with a 2.5%
service fee to [respondents]."10 The 2.5% that each
party would be receiving represented their sharing of
the 5% interest that the joint venture was supposedly
going to charge against its debtors. Respondents
further alleged that the one year averred by petitioners
was not a deadline for payment but the term within
which they were to return the money placed by
petitioners should the joint venture prove to be not
lucrative. Moreover, they claimed that the entire
amount of P500,000.00 was disposed of in accordance
with their agreed terms and conditions and that
petitioners terminated the joint venture, prompting
them to collect from the joint venture's borrowers.
They were, however, able to collect only to the extent
of P200,000.00; hence, the P300,000.00 balance
remained unpaid.11redarclaw
In the Decision12 dated December 28, 2005, the
Regional Trial Court ruled in favor of petitioners. It
noted that the terms of the acknowledgment receipt
executed by respondents clearly showed that: (a)
respondents were indebted to the extent of
P500,000.00; (b) this indebtedness was to be paid
within one (1) year; and (c) the indebtedness was
subject to interest. Thus, the trial court concluded that
respondents obtained a simple loan, although they later
invested its proceeds in a lending enterprise.13The
Regional Trial Court adjudged respondents solidarity
liable to petitioners. The dispositive portion of its
Decision reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, judgment is
hereby rendered:LawlibraryofCRAlaw
Credit Transactions Cases | Compiled by treeng| 85
 1. Ordering the defendants jointly and
severally to pay the plaintiffs the sum of
P300,000.00 with interest at the rate of
30% per annum from the time the
complaint was filed on July 31, 2002
until fully
paid;chanRoblesvirtualLawlibrary
2. Ordering the defendants to pay the
plaintiffs the sum of P2,227.50 as
reimbursement for litigation expenses,
and another sum of P5,000.00 as
attorney's fees.
For lack of legal basis, plaintiffs' claim for moral and
exemplary damages has to be denied, and for lack of
merit the counter-claim is ordered dismissed.14
In the Order dated March 13, 2006,15 the Regional
Trial Court denied respondents' Motion for
Reconsideration.
On respondents' appeal, the Court of Appeals ruled that
while respondents had indeed entered into a simple
loan with petitioners, respondents were no longer liable
to pay the outstanding amount of
P300,000.00.16redarclaw
The Court of Appeals reasoned that the loan could not
have earned interest, whether as contractually
stipulated interest or as interest in the concept of actual
or compensatory damages. As to the loan's not having
earned stipulated interest, the Court of Appeals
anchored its ruling on Article 1956 of the Civil Code,
which requires interest to be stipulated in writing for it
to be due.17 The Court of Appeals noted that while the
acknowledgement receipt showed that interest was to
be charged, no particular interest rate was
specified.18 Thus, at the time respondents were making
interest payments of 2.5% per month, these interest
payments were invalid for not being properly stipulated
by the parties. As to the loan's not having earned
interest in the concept of actual or compensatory
damages, the Court of Appeals, citing Eusebio-
Calderon v. People,19 noted that interest in the concept
of actual or compensatory damages accrues only from
the time that demand (whether judicial or extrajudicial)
is made. It reasoned that since respondents received
petitioners' demand letter only on July 12, 2002, any
interest in the concept of actual or compensatory
damages due should be reckoned only from then. Thus,
the payments for the 2.5% monthly interest made after
the perfection of the loan in 1999 but before the
demand was made in 2002 were invalid.20redarclaw
Since petitioners' charging of interest was invalid, the
Court of Appeals reasoned that all payments
respondents made by way of interest should be deemed
payments for the principal amount of
P500,000.00.21redarclaw
The Court of Appeals further noted that respondents
made a total payment of P648,500.00, which, as
against the principal amount of P500,000.00, entailed
an overpayment of P148,500.00. Applying the
principle of solutio indebiti, the Court of Appeals
concluded that petitioners were liable to reimburse
respondents for the overpaid amount of
P148,500.00.22 The dispositive portion of the assailed
Court of Appeals Decision reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
WHEREFORE, the Decision of the Regional Trial
Court is hereby REVERSED and SET ASIDE, and a
new one issued, finding that the Spouses Salvador and
Alma Abella are DIRECTED to jointly and severally
pay Spouses Romeo and Annie Abella the amount of
P148,500.00, with interest of 6% interest (sic) per
annum to be computed upon receipt of this decision,
until full satisfaction thereof. Upon finality of this
judgment, an interest as the rate of 12% per annum,
instead of 6%, shall be imposed on the amount due,
until full payment thereof.23
In the Resolution24 dated January 4, 2011, the Court of
Appeals denied petitioners' Motion for
Reconsideration.
Aggrieved, petitioners filed the present appeal25 where
they claim that the Court of Appeals erred in
completely striking off interest despite the parties'
written agreement stipulating it, as well as in ordering
them to reimburse and pay interest to respondents.
In support of their contentions, petitioners cite Article
1371 of the Civil Code,26 which calls for the
consideration of the contracting parties'
contemporaneous and subsequent acts in determining
their true intention. Petitioners insist that respondents'
consistent payment of interest in the year following the
perfection of the loan showed that interest at 2.5% per
month was properly agreed upon despite its not having
been expressly stated in the acknowledgment receipt.
Credit Transactions Cases | Compiled by treeng| 86
They add that during the proceedings before the
Regional Trial Court, respondents admitted that
interest was due on the loan.27redarclaw
In their Comment,28 respondents reiterate the Court of
Appeals' findings that no interest rate was ever
stipulated by the parties and that interest was not due
and demandable at the time they were making interest
payments.29redarclaw
30
In their Reply, petitioners argue that even though no
interest rate was stipulated in the acknowledgment
receipt, the case fell under the exception to the Parol
Evidence Rule. They also argue that there exists
convincing and sufficiently credible evidence to
supplement the imperfection of the acknowledgment
receipt.31redarclaw
For resolution are the following
issues:LawlibraryofCRAlaw
First, whether interest accrued on respondents' loan
from petitioners, If so, at what rate?
Second, whether petitioners are liable to reimburse
respondents for the Litter's supposed excess payments
and for interest.
I
As noted by the Court of Appeals and the Regional
Trial Court, respondents entered into a simple loan
or mutuum, rather than a joint venture, with petitioners.
Respondents' claims, as articulated in their testimonies
before the trial court, cannot prevail over the clear
terms of the document attesting to the relation of the
parties. "If the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall
control."32redarclaw
Articles 1933 and 1953 of the Civil Code provide the
guideposts that determine if a contractual relation is
one of simple loan or mutuum:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
Art. 1933. By the contract of loan, one of the parties
delivers to another, either something not consumable
so that the latter may use the same for a certain time
and return it, in which case the contract is called a
commodatum; or money or other consumable
thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to
pay interest.
In commodatum the bailor retains the ownership of the
thing loaned, while in simple loan, ownership passes to
the borrower.
....
Art. 1953. A person who receives a loan of money or
any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality. (Emphasis
supplied)
On March 22, 1999, respondents executed an
acknowledgment receipt to petitioners, which
states:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
Batan, Aklan
March 22, 1999
This is to acknowledge receipt of the Amount of Five
Hundred Thousand (P500,000.00) Pesos from Mrs.
Alma R. Abella, payable within one (1) year from date
hereof with interest.
Annie C. Abella (sgd.) Romeo M. Abella
(sgd.)33
(Emphasis supplied)
The text of the acknowledgment receipt is
uncomplicated and straightforward. It attests to: first,
respondents' receipt of the sum of P500,000.00 from
petitioner Alma Abella; second, respondents' duty to
pay tack this amount within one (1) year from March
22, 1999; and third, respondents' duty to pay interest.
Consistent with what typifies a simple loan, petitioners
delivered to respondents with the corresponding
condition lat respondents shall pay the same amount to
petitioners within one (1) year.
II
Although we have settled the nature of the contractual
relation between petitioners and respondents,
Credit Transactions Cases | Compiled by treeng| 87
controversy persists over respondents' duty to pay
conventional interest, i.e., interest as the cost of
borrowing money.34redarclaw
Article 1956 of the Civil Code spells out the basic rule
that "[n]o interest shall be due unless it has been
expressly stipulated in writing."
On the matter of interest, the text of the
acknowledgment receipt is simple, plain, and
unequivocal. It attests to the contracting parties' intent
to subject to interest the loan extended by petitioners to
respondents. The controversy, however, stems from the
acknowledgment receipt's failure to state the exact rate
of interest.
Jurisprudence is clear about the applicable interest rate
if a written instrument fails to specify a rate.
In Spouses Toring v. Spouses Olan,35 this court
clarified the effect of Article 1956 of the Civil Code
and noted that the legal rate of interest (then at 12%) is
to apply: "In a loan or forbearance of money, according
to the Civil Code, the interest due should be that
stipulated in writing, and in the absence thereof, the
rate shall be 12% per annum."36redarclaw
Spouses Toring cites and restates (practically verbatim)
what this court settled in Security Bank and Trust
Company v. Regional Trial Court of Makati, Branch
61: "In a loan or forbearance of money, the interest due
should be that stipulated in writing, and in the absence
thereof the rate shall be 12% per annum."37redarclaw
Security Bank also refers to Eastern Shipping Lines,
Inc. v. Court of Appeals, which, in turn, stated:38
ChanRoblesVirtualawlibrary
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.39 (Emphasis supplied)
The rule is not only definite; it is cast in mandatory
language. From Eastern Shipping to Security
Bank to Spouses Toring, jurisprudence has repeatedly
used the word "shall," a term that has long been settled
to denote something imperative or operating to impose
a duty.40 Thus, the rule leaves no room for alternatives
or otherwise does not allow for discretion.
It requires the application of the legal rate of interest.
Our intervening Decision in Nacar v. Gallery
Frames41 recognized that the legal rate of interest has
been reduced to 6% per annum:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
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 2 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799, Series of 2013,
effective July 1, 2013, the pertinent portion of which
reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
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:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
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 X305.1 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 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 Lines 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,
Credit Transactions Cases | Compiled by treeng| 88
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.42(Emphasis supplied,
citations omitted)
Nevertheless, both Bangko Sentral ng Pilipinas
Circular No. 799, Series of 2013 and Nacar retain the
definite and mandatory framing of the rule articulated
in Eastern Shipping, Security Bank, and Spouses
Toring. Nacar even restates Eastern
Shipping:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
To recapitulate and for future guidance, the guidelines
laid down in the case of Eastern Shipping Lines are
accordingly modified to embody BSP-MB Circular No.
799, as follows:LawlibraryofCRAlaw
....
1. When the obligation is breached, and it
consists in the payment of a sum of
money, i.e., a Joan 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.43 (Emphasis
supplied, citations omitted)
Thus, it remains that where interest was stipulated in
writing by the debtor and creditor in a simple loan or
mutuum, but no exact interest rate was mentioned, the
legal rate of interest shall apply. At present, this is 6%
per annum, subject to Nacar's qualification on
prospective application.
Applying this, the loan obtained by respondents from
petitioners is deemed subjected to conventional interest
at the rate of 12% per annum, the legal rate of interest
at the time the parties executed their agreement.
Moreover, should conventional interest still be due as
of July 1, 2013, the rate of 12% per annum shall
persist as the rate of conventional interest.
This is so because interest in this respect is used as a
surrogate for the parties' intent, as expressed as of the
time of the execution of their contract. In this sense,
the legal rate of interest is an affirmation of the
contracting parties' intent; that is, by their contract's
silence on a specific rate, the then prevailing legal rate
of interest shall be the cost of borrowing money. This
rate, which by their contract the parties have settled on,
is deemed to persist regardless of shifts in the legal rate
of interest. Stated otherwise, the legal rate of
interest, when applied as conventional interest, shall
always be the legal rate at the time the agreement was
executed and shall not be susceptible to shifts in rate.
Petitioners, however, insist on conventional interest at
the rate of 2.5% per month or 30% per annum. They
argue that the acknowledgment receipt fails to show
the complete and accurate intention of the contracting
parties. They rely on Article 1371 of the Civil Code,
which provides that the contemporaneous and
subsequent acts of the contracting parties shall be
considered should there be a need to ascertain their
intent.44 In addition, they claim that this case falls
under the exceptions to the Parol Evidence Rule, as
spelled out in Rule 130, Section 9 of the Revised Rules
on Evidence.45redarclaw
It is a basic precept in legal interpretation and
construction that a rule or provision that treats a subject
with specificity prevails over a rule or provision that
treats a subject in general terms.46redarclaw
The rule spelled out in Security Bank and Spouses
Toring is anchored on Article 1956 of the Civil Code
and specifically governs simple loans or mutuum.
Mutuum is a type of nominate contract that is
specifically recognized by the Civil Code and for
which the Civil Code provides a specific set of
governing rules: Articles 1953 to 1961. In contrast,
Article 11371 is among the Civil Code provisions
generally dealing with contracts. As this case
particularly involves a simple loan, the specific rule
spelled out in Security Bank and Spouses Toring finds
preferential application as against Article 1371.
Contrary to petitioners' assertions, there is no room for
entertaining extraneous (or parol) evidence. In Spouses
Bonifacio and Lucia Paras v. Kimwa Construction and
Development Corporation,47 we spelled out the
Credit Transactions Cases | Compiled by treeng| 89
requisites for the admission of parol
evidence:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
In sum, two (2) things must be established for parol
evidence to be admitted: first, that the existence of any
of the four (4) exceptions has been put in issue in a
party's pleading or has not been objected to by the
adverse party; and second, that the parol evidence
sought to be presented serves to form the basis of the
conclusion proposed by the presenting party.48
The issue of admitting parol evidence is a matter that is
proper to the trial, not the appellate, stage of a case.
Petitioners raised the issue of applying the exceptions
to the Parol Evidence Rule only in the Reply they filed
before this court. This is the last pleading that either of
the parties has filed in the entire string of proceedings
culminating in this Decision. It is, therefore, too late
for petitioners to harp on this rule. In any case, what is
at issue is not admission of evidence per se, but the
appreciation given to the evidence adduced by the
parties. In the Petition they filed before this court,
petitioners themselves acknowledged that checks
supposedly attesting to payment of monthly interest at
the rate of 2.5% were admitted by the trial court (and
marked as Exhibits "2," "3," "4," "5," "6," "7," and
"8").49 What petitioners have an issue with is not the
admission of these pieces of evidence but how these
have not been appreciated in a manner consistent with
the conclusions they advance.
Even if it can be shown that the parties have agreed to
monthly interest at the rate of 2.5%, this is
unconscionable. As emphasized in Castro v. Tan,50 the
willingness of the parties to enter into a relation
involving an unconscionable interest rate is
inconsequential to the validity of the stipulated
rate:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
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.51
The imposition of an unconscionable interest rate is
void ab initio for being "contrary to morals, and the
law."52redarclaw
In determining whether the rate of interest is
unconscionable, the mechanical application of pre-
established floors would be wanting. The lowest rates
that have previously been considered unconscionable
need not be an impenetrable minimum. What is more
crucial is a consideration of the parties' contexts.
Moreover, interest rates must be appreciated in light of
the fundamental nature of interest as compensation to
the creditor for money lent to another, which he or she
could otherwise have used for his or her own purposes
at the time it was lent. It is not the default vehicle for
predatory gain. As such, interest need only be
reasonable. It ought not be a supine mechanism for the
creditor's unjust enrichment at the expense of another.
Petitioners here insist upon the imposition of 2.5%
monthly or 30% annual interest. Compounded at this
rate, respondents' obligation would have more than
doubled—increased to 219.7% of the principal—by the
end of the third year after which the loan was
contracted if the entire principal remained unpaid. By
the end of the ninth year, it would have multiplied
more than tenfold (or increased to 1,060.45%). In
2015, this would have multiplied by more than 66
times (or increased to 6,654.17%). Thus, from an
initial loan of only P500,000.00, respondents would be
obliged to pay more than P33 million. This is grossly
unfair, especially since up to the fourth year from when
the loan was obtained, respondents had been
assiduously delivering payment. This reduces their best
efforts to satisfy their obligation into a protracted
servicing of a rapacious loan.
The legal rate of interest is the presumptive reasonable
compensation for borrowed money. While parties are
free to deviate from this, any deviation must be
reasonable and fair. Any deviation that is far-removed
is suspect. Thus, in cases where stipulated interest is
more than twice the prevailing legal rate of interest, it
is for the creditor to prove that this rate is required by
prevailing market conditions. Here, petitioners have
articulated no such justification.
In sum, Article 1956 of the Civil Code, read in light of
established jurisprudence, prevents the application of
any interest rate other than that specifically provided
for by the parties in their loan document or, in lieu of
it, the legal rate. Here, as the contracting parties failed
to make a specific stipulation, the legal rate must
Credit Transactions Cases | Compiled by treeng| 90
apply. Moreover, the rate that petitioners adverted to is
unconscionable. The conventional interest due on the
principal amount loaned by respondents from
petitioners is held to be 12% per annum.
III
Apart from respondents' liability for conventional
interest at the rate of 12% per annum, outstanding
conventional interest—if any is due from
respondents—shall itself earn legal interest from the
time judicial demand was made by petitioners, i.e., on
July 31, 2002, when they filed their Complaint. This is
consistent with Article 2212 of the Civil Code, which
provides:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
Art. 2212. Interest due shall earn legal interest from the
time it is judicially demanded, although the obligation
may be silent upon this point.
So, too, Nacar states that "the interest due shall itself
earn legal interest from the time it is judicially
demanded."53redarclaw
Consistent with Nacar, as well as with our ruling
in Rivera v. Spouses Chua,54 the interest due on
conventional interest shall be at the rate of 12% per
annum from July 31, 2002 to June 30, 2013.
Thereafter, or starting July 1, 2013, this shall be at the
rate of 6% per annum.
IV
Proceeding from these premises, we find that
respondents made an overpayment in the amount of
P3,379.17.
As acknowledged by petitioner Salvador Abella,
respondents paid a total of P200,000.00, which was
charged against the principal amount of P500,000.00.
The first payment of P100,000.00 was made on June
30, 2001,55 while the second payment of P100,000.00
was made on December 30, 2001.56redarclaw
The Court of Appeals' September 30, 2010 Decision
stated that respondents paid P6,000.00 in March
1999.57redarclaw
The Pre-Trial Order dated December 2, 2002,58 stated
that the parties admitted that "from the time the
principal sum of P500,000.00 was borrowed from
[petitioners], [respondents] ha[d] been religiously
paying"59 what was supposedly interest "at the rate of
2.5% per month."60redarclaw
From March 22, 1999 (after the loan was perfected) to
June 22, 2001 (before respondents' payment of
P100,000.00 on June 30, 2001, which was deducted
from the principal amount of P500,000.00), the 2.5%
monthly "interest" was pegged to the principal amount
of P500,000.00. These monthly interests, thus,
amounted to P12,500.00 per month. Considering that
the period from March 1999 to June 2001 spanned
twenty-seven (27) months, respondents paid a total of
P337,500.00.61redarclaw
From June 22, 2001 up to December 22, 2001 (before
respondents' payment of another P100,000.00 on
December 30, 2001, which was deducted from the
remaining principal amount of P400,000.00), the 2.5%
monthly "interest" was pegged to the remaining
principal amount of P400,000.00. These monthly
interests, thus, amounted to P10,000.00 per month.
Considering that this period spanned six (6) months,
respondents paid a total of P60,000.00.62redarclaw
From after December 22, 2001 up to June 2002 (when
petitioners filed their Complaint), the 2.5% monthly
"interest" was pegged to the remaining principal
amount of P300,000.00. These monthly interests, thus,
amounted to P7,500.00 per month. Considering that
this period spanned six (6) months, respondents paid a
total of P45,000.00.63redarclaw
Applying these facts and the properly applicable
interest rate (for conventional interest, 12% per annum;
for interest on conventional interest, 12% per annum
from July 31, 2002 up to June 30, 2013 and 6% per
annum henceforth), the following conclusions may be
drawn:LawlibraryofCRAlaw
By the end of the first year following the perfection of
the loan, or as of March 21, 2000, P560,000.00 was
due from respondents. This consisted cf the principal
of P500,000.00 and conventional interest of
P60,000.00.
Within this first year, respondents made twelve (12)
monthly payments totalling P150,000.00 (P12,500.00
each from April 1999 to March 2000). This was in
addition to their initial payment of P6,000.00 in March
999.
Credit Transactions Cases | Compiled by treeng| 91
Application of payments must be in accordance with
Article 1253 of the Civil Code, which
reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
Art. 1253. If the debt produces interest, payment of the
principal shall not be deemed to have been made until
the interests have been covered.
Thus, the payments respondents made must first be
reckoned as interest payments. Thereafter, any excess
payments shall be charged against the principal. As
respondents paid a total of P156,000.00 within the first
year, the conventional interest of P60,000.00 must be
deemed fully paid and the remaining amount that
respondents paid (i.e., P96,000.00) is to be charged
against the principal. This yields a balance of
P404,000.00.
By the end of the second year following the perfection
of the loan, or as of March 21, 2001, P452,480.00 was
due from respondents. This consisted of the
outstanding principal of P404,000.00 and conventional
interest of P48,480.00.
Within this second year, respondents completed
another round of twelve (12) monthly payments
totaling P150,000.00.
Consistent with Article 1253 of the Civil Code, as
respondents paid a total of P156,000.00 within the
second year, the conventional interest of P48,480.00
must be deemed fully paid and the remaining amount
that respondents paid (i.e., P101,520.00) is to be
charged against the principal. This yields a balance of
P302,480.00.
By the end of the third year following the perfection of
the loan, or as of March 21, 2002, P338,777.60 was
due from respondents. This consists of he outstanding
principal of P302,480.00 and conventional interest of
P36,297.60.
Within this third year, respondents paid a total of
P320,000.00, as follows:LawlibraryofCRAlaw
(a) Between March 22, 2001 and June 30, 2001,
respondents completed three (3) monthly payments
of P12,500.00 each, totaling P37,500.00.
(b)On June 30, 2001, respondents paid P100,000.00,
which was charged as principal payment.
(c) Between June 30, 2001 and December 30, 2001,
respondents delivered monthly payments of
P10,000.00 each. At this point, the monthly
payments no longer amounted to P12,500.00 each
because the supposed monthly interest payments
were pegged to the supposedly remaining principal
of P400,000.00. Thus, during this period, they paid
a total of six (6) monthly payments totaling
P60,000.00.
(d)On December 30, 2001, respondents paid
P100,000.00, which, like the June 30, 2001
payment, was charged against the principal.
(e) From the end of December 2002 to the end of
February 2002, respondents delivered monthly
payments of P7,500.00 each. At this point, the
supposed monthly interest payments were now
pegged to the supposedly remaining principal of
P300,000.00. Thus, during this period, they
delivered three (3) monthly payments totaling
P22,500.00.
Consistent with Article 1253 of the Civil Code, as
respondents paid a total of P320,000.00 within the
third year, the conventional interest of P36,927.50
must be deemed fully paid and the remaining amount
that respondents paid (i.e., P283,702.40) is to be
charged against the principal. This yields a balance of
P18,777.60.
By the end of the fourth year following the perfection
of the loan, or as of March 21, 2003, P21,203.51 would
have been due from respondents. This consists of: (a)
the outstanding principal of P18,777.60, (b)
conventional interest of P2,253.31, and (c) interest due
on conventional interest starting from July 31, 2002,
the date of judicial demand, in the amount of P172.60.
The last (i.e., interest on interest) must be pro-rated.
There were only 233 days from July 31, 2002 (the date
of judicial demand) to March 21, 2003 (the end of the
fourth year); this left 63.83% of the fourth year, within
which interest on interest might have accrued. Thus,
the full annual interest on interest of 12% per annum
could not have been completed, and only the
proportional amount of 7.66% per annum may be
properly imposed for the remainder of the fourth year.
From the end of March 2002 to June 2002, respondents
delivered three (3) more monthly payments of
Credit Transactions Cases | Compiled by treeng| 92
P7,500.00 each. Thus, during this period, they
delivered three (3) monthly payments totalling
P22,500.00.
At this rate, however, payment would have been
completed by respondents even before the end of the
fourth year. Thus, for precision, it is more appropriate
to reckon the amounts due as against payments made
on monthly, rather than an annual, basis.
By April 21, 2002, P18,965.38 (i.e., remaining
principal of P18,777.60 plus pro-rated monthly
conventional interest at 1%, amounting to P187.78)
would have been due from respondents. Deducting the
monthly payment of P7,500.00 for the preceding
month in a manner consistent with Article 1253 of the
Civil Code would yield a balance of P11,465.38.
By May 21, 2002, P11,580.03 (i.e., remaining principal
of P11,465.38 plus pro-rated monthly conventional
interest at 1%, amounting to P114.65) would have been
due from respondents. Deducting the monthly payment
of P7,500.00 for the preceding month in a manner
consistent with Article 1253 of the Civil Code would
yield a balance of P4,080.03.
By June 21, 2002, P4,120.83 (i.e., remaining principal
of P4,080.03 plus pro-rated monthly conventional
interest at 1%, amounting to P40.80) would have been
due from respondents. Deducting the monthly payment
of P7,500.00 for the preceding month in a manner
consistent with Article 1253 of the Civil Code would
yield a negative balance of P3,379.17.
Thus, by June 21, 2002, respondents had not only fully
paid the principal and all the conventional interest that
had accrued on their loan. By this date, they also
overpaid P3,379.17. Moreover, while hypothetically,
interest on conventional interest would not have run
from July 31, 2002, no such interest accrued since
there was no longer any conventional interest due from
respondents by then.
V is recovered.
As respondents made an overpayment, the principle
of solutio indebiti as provided by Article 2154 of the
Civil Code64 applies. Article 2154
reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
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.
In Moreno-Lentfer v. Wolff,65 this court explained the
application of solutio indebiti:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
The quasi-contract of solutio indebiti harks back to the
ancient principle that no one shall enrich himself
unjustly at the expense of another. It applies where (1)
a payment is made when there exists no binding
relation between the payor, who has no duty to pay,
and the person who received the payment, and (2) the
payment is made through mistake, and not through
liberality or some other cause.66
As respondents had already fully paid the principal and
all conventional interest that had accrued, they were no
longer obliged to make further payments. Any further
payment they made was only because of a mistaken
impression that they were still due. Accordingly,
petitioners are now bound by a quasi-contractual
obligation to return any and all excess payments
delivered by respondents.
Nacar provides that "[w]hen 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."67 This applies to
obligations arising from quasi-contracts such as solutio
indebiti.
Further, Article 2159 of the Civil Code
provides:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
Art. 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is
involved, or shall be liable for fruits received or which
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or
impairment of the thing from any cause, and for
damages to the person who delivered the thing, until it
Consistent however, with our finding that the excess
payment made by respondents were borne out of a
mere mistake that it was due, we find it in the better
interest of equity to no longer hold petitioners liable for
interest arising from their quasi-contractual obligation.
Credit Transactions Cases | Compiled by treeng| 93
Nevertheless, Nacar also
provides:LawlibraryofCRAlaw

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.68

Thus, interest at the rate of 6% per annum may be

properly imposed on the total judgment award. This
shall be reckoned from the finality of this Decision
until its full satisfaction.

WHEREFORE, the assailed September 30, 2010

Decision and the January 4, 2011 Resolution of the
Court of Appeals Nineteenth Division in CA-G.R. CV
No. 01388 are SET ASIDE. Petitioners Spouses
Salvador and Alma Abella are DIRECTED to jointly
and severally reimburse respondents Spouses Romeo
and Annie Abella the amount of P3,379.17, which
respondents have overpaid.

A legal interest of 6% per annum shall likewise be

imposed on the total judgment award from the finality
of this Decision until its full satisfaction.

Credit Transactions Cases | Compiled by treeng| 94

G.R. No. 183360 September 8, 2014
ROLANDO C. DE LA PAZ,* Petitioner,
vs.
L & J DEVELOPMENT COMPANY, Respondent.
DECISION
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 CA-G.R. SP 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 ₱350,000.00, plus 12% interest per
annumreckoned 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 ₱350,000.00
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.,
₱21,000.00. From December 2000 to August 2003,
L&J paid Rolando a total of ₱576,000.007 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 before the MeTC, docketed as
Civil Case No. 05-7755. Rolando alleged,
amongothers, that L&J’s debtas of January 2005,
inclusive of the monthly interest, stood at ₱772,000.00;
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 ₱350,000.00 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, heagreed to lend them money. He
personally met withAtty. Salonga and their meeting
was cordial.
He narrated that when L&J was in the process of
borrowing the ₱350,000.00 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.
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 suchrate from 2000 to 2003, it isalready
estopped from impugning the same. Nonetheless, for
reasons of equity, the saidcourt reduced the interest
rate to 12% per annumon the remaining principal
obligation of ₱350,000.00. 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 ofL&J in
Credit Transactions Cases | Compiled by treeng| 95
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 (₱350,000.00)
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 (₱5,000.00) as and for
attorney’s fees; and
c) to pay the costs of this suit.
SO ORDERED.11
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 ₱21,000.00 based on
the agreed-upon interest rate of 6%monthly and from
April 2003 to August 2003, interest paymentsin
various amounts.13 The total of interest payments made
amounts to ₱576,000.00 – an amount which is even
more than the principal obligation of ₱350,000.00
L&J insisted that the 6% monthly interest rate is
unconscionable and immoral. Hence, the 12% per
annumlegal 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
interestit ought to pay from December 2000 to March
2003 and from April 2003 to August 2003, only
amounts to ₱105,000.00. If this amount is deducted
from the total interest paymentsalready made, which is
₱576,000.00, the amount of ₱471,000.00 appears to
have beenpaid over and above what is due. Applying
the rule on compensation, the principal loan of
₱350,000.00 should be set-off against the ₱471,000.00,
resulting in the complete payment of the principal loan.
Unconvinced, the RTC, inits 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
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.
In a Decision16 dated February 27, 2008, the
CAreversed and set aside the RTC Decision. The CA
stressed that the parties failedto 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 ₱576,000.00 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 Accordingly, it set off
the principal loan of ₱350,000.00 against the
₱576,000.00 total interest payments made, leaving an
excess of ₱226,000.00, 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 ₱226,000.00,plus interest of 12% per
annumfrom the finality of this decision.
Costs of suit to be paid by respondent Dela Paz.
Credit Transactions Cases | Compiled by treeng| 96
SO ORDERED.19
In his Motion for Reconsideration,20 Rolando argued
thatthe 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
withinlegal 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 ratecould 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.
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 rateshould
not have been invalidated because Atty. Salonga took
advantage of his legal knowledge to hoodwink him
into believing that no document was necessaryto 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 scenariothat ‘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
agreedupon by both parties, not by the borrower alone.
Furthermore, jurisprudence has nullified interestrates
on loans of 3% per month and higher as these rates are
contrary to moralsand public interest. And while
Rolando raises bad faithon Atty. Salonga’s part, L&J
avers thatsuch 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 isdependent 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.
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
bedue 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 partof 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
admitted that he had no prior communication with
Atty. Salonga. Despite Atty. Salonga being a complete
stranger, he immediately trusted him and lent his
Credit Transactions Cases | Compiled by treeng| 97
company ₱350,000.00, 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
cannotconstitute 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 ratefor more than two and a
half years. In fact, in its pleadings before the MeTCand
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 thatis
against public policy."
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 non-existent
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 expectedto 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 onecase, 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 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 ₱40,000.00 a month for
six months on a ₱1,000,000.00 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 annumis "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 notmake the
stipulation on [an unconscionable] interest valid."34
As exhaustibly discussed,no monetary interest isdue
Rolando pursuant to Article 1956.1âwphi1 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, Rolando is
bound to return the excess payment of ₱226,000.00 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
₱226,000.00 which Rolando is ordered to pay L&J
shall earn an interest of 6% per annumfrom the finality
of this Decision.
Credit Transactions Cases | Compiled by treeng| 98
WHEREFORE, the Decision dated February 27, 2008
of the Court of Appeals in CA-G.R. SP 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
,₱226,000.00, plus interest of 6o/o per annum from the
finality of this Decision until fully paid.

SO ORDERED.

Credit Transactions Cases | Compiled by treeng| 99

uncement as to costs.

Credit Transactions Cases | Compiled by treeng| 100

decision, being in possession of the evidence and the
requisite knowledge of the law, was in the best position
to determine the correct computation of such amount.

Necessarily, the computation of the amount due under

the writ is not the duty of the sheriff. Such amount
should have already been specifically stated in the writ
of execution issued by the court. All that the sheriff
should do upon receipt of that writ is the ministerial
duty of enforcing it.

Accordingly, we cannot penalize respondent sheriff for

arriving at an erroneous amount due under the Writ by
applying the wrong rate of interest. Nonetheless, he is
guilty of malfeasance. The determination of the
amount due under the Writ properly pertained to the
judge. Yet, respondent assumed that task. For doing so
instead of pointing out to the court the deficiency in the
Writ, respondent should be sanctioned. He should not
have arrogated unto himself judicial functions that
were to be performed only by the judge. In so doing, he
acted arbitrarily and without any semblance of
authority, to the prejudice of complainant.

WHEREFORE, Respondent Rodrigo G. Baliwag is

hereby found guilty of malfeasance and is fined
P5,000, with a warning that a repetition of the same or
a similar offense shall be dealt with more severely.

SO ORDERED.

Credit Transactions Cases | Compiled by treeng| 101