G.R. No.
130994, September 18, 2002 sum of money and damages, with application for a temporary restraining
SPOUSES FELIMON AND MARIA BARRERA, PETITIONERS,
VS.
SPOUSES EMILIANO AND MARIA CONCEPCION LORENZO,
RESPONDENTS.
DECISION
SANDOVAL-GUTIERREZ, J.:
On December 4, 1990, spouses Felimon and Maria Barrera, petitioners,
borrowed P230,000.00 from spouses Miguel and Mary Lazaro. The loan was
secured by a real estate mortgage[1] over petitioners' residential lot consisting
of 432 square meters located at Bunlo, Bocaue, Bulacan and registered in
their names under Transfer Certificate of Title (TCT) T-42.373 (M)[2] of the
Registry of Deeds of Bulacan.
A month and a half later, the Lazaro spouses needed money and informed
petitioners that they would transfer the loan to spouses Emiliano and Maria
Concepcion Lorenzo, respondents. Consequently, on May 14, 1991,
petitioners executed another real estate mortgage[3] over their lot, this time in
favor of the respondents to secure the loan of P325,000.00, which the latter
claimed as the amount they paid spouses Lazaro. The mortgage contract
provides, among others, that the new loan shall be payable within three (3)
months, or until August 14, 1991; that it shall earn interest at 5% per month;
and that should petitioners fail to pay their loan within the said period, the
mortgage shall be foreclosed.
When petitioners failed to pay their loan in full on August 14, 1991,
respondents allowed them to complete their payment until December 23,
1993. On this date, they made a total payment of P687,000.00.
On January 17, 1994, respondents wrote petitioners demanding payment of
P325,000.00, plus interest, otherwise they would foreclose the mortgage.[4] In
turn, petitioners responded, claiming that they have overpaid their obligation
and demanding the return of their land title and refund of their excess
payment.[5] This prompted respondents to file a petition[6] for extrajudicial
foreclosure of mortgage with the Office of the Ex-Officio Sheriff, Malolos,
Bulacan, docketed therein as EJF 19-94.
For their part, petitioners filed with the Regional Trial Court (RTC), Branch 17,
Malolos, Bulacan, a complaint for the return of their TCT No. T-42.373 (M),
order and preliminary injunction, docketed as Civil Case No. 156-M-94.[7]
In their opposition[8] to the application for a preliminary injunction,
respondents alleged that petitioners' loan has been restructured three times
and that their unpaid balance as of March 14, 1994 was P543,622.00.
After hearing petitioners' application for a preliminary injunction, the RTC
issued an order,[9] enjoining the sheriff from proceeding with the foreclosure of
mortgage, upon their posting of a bond in the amount of P543,622.00.
Thereafter, trial on the merits ensued.
On July 31, 1995, the RTC rendered judgment,[10] the dispositive portion of
which reads:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiffs (now petitioners) and against the defendants (now respondents),
ordering the latter:
1. to return to the plaintiffs the amount of P215,750.00 representing the
overpaid amount;
2. to return to the plaintiffs the owner's copy of TCT No. T-42.373 (M) offered
as security;
3. to pay P20,000.000 as attorney's fees;
4. to pay the costs of the suit.
"The writ of preliminary injunction issued on March 21, 1994 is hereby made
permanent.
"SO ORDERED."[11]
The trial court held that the stipulated 5% monthly interest to be paid by
petitioners corresponds only to the period from May 14, 1991 up to August
14, 1991, the term of the loan. Thereafter, the monthly interest should be
12% per annum. The trial court concluded that petitioners made an
overpayment of P214,750.00.
Upon appeal, docketed as CA GR-CV No. 51095, the Court of Appeals, in a
Decision[12] dated June 18, 1997, held:
"We reverse.
"The law and jurisprudence clearly provide that 'if the debt produces interest,
payment of the principal shall not be deemed to have been made until the
interests have been covered.' (Article 1253, New Civil Code; Gobonseng, Jr. vs.
Court of Appeals, 246 SCRA 472). Once it is admitted that an obligation bears
interest, partial payments are to be applied first on account of the interest and
then to reduce the principal. (San Jose vs. Ortega, 11 Phil. 442; Sunico vs.
Ramirez, 14 Phil. 500). We thus find no support, whether in law or in
jurisprudence, for the Decision of the court a quo to apply 'the bigger
amounts of P40,000.00, P37,000.00, P50,000.00 among others, given several
times by the Barrera spouses x x x for the payment of the principal loan'
when the interests due on the loan that have accumulated through the years
have not been fully satisfied.
"We also do not agree that the stipulated monthly interest of 5% was to apply
only to the 3-month effectivity period of the loan. This is a flawed and a
grossly unfair interpretation of the terms and conditions of the agreement of
the parties. To rule in this wise is to sanction the irregular performance of
one's obligation. The Barrera spouses will be emboldened not to pay their loan
within the agreed period of 3-months since on the fourth month and
thereafter, they do not have to pay anymore the 5% monthly interest, but only
the 12% legal interest per annum, or a measly 1% interest per month. Such
an interpretation is totally unfair and unjust to the creditors who could have
used their money in some other ways. Until such time that the Barreras have
fully paid their total indebtedness, the 5% monthly interest subsists, there
being no stipulation to the contrary.
"While we commiserate with the plight of the Barrera spouses, we cannot
change the terms of the loan agreement between them and the Lorenzos as
'the courts have no right to make contracts for (the) parties.' (Tolentino and
Manio vs. Gonzales Sy Chian, 5 Phil. 577). A contract is the law between the
parties which not even this Court can interfere with. The only requirement is
that the same be not contrary to law, morals and good customs x x x (Article
1306, New Civil Code). We find the agreement to pay a 5% monthly interest
until the loan is fully paid to be reasonable and sanctioned by regular usage
and practice.
"The Barreras should, therefore, be required to pay the balance of their
indebtedness, including the interests thereof. Failure to pay the same should
warrant the foreclosure of their mortgaged property to satisfy their obligation
to the Lorenzo spouses."[13]
Petitioners filed a motion for reconsideration but was denied.[14]
Hence this petition.
The sole issue for our resolution is whether the 5% monthly interest on the
loan was only for three (3) months, or from May 14, 1991 up to August 14,
1991, as maintained by petitioners, or until the loan was fully paid, as
claimed by respondents.
When the terms of a contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulations governs.[15] In
such cases, courts have no authority to alter a contract by construction or to
make a new contract for the parties; its duty is confined to the interpretation
of the one which they have made for themselves without regard to its wisdom
or folly as the court cannot supply material stipulations or read into the
contract words which it does not contain.[16] It is only when the contract is
vague and ambiguous that courts are permitted to resort to construction of
its terms and determine the intention of the parties therein.
The salient provisions of the mortgage contract read:
"a) Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan, o hanggang
sa Agosto 14, 1991.
b) Ang tubo na aming napagkasunduan ay 5%, o cinco por ciento isang
buwan.
c) Na sakaling mabayaran ko ang aming pagkakautang sa mag-asawa na
P325,000.00 ang kasulatang ito ay wala ng lakas at kabuluhan, subalit kung
hindi ko mabayaran ang aming pinagkakautangan sa takdang panahong 3
buwan sila ay binibigyan ko nang laya at kapangyarihan na masubasta nila
ang lupang aming ipinanagot sa labas ng hukuman sa bisa ng Batas Blg.
3135 at susog nito at akong may utang ang siyang sagot sa lahat ng gastos at
pati bayad sa abogado sa nasabing subasta sa labas ng
hukuman."[17] (emphasis supplied)
It is clear from the above stipulations that the loan shall be payable within
three (3) months, or from May 14, 1991 up to August 14, 1991. During such
period, the loan shall earn an interest of 5% per month. Furthermore, the
contract shall have no force and effect once the loan shall have been fully paid
within the three-month period, otherwise, the mortgage shall be foreclosed
extrajudicially under Act No. 3135.
Records show that upon maturity of the loan on August 14, 1991, petitioners
failed to pay their entire obligation. Instead of exercising their right to have the
mortgage foreclosed, respondents allowed petitioners to pay the loan on a
monthly installment basis until December, 1993. It bears emphasis that
there is no written agreement between the parties that the loan will continue
to bear 5% monthly interest beyond the agreed three-month period.
Respondent Ma. Concepcion Lorenzo testified as follows:
"Atty. Marcos:
Q Now, based on this document which was marked as Exh. '1,' there is no
dispute that the monthly interest for the three month period that is from May
14, 1991 to August 14, 1991 is 5% monthly interest, there is no dispute
about that. Now, Miss Witness, my question is, could you go over the entire
document that Exh. '1' and please tell this Hon. Court whether there is a
provision in clear and unequivocal terms providing for that monthly interest
after August 14, 1991?
A No, sir, there is none.
Q Are you sure of that?
A Yes, sir.
Q You mean to say there is no stipulation in that document providing for the
5% monthly interest to the loan after August 14, 1991?
A Yes, sir, they are supposed to return my money.
Court:
Q After they failed to comply with that provision, was there any subsequent
agreement between you and the plaintiffs?
xxx
Q Was there an agreement?
A There was, your Honor.
Q What was that agreement about?
A Verbal agreement, your Honor?
Q Why was that agreement not reduced into writing?
A It was not reduced into writing, your Honor.
Q Why?
A I am in good faith, your Honor."[18]
Article 1956 of the Civil Code mandates that "(n)o interest shall be due unless
it has been expressly stipulated in writing." Applying this provision, the
trial court correctly held that the monthly interest of 5% corresponds only to
the three-month period of the loan, or from May 14, 1991 to August 14, 1991,
as agreed upon by the parties in writing. Thereafter, the interest rate for the
loan is 12% per annum. In Eastern Shipping Lines, Inc. vs. Court of
Appeals,[19] this Court laid down the following doctrine:
"When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code." (emphasis
supplied)
The above ruling was reiterated in Sulit vs. Court of Appeals,[20] Crismina
Garments vs. Court of Appeals,[21] Eastern Assurance and Surety Corporation
vs. Court of Appeals,[22] Catungal vs. Hao,[23] and Yong et al. vs. Tiu et
al..[24] Thus, the Court of Appeals erred in reversing the RTC Decision and
holding that the 5% monthly interest should be paid by petitioners even
beyond August 14, 1991.
WHEREFORE, the assailed Decision of the Court of Appeals dated June 18,
1997 and its Resolution dated October 17, 1997 are REVERSED and SET
ASIDE. The Decision of the Regional Trial Court, Branch 17, Malolos,
Bulacan dated July 31, 1995 is REINSTATED.
SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ., concur.
 G.R. No. 173227 January 20, 2009
SEBASTIAN SIGA-AN, Petitioner,
vs.
ALICIA VILLANUEVA, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under Rule 45 of the Rules of
Court seeking to set aside the Decision,2 dated 16 December 2005, and
Resolution,3 dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No.
71814, which affirmed in toto the Decision,4 dated 26 January 2001, of the
Las Pinas City Regional Trial Court, Branch 255, in Civil Case No. LP-98-
0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a complaint5 for sum of
money against petitioner Sebastian Siga-an before the Las Pinas City
Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-
0068. Respondent alleged that she was a businesswoman engaged in
supplying office materials and equipments to the Philippine Navy Office (PNO)
located at Fort Bonifacio, Taguig City, while petitioner was a military officer
and comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her inside
the PNO and offered to loan her the amount of ₱540,000.00. Since she
needed capital for her business transactions with the PNO, she accepted
petitioner’s proposal. The loan agreement was not reduced in writing. Also,
there was no stipulation as to the payment of interest for the loan.6
On 31 August 1993, respondent issued a check worth ₱500,000.00 to
petitioner as partial payment of the loan. On 31 October 1993, she issued
another check in the amount of ₱200,000.00 to petitioner as payment of the
remaining balance of the loan. Petitioner told her that since she paid a total
amount of ₱700,000.00 for the ₱540,000.00 worth of loan, the excess amount
of ₱160,000.00 would be applied as interest for the loan. Not satisfied with the
amount applied as interest, petitioner pestered her to pay additional interest.
Petitioner threatened to block or disapprove her transactions with the PNO if
she would not comply with his demand. As all her transactions with the PNO
were subject to the approval of petitioner as comptroller of the PNO, and
fearing that petitioner might block or unduly influence the payment of her
vouchers in the PNO, she conceded. Thus, she paid additional amounts in
cash and checks as interests for the loan. She asked petitioner for receipt for
the payments but petitioner told her that it was not necessary as there was
mutual trust and confidence between them. According to her computation,
the total amount she paid to petitioner for the loan and interest accumulated
to ₱1,200,000.00.7
Thereafter, respondent consulted a lawyer regarding the propriety of paying
interest on the loan despite absence of agreement to that effect. Her lawyer
told her that petitioner could not validly collect interest on the loan because
there was no agreement between her and petitioner regarding payment of
interest. Since she paid petitioner a total amount of ₱1,200,000.00 for the
₱540,000.00 worth of loan, and upon being advised by her lawyer that she
made overpayment to petitioner, she sent a demand letter to petitioner asking
for the return of the excess amount of ₱660,000.00. Petitioner, despite receipt
of the demand letter, ignored her claim for reimbursement.8
Respondent prayed that the RTC render judgment ordering petitioner to pay
respondent (1) ₱660,000.00 plus legal interest from the time of demand; (2)
₱300,000.00 as moral damages; (3) ₱50,000.00 as exemplary damages; and
(4) an amount equivalent to 25% of ₱660,000.00 as attorney’s fees.9
In his answer10 to the complaint, petitioner denied that he offered a loan to
respondent. He averred that in 1992, respondent approached and asked him
if he could grant her a loan, as she needed money to finance her business
venture with the PNO. At first, he was reluctant to deal with respondent,
because the latter had a spotty record as a supplier of the PNO. However,
since respondent was an acquaintance of his officemate, he agreed to grant
her a loan. Respondent paid the loan in full.11
Subsequently, respondent again asked him to give her a loan. As respondent
had been able to pay the previous loan in full, he agreed to grant her another
loan. Later, respondent requested him to restructure the payment of the loan
because she could not give full payment on the due date. He acceded to her
request. Thereafter, respondent pleaded for another restructuring of the
payment of the loan. This time he rejected her plea. Thus, respondent
proposed to execute a promissory note wherein she would acknowledge her
obligation to him, inclusive of interest, and that she would issue several
postdated checks to guarantee the payment of her obligation. Upon his
approval of respondent’s request for restructuring of the loan, respondent
executed a promissory note dated 12 September 1994 wherein she admitted
having borrowed an amount of ₱1,240,000.00, inclusive of interest, from
petitioner and that she would pay said amount in March 1995. Respondent
also issued to him six postdated checks amounting to ₱1,240,000.00 as
guarantee of compliance with her obligation. Subsequently, he presented the
six checks for encashment but only one check was honored. He demanded
that respondent settle her obligation, but the latter failed to do so. Hence, he
filed criminal cases for Violation of the Bouncing Checks Law (Batas
Pambansa Blg. 22) against respondent. The cases were assigned to the
Metropolitan Trial Court of Makati City, Branch 65 (MeTC).12
Petitioner insisted that there was no overpayment because respondent
admitted in the latter’s promissory note that her monetary obligation as of 12
September 1994 amounted to ₱1,240,000.00 inclusive of interests. He argued
that respondent was already estopped from complaining that she should not
have paid any interest, because she was given several times to settle her
obligation but failed to do so. He maintained that to rule in favor of
respondent is tantamount to concluding that the loan was given interest-free.
Based on the foregoing averments, he asked the RTC to dismiss respondent’s
complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that
respondent made an overpayment of her loan obligation to petitioner and that
the latter should refund the excess amount to the former. It ratiocinated that
respondent’s obligation was only to pay the loaned amount of ₱540,000.00,
and that the alleged interests due should not be included in the computation
of respondent’s total monetary debt because there was no agreement between
them regarding payment of interest. It concluded that since respondent made
an excess payment to petitioner in the amount of ₱660,000.00 through
mistake, petitioner should return the said amount to respondent pursuant to
the principle of solutio indebiti.13
The RTC also ruled that petitioner should pay moral damages for the
sleepless nights and wounded feelings experienced by respondent. Further,
petitioner should pay exemplary damages by way of example or correction for
the public good, plus attorney’s fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the light of the
provisions of law and jurisprudence on the matter, judgment is hereby
rendered in favor of the plaintiff and against the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of ₱660,000.00 plus legal
interest of 12% per annum computed from 3 March 1998 until the amount is
paid in full;
(2) Ordering defendant to pay plaintiff the amount of ₱300,000.00 as moral
damages;
(3) Ordering defendant to pay plaintiff the amount of ₱50,000.00 as
exemplary damages;
(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of
₱660,000.00 as attorney’s fees; and
(5) Ordering defendant to pay the costs of suit.14
Petitioner appealed to the Court of Appeals. On 16 December 2005, the
appellate court promulgated its Decision affirming in toto the RTC Decision,
thus:
WHEREFORE, the foregoing considered, the instant appeal is hereby
DENIED and the assailed decision [is] AFFIRMED in toto.15
Petitioner filed a motion for reconsideration of the appellate court’s decision
but this was denied.16 Hence, petitioner lodged the instant petition before us
assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO
INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE
PRINCIPLE OF SOLUTIO INDEBITI.17
Interest is a compensation fixed by the parties for the use or forbearance of
money. This is referred to as monetary interest. Interest may also be imposed
by law or by courts as penalty or indemnity for damages. This is called
compensatory interest.18 The right to interest arises only by virtue of a
contract or by virtue of damages for delay or failure to pay the principal loan
on which interest is demanded.19
Article 1956 of the Civil Code, which refers to monetary interest,20 specifically
mandates that no interest shall be due unless it has been expressly stipulated
in writing. As can be gleaned from the foregoing provision, payment of
monetary interest is allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the payment of interest was
reduced in writing. The concurrence of the two conditions is required for the
payment of monetary interest. Thus, we have held that collection of interest
without any stipulation therefor in writing is prohibited by law.21
It appears that petitioner and respondent did not agree on the payment of
interest for the loan. Neither was there convincing proof of written agreement
between the two regarding the payment of interest. Respondent testified that
although she accepted petitioner’s offer of loan amounting to ₱540,000.00,
there was, nonetheless, no verbal or written agreement for her to pay interest
on the loan.22
Petitioner presented a handwritten promissory note dated 12 September
199423 wherein respondent purportedly admitted owing petitioner "capital
and interest." Respondent, however, explained that it was petitioner who
made a promissory note and she was told to copy it in her own handwriting;
that all her transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO; that petitioner threatened to disapprove
her transactions with the PNO if she would not pay interest; that being
unaware of the law on interest and fearing that petitioner would make good of
his threats if she would not obey his instruction to copy the promissory note,
she copied the promissory note in her own handwriting; and that such was
the same promissory note presented by petitioner as alleged proof of their
written agreement on interest.24 Petitioner did not rebut the foregoing
testimony. It is evident that respondent did not really consent to the payment
of interest for the loan and that she was merely tricked and coerced by
petitioner to pay interest. Hence, it cannot be gainfully said that such
promissory note pertains to an express stipulation of interest or written
agreement of interest on the loan between petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the Court of Appeals
found that he and respondent agreed on the payment of 7% rate of interest
on the loan; that the agreed 7% rate of interest was duly admitted by
respondent in her testimony in the Batas Pambansa Blg. 22 cases he filed
against respondent; that despite such judicial admission by respondent, the
RTC and the Court of Appeals, citing Article 1956 of the Civil Code, still held
that no interest was due him since the agreement on interest was not
reduced in writing; that the application of Article 1956 of the Civil Code
should not be absolute, and an exception to the application of such provision
should be made when the borrower admits that a specific rate of interest was
agreed upon as in the present case; and that it would be unfair to allow
respondent to pay only the loan when the latter very well knew and even
admitted in the Batas Pambansa Blg. 22 cases that there was an agreed 7%
rate of interest on the loan.25
We have carefully examined the RTC Decision and found that the RTC did
not make a ruling therein that petitioner and respondent agreed on the
payment of interest at the rate of 7% for the loan. The RTC clearly stated that
although petitioner and respondent entered into a valid oral contract of loan
amounting to ₱540,000.00, they, nonetheless, never intended the payment of
interest thereon.26 While the Court of Appeals mentioned in its Decision that
it concurred in the RTC’s ruling that petitioner and respondent agreed on a
certain rate of interest as regards the loan, we consider this as merely an
inadvertence because, as earlier elucidated, both the RTC and the Court of
Appeals ruled that petitioner is not entitled to the payment of interest on the
loan. The rule is that factual findings of the trial court deserve great weight
and respect especially when affirmed by the appellate court.27 We found no
compelling reason to disturb the ruling of both courts.
Petitioner’s reliance on respondent’s alleged admission in the Batas
Pambansa Blg. 22 cases that they had agreed on the payment of interest at
the rate of 7% deserves scant consideration. In the said case, respondent
merely testified that after paying the total amount of loan, petitioner ordered
her to pay interest.28 Respondent did not categorically declare in the same
case that she and respondent made an express stipulation in writing as
regards payment of interest at the rate of 7%. As earlier discussed, monetary
interest is due only if there was an expressstipulation in writing for the
payment of interest.
There are instances in which an interest may be imposed even in the absence
of express stipulation, verbal or written, regarding payment of interest. Article
2209 of the Civil Code states that if the obligation consists in the payment of a
sum of money, and the debtor incurs delay, a legal interest of 12% per
annum may be imposed as indemnity for damages if no stipulation on the
payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code
provides that interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.
All the same, the interest under these two instances may be imposed only as
a penalty or damages for breach of contractual obligations. It cannot be
charged as a compensation for the use or forbearance of money. In other
words, the two instances apply only to compensatory interest and not to
monetary interest.29 The case at bar involves petitioner’s claim for monetary
interest.
Further, said compensatory interest is not chargeable in the instant case
because it was not duly proven that respondent defaulted in paying the loan.
Also, as earlier found, no interest was due on the loan because there was no
written agreement as regards payment of interest.
Apropos the second assigned error, petitioner argues that the principle
of solutio indebiti does not apply to the instant case. Thus, he cannot be
compelled to return the alleged excess amount paid by respondent as
interest.30
Under Article 1960 of the Civil Code, if the borrower of loan pays interest
when there has been no stipulation therefor, the provisions of the Civil Code
concerning solutio indebiti shall be applied. Article 2154 of the Civil Code
explains the principle of solutio indebiti. Said provision provides that 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 such a case, a
creditor-debtor relationship is created under a quasi-contract whereby the
payor becomes the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-contract of solutio
indebiti harks back to the ancient principle that no one shall enrich himself
unjustly at the expense of another.31 The principle of solutio indebiti 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.32 We have held that the principle of solutio indebiti applies
in case of erroneous payment of undue interest.33
It was duly established that respondent paid interest to petitioner.
Respondent was under no duty to make such payment because there was no
express stipulation in writing to that effect. There was no binding relation
between petitioner and respondent as regards the payment of interest. The
payment was clearly a mistake. Since petitioner received something when
there was no right to demand it, he has an obligation to return it.
We shall now determine the propriety of the monetary award and damages
imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to ₱540,000.00
from petitioner.34 Respondent issued two checks with a total worth of
₱700,000.00 in favor of petitioner as payment of the loan.35 These checks
were subsequently encashed by petitioner.36 Obviously, there was an excess
of ₱160,000.00 in the payment for the loan. Petitioner claims that the excess
of ₱160,000.00 serves as interest on the loan to which he was entitled. Aside
from issuing the said two checks, respondent also paid cash in the total
amount of ₱175,000.00 to petitioner as interest.37 Although no receipts
reflecting the same were presented because petitioner refused to issue such to
respondent, petitioner, nonetheless, admitted in his Reply-Affidavit38 in the
Batas Pambansa Blg. 22 cases that respondent paid him a total amount of
₱175,000.00 cash in addition to the two checks. Section 26 Rule 130 of the
Rules of Evidence provides that the declaration of a party as to a relevant fact
may be given in evidence against him. Aside from the amounts of
₱160,000.00 and ₱175,000.00 paid as interest, no other proof of additional
payment as interest was presented by respondent. Since we have previously
found that petitioner is not entitled to payment of interest and that the
principle of solutio indebiti applies to the instant case, petitioner should return
to respondent the excess amount of ₱160,000.00 and ₱175,000.00 or the
total amount of ₱335,000.00. Accordingly, the reimbursable amount to
respondent fixed by the RTC and the Court of Appeals should be reduced
from ₱660,000.00 to ₱335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas
Pambansa Blg. 22 against respondent. In the said cases, the MeTC found
respondent guilty of violating Batas Pambansa Blg. 22 for issuing five
dishonored checks to petitioner. Nonetheless, respondent’s conviction therein
does not affect our ruling in the instant case. The two checks, subject matter
of this case, totaling ₱700,000.00 which respondent claimed as payment of
the ₱540,000.00 worth of loan, were not among the five checks found to be
dishonored or bounced in the five criminal cases. Further, the MeTC found
that respondent made an overpayment of the loan by reason of the interest
which the latter paid to petitioner.39
Article 2217 of the Civil Code provides that moral damages may be recovered
if the party underwent physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury. Respondent testified that she experienced
sleepless nights and wounded feelings when petitioner refused to return the
amount paid as interest despite her repeated demands. Hence, the award of
moral damages is justified. However, its corresponding amount of
₱300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant and
should be equitably reduced. Article 2216 of the Civil Code instructs that
assessment of damages is left to the discretion of the court according to the
circumstances of each case. This discretion is limited by the principle that the
amount awarded should not be palpably excessive as to indicate that it was
the result of prejudice or corruption on the part of the trial court.40 To our
mind, the amount of ₱150,000.00 as moral damages is fair, reasonable, and
proportionate to the injury suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio
indebiti, exemplary damages may be imposed if the defendant acted in an
oppressive manner. Petitioner acted oppressively when he pestered
respondent to pay interest and threatened to block her transactions with the
PNO if she would not pay interest. This forced respondent to pay interest
despite lack of agreement thereto. Thus, the award of exemplary damages is
appropriate. The amount of ₱50,000.00 imposed as exemplary damages by
the RTC and the Court is fitting so as to deter petitioner and other lenders
from committing similar and other serious wrongdoings.41
Jurisprudence instructs that in awarding attorney’s fees, the trial court must
state the factual, legal or equitable justification for awarding the same.42 In
the case under consideration, the RTC stated in its Decision that the award of
attorney’s fees equivalent to 25% of the amount paid as interest by
respondent to petitioner is reasonable and moderate considering the extent of
work rendered by respondent’s lawyer in the instant case and the fact that it
dragged on for several years.43 Further, respondent testified that she agreed to
compensate her lawyer handling the instant case such amount.44 The award,
therefore, of attorney’s fees and its amount equivalent to 25% of the amount
paid as interest by respondent to petitioner is proper.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No.
71814, dated 16 December 2005, is hereby AFFIRMED with the
following MODIFICATIONS: (1) the amount of ₱660,000.00 as refundable
amount of interest is reduced to THREE HUNDRED THIRTY FIVE
THOUSAND PESOS (₱335,000.00); (2) the amount of ₱300,000.00 imposed
as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS
(₱150,000.00); (3) an interest of 6% per annum is imposed on the
₱335,000.00, on the damages awarded and on the attorney’s fees to be
computed from the time of the extra-judicial demand on 3 March 1998 up to
the finality of this Decision; and (4) an interest of 12% per annum is also
imposed from the finality of this Decision up to its satisfaction. Costs against
petitioner.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice

Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest
on the amount refundable to respondent computed from 3 March 1998 until
its full payment. This is erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals,45 that 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 rate of
6% per annum. We further declared that when the judgment of the court
awarding a sum of money becomes final and executory, the rate of legal
interest, whether it is a loan/forbearance of money or not, shall be 12% per
annum from such finality until its satisfaction, this interim period being
deemed equivalent to a forbearance of credit.

In the present case, petitioner’s obligation arose from a quasi-contract

of solutio indebiti and not from a loan or forbearance of money. Thus, an
interest of 6% per annum should be imposed on the amount to be refunded
as well as on the damages awarded and on the attorney’s fees, to be
computed from the time of the extra-judicial demand on 3 March 1998,46 up
to the finality of this Decision. In addition, the interest shall become 12% per
annum from the finality of this Decision up to its satisfaction.
 G.R. No. 187678 April 10, 2013
SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners,
vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, assailing the February 20, 2009
Decision1 and April 27, 2009 Resolution2 of the Court of Appeals (CA) in CA
G.R. CV No. 80338. The CA affirmed the April 14, 2003 Decision3 of the
Regional Trial Court (RTC) of Makati City, Branch 147.
The factual antecedents:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from
China Banking Corporation (respondent) as evidenced by two Promissory
Notes both dated October 6, 1998 and numbered 507-001051-34 and 507-
001052-0,5 for the sums of !!6,216,000 and ₱4, 139,000, respectively. The
loan was secured by a Real Estate Mortgage (REM) over petitioners’ property
located at 49 Greensville St., White Plains, Quezon City covered by Transfer
Certificate of Title (TCT) No. RT-103568 (167394) PR-412086 of the Register of
Deeds of Quezon City.
When petitioners failed to pay the monthly amortizations due, respondent
demanded the full payment of the outstanding balance with accrued monthly
interests. On September 5, 2000, petitioners received respondent’s last
demand letter7 dated August 29, 2000.
As of February 23, 2001, the amount due on the two promissory notes
totaled ₱19,201,776.63 representing the principal, interests, penalties and
attorney’s fees. On the same day, the mortgaged property was sold at public
auction, with respondent as highest bidder for the amount of ₱10,300,000.
On May 8, 2001, petitioners received8 a demand letter9 dated May 2, 2001
from respondent for the payment of ₱8,901,776.63, the amount of deficiency
after applying the proceeds of the foreclosure sale to the mortgage debt. As its
demand remained unheeded, respondent filed a collection suit in the trial
court. In its Complaint,10 respondent prayed that judgment be rendered
ordering the petitioners to pay jointly and severally: (1) ₱8,901,776.63
representing the amount of deficiency, plus interests at the legal rate, from
February 23, 2001 until fully paid; (2) an additional amount equivalent to
1/10 of 1% per day of the total amount, until fully paid, as penalty; (3) an
amount equivalent to 10% of the foregoing amounts as attorney’s fees; and (4)
expenses of litigation and costs of suit.
In their Answer,11 petitioners admitted the existence of the debt but
interposed, by way of special and affirmative defense, that the complaint
states no cause of action considering that the principal of the loan was
already paid when the mortgaged property was extrajudicially foreclosed and
sold for ₱10,300,000. Petitioners contended that should they be held liable for
any deficiency, it should be only for ₱55,000 representing the difference
between the total outstanding obligation of ₱10,355,000 and the bid price of
₱10,300,000. Petitioners also argued that even assuming there is a cause of
action, such deficiency cannot be enforced by respondent because it consists
only of the penalty and/or compounded interest on the accrued interest
which is generally not favored under the Civil Code. By way of counterclaim,
petitioners prayed that respondent be ordered to pay ₱100,000 in attorney’s
fees and costs of suit.
At the trial, respondent presented Ms. Annabelle Cokai Yu, its Senior Loans
Assistant, as witness. She testified that she handled the account of petitioners
and assisted them in processing their loan application. She called them
monthly to inform them of the prevailing rates to be used in computing
interest due on their loan. As of the date of the public auction, petitioners’
outstanding balance was ₱19,201,776.6312 based on the following statement
of account which she prepared:
STATEMENT OF ACCOUNT
As of FEBRUARY 23, 2001
IGNACIO F. JUICO
PN# 507-0010520 due on 04-07-2004
Principal balance of PN# 5070010520. . . . . . . . . . . . . . 4,139,000.00
Interest on ₱4,139,000.00 fr. 04-Nov-99
04-Nov-2000 366 days @ 15.00%. . . . . . . . . . . . . . . . . 622,550.96
Interest on ₱4,139,000.00 fr. 04-Nov-2000
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 83,346.99 Interest on ₱6,216,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 58,243.07
Interest on ₱4,139,000.00 fr. 04-Dec-2000
Penalty charge @ 1/10 of 1% of the total amount due
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 75,579.27 (₱6,216,000.00 from 10-06-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00

Interest on ₱4,139,000.00 fr. 04-Jan-2001

10,770,199.2
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 68,548.64

17,772,309.9
Interest on ₱4,139,000.00 fr. 04-Feb-2001 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 38,781.86 Less: A/P applied to balance of principal (55,000.00)

Penalty charge @ 1/10 of 1% of the total amount due 17,456,160.5

(₱4,139,000.00 from 11-04-99 to 02-23-2001 @ Less: Accounts payable L & D (261,149.39) 7
1/10 of 1% per day). . . . . . . . . . . . . . . . . 1,974,303.00

Add: 10% Attorney’s Fee 1,745,616.06

Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002,110.73

19,201,776.6
PN# 507-0010513 due on 04-07-2004 Total amount due 3
Principal balance of PN# 5070010513. . . . . . . . . . . . . . 6,216,000.00

10,300,000.0
Interest on ₱6,216,000.00 fr. 06-Oct-99 Less: Bid Price 0
04-Nov-2000 395 days @ 15.00%. . . . . . . . . . . . . . . . . 1,009,035.62

TOTAL DEFICIENCY AMOUNT AS OF

Interest on ₱6,216,000.00 fr. 04-Nov-2000 FEB. 23, 2001 8,901,776.63 13
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 125,171.51
Petitioners thereafter received a demand letter14 dated May 2, 2001 from
Interest on ₱6,216,000.00 fr. 04-Dec-2000 respondent’s counsel for the deficiency amount of ₱8,901,776.63. Ms. Yu
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 113,505.86 further testified that based on the Statement of Account15 dated March 15,
2002 which she prepared, the outstanding balance of petitioners was
Interest on ₱6,216,000.00 fr. 04-Jan-2001 ₱15,190,961.48.16
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 102,947.18 On cross-examination, Ms. Yu reiterated that the interest rate changes every
month based on the prevailing market rate and she notified petitioners of the
prevailing rate by calling them monthly before their account becomes past
due. When asked if there was any written authority from petitioners for
respondent to increase the interest rate unilaterally, she answered that
petitioners signed a promissory note indicating that they agreed to pay
interest at the prevailing rate.17
Petitioner Ignacio F. Juico testified that prior to the release of the loan, he was
required to sign a blank promissory note and was informed that the interest
rate on the loan will be based on prevailing market rates. Every month,
respondent informs him by telephone of the prevailing interest rate. At first,
he was able to pay his monthly amortizations but when he started to incur
delay in his payments due to the financial crisis, respondent pressured him to
pay in full, including charges and interests for the delay. His property was
eventually foreclosed and was sold at public auction.18
On cross-examination, petitioner testified that he is a Doctor of Medicine and
also engaged in the business of distributing medical supplies. He admitted
having read the promissory notes and that he is aware of his obligation under
them before he signed the same.19
In its decision, the RTC ruled in favor of respondent. The fallo of the RTC
decision reads:
WHEREFORE, premises considered, the Complaint is hereby sustained, and
Judgment is rendered ordering herein defendants to pay jointly and severally
to plaintiff, the following:
1. ₱8,901,776.63 representing the amount of the deficiency owing to the
plaintiff, plus interest thereon at the legal rate after February 23, 2001;
2. An amount equivalent to 10% of the total amount due as and for attorney’s
fees, there being stipulation therefor in the promissory notes;
3. Costs of suit.
SO ORDERED.20
The trial court agreed with respondent that when the mortgaged property was
sold at public auction on February 23, 2001 for ₱10,300,000 there remained
a balance of ₱8,901,776.63 since before foreclosure, the total amount due on
the two promissory notes aggregated to ₱19,201,776.63 inclusive of principal,
interests, penalties and attorney’s fees. It ruled that the amount realized at
the auction sale was applied to the interest, conformably with Article 1253 of
the Civil Code which provides that if the debt produces interest, payment of
the principal shall not be deemed to have been made until the interests have
been covered. This being the case, petitioners’ principal obligation subsists
but at a reduced amount of ₱8,901,776.63.
The trial court further held that Ignacio’s claim that he signed the promissory
notes in blank cannot negate or mitigate his liability since he admitted
reading the promissory notes before signing them. It also ruled that
considering the substantial amount involved, it is unbelievable that
petitioners threw all caution to the wind and simply signed the documents
without reading and understanding the contents thereof. It noted that the
promissory notes, including the terms and conditions, are pro forma and
what appears to have been left in blank were the promissory note number,
date of the instrument, due date, amount of loan, and condition that interest
will be at the prevailing rates. All of these details, the trial court added, were
within the knowledge of the petitioners.
When the case was elevated to the CA, the latter affirmed the trial court’s
decision. The CA recognized respondent’s right to claim the deficiency from
the debtor where the proceeds of the sale in an extrajudicial foreclosure of
mortgage are insufficient to cover the amount of the debt. Also, it found as
valid the stipulation in the promissory notes that interest will be based on the
prevailing rate. It noted that the parties agreed on the interest rate which was
not unilaterally imposed by the bank but was the rate offered daily by all
commercial banks as approved by the Monetary Board. Having signed the
promissory notes, the CA ruled that petitioners are bound by the stipulations
contained therein.
Petitioners are now before this Court raising the sole issue of whether the
interest rates imposed upon them by respondent are valid. Petitioners
contend that the interest rates imposed by respondent are not valid as they
were not by virtue of any law or Bangko Sentral ng Pilipinas (BSP) regulation
or any regulation that was passed by an appropriate government entity. They
insist that the interest rates were unilaterally imposed by the bank and thus
violate the principle of mutuality of contracts. They argue that the escalation
clause in the promissory notes does not give respondent the unbridled
authority to increase the interest rate unilaterally. Any change must be
mutually agreed upon.
Respondent, for its part, points out that petitioners failed to show that their
case falls under any of the exceptions wherein findings of fact of the CA may
be reviewed by this Court. It contends that an inquiry as to whether the
interest rates imposed on the loans of petitioners were supported by
appropriate regulations from a government agency or the Central Bank
requires a reevaluation of the evidence on records. Thus, the Court would in
effect, be confronted with a factual and not a legal issue.
The appeal is partly meritorious.
The principle of mutuality of contracts is expressed in Article 1308 of the Civil
Code, which provides:
Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. Article 1956 of the Civil
Code likewise ordains that "no interest shall be due unless it has been
expressly stipulated in writing."
The binding effect of any agreement between parties to a contract is premised
on two settled principles: (1) that any obligation arising from contract has the
force of law between the parties; and (2) that there must be mutuality
between the parties based on their essential equality. Any contract which
appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or
compliance of the contract which is left solely to the will of one of the parties,
is likewise, invalid.21
Escalation clauses refer to stipulations allowing an increase in the interest
rate agreed upon by the contracting parties. This Court has long recognized
that there is nothing inherently wrong with escalation clauses which are valid
stipulations in commercial contracts to maintain fiscal stability and to retain
the value of money in long term contracts.22 Hence, such stipulations are not
void per se.23
Nevertheless, an escalation clause "which grants the creditor an unbridled
right to adjust the interest independently and upwardly, completely depriving
the debtor of the right to assent to an important modification in the
agreement" is void. A stipulation of such nature violates the principle of
mutuality of contracts.24 Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of increases in the
rate of interest provided in loan contracts.25
In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the escalation
clause stated: "I/We hereby authorize Banco Filipino to correspondingly
increase the interest rate stipulated in this contract without advance notice to
me/us in the event a law should be enacted increasing the lawful rates of
interest that may be charged on this particular kind of loan." While escalation
clauses in general are considered valid, we ruled that Banco Filipino may not
increase the interest on respondent borrower’s loan, pursuant to Circular No.
494 issued by the Monetary Board on January 2, 1976, because said circular
is not a law although it has the force and effect of law and the escalation
clause has no provision for reduction of the stipulated interest "in the event
that the applicable maximum rate of interest is reduced by law or by the
Monetary Board" (de-escalation clause).
Subsequently, in Insular Bank of Asia and America v. Spouses Salazar27 we
reiterated that escalation clauses are valid stipulations but their enforceability
are subject to certain conditions. The increase of interest rate from 19% to
21% per annum made by petitioner bank was disallowed because it did not
comply with the guidelines adopted by the Monetary Board to govern interest
rate adjustments by banks and non-banks performing quasi-banking
functions.
In the 1991 case of Philippine National Bank v. Court of Appeals,28 the
promissory notes authorized PNB to increase the stipulated interest per
annum "within the limits allowed by law at any time depending on whatever
policy PNB 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." This
Court declared the increases (from 18% to 32%, then to 41% and then to
48%) unilaterally imposed by PNB to be in violation of the principle of
mutuality essential in contracts.29
A similar ruling was made in a 1994 case30 also involving PNB where the
credit agreement provided that "PNB reserves the right to increase the interest
rate 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
accommodation shall be correspondingly decreased in the event that the
applicable maximum interest is reduced by law or by the Monetary Board x x
x".
Again, in 1996, the Court invalidated escalation clauses authorizing PNB to
raise the stipulated interest rate at any time without notice, within the limits
allowed by law. The Court observed that there was no attempt made by PNB
to secure the conformity of respondent borrower to the successive increases
in the interest rate. The borrower’s assent to the increases cannot be implied
from their lack of response to the letters sent by PNB, informing them of the
increases.31
In the more recent case of Philippine Savings Bank v. Castillo,32 we sustained
the CA in declaring as unreasonable the following escalation clause: "The rate
of interest and/or bank charges herein stipulated, during the terms of this
promissory note, its extensions, renewals or other modifications, may be
increased, decreased or otherwise changed from time to time within the rate
of interest and charges allowed under present or future law(s) and/or
government regulation(s) as the PSBank may prescribe for its debtors."
Clearly, the increase or decrease of interest rates under such clause hinges
solely on the discretion of petitioner as it does not require the conformity of
the maker before a new interest rate could be enforced. We also said that
respondents’ assent to the modifications in the interest rates cannot be
implied from their lack of response to the memos sent by petitioner, informing
them of the amendments, nor from the letters requesting for reduction of the
rates. Thus:
… the validity of the escalation clause did not give petitioner the unbridled
right to unilaterally adjust interest rates. The adjustment should have still
been subjected to the mutual agreement of the contracting parties. In light of
the absence of consent on the part of respondents to the modifications in the
interest rates, the adjusted rates cannot bind them notwithstanding the
inclusion of a de-escalation clause in the loan agreement.33
It is now settled that an escalation clause is void where the creditor
unilaterally determines and imposes an increase in the stipulated rate of
interest without the express conformity of the debtor. Such unbridled right
given to creditors to adjust the interest independently and upwardly would
completely take away from the debtors the right to assent to an important
modification in their agreement and would also negate the element of
mutuality in their contracts.34While a ceiling on interest rates under the
Usury Law was already lifted under Central Bank Circular No. 905, nothing
therein "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."35
The two promissory notes signed by petitioners provide:
I/We hereby authorize the CHINA BANKING CORPORATION to increase or
decrease as the case may be, the interest rate/service charge presently
stipulated in this note without any advance notice to me/us in the event a
law or Central Bank regulation is passed or promulgated by the Central Bank
of the Philippines or appropriate government entities, increasing or decreasing
such interest rate or service charge.36
Such escalation clause is similar to that involved in the case of Floirendo, Jr.
v. Metropolitan Bank and Trust Company37 where this Court ruled:
The provision in the promissory note authorizing respondent bank to
increase, decrease or otherwise change from time to time the rate of interest
and/or bank charges "without advance notice" to petitioner, "in the event of
change in the interest rate prescribed by law or the Monetary Board of the
Central Bank of the Philippines," does not give respondent bank unrestrained
freedom to charge any rate other than that which was agreed upon. Here, the
monthly upward/downward adjustment of interest rate is left to the will of
respondent bank alone. It violates the essence of mutuality of the contract.38
More recently in Solidbank Corporation v. Permanent Homes,
Incorporated,39 we upheld as valid an escalation clause which required a
written notice to and conformity by the borrower to the increased interest
rate. Thus:
The Usury Law had been rendered legally ineffective by Resolution No. 224
dated 3 December 1982 of the Monetary Board of the Central Bank, and later
by Central Bank Circular No. 905 which took effect on 1 January 1983.
These circulars removed the ceiling on interest rates for secured and
unsecured loans regardless of maturity. The effect of these circulars is to
allow the parties to agree on any interest that may be charged on a loan. The
virtual repeal of the Usury Law is within the range of judicial notice which
courts are bound to take into account. Although interest rates are no longer
subject to a ceiling, the lender still does not have an unbridled license to
impose increased interest rates. The lender and the borrower should agree on
the imposed rate, and such imposed rate should be in writing.
The three promissory notes between Solidbank and Permanent all contain
the following provisions:
"5. We/I irrevocably authorize Solidbank to increase or decrease at any time
the interest rate agreed in this Note or Loan on the basis of, among others,
prevailing rates in the local or international capital markets. For this purpose,
We/I authorize Solidbank to debit any deposit or placement account with
Solidbank belonging to any one of us. The adjustment of the interest rate
shall be effective from the date indicated in the written notice sent to us by the
bank, or if no date is indicated, from the time the notice was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all
amounts due under this Note or Loan within thirty (30) days from the receipt
by anyone of us of the written notice. Otherwise, We/I shall be deemed to
have given our consent to the interest rate adjustment."
The stipulations on interest rate repricing are valid because (1) the parties
mutually agreed on said stipulations; (2) repricing takes effect only upon
Solidbank’s written notice to Permanent of the new interest rate; and (3)
Permanent has the option to prepay its loan if Permanent and Solidbank do
not agree on the new interest rate. The phrases "irrevocably authorize," "at
any time" and "adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date is
indicated, from the time the notice was sent," emphasize that Permanent
should receive a written notice from Solidbank as a condition for the
adjustment of the interest rates. (Emphasis supplied.)
In this case, the trial and appellate courts, in upholding the validity of the
escalation clause, underscored the fact that there was actually no fixed rate of
interest stipulated in the promissory notes as this was made dependent on
prevailing rates in the market. The subject promissory notes contained the
following condition written after the first paragraph:
With one year grace period on principal and thereafter payable in 54 equal
monthly instalments to start on the second year. Interest at the prevailing
rates payable quarterly in arrears.40
In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder assailed the trial
and appellate courts in ruling for the validity of the escalation clause in the
Cardholder’s Agreement. On petitioner’s contention that the interest rate was
unilaterally imposed and based on the standards and rate formulated solely
by respondent credit card company, we held:
The contractual provision in question states that "if there occurs any change
in the prevailing market rates, the new interest rate shall be the guiding rate
in computing the interest due on the outstanding obligation without need of
serving notice to the Cardholder other than the required posting on the
monthly statement served to the Cardholder." This could not be considered
an escalation clause for the reason that it neither states an increase nor a
decrease in interest rate. Said clause simply states that the interest rate
should be based on the prevailing market rate.
Interpreting it differently, while said clause does not expressly stipulate a
reduction in interest rate, it nevertheless provides a leeway for the interest
rate to be reduced in case the prevailing market rates dictate its reduction.
Admittedly, the second paragraph of the questioned proviso which provides
that "the Cardholder hereby authorizes Security Diners to correspondingly
increase the rate of such interest in the event of changes in prevailing market
rates x x x" is an escalation clause. However, it cannot be said to be
dependent solely on the will of private respondent as it is also dependent on
the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long as
they are not solely potestative but based on reasonable and valid grounds.
Obviously, the fluctuation in the market rates is beyond the control of private
respondent.42 (Emphasis supplied.)
In interpreting a contract, its provisions should not be read in isolation but in
relation to each other and in their entirety so as to render them effective,
having in mind the intention of the parties and the purpose to be achieved.
The various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken
jointly.43
Here, the escalation clause in the promissory notes authorizing the
respondent to adjust the rate of interest on the basis of a law or regulation
issued by the Central Bank of the Philippines, should be read together with
the statement after the first paragraph where no rate of interest was fixed as it
would be based on prevailing market rates. While the latter is not strictly an
escalation clause, its clear import was that interest rates would vary as
determined by prevailing market rates. Evidently, the parties intended the
interest on petitioners’ loan, including any upward or downward adjustment,
to be determined by the prevailing market rates and not dictated by
respondent’s policy. It may also be mentioned that since the deregulation of
bank rates in 1983, the Central Bank has shifted to a market-oriented
interest rate policy.44
There is no indication that petitioners were coerced into agreeing with the
foregoing provisions of the promissory notes. In fact, petitioner Ignacio, a
physician engaged in the medical supply business, admitted having
understood his obligations before signing them. At no time did petitioners
protest the new rates imposed on their loan even when their property was
foreclosed by respondent.
This notwithstanding, we hold that the escalation clause is still void because
it grants respondent the power to impose an increased rate of interest without
a written notice to petitioners and their written consent. Respondent’s
monthly telephone calls to petitioners advising them of the prevailing interest
rates would not suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the total debt should
have been provided by the respondent to enable petitioners to make an
informed decision. An appropriate form must also be signed by the petitioners
to indicate their conformity to the new rates. Compliance with these requisites
is essential to preserve the mutuality of contracts. For indeed, one-sided
impositions do not have the force of law between the parties, because such 13,692,605.27
impositions are not based on the parties’ essential equality.45

Modifications in the rate of interest for loans pursuant to an escalation clause Add: Attorney's Fees 1,369,260.53
must be the result of an agreement between the parties. Unless such
important change in the contract terms is mutually agreed upon, it has no Total Amount Due 15,061,865.79
binding effect.46 In the absence of consent on the part of the petitioners to the
modifications in the interest rates, the adjusted rates cannot bind them.
Hence, we consider as invalid the interest rates in excess of 15%, the rate Less: Bid Price 10,300,000.00
charged for the first year.

Based on the August 29, 2000 demand letter of China Bank, petitioners’ total
principal obligation under the two promissory notes which they failed to settle
is ₱10,355,000. However, due to China Bank’s unilateral increases in the
interest rates from 15% to as high as 24.50% and penalty charge of 1/10 of
1% per day or 36.5% per annum for the period November 4, 1999 to
February 23, 2001, petitioners’ balance ballooned to ₱19,201,776.63. Note
that the original amount of principal loan almost doubled in only 16 months.
The Court also finds the penalty charges imposed excessive and arbitrary,
hence the same is hereby reduced to 1% per month or 12% per annum.
Petitioners’ Statement of Account, as of February 23, 2001, the date of the
foreclosure proceedings, should thus be modified as follows:
Principal ₱10,355,000.00
TOTAL DEFICIENCY AMOUNT 4,761,865.79
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The
February 20, 2009 · Decision and April 27, 2009 Resolution of the Court of
Appeals in CA G.R. CV No. 80338 are hereby MODIFIED. Petitioners Spouses
Ignacio F. Juico and Alice P. Juico are hereby ORDERED to pay jointly and
severally respondent China Banking Corporation ₱4, 7 61 ,865. 79
representing the amount of deficiency inclusive of interest, penalty charge and
attorney's fees. Said amount shall bear interest at 12% per annum, reckoned
from the time of the filing of the complaint until its full satisfaction.
No pronouncement as to costs.

Interest at 15% per annum SO ORDERED.

₱10,355,000 x .15 x 477 days/365 days 2,029,863.70
MARTIN S. VILLARAMA, JR.
Associate Justice
Penalty at 12% per annum 1,623 ,890. 96

₱10,355,000 x .12 x 477days/365 days

Sub-Total 14,008,754.66

Less: A/P applied to balance of principal (55,000.00)

Less: Accounts payable L & D (261,149.39)

 G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for
damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the customs
broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable
rate of interest, referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of
such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown
to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of the shipment to the consignee's warehouse. The latter excepted to
one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum,
the consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that
it became subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here,
the appellate court said:
Defendants filed their respective answers, traversing the material allegations
of the complaint contending that: As for defendant Eastern Shipping it alleged
that the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the
shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject
shipment was discharged unto its custody, portion of the same was already in
bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause
of action against it, not having negligent or at fault for the shipment was
already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment
was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody
of defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages
(see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting
plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition,
as clearly shown by the Bill of Lading and Commercial Invoice which do not
indicate any damages drum that was shipped (Exhs. B and C). But when on
December 12, 1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages
were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port) and
broker (Allied Brokerage). This becomes evident when the Marine Cargo
Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In
the latter notes, it is stated that when the shipment was "landed on vessel" to
dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was
observed that "one (1) fiber drum (was) in damaged condition, covered by the
vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states
that when defendant Allied Brokerage withdrew the shipment from defendant
arrastre operator's custody on January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents intact. Net unrecovered
spillages was
15 kgs. The report went on to state that when the drums reached the
consignee, one drum was found with adulterated/faked contents. It is
obvious, therefore, that these losses/damages occurred before the shipment
reached the consignee while under the successive custodies of defendants.
Under Art. 1737 of the New Civil Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods remains in full force and effect
even if the goods are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until the consignee has
been advised and has had reasonable opportunity to remove or dispose of the
goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-
Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until fully
paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500
per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case to exceed P5,000.00
each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant
Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion
drawn therefrom is correct. As there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants, and
therefore they are liable to the appellee, as subrogee for the amount it paid to
the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
error and grave abuse of discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH
THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF
PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING
OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL
COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by
petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment
of goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation
until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon
vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52
Phil. 863). When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to observe
that diligence, and there need not be an express finding of negligence to hold
it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of
Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA
365). There are, of course, exceptional cases when such presumption of fault
is not observed but these cases, enumerated in Article 17341 of the Civil
Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to the consignee has, too, been
passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin
to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co.,
19 SCRA 5 [1967]. The relationship between the consignee and the common
carrier is similar to that of the consignee and the arrastre operator (Northern
Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of
the ARRASTRE to take good care of the goods that are in its custody and to
deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to
the consignee.
We do not, of course, imply by the above pronouncement that the arrastre
operator and the customs broker are themselves always and necessarily liable
solidarily with the carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to
rebut the presumption of fault, is, in any event, to be held liable in this
particular case. A factual finding of both the court a quo and the appellate
court, we take note, is that "there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants" (the
herein petitioner among them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of
whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that
deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money
arising out of short deliveries and pilferage of goods. In this case, appellee
Malayan Insurance (the plaintiff in the lower court) averred in its complaint
that the total amount of its claim for the value of the undelivered goods
amounted to P3,947.20. This demand, however, was neither established in its
totality nor definitely ascertained. In the stipulation of facts later entered into
by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The
trial court rendered judgment ordering the appellants (defendants) Manila
Port Service and Manila Railroad Company to pay appellee Malayan
Insurance the sum of P1,447.51 with legal interest thereon from the date the
complaint was filed on 28 December 1962 until full payment thereof. The
appellants then assailed, inter alia, the award of legal interest. In sustaining
the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date
of demand, judicial or extrajudicial. The trial court opted for judicial demand
as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest
"cannot be recovered upon unliquidated claims or damages, except when the
demand can be established with reasonable certainty." And as was held by
this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof (Montilla c. Corporacion de
P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision."
(Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for
"Recovery of Damages for Injury to Person and Loss of Property." After trial, the
lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third
party defendants and against the defendants and third party plaintiffs as
follows:
Ordering defendants and third party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the value
of the insurance recovered and the amount of P10,000.00 a month as the
estimated monthly loss suffered by them as a result of the fire of May 6, 1969
up to the time they are actually paid or already the total sum of P370,000.00
as of June 4, 1972 with legal interest from the filing of the complaint until
paid and to pay attorney's fees of P5,000.00 with costs against defendants
and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing
of the complaint until fully paid. When the appellate court's decision became
final, the case was remanded to the lower court for execution, and this was
when the trial court issued its assailed resolution which applied the 6%
interest per annum prescribed in Article 2209 of the Civil Code. In their
petition for review on certiorari, the petitioners contended that Central Bank
Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as
amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974,
has prescribed that the rate of interest for the loan, or forbearance of any
money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per
annum. This Circular shall take effect immediately. (Emphasis found in the
text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations
involving loans or forbearance of any money, goods or credits. Any other kind
of monetary judgment which has nothing to do with, nor involving loans or
forbearance of any money, goods or credits does not fall within the coverage of
the said law for it is not within the ambit of the authority granted to the
Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property
and does not involve any loan, much less forbearances of any money, goods
or credits. As correctly argued by the private respondents, the law applicable
to the said case is Article 2209 of the New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of interest agreed upon, and
in the absence of stipulation, the legal interest which is six percent per
annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
v. Cruz,7 promulgated on 28 July 1986. The case was for damages occasioned
by an injury to person and loss of property. The trial court awarded private
respondent Pedro Manabat actual and compensatory damages in the amount
of P72,500.00 with legal interest thereon from the filing of the complaint until
fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the
interest award from 12% to 6% interest per annum but sustained the time
computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the
recovery of damages arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal
rate from November 29, 1968, the date of the filing of the complaint until full
payment . . . ." Save from the modification of the amount granted by the lower
court, the Court of Appeals sustained the trial court's decision. When taken to
this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's
fees) occasioned by the loss of the building (including interest charges and lost
rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable upon the finality of this
decision. Upon failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon aforementioned amounts from finality until paid.
Solidary costs against the defendant and third-party defendants (Except
Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending
that "the interest of twelve (12%) per cent per annum imposed on the total
amount of the monetary award was in contravention of law." The
Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus
Lines cases and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 . . . is applicable only in the following: (1)
loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of the
judgment. It is delay in the payment of such final judgment, that will cause the
imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in other
words, as part of the judgment for damages. Clearly, they are not applicable to
the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate
Appellate Court11 was a petition for review on certiorari from the decision,
dated 27 February 1985, of the then Intermediate Appellate Court reducing
the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April
1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages
with interest thereon at 12% per annum from notice of judgment, plus costs of
suit. In a decision of 09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held the award, however,
for moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court12 thus set aside the decision of the appellate
court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as
moral damages, with six (6%) percent interest thereon computed from the
finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo
v. Ruiz13 which arose from a breach of employment contract. For having been
illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon.
When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of
Negros Oriental dated October 31, 1972 is affirmed in all respects, with the
modification that defendants-appellants, except defendant-appellant Merton
Munn, are ordered to pay, jointly and severally, the amounts stated in the
dispositive portion of the decision, including the sum of P1,400.00 in concept
of compensatory damages, with interest at the legal rate from the date of the
filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages
should earn interest at 6% per annum from the date of the filing of the
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a
petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest
"at the legal rate" from the time of the filing of the complaint. . . Said circular
[Central Bank Circular No. 416] does not apply to actions based on a breach
of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should
be computed from the time the complaint was filed until the amount is fully
paid.
Quite recently, the Court had another occasion to rule on the matter. National
Power Corporation vs. Angas,14decided on 08 May 1992, involved the
expropriation of certain parcels of land. After conducting a hearing on the
complaints for eminent domain, the trial court ordered the petitioner to pay
the private respondents certain sums of money as just compensation for their
lands so expropriated "with legal interest thereon . . . until fully paid." Again, in
applying the 6% legal interest per annum under the Civil Code, the
Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money,
goods or credits but expropriation of certain parcels of land for a public
purpose, the payment of which is without stipulation regarding interest, and
the interest adjudged by the trial court is in the nature of indemnity for
damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of
indemnity for damages for the delay in the payment thereof. Therefore, since
the kind of interest involved in the joint judgment of the lower court sought to
be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The
cases can perhaps be classified into two groups according to the similarity of
the issues involved and the corresponding rulings rendered by the court. The
"first group" would consist of the cases of Reformina v. Tomol (1985), Philippine
Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would
be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons
v. Court of Appeals (1988), and American Express International v.Intermediate
Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6%
(under the Civil Code) or 12% (under the Central Bank Circular) interest per
annum. It is easily discernible in these cases that there has been a consistent
holding that the Central Bank Circular imposing the 12% interest per
annum applies only to loans or forbearance16 of money, goods or credits, as
well as to judgments involving such loan or forbearance of money, goods or
credits, and that the 6% interest under the Civil Code governs 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. Observe, too, that in these cases, a common time frame in the
computation of the 6% interest per annum has been applied, i.e., from the
time the complaint is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of
the 6% or 12% interest per annum,17depending on whether or not the amount
involved is a loan or forbearance, on the one hand, or one of indemnity for
damage, on the other hand. Unlike, however, the "first group" which
remained consistent in holding that the running of the legal interest should
be from the time of the filing of the complaint until fully paid, the "second
group" varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the
date of the decision of the court a quo,explaining that "if the suit were for
damages, 'unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof,' then, interest 'should be from the
date of the decision.'" American Express International v. IAC, introduced a
different time frame for reckoning the 6% interest by ordering it to be
"computed from the finality of (the) decision until paid." The Nakpil and Sons
case ruled that 12% interest per annum should be imposed from the finality of
the decision until the judgment amount is paid.
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-delicts18 is breached, the contravenor can be held
liable for damages.19 The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.20
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.21 Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded.22 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 116923 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 court24 at the rate of 6% per annum.25 No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable
certainty.26 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.

WHEREFORE, the petition is partly GRANTED. The appealed decision is

AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX
PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in
lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of
this decision until the payment thereof.

SO ORDERED.
 G.R. No. 189871 August 13, 2013 SEPARATION PAY
DARIO NACAR, PETITIONER,
vs. Date Hired = August 1990
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION Rate = ₱198/day

PERALTA, J.: Date of Decision = Aug. 18, 1998

This is a petition for review on certiorari assailing the Decision1 dated
September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591, Length of Service = 8 yrs. & 1 month
and the Resolution2 dated October 9, 2009 denying petitioner’s motion for
reconsideration. ₱198.00 x 26 days x 8 months = ₱41,184.00
The factual antecedents are undisputed.
BACKWAGES
Petitioner Dario Nacar filed a complaint for constructive dismissal before the
Arbitration Branch of the National Labor Relations Commission (NLRC)
against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed Date Dismissed = January 24, 1997
as NLRC NCR Case No. 01-00519-97.
Rate per day = ₱196.00
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of
petitioner and found that he was dismissed from employment without a valid
or just cause. Thus, petitioner was awarded backwages and separation pay in Date of Decisions = Aug. 18, 1998
lieu of reinstatement in the amount of ₱158,919.92. The dispositive portion of
the decision, reads: a) 1/24/97 to 2/5/98 = 12.36 mos.

With the foregoing, we find and so rule that respondents failed to discharge
the burden of showing that complainant was dismissed from employment for ₱196.00/day x 12.36 mos. = ₱62,986.56
a just or valid cause. All the more, it is clear from the records that
complainant was never afforded due process before he was terminated. As b) 2/6/98 to 8/18/98 = 6.4 months
such, we are perforce constrained to grant complainant’s prayer for the
payments of separation pay in lieu of reinstatement to his former position,
Prevailing Rate per day = ₱62,986.00
considering the strained relationship between the parties, and his apparent
reluctance to be reinstated, computed only up to promulgation of this
decision as follows: ₱198.00 x 26 days x 6.4 mos. = ₱32,947.20

TOTAL = ₱95.933.76

xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding

respondents guilty of constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two
thousand nine hundred eighty-six pesos and 56/100 (₱62,986.56) Pesos
representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five
thousand nine hundred thirty-three and 36/100 (₱95,933.36) representing
his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in
the Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained
the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the
CA. On August 24, 2000, the CA issued a Resolution dismissing the petition.
Respondents filed a Motion for Reconsideration, but it was likewise denied in
a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as G.R.
No. 151332. Finding no reversible error on the part of the CA, this Court
denied the petition in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became
final and executory on May 27, 2002.9The case was, thereafter, referred back
to the Labor Arbiter. A pre-execution conference was consequently scheduled,
but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation,
praying that his backwages be computed from the date of his dismissal on
January 24, 1997 up to the finality of the Resolution of the Supreme Court
on May 27, 2002.11 Upon recomputation, the Computation and Examination
Unit of the NLRC arrived at an updated amount in the sum of ₱471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter
ordering the Sheriff to collect from respondents the total amount of
₱471,320.31. Respondents filed a Motion to Quash Writ of Execution,
arguing, among other things, that since the Labor Arbiter awarded separation
pay of ₱62,986.56 and limited backwages of ₱95,933.36, no more
recomputation is required to be made of the said awards. They claimed that
after the decision becomes final and executory, the same cannot be altered or
amended anymore.14 On January 13, 2003, the Labor Arbiter issued an
Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on
January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003
issued a Resolution17 granting the appeal in favor of the respondents and
ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the
Resolution of the NLRC to be final and executory. Consequently, another pre-
execution conference was held, but respondents failed to appear on time.
Meanwhile, petitioner moved that an Alias Writ of Execution be issued to
enforce the earlier recomputed judgment award in the sum of ₱471,320.31.18
The records of the case were again forwarded to the Computation and
Examination Unit for recomputation, where the judgment award of petitioner
was reassessed to be in the total amount of only ₱147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents
to pay him the original amount as determined by the Labor Arbiter in his
Decision dated October 15, 1998, pending the final computation of his
backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to
satisfy the judgment award that was due to petitioner in the amount of
₱147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-
computation of the monetary award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion,
but only up to the amount of ₱11,459.73. The Labor Arbiter reasoned that it
is the October 15, 1998 Decision that should be enforced considering that it
was the one that became final and executory. However, the Labor Arbiter
reasoned that since the decision states that the separation pay and
backwages are computed only up to the promulgation of the said decision, it
is the amount of ₱158,919.92 that should be executed. Thus, since petitioner
already received ₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the
NLRC in its Resolution22 dated September 27, 2006. Petitioner filed a Motion
for Reconsideration, but it was likewise denied in the Resolution23dated
January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-
G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the petition.
The CA opined that since petitioner no longer appealed the October 15, 1998
Decision of the Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed. The CA stated that there is
nothing left to be done except to enforce the said judgment. Consequently, it
can no longer be modified in any respect, except to correct clerical errors or
mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the
Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I Like in the present case, it was a distinct feature of the judgment of the Labor
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED, COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED
CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS
OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER
OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE
OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA
SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation
of backwages in the Labor Arbiter’s decision, the same is not final until
reinstatement is made or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that the October 15,
1998 decision of the Labor Arbiter did not become final and executory until
the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was
entered in the Book of Entries on May 27, 2002, the reckoning point for the
computation of the backwages and separation pay should be on May 27,
2002 and not when the decision of the Labor Arbiter was rendered on
October 15, 1998. Further, petitioner posits that he is also entitled to the
payment of interest from the finality of the decision until full payment by the
respondents.
On their part, respondents assert that since only separation pay and limited
backwages were awarded to petitioner by the October 15, 1998 decision of the
Labor Arbiter, no more recomputation is required to be made of said awards.
Respondents insist that since the decision clearly stated that the separation
pay and backwages are "computed only up to [the] promulgation of this
decision," and considering that petitioner no longer appealed the decision,
petitioner is only entitled to the award as computed by the Labor Arbiter in
the total amount of ₱158,919.92. Respondents added that it was only during
the execution proceedings that the petitioner questioned the award, long after
the decision had become final and executory. Respondents contend that to
allow the further recomputation of the backwages to be awarded to petitioner
at this point of the proceedings would substantially vary the decision of the
Labor Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast
Foods v. Court of Appeals (Sixth Division),27 wherein the issue submitted to
the Court for resolution was the propriety of the computation of the awards
made, and whether this violated the principle of immutability of judgment.
Arbiter in the above-cited case that the decision already provided for the
computation of the payable separation pay and backwages due and did not
further order the computation of the monetary awards up to the time of the
finality of the judgment. Also in Session Delights, the dismissed employee
failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of
execution of the labor arbiter's original computation of the awards made,
pegged as of the time the decision was rendered and confirmed with
modification by a final CA decision, is legally proper. The question is posed,
given that the petitioner did not immediately pay the awards stated in the
original labor arbiter's decision; it delayed payment because it continued with
the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case
proceeds from the way the original labor arbiter framed his decision. The
decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it
has been confirmed with finality. This is the finding of the illegality of the
dismissal and the awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the
computation the labor arbiter made shows that it was time-bound as can be
seen from the figures used in the computation. This part, being merely a
computation of what the first part of the decision established and declared,
can, by its nature, be re-computed. This is the part, too, that the petitioner
now posits should no longer be re-computed because the computation is
already in the labor arbiter's decision that the CA had affirmed. The public
and private respondents, on the other hand, posit that a re-computation is
necessary because the relief in an illegal dismissal decision goes all the way
up to reinstatement if reinstatement is to be made, or up to the finality of the
decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal
dismissal had taken place, also made a computation of the award, is
understandable in light of Section 3, Rule VIII of the then NLRC Rules of
Procedure which requires that a computation be made. This Section in part
states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all
events, as far as practicable, shall embody in any such decision or order the
detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality
of the labor arbiter's decision. As we noted above, this implication is apparent
from the terms of the computation itself, and no question would have arisen
had the parties terminated the case and implemented the decision at that
point.
However, the petitioner disagreed with the labor arbiter's findings on all
counts - i.e., on the finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC which, in
turn, affirmed the labor arbiter's decision. By law, the NLRC decision is final,
reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on
jurisdictional grounds through a timely filed Rule 65 petition for certiorari.
The CA decision, finding that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal
dismissal portion of the original labor arbiter's decision, the implementing
labor arbiter ordered the award re-computed; he apparently read the figures
originally ordered to be paid to be the computation due had the case been
terminated and implemented at the labor arbiter's level. Thus, the labor
arbiter re-computed the award to include the separation pay and the
backwages due up to the finality of the CA decision that fully terminated the
case on the merits. Unfortunately, the labor arbiter's approved computation
went beyond the finality of the CA decision (July 29, 2003) and included as
well the payment for awards the final CA decision had deleted - specifically,
the proportionate 13th month pay and the indemnity awards. Hence, the CA
issued the decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is
necessary as it essentially considered the labor arbiter's original decision in
accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary
consequences of the illegal dismissal, computed as of the time of the labor
arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision
which is sought to be executed by the petitioner, no essential change is made
by a recomputation as this step is a necessary consequence that flows from
the nature of the illegality of dismissal declared by the Labor Arbiter in that
decision.29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law – specifically, Article 279 of
the Labor Code and the established jurisprudence on this provision – that is
read into the decision. By the nature of an illegal dismissal case, the reliefs
continue to add up until full satisfaction, as expressed under Article 279 of
the Labor Code. The recomputation of the consequences of illegal dismissal
upon execution of the decision does not constitute an alteration or
amendment of the final decision being implemented. The illegal dismissal
ruling stands; only the computation of monetary consequences of this
dismissal is affected, and this is not a violation of the principle of immutability
of final judgments.30
That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it continued
to seek recourses against the Labor Arbiter's decision. Article 279 provides for
the consequences of illegal dismissal in no uncertain terms, qualified only by
jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal
dismissal decision becomes the reckoning point instead of the reinstatement
that the law decrees. In allowing separation pay, the final decision effectively
declares that the employment relationship ended so that separation pay and
backwages are to be computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern
Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down the guidelines
regarding the manner of computing legal interest, to wit:
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.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment
of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued
Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion
of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved
the following revisions governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.136 of the Manual of
Regulations for Banks and Sections 4305Q.1,37 4305S.338 and 4303P.139 of
the Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum - as reflected in
the case of Eastern Shipping Lines40and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its
amendment by BSP-MB Circular No. 799 - but will now be six percent (6%)
per annum effective July 1, 2013. It should be noted, nonetheless, that the
new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%)
per annum shall be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and
Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this Court affirmed
the authority of the BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe the maximum rate
or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial
intermediaries."
Nonetheless, with regard to those judgments that have become final and
executory prior to July 1, 2013, said judgments shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case
of Eastern Shipping Lines42 are accordingly modified to embody BSP-MB
Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.
WHEREFORE, premises considered, the Decision dated September 23, 2008
of the Court of Appeals in CA-G.R. SP No. 98591, and the Resolution dated
October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered
to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on
January 24, 1997 up to May 27, 2002, when the Resolution of this Court in
G.R. No. 151332 became final and executory;

II. With regard particularly to an award of interest in the concept of actual and (2) separation pay computed from August 1990 up to May 27, 2002 at the
compensatory damages, the rate of interest, as well as the accrual thereof, is rate of one month pay per year of service; and
imposed, as follows:
(3) interest of twelve percent (12%) per annum of the total monetary awards,
When the obligation is breached, and it consists in the payment of a sum of computed from May 27, 2002 to June 30, 2013 and six percent (6%) per
money, i.e., a loan or forbearance of money, the interest due should be that annum from July 1, 2013 until their full satisfaction.
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 The Labor Arbiter is hereby ORDERED to make another recomputation of the
absence of stipulation, the rate of interest shall be 6% per annum to be total monetary benefits awarded and due to petitioner in accordance with this
computed from default, i.e., from judicial or extrajudicial demand under and Decision.
subject to the provisions of Article 1169 of the Civil Code.
SO ORDERED.
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.

When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue to
be implemented applying the rate of interest fixed therein.
 Republic of the Philippines 5) May 22, 1997 ……… 100,000.00 with 7% monthly interest
SUPREME COURT
Manila ₱
TOTAL AMOUNT OF LOAN ……… 4
290,000.00
FIRST DIVISION
From August 15, 1993 up to December 31, 1997, Jocelyn had been
G.R. No. 172139 December 8, 2010 religiously paying Marilou the stipulated monthly interest by issuing checks
and depositing sums of money in the bank account of the latter. However, the
JOCELYN M. TOLEDO, Petitioner,
total principal amount of ₱290,000.00 remained unpaid. Thus, in April 1998,
vs.
Marilou visited Jocelyn in her office at CAP in Cebu City and asked Jocelyn
MARILOU M. HYDEN, Respondent.
and the other employees who were likewise indebted to her to acknowledge
DECISION their debts. A document entitled "Acknowledgment of Debt"5 for the amount
of ₱290,000.00 was signed by Jocelyn with two of her subordinates as
DEL CASTILLO, J.: witnesses. The said amount represents the principal consolidated amount of
the aforementioned previous debts due on December 25, 1998. Also on said
It is true that the imposition of an unconscionable rate of interest on a money
occasion, Jocelyn issued five checks to Marilou representing renewal payment
debt is immoral and unjust and the court may come to the aid of the
of her five previous loans, viz:
aggrieved party to that contract. However, before doing so, courts have to
consider the settled principle that the law will not relieve a party from the Check No. 0010761 dated September 2, 1998 . . . . . . . . ₱ 30,000.00
effects of an unwise, foolish or disastrous contract if such party had full .
awareness of what she was doing.
Check No. 0010762 dated September 9, 1998 . . . . . . . . 30,000.00
This Petition for Review on Certiorari1 assails the Decision2 dated August 24, .
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed
the Decision dated March 10, 20033 of the Regional Trial Court (RTC), Branch Check No. 0010763 dated September 15, . . . . . . . . 30,000.00
22, Cebu City in Civil Case No. CEB-22867. Also assailed is the 1998 .
Resolution dated March 8, 2006 denying the motion for reconsideration. Check No. 0010764 dated September 22, . . . . . . . . 100,000.00
1998 .
Factual Antecedents

Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the Check No. 0010765 dated September 25, . . . . . . . . 100,000.00
College Assurance Plan (CAP) Phils., Inc., obtained several loans from 1998 .
respondent Marilou M. Hyden (Marilou). The transactions are briefly
₱
summarized below: TOTAL
290,000.00
1) August 15, 1993 ……… ₱ 30,000.00
In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in
2) April 21, 1994 ……… 100,000.00 the amount of ₱30,000.00 and replaced the same with six checks, in
with 6% monthly
staggered amounts, namely:
interest
3) October 2, 1995 ……… 30,000.00
Check No. 0010494 dated July 2, 1998 . . . . . . . . ₱ 6,625.00
4) October 9, 1995 ……… 30,000.00 .
 Check No. 0010495 dated August 2, 1998 . . . . . . . . 6,300.00 "Acknowledgment of Debt" and in issuing the postdated checks. Thus, in its
. March 10, 2003 Decision the trial court ruled in favor of Marilou, viz:

Check No. 0010496 dated September 2, . . . . . . . . 5,975.00
1998 . document "Acknowledgment of Debt" valid and binding. PLAINTIFF is
Check No. 0010497 dated October 2, 1998 . . . . . . . . 6,500.00
. of EIGHTEEN THOUSAND NINE HUNDRED (₱18,900.00) PESOS, equivalent
Check No. 0010498 dated November 2, 1998 . . . . . . . . 5,325.00
.
Check No. 0010499 dated December 2, 1998 . . . . . . . . 5,000.00
. (₱271,100.00) PESOS due on December 25, 1998 with a 12% interest per
₱ have been fully paid.
TOTAL
35,725.00
After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered
the stop payment on the remaining checks and on October 27, 1998, filed
with the RTC of Cebu City a complaint6 against Marilou for Declaration of
Nullity and Payment, Annulment, Sum of Money, Injunction and Damages.
Jocelyn averred that Marilou forced, threatened and intimidated her into
signing the "Acknowledgment of Debt" and at the same time forced her to
issue the seven postdated checks. She claimed that Marilou even threatened
to sue her for violation of Batas Pambansa (BP) Blg. 22 or the Bouncing
Checks Law if she will not sign the said document and draw the above-
mentioned checks. Jocelyn further claimed that the application of her total
payment of ₱528,550.00 to interest alone is illegal, unfounded, unjust,
oppressive and contrary to law because there was no written agreement to
pay interest.
On November 23, 1998, Marilou filed an Answer7 with Special Affirmative
Defenses and Counterclaim alleging that Jocelyn voluntarily obtained the
said loans knowing fully well that the interest rate was at 6% to 7% per
month. In fact, a 6% to 7% advance interest was already deducted from the
loan amount given to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not find any showing that Jocelyn was forced,
threatened, or intimidated in signing the document referred to as
WHEREFORE, premised on the foregoing, the Court hereby declares the
indebted to DEFENDANT [for] the amount of TWO HUNDRED NINETY
THOUSAND (₱290,000.00) PESOS since December 25, 1998 less the amount
to the three checks made good (₱6,625.00 dated 07-02-1998; ₱6,300.00
dated 08-02-1998; and ₱5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount
of TWO HUNDRED SEVENTY ONE THOUSAND ONE HUNDRED
annum or 1% interest per month until such time that the said amount shall
No pronouncement as to costs.
SO ORDERED.8
On March 26, 2003, Jocelyn filed an Earnest Motion for
Reconsideration,9 which was denied by the trial court in its Order10 dated
April 29, 2003 stating that it finds no sufficient reason to disturb its March
10, 2003 Decision.
Ruling of the Court of Appeals
On appeal, Jocelyn asserts that she had made payments in the total amount
of ₱778,000.00 for a principal amount of loan of only ₱290,000.00. What is
appalling, according to Jocelyn, was that such payments covered only the
interest because of the excessive, iniquitous, unconscionable and exorbitant
imposition of the 6% to 7% monthly interest.
On August 24, 2005, the CA issued its Decision which provides:
WHEREFORE, premises considered, the Decision dated March 10, 2003 and
the Order dated April 29, 2003, of the Regional Trial Court, 7th Judicial
Region, Branch 22, Cebu City, in Civil Case No. CEB-22867 are
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.11
The Motion for Reconsideration12 filed by Jocelyn was denied by the CA
through its Resolution13 dated March 8, 2006.
 Issues
Hence, this petition raising the following issues:
I.
Whether the CA gravely erred when it held that the imposition of interest at
the rate of six percent (6%) to seven percent (7%) is not contrary to law,
morals, good customs, public order or public policy.
II.
Whether the CA gravely erred when it failed to declare that the
"Acknowledgment of Debt" is an inexistent contract that is void from the very
beginning pursuant to Article 1409 of the New Civil Code.
Petitioner’s Arguments
Jocelyn posits that the CA erred when it held that the imposition of interest at
the rates of 6% to 7% per month is not contrary to law, not unconscionable
and not contrary to morals. She likewise contends that the CA erred in ruling
that the "Acknowledgment of Debt" is valid and binding. According to Jocelyn,
even assuming that the execution of said document was not attended with
force, threat and intimidation, the same must nevertheless be declared null
and void for being contrary to law and public policy. This is borne out by the
fact that the payments in the total amount of ₱778,000.00 was applied to
interest payment alone. This only proves that the transaction was iniquitous,
excessive, oppressive and unconscionable.
Respondent’s Arguments
On the other hand, Marilou would like this Court to consider the fact that the
document referred to as "Acknowledgment of Debt" was executed in the safe
surroundings of the office of Jocelyn and it was witnessed by two of her staff.
If at all there had been coercion, then Jocelyn could have easily prevented her
staff from affixing their signatures to said document. In fact, petitioner had
admitted that she was the one who went to the tables of her staff to let them
sign the said document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by Jocelyn is not excessive under the
circumstances of this case.
In view of Central Bank Circular No. 905 s. 1982, which suspended the
Usury Law ceiling on interest effective January 1, 1983, parties to a loan
agreement have wide latitude to stipulate interest rates. Nevertheless, such
stipulated interest rates may be declared as illegal if the same is
unconscionable.14 There is certainly nothing in said circular which grants
lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets.15 In
fact, in Medel v. Court of Appeals,16 we annulled a stipulated 5.5% per month
or 66% per annum interest with additional service charge of 2% per annum
and penalty charge of 1% per month on a ₱500,000.00 loan for being
excessive, iniquitous, unconscionable and exorbitant.
In this case, however, we cannot consider the disputed 6% to 7% monthly
interest rate to be iniquitous or unconscionable vis-à-vis the principle laid
down in Medel. Noteworthy is the fact that in Medel, the defendant-spouses
were never able to pay their indebtedness from the very beginning and when
their obligations ballooned into a staggering sum, the creditors filed a
collection case against them. In this case, there was no urgency of the need
for money on the part of Jocelyn, the debtor, which compelled her to enter
into said loan transactions. She used the money from the loans to make
advance payments for prospective clients of educational plans offered by her
employer. In this way, her sales production would increase, thereby entitling
her to 50% rebate on her sales. This is the reason why she did not mind the
6% to 7% monthly interest. Notably too, a business transaction of this nature
between Jocelyn and Marilou continued for more than five years. Jocelyn
religiously paid the agreed amount of interest until she ordered for stop
payment on some of the checks issued to Marilou. The checks were in fact
sufficiently funded when she ordered the stop payment and then filed a case
questioning the imposition of a 6% to 7% interest rate for being allegedly
iniquitous or unconscionable and, hence, contrary to morals.
It was clearly shown that before Jocelyn availed of said loans, she knew fully
well that the same carried with it an interest rate of 6% to 7% per month, yet
she did not complain. In fact, when she availed of said loans, an advance
interest of 6% to 7% was already deducted from the loan amount, yet she
never uttered a word of protest.
After years of benefiting from the proceeds of the loans bearing an interest
rate of 6% to 7% per month and paying for the same, Jocelyn cannot now go
to court to have the said interest rate annulled on the ground that it is
excessive, iniquitous, unconscionable, exorbitant, and absolutely revolting to
the conscience of man. "This is so because among the maxims of equity are
(1) he who seeks equity must do equity, and (2) he who comes into equity
must come with clean hands. The latter is a frequently stated maxim which is
also expressed in the principle that he who has done inequity shall not have
equity. It signifies that a litigant may be denied relief by a court of equity on
the ground that his conduct has been inequitable, unfair and dishonest, or
fraudulent, or deceitful as to the controversy in issue." 17
We are convinced that Jocelyn did not come to court for equitable relief with
equity or with clean hands. It is patently clear from the above summary of the
facts that the conduct of Jocelyn can by no means be characterized as nobly
fair, just, and reasonable. This Court likewise notes certain acts of Jocelyn
before filing the case with the RTC. In September 1998, she requested
Marilou not to deposit her checks as she can cover the checks only the
following month. On the next month, Jocelyn again requested for another
extension of one month. It turned out that she was only sweet-talking Marilou
into believing that she had no money at that time. But as testified by Serapio
Romarate,18an employee of the Bank of Commerce where Jocelyn is one of
their clients, there was an available balance of ₱276,203.03 in the latter’s
account and yet she ordered for the stop payments of the seven checks which
can actually be covered by the available funds in said account. She then
caught Marilou by surprise when she surreptitiously filed a case for
declaration of nullity of the document and for damages.
The document "Acknowledgment of Debt" is valid and binding.
Jocelyn seeks for the nullification of the document entitled "Acknowledgment
of Debt" and wants this Court to declare that she is no longer indebted to
Marilou in the amount of ₱290,000.00 as she had already paid a total
amount of ₱778,000.00. She claims that said document is an inexistent
contract that is void from the very beginning as clearly provided for by Article
140919 of the New Civil Code.
Jocelyn further claims that she signed the said document and issued the
seven postdated checks because Marilou threatened to sue her for violation of
BP Blg. 22.
Jocelyn is misguided. Even if there was indeed such threat made by Marilou,
the same is not considered as threat that would vitiate consent. Article 1335
of the New Civil Code is very specific on this matter. It provides:
Art. 1335. There is violence when in order to wrest consent, serious or
irresistible force is employed.
xxxx
A threat to enforce one’s claim through competent authority, if the
claim is just or legal, does not vitiate consent. (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.
As can be seen from the records of the case, Jocelyn has failed to prove her
claim that she was made to sign the document "Acknowledgment of Debt"
and draw the seven Bank of Commerce checks through force, threat and
intimidation. As earlier stressed, said document was signed in the office of
Jocelyn, a high ranking executive of CAP, and it was Jocelyn herself who went
to the table of her two subordinates to procure their signatures as witnesses
to the execution of said document. If indeed, she was forced to sign said
document, then Jocelyn should have immediately taken the proper legal
remedy. But she did not. Furthermore, it must be noted that after the
execution of said document, Jocelyn honored the first three checks before
filing the complaint with the RTC. If indeed she was forced she would never
have made good on the first three checks.
It is provided, as one of the conclusive presumptions under Rule 131, Section
2(a), of the Rules of Court that, "Whenever a party has, by his own
declaration, act or omission, intentionally and deliberately led another to
believe a particular thing to be true, and to act upon such belief, he cannot, in
any litigation arising out of such declaration, act or omission, be permitted to
falsify it." This is known as the principle of estoppel.
"The essential elements of estoppel are: (1) conduct amounting to false
representation or concealment of material facts or at least calculated to
convey the impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert; (2) intent, or at
least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and, (3) knowledge, actual or constructive, of the
real facts."20
Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment
of Debt" in April 1998 and two of her subordinates served as witnesses to its
execution, knowing fully well the nature of the contract she was entering into.
Next, Jocelyn issued five checks in favor of Marilou representing renewal
payment of her loans amounting to ₱290,000.00. In June 1998, she asked to
recall Check No. 0010761 in the amount of ₱30,000.00 and replaced the
same with six checks, in staggered amounts. All these are indicia that Jocelyn
treated the "Acknowledgment of Debt" as a valid and binding
contract.1avvphi1
More significantly, Jocelyn already availed herself of the benefits of the
"Acknowledgment of Debt," the validity of which she now impugns. As aptly
found by the RTC and the CA, Jocelyn was making a business out of the
loaned amounts. She was actually using the money to make advance
payments for her prospective clients so that her sales production would
increase. Accordingly, she did not mind the 6% to 7% interest per month as
she was getting a 50% rebate on her sales.

Clearly, by her own acts, Jocelyn is estopped from impugning the validity of
the "Acknowledgment of Debt." "[A] party to a contract cannot deny the
validity thereof after enjoying its benefits without outrage to one’s sense of
justice and fairness."21 "It is a long established doctrine that the law does not
relieve a party from the effects of an unwise, foolish or disastrous contract,
entered into with all the required formalities and with full awareness of what
she was doing. Courts have no power to relieve parties from obligations
voluntarily assumed, simply because their contracts turned out to be
disastrous or unwise investments."22

WHEREFORE, the instant petition for review on certiorari is DENIED. The

Decision of the Court of Appeals in CA-G.R. CV No. 79805 dated August 24,
2005 affirming the Decision dated March 10, 2003 of the Regional Trial
Court, Branch 22, Cebu City, in Civil Case No. CEB-22867 is AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
 G.R. No. 197861 June 5, 2013
SPOUSES FLORENTINO T. MALLARI and AUREA V.
MALLARI, Petitioners,
vs.
PRUDENTIAL BANK (now BANK OF THE PHILIPPINE
ISLANDS), Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the
Decision1 dated June 17, 2010 and the Resolution2 dated July 20, 2011 of
the Court of Appeals (CA) in CA-G.R. CV No. 65993.
The antecedent facts are as follows:
On December 11, 1984, petitioner Florentino T. Mallari (Florentino) obtained
from respondent Prudential Bank-Tarlac Branch (respondent bank), a loan in
the amount of ₱300,000.00 as evidenced by Promissory Note (PN) No. BD 84-
055.3 Under the promissory note, the loan was subject to an interest rate of
21% per annum (p.a.), attorney's fees equivalent to 15% of the total amount
due but not less than ₱200.00 and, in case of default, a penalty and collection
charges of 12% p.a. of the total amount due. The loan had a maturity date of
January 10, 1985, but was renewed up to February 17, 1985. Petitioner
Florentino executed a Deed of Assignment4 wherein he authorized the
respondent bank to pay his loan with his time deposit with the latter in the
amount of ₱300,000.00.
On December 22, 1989, petitioners spouses Florentino and Aurea Mallari
(petitioners) obtained again from respondent bank another loan of ₱1.7
million as evidenced by PN No. BDS 606-895 with a maturity date of March
22, 1990. They stipulated that the loan will bear 23% interest p.a., attorney's
fees equivalent to 15% p.a. of the total amount due, but not less than
₱200.00, and penalty and collection charges of 12% p.a. Petitioners executed
a Deed of Real Estate Mortgage6 in favor of respondent bank covering
petitioners' property under Transfer Certificate of Title (TCT) No. T-215175 of
the Register of Deeds of Tarlac to answer for the said loan.
Petitioners failed to settle their loan obligations with respondent bank, thus,
the latter, through its lawyer, sent a demand letter to the former for them to
pay their obligations, which when computed up to January 31, 1992,
amounted to ₱571,218.54 for PN No. BD 84-055 and ₱2,991,294.82 for PN
No. BDS 606-89.
On February 25, 1992, respondent bank filed with the Regional Trial Court
(RTC) of Tarlac, a petition for the extrajudicial foreclosure of petitioners'
mortgaged property for the satisfaction of the latter's obligation of
₱1,700,000.00 secured by such mortgage, thus, the auction sale was set by
the Provincial Sheriff on April 23, 1992.7
On April 10, 1992, respondent bank's Assistant Manager sent petitioners two
(2) separate Statements of Account as of April 23, 1992, i.e., the loan of
₱300,000.00 was increased to ₱594,043.54, while the ₱1,700,000.00 loan
was already ₱3,171,836.18.
On April 20, 1992, petitioners filed a complaint for annulment of mortgage,
deeds, injunction, preliminary injunction, temporary restraining order and
damages claiming, among others, that: (1) the ₱300,000.00 loan obligation
should have been considered paid, because the time deposit with the same
amount under Certificate of Time Deposit No. 284051 had already been
assigned to respondent bank; (2) respondent bank still added the
₱300,000.00 loan to the ₱1.7 million loan obligation for purposes of applying
the proceeds of the auction sale; and (3) they realized that there were onerous
terms and conditions imposed by respondent bank when it tried to
unilaterally increase the charges and interest over and above those stipulated.
Petitioners asked the court to restrain respondent bank from proceeding with
the scheduled foreclosure sale.
Respondent bank filed its Answer with counterclaim arguing that: (1) the
interest rates were clearly provided in the promissory notes, which were used
in computing for interest charges; (2) as early as January 1986, petitioners'
time deposit was made to apply for the payment of interest of their
₱300,000.00 loan; and (3) the statement of account as of April 10, 1992
provided for a computation of interest and penalty charges only from May 26,
1989, since the proceeds of petitioners' time deposit was applied to the
payment of interest and penalty charges for the preceding period. Respondent
bank also claimed that petitioners were fully apprised of the bank's terms and
conditions; and that the extrajudicial foreclosure was sought for the
satisfaction of the second loan in the amount of ₱1.7 million covered by PN
No. BDS 606-89 and the real estate mortgage, and not the ₱300,000.00 loan
covered by another PN No. 84-055.
In an Order8 dated November 10, 1992, the RTC denied the Application for a
Writ of Preliminary Injunction. However, in petitioners' Supplemental Motion
for Issuance of a Restraining Order and/or Preliminary Injunction to enjoin
respondent bank and the Provincial Sheriff from effecting or conducting the
auction sale, the RTC reversed itself and issued the restraining order in its
Order9 dated January 14, 1993.
Respondent bank filed its Motion to Lift Restraining Order, which the RTC
granted in its Order10 dated March 9, 1993. Respondent bank then proceeded
with the extrajudicial foreclosure of the mortgaged property. On July 7, 1993,
a Certificate of Sale was issued to respondent bank being the highest bidder
in the amount of ₱3,500,000.00.
Subsequently, respondent bank filed a Motion to Dismiss Complaint11 for
failure to prosecute action for unreasonable length of time to which
petitioners filed their Opposition.12 On November 19, 1998, the RTC issued its
Order13 denying respondent bank's Motion to Dismiss Complaint.
Trial thereafter ensued. Petitioner Florentino was presented as the lone
witness for the plaintiffs. Subsequently, respondent bank filed a Demurrer to
Evidence.
On November 15, 1999, the RTC issued its Order14 granting respondent's
demurrer to evidence, the dispositive portion of which reads:
WHEREFORE, this case is hereby ordered DISMISSED. Considering there is
no evidence of bad faith, the Court need not order the plaintiffs to pay
damages under the general concept that there should be no premium on the
right to litigate.
NO COSTS.
SO ORDERED.15
The RTC found that as to the ₱300,000.00 loan, petitioners had assigned
petitioner Florentino's time deposit in the amount of ₱300,000.00 in favor of
respondent bank, which maturity coincided with petitioners' loan maturity.
Thus, if the loan was unpaid, which was later extended to February 17, 1985,
respondent bank should had just applied the time deposit to the loan.
However, respondent bank did not, and allowed the loan interest to
accumulate reaching the amount of ₱594,043.54 as of April 10, 1992, hence,
the amount of ₱292,600.00 as penalty charges was unjust and without basis.
As to the ₱1.7 million loan which petitioners obtained from respondent bank
after the ₱300,000.00 loan, it had reached the amount of ₱3,171,836.18 per
Statement of Account dated April 27, 1993, which was computed based on
the 23% interest rate and 12% penalty charge agreed upon by the parties;
and that contrary to petitioners' claim, respondent bank did not add the
₱300,000.00 loan to the ₱1.7 million loan obligation for purposes of applying
the proceeds of the auction sale.
The RTC found no legal basis for petitioners' claim that since the total
obligation was ₱1.7 million and respondent bank's bid price was ₱3.5 million,
the latter should return to petitioners the difference of ₱1.8 million. It found
that since petitioners' obligation had reached ₱2,991,294.82 as of January
31, 1992, but the certificate of sale was executed by the sheriff only on July 7,
1993, after the restraining order was lifted, the stipulated interest and penalty
charges from January 31, 1992 to July 7, 1993 added to the loan already
amounted to ₱3.5 million as of the auction sale.
The RTC found that the 23% interest rate p.a., which was then the prevailing
loan rate of interest could not be considered unconscionable, since banks are
not hospitable or equitable institutions but are entities formed primarily for
profit. It also found that Article 1229 of the Civil Code invoked by petitioners
for the reduction of the interest was not applicable, since petitioners had not
paid any single centavo of the ₱1.7 million loan which showed they had not
complied with any part of the obligation.
Petitioners appealed the RTC decision to the CA. A Comment was filed by
respondent bank and petitioners filed their Reply thereto.
On June 17, 2010, the CA issued its assailed Decision, the dispositive portion
of which reads:
WHEREFORE, the instant appeal is hereby DENIED. The Order dated
November 15, 1999 issued by the Regional Trial Court (RTC), Branch 64,
Tarlac City, in Civil Case No. 7550 is hereby AFFIRMED.16
The CA found that the time deposit of ₱300,000.00 was equivalent only to the
principal amount of the loan of ₱300,000.00 and would not be sufficient to
cover the interest, penalty, collection charges and attorney's fees agreed upon,
thus, in the Statement of Account dated April 10, 1992, the outstanding
balance of petitioners' loan was ₱594,043.54. It also found not persuasive
petitioners' claim that the ₱300,000.00 loan was added to the ₱1.7 million
loan. The CA, likewise, found that the interest rates and penalty charges
imposed were not unconscionable and adopted in toto the findings of the RTC
on the matter.
Petitioners filed their Motion for Reconsideration, which the CA denied in a
Resolution dated July 20, 2011.
Hence, petitioners filed this petition for review arguing that:
THE HON. COURT OF APPEALS ERRED IN AFFIRMING THE ORDER OF
THE RTC-BRANCH 64, TARLAC CITY, DATED NOVEMBER 15, 1999,
DESPITE THE FACT THAT THE SAME IS CONTRARY TO SETTLED
JURISPRUDENCE ON THE MATTER.17
The issue for resolution is whether the 23% p.a. interest rate and the 12%
p.a. penalty charge on petitioners' ₱1,700,000.00 loan to which they agreed
upon is excessive or unconscionable under the circumstances.
Parties are free to enter into agreements and stipulate as to the terms and
conditions of their contract, but such freedom is not absolute. As Article 1306
of the Civil Code provides, "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." Hence, if the stipulations in the contract are valid, the parties
thereto are bound to comply with them, since such contract is the law
between the parties. In this case, petitioners and respondent bank agreed
upon on a 23% p.a. interest rate on the ₱1.7 million loan. However,
petitioners now contend that the interest rate of 23% p.a. imposed by
respondent bank is excessive or unconscionable, invoking our ruling in Medel
v. Court of Appeals,18 Toring v. Spouses Ganzon-Olan,19 and Chua v.
Timan.20
We are not persuaded.
In Medel v. Court of Appeals,21 we found the stipulated interest rate of 66%
p.a. or a 5.5% per month on a ₱500,000.00 loan excessive, unconscionable
and exorbitant, hence, contrary to morals if not against the law and declared
such stipulation void. In Toring v. Spouses Ganzon-Olan,22 the stipulated
interest rates involved were 3% and 3.81% per month on a ₱10 million loan,
which we find under the circumstances excessive and reduced the same to
1% per month. While in Chua v. Timan,23 where the stipulated interest rates
were 7% and 5% a month, which are equivalent to 84% and 60% p.a.,
respectively, we had reduced the same to 1% per month or 12% p.a. We said
that 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,
unconscionable and exorbitant, hence, the stipulation was void for being
contrary to morals.24
In this case, the interest rate agreed upon by the parties was only 23% p.a., or
less than 2% per month, which are much lower than those interest rates
agreed upon by the parties in the above-mentioned cases. Thus, there is no
similarity of factual milieu for the application of those cases.
We do not consider the interest rate of 23% p.a. agreed upon by petitioners
and respondent bank to be unconscionable.
In Villanueva v. Court of Appeals,25 where the issue raised was whether the
24% p.a. stipulated interest rate is unreasonable under the circumstances,
we answered in the negative and held:
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings
and Mortgage Bank, Dagupan City Branch, this Court held that the interest
rate of 24% per annum on a loan of ₱244,000.00, agreed upon by the parties,
may not be considered as unconscionable and excessive. As such, the Court
ruled that the borrowers cannot renege on their obligation to comply with
what is incumbent upon them under the contract of loan as the said contract
is the law between the parties and they are bound by its stipulations.
Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the
parties to a 24% per annum interest on an ₱8,649,250.00 loan finding the
same to be reasonable and clearly evidenced by the amended credit line
agreement entered into by the parties as well as two promissory notes
executed by the borrower in favor of the lender.
Based on the above jurisprudence, the Court finds that the 24% per annum
interest rate, provided for in the subject mortgage contracts for a loan of
₱225,000.00, may not be considered unconscionable. Moreover, considering
that the mortgage agreement was freely entered into by both parties, the
same is the law between them and they are bound to comply with the
provisions contained therein.26
Clearly, jurisprudence establish that the 24% p.a. stipulated interest rate was
not considered unconscionable, thus, the 23% p.a. interest rate imposed on
petitioners' loan in this case can by no means be considered excessive or
unconscionable.
We also do not find the stipulated 12% p.a. penalty charge excessive or
unconscionable.
In Ruiz v. CA,27 we held:
The 1% surcharge on the principal loan for every month of default is
valid. This surcharge or penalty stipulated in a loan agreement in case of
default partakes of the nature of liquidated damages under Art. 2227 of the
New Civil Code, and is separate and distinct from interest payment. Also
referred to as a penalty clause, it is expressly recognized by law. It is an
accessory undertaking to assume greater liability on the part of an obligor in
case of breach of an obligation. The obligor would then be bound to pay the
stipulated amount of indemnity without the necessity of proof on the
existence and on the measure of damages caused by the breach. x x x28 And
in Development Bank of the Philippines v. Family Foods Manufacturing Co.,
Ltd.,29 we held that:

x x x The enforcement of the penalty can be demanded by the creditor only

when the non-performance is due to the fault or fraud of the debtor. The non-
performance gives rise to the presumption of fault; in order to avoid the
payment of the penalty, the debtor has the burden of proving an excuse - the
failure of the performance was due to either force majeure or the acts of the
creditor himself.30

Here, petitioners defaulted in the payment of their loan obligation with

respondent bank and their contract provided for the payment of 12% p.a.
penalty charge, and since there was no showing that petitioners' failure to
perform their obligation was due to force majeure or to respondent bank's
acts, petitioners cannot now back out on their obligation to pay the penalty
charge. A contract is the law between the parties and they are bound by the
stipulations therein.

WHEREFORE, the petition for review is DENIED. The Decision dated June
17, 2010 and the Resolution dated July 20, 2011 of the Court of Appeals are
hereby AFFIRMED.

SO ORDERED.
 G.R. No. 182963 June 3, 2013
SPOUSES DEO AGNER and MARICON AGNER, Petitioners,
vs.
BPI FAMILY SAVINGS BANK, INC., Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the April 30, 2007
Decision1 and May 19, 2008 Resolution2of the Court of Appeals in CAG.R. CV
No. 86021, which affirmed the August 11, 2005 Decision3 of the Regional
Trial Court, Branch 33, Manila City.
On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner
executed a Promissory Note with Chattel Mortgage in favor of Citimotors, Inc.
The contract provides, among others, that: for receiving the amount of
Php834, 768.00, petitioners shall pay Php 17,391.00 every 15th day of each
succeeding month until fully paid; the loan is secured by a 2001 Mitsubishi
Adventure Super Sport; and an interest of 6% per month shall be imposed for
failure to pay each installment on or before the stated due date.4
On the same day, Citimotors, Inc. assigned all its rights, title and interests in
the Promissory Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc.
(ABN AMRO), which, on May 31, 2002, likewise assigned the same to
respondent BPI Family Savings Bank, Inc.5
For failure to pay four successive installments from May 15, 2002 to August
15, 2002, respondent, through counsel, sent to petitioners a demand letter
dated August 29, 2002, declaring the entire obligation as due and
demandable and requiring to pay Php576,664.04, or surrender the
mortgaged vehicle immediately upon receiving the letter.6 As the demand was
left unheeded, respondent filed on October 4, 2002 an action for Replevin and
Damages before the Manila Regional Trial Court (RTC).
A writ of replevin was issued.7 Despite this, the subject vehicle was not
seized.8 Trial on the merits ensued. On August 11, 2005, the Manila RTC Br.
33 ruled for the respondent and ordered petitioners to jointly and severally
pay the amount of Php576,664.04 plus interest at the rate of 72% per annum
from August 20, 2002 until fully paid, and the costs of suit.
Petitioners appealed the decision to the Court of Appeals (CA), but the CA
affirmed the lower court’s decision and, subsequently, denied the motion for
reconsideration; hence, this petition.
Before this Court, petitioners argue that: (1) respondent has no cause of
action, because the Deed of Assignment executed in its favor did not
specifically mention ABN AMRO’s account receivable from petitioners; (2)
petitioners cannot be considered to have defaulted in payment for lack of
competent proof that they received the demand letter; and (3) respondent’s
remedy of resorting to both actions of replevin and collection of sum of money
is contrary to the provision of Article 14849 of the Civil Code and the Elisco
Tool Manufacturing Corporation v. Court of Appeals10ruling.
The contentions are untenable.
With respect to the first issue, it would be sufficient to state that the matter
surrounding the Deed of Assignment had already been considered by the trial
court and the CA. Likewise, it is an issue of fact that is not a proper subject of
a petition for review under Rule 45. An issue is factual when the doubt or
difference arises as to the truth or falsehood of alleged facts, or when the
query invites calibration of the whole evidence, considering mainly the
credibility of witnesses, existence and relevancy of specific surrounding
circumstances, their relation to each other and to the whole, and the
probabilities of the situation.11 Time and again, We stress that this Court is
not a trier of facts and generally does not weigh anew evidence which lower
courts have passed upon.
As to the second issue, records bear that both verbal and written demands
were in fact made by respondent prior to the institution of the case against
petitioners.12 Even assuming, for argument’s sake, that no demand letter was
sent by respondent, there is really no need for it because petitioners legally
waived the necessity of notice or demand in the Promissory Note with Chattel
Mortgage, which they voluntarily and knowingly signed in favor of
respondent’s predecessor-in-interest. Said contract expressly stipulates:
In case of my/our failure to pay when due and payable, any sum which I/We
are obliged to pay under this note and/or any other obligation which I/We or
any of us may now or in the future owe to the holder of this note or to any
other party whether as principal or guarantor x x x then the entire sum
outstanding under this note shall, without prior notice or demand,
immediately become due and payable. (Emphasis and underscoring supplied)
A provision on waiver of notice or demand has been recognized as legal and
valid in Bank of the Philippine Islands v. Court of Appeals,13 wherein We held:
The Civil Code in Article 1169 provides that one incurs in delay or is in default
from the time the obligor demands the fulfillment of the obligation from the
obligee. However, the law expressly provides that demand is not necessary
under certain circumstances, and one of these circumstances is when the
parties expressly waive demand. Hence, since the co-signors expressly waived
demand in the promissory notes, demand was unnecessary for them to be in
default.14
Further, the Court even ruled in Navarro v. Escobido15 that prior demand is
not a condition precedent to an action for a writ of replevin, since there is
nothing in Section 2, Rule 60 of the Rules of Court that requires the applicant
to make a demand on the possessor of the property before an action for a writ
of replevin could be filed.
Also, petitioners’ representation that they have not received a demand letter is
completely inconsequential as the mere act of sending it would suffice. Again,
We look into the Promissory Note with Chattel Mortgage, which provides:
All correspondence relative to this mortgage, including demand letters,
summonses, subpoenas, or notifications of any judicial or extrajudicial action
shall be sent to the MORTGAGOR at the address indicated on this
promissory note with chattel mortgage or at the address that may hereafter
be given in writing by the MORTGAGOR to the MORTGAGEE or his/its
assignee. The mere act of sending any correspondence by mail or by personal
delivery to the said address shall be valid and effective notice to the mortgagor
for all legal purposes and the fact that any communication is not actually
received by the MORTGAGOR or that it has been returned unclaimed to the
MORTGAGEE or that no person was found at the address given, or that the
address is fictitious or cannot be located shall not excuse or relieve the
MORTGAGOR from the effects of such notice.16 (Emphasis and underscoring
supplied)
The Court cannot yield to petitioners’ denial in receiving respondent’s demand
letter. To note, their postal address evidently remained unchanged from the
time they executed the Promissory Note with Chattel Mortgage up to time the
case was filed against them. Thus, the presumption that "a letter duly
directed and mailed was received in the regular course of the mail"17 stands in
the absence of satisfactory proof to the contrary.
Petitioners cannot find succour from Ting v. Court of Appeals18 simply
because it pertained to violation of Batas Pambansa Blg. 22 or the Bouncing
Checks Law. As a higher quantum of proof – that is, proof beyond reasonable
doubt – is required in view of the criminal nature of the case, We found
insufficient the mere presentation of a copy of the demand letter allegedly sent
through registered mail and its corresponding registry receipt as proof of
receiving the notice of dishonor.
Perusing over the records, what is clear is that petitioners did not take
advantage of all the opportunities to present their evidence in the proceedings
before the courts below. They miserably failed to produce the original cash
deposit slips proving payment of the monthly amortizations in question. Not
even a photocopy of the alleged proof of payment was appended to their
Answer or shown during the trial. Neither have they demonstrated any
written requests to respondent to furnish them with official receipts or a
statement of account. Worse, petitioners were not able to make a formal offer
of evidence considering that they have not marked any documentary evidence
during the presentation of Deo Agner’s testimony.19
Jurisprudence abounds that, in civil cases, one who pleads payment has the
burden of proving it; the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment.20 When the creditor is in
possession of the document of credit, proof of non-payment is not needed for
it is presumed.21 Respondent's possession of the Promissory Note with
Chattel Mortgage strongly buttresses its claim that the obligation has not
been extinguished. As held in Bank of the Philippine Islands v. Spouses
Royeca:22
x x x The creditor's possession of the evidence of debt is proof that the debt
has not been discharged by payment. A promissory note in the hands of the
creditor is a proof of indebtedness rather than proof of payment. In an action
for replevin by a mortgagee, it is prima facie evidence that the promissory note
has not been paid. Likewise, an uncanceled mortgage in the possession of the
mortgagee gives rise to the presumption that the mortgage debt is unpaid.23
Indeed, when the existence of a debt is fully established by the evidence
contained in the record, the burden of proving that it has been extinguished
by payment devolves upon the debtor who offers such defense to the claim of
the creditor.24 The debtor has the burden of showing with legal certainty that
the obligation has been discharged by payment.25
Lastly, there is no violation of Article 1484 of the Civil Code and the Court’s
decision in Elisco Tool Manufacturing Corporation v. Court of Appeals.26
In Elisco, petitioner's complaint contained the following prayer:
WHEREFORE, plaintiffs pray that judgment be rendered as follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the sum of
₱39,054.86 plus legal interest from the date of demand until the whole
obligation is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle
more particularly described in paragraph 3 of the Complaint, from defendant
Rolando Lantan and/or defendants Rina Lantan, John Doe, Susan Doe and
other person or persons in whose possession the said motor vehicle may be
found, complete with accessories and equipment, and direct deliver thereof to
plaintiff in accordance with law, and after due hearing to confirm said seizure
and plaintiff's possession over the same;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount
equivalent to twenty-five percent (25%) of his outstanding obligation, for and
as attorney's fees;
2. Ordering defendants to pay the cost or expenses of collection, repossession,
bonding fees and other incidental expenses to be proved during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable Court may deem
just and equitable under the premises.27
The Court therein ruled:
The remedies provided for in Art. 1484 are alternative, not cumulative. The
exercise of one bars the exercise of the others. This limitation applies to
contracts purporting to be leases of personal property with option to buy by
virtue of Art. 1485. The condition that the lessor has deprived the lessee of
possession or enjoyment of the thing for the purpose of applying Art. 1485
was fulfilled in this case by the filing by petitioner of the complaint for replevin
to recover possession of movable property. By virtue of the writ of seizure
issued by the trial court, the deputy sheriff seized the vehicle on August 6,
1986 and thereby deprived private respondents of its use. The car was not
returned to private respondent until April 16, 1989, after two (2) years and
eight (8) months, upon issuance by the Court of Appeals of a writ of
execution.
Petitioner prayed that private respondents be made to pay the sum of
₱39,054.86, the amount that they were supposed to pay as of May 1986, plus
interest at the legal rate. At the same time, it prayed for the issuance of a writ
of replevin or the delivery to it of the motor vehicle "complete
with accessories and equipment." In the event the car could not be delivered
to petitioner, it was prayed that private respondent Rolando Lantan be made
to pay petitioner the amount of ₱60,000.00, the "estimated actual value" of
the car, "plus accrued monthly rentals thereof with interests at the rate of
fourteen percent (14%) per annum until fully paid." This prayer of course
cannot be granted, even assuming that private respondents have defaulted in
the payment of their obligation. This led the trial court to say that petitioner
wanted to eat its cake and have it too.28
In contrast, respondent in this case prayed:
(a) Before trial, and upon filing and approval of the bond, to forthwith issue a
Writ of Replevin ordering the seizure of the motor vehicle above-described,
complete with all its accessories and equipments, together with the
Registration Certificate thereof, and direct the delivery thereof to plaintiff in
accordance with law and after due hearing, to confirm the said seizure;
(b) Or, in the event that manual delivery of the said motor vehicle cannot be
effected to render judgment in favor of plaintiff and against defendant(s)
ordering them to pay to plaintiff, jointly and severally, the sum of ₱576,664.04
plus interest and/or late payment charges thereon at the rate of 72% per
annum from August 20, 2002 until fully paid;
(c) In either case, to order defendant(s) to pay jointly and severally:
(1) the sum of ₱297,857.54 as attorney’s fees, liquidated damages, bonding
fees and other expenses incurred in the seizure of the said motor vehicle; and
(2) the costs of suit.
Plaintiff further prays for such other relief as this Honorable Court may deem
just and equitable in the premises.29
Compared with Elisco, the vehicle subject matter of this case was never
recovered and delivered to respondent despite the issuance of a writ of
replevin. As there was no seizure that transpired, it cannot be said that
petitioners were deprived of the use and enjoyment of the mortgaged vehicle
or that respondent pursued, commenced or concluded its actual foreclosure.
The trial court, therefore, rightfully granted the alternative prayer for sum of
money, which is equivalent to the remedy of "exacting fulfillment of the
obligation." Certainly, there is no double recovery or unjust enrichment30 to
speak of.
All the foregoing notwithstanding, We are of the opinion that the interest of
6% per month should be equitably reduced to one percent (1%) per month or
twelve percent (12%) per annum, to be reckoned from May 16, 2002 until full
payment and with the remaining outstanding balance of their car loan as of
May 15, 2002 as the base amount.

Settled is the principle which this Court has affirmed in a number of cases
that stipulated interest rates of three percent (3%) per month and higher are
excessive, iniquitous, unconscionable, and exorbitant.31 While Central Bank
Circular No. 905-82, which took effect on January 1, 1983, effectively
removed the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity, nothing in the said circular could possibly be read as
granting carte blanche authority to lenders to raise interest rates to levels
which would either enslave their borrowers or lead to a hemorrhaging of their
assets.32 Since the stipulation on the interest rate is void for being contrary to
morals, if not against the law, it is as if there was no express contract on said
interest rate; thus, the interest rate may be reduced as reason and equity
demand.33

WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH

MODIFICATION the April 30, 2007 Decision and May 19, 2008 Resolution of
the Court of Appeals in CA-G.R. CV No. 86021. Petitioners spouses Deo
Agner and Maricon Agner are ORDERED to pay, jointly and severally,
respondent BPI Family Savings Bank, Inc. ( 1) the remaining outstanding
balance of their auto loan obligation as of May 15, 2002 with interest at one
percent ( 1 o/o) per month from May 16, 2002 until fully paid; and (2) costs of
suit.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice
 G.R. No. 194201 November 27, 2013
SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,
vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS
CITY JOSE C. CORALES, Respondents.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court seeking to partially set aside the Decision,2 dated 30 March
2010, and the Resolution,3 dated 13 October 2010, of the Court of Appeals
(CA) in CA-G.R. CV No. 91250. The challenged Decision dismissed the appeal
of herein respondent Philippine National Bank (respondent bank) and
affirmed the decision of the Regional Trial Court (RTC), Branch 84, Batangas
City with the modification that the interest rate to be applied by respondent
bank on the principal loan obligation of petitioners Spouses Bayani H. Andal
and Gracia G. Andal (petitioners spouses) shall be 12% per annum, to be
computed from default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from
[respondent bank] in the amount of ₱21,805,000.00, for which they executed
twelve (12) promissory notes x x x [undertaking] to pay [respondent bank] the
principal loan with varying interest rates of 17.5% to 27% per interest period.
It was agreed upon by the parties that the rate of interest may be increased or
decreased for the subsequent interest periods, with prior notice to
[petitioners-spouses], in the event of changes in interest rates prescribed by
law or the Monetary Board x x x, or in the bank’s overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in
favor of [respondent bank] a real estate mortgage using as collateral five (5)
parcels of land including all improvements therein, all situated in Batangas
City and covered by Transfer Certificate of Title (TCT) Nos. T-641, T-32037, T-
16730, T-31193 and RT 363 (3351) of the Registry of Deeds of Batangas City,
in the name of [petitioners-spouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their
loan obligation, otherwise the former will declare the latter’s loan due and
demandable. On July 17, 2001, [petitioners-spouses] paid ₱14,800,000.00 to
[respondent bank] to avoid foreclosure of the properties subject of the real
estate mortgage. Accordingly, [respondent bank] executed a release of real
estate mortgage over the parcels of land covered by TCT Nos. T-31193 and
RT-363 (3351). However, despite payment x x x, [respondent bank] proceeded
to foreclose the real estate mortgage, particularly with respect to the three (3)
parcels of land covered by TCT Nos. T-641, T-32037 and T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent
bank] emerging as the highest and winning bidder. Accordingly, on August
30, 2002, a certificate of sale of the properties involved was issued.
[Respondent bank] consolidated its ownership over the said properties and
TCT Nos. T-52889, T-52890, and T-52891 were issued in lieu of the cancelled
TCT[s] x x x. This prompted [petitioners-spouses] to file x x x a complaint for
annulment of mortgage, sheriff’s certificate of sale, declaration of nullity of the
increased interest rates and penalty charges plus damages, with the RTC of
Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to
religiously pay their loan obligation to [respondent bank], but the exorbitant
rate of interest unilaterally determined and imposed by the latter prevented
the former from paying their obligation. [Petitioners-spouses] also alleged that
they signed the promissory notes in blank, relying on the representation of
[respondent bank] that they were merely proforma [sic] bank requirements.
Further, [petitioners-spouses] alleged that the unilateral increase of interest
rates and exorbitant penalty charges are akin to unjust enrichment at their
expense, giving [respondent bank] no right to foreclose their mortgaged
properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the
allegations in the complaint. x x x [respondent bank] alleged that: the penalty
charges imposed on the loan was expressly stipulated under the credit
agreements and in the promissory notes; although [petitioners-spouses] paid
to [respondent bank] ₱14,800,000.00 on July 10, 2001, the former was still
indebted to the latter in the amount of ₱33,960,633.87; assuming arguendo
that the imposition was improper, the foreclosure of the mortgaged properties
is in order since [respondent bank’s] bid in the amount of ₱28,965,100.00
was based on the aggregate appraised rates of the foreclosed properties. x x x4
After trial, the RTC rendered judgment5 in favor of petitioners-spouses and
against respondent bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in
accordance with Article 2209 of the Civil Code effective the next 30, 31 and
180 days respectively from the date of the twelve (12) promissory notes x x x
covered by the real estate x x x mortgages, to be applied on a declining
balance of the principal after the partial payments of ₱14,800,00.00 (paid July
17, 2001) and ₱2,000,000.006 (payments of ₱300,000.00 on October 1, 1999,
₱1,800,000.00 as [of] December 1, 1999, ₱700,000.00 [on] January 31, 2000)
per certification of [respondent bank] to be reckoned at (sic) the dates the said
payments were made, thus the corrected amounts of the liability for principal
balance and the said 6% charges per annum shall be the new basis for the
[petitioners-spouses] to make payments to the [respondent bank] x x x which
shall automatically extinguish and release the mortgage contracts and the
outstanding liabilities of the [petitioners-spouses]; [respondent bank] shall
then surrender the new transfer certificates of title x x x in its name to the
[c]ourt x x x, [c]anceling the penalty charges.
xxxx
3. Declaring as illegal and void the foreclosure sales x x x, the Certificates of
Sales and the consolidation of titles of the subject real properties, including
the cancellation of the new Transfer Certificates of Title x x x in the name of
the [respondent] bank and reinstating Transfer Certificates of Title Nos. T-
641, T-32037 and T-16730 in the names of the [petitioners-spouses]; the
latter acts to be executed by the Register of Deeds of Batangas City.7
The foregoing disposition of the RTC was based on the following findings of
fact:
As of this writing the [respondent] bank have (sic) not complied with the said
orders as to the interest rates it had been using on the loan of [petitioners-
spouses] and the monthly computation of interest vis a vis (sic) the total
shown in the statement of account as of Aug 30, 2002. Such refusal amounts
to suppression of evidence thus tending to show that the interest used by the
bank was unilaterally increased without the written consent of the
[petitioners-spouses]/borrower as required by law and Central Bank Circular
No. 1171. The latter circular provides that any increase of interest in a given
interest period will have to be expressly agreed to in writing by the borrower.
The mortgaged properties were subject of foreclosure and were sold on
August 30, 2002 and the [respondent] bank’s statement of account as of
August 30, 2002 x x x shows unpaid interest up to July 17, 2001 of
₱12,695,718.99 without specifying the rate of interest for each interest period
of thirty days. Another statement of account of [respondent bank] x x x as [of]
the date of foreclosure on August 30, 2002 shows account balance of
₱20,505,916.51 with a bid price of ₱28,965,100.00 and showing an interest of
₱16,163,281.65. Again, there are no details of the interest used for each
interest period from the time these loans were incurred up to the date of
foreclosure. These statements of account together with the stated interest and
expenses after foreclosure were furnished by the [respondent] bank during
the court hearings. The central legal question is that there is no agreement in
writing from the [petitioners-spouses]/borrowers for the interest rate for each
interest period neither from the data coming from the Central Bank or the
cost of money which is understood to mean the interest cost of the bank
deposits form the public. Such imposition of the increased interest without
the consent of the borrower is null and void pursuant to Article 1956 of the
Civil Code and as held in the pronouncement of the Supreme Court in several
cases and C.B. Circular No. 1191 that the interest rate for each re-pricing
period under the floating rate of interest is subject to mutual agreement in
writing. Art. 1956 states that no interest is due unless it has been expressly
stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the
creditor/mortgagee, belongs to the class of potestative condition which is null
and void under Art. 1308 of the New Civil Code. The fulfillment of a condition
cannot be left to the sole will of [one of] the contracting parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure
sale for a higher amount than what is legally due is likewise null and void
because under the Civil Code, a mortgage may be foreclosed only to enforce
the fulfillment of the obligation for whose security it was constituted (Art.
2126, Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of interest
since no interest may be collected based on the stipulation that is null and
void and legally inexistent and unenforceable. x x x. Since the interest
imposed is illegal and void only the rate of 6% interest per month shall be
imposed as liquidated damages under Art. 2209 of the Civil Code.
It is worth mentioning that these forms used by the bank are pre- printed
forms and therefore contracts of adhesion and x x x any dispute or doubt
concerning them shall be resolved in favor of the x x x borrower. This (sic)
circumstances tend to support the contention of the [petitioners-spouses] that
they were made to sign the real estate mortgages/promissory notes in blank
with respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses’] property
and any foreclosure thereof is illegal, unreasonable and void, since
[petitioners-spouses] are not and cannot be considered in default for their
inability to pay the arbitrarily, illegally, and unconscionably adjusted interest
rates and penalty charges unilaterally made and imposed by [respondent]
bank.
The [petitioners-spouses] submitted to the court certified copies of the
weighted average of Selected Domestic Interest Rates of the local banks
obtained from the Bangko Sentral ng Pilipinas Statistical Center and it shows
a declining balance of interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate
was ever used to increase or decrease the interest rates charged upon the
[petitioners-spouses’] mortgage loan for the 30 day re- pricing period
subsequent to the first 30 days from [the] dates of the promissory notes.
These documents submitted being certified public documents are entitled to
being taken cognizance of by the court as an aid to its decision making. x x x.8
Respondent bank appealed the above judgment of the trial court to the CA.
Its main contention is that the lower court erred in ordering the re-
computation of petitioners-spouses’ loans and applying the interest rate of 6%
per annum. According to respondent bank, the stipulation on the interest
rates of 17.5% to 27%, subject to periodic adjustments, was voluntarily
agreed upon by the parties; hence, it was not left to the sole will of respondent
bank. Thus, the lower court erred in reducing the interest rate to 6% and in
setting aside the penalty charges, as such is contrary to the principle of the
obligatory force of contracts under Articles 1315 and 1159 of the Civil Code.9
The CA disposed of the issue in the following manner:
We partly agree with [respondent bank’s] contention.
Settled is the rule that the contracting parties are free to enter into
stipulations, clauses, terms and conditions as they may deem convenient, as
long as these are not contrary to law, morals, good customs, public order or
public policy. Pursuant to Article 1159 of the Civil Code, these obligations
arising from such contracts have the force of law between the parties and
should be complied with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly
stipulated in the promissory notes the rate of interest to be applied to the loan
obtained by the latter from the former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest
rates stated in the promissory notes since the latter voluntarily signed the
same. However, we find more credible and believable the version of
[petitioners-spouses] that they were made to sign the said promissory notes in
blank with respect to the rate of interest and penalty charges, and
subsequently, [respondent] bank filled in the blanks, imposing high interest
rate beyond which they were made to understand at the time of the signing of
the promissory notes.
xxxx
The signing by [petitioners-spouses] of the promissory notes in blank enabled
[respondent] bank to impose interest rates on the loan obligation without
prior notice to [petitioners-spouses]. The unilateral determination and
imposition of interest rates by [respondent] bank without [petitioners-
spouses’] assent is obviously violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code x x x.
xxxx
[Respondent bank’s] act converted the loan agreement into a contract of
adhesion where the parties do not bargain on equal footing, the weaker
party’s participation, herein [petitioners-spouses], being reduced to the
alternative to take it or leave it. [Respondent] bank tried to sidestep this issue
by averring that [petitioners-spouses], as businessmen, were on equal footing
with [respondent bank] as far as the subject loan agreements are concerned.
That may be true insofar as entering into the original loan agreements and
mortgage contracts are concerned. However, that does not hold true when it
comes to the unilateral determination and imposition of the escalated interest
rates imposed by [respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed
different rates in the twelve (12) promissory notes: interest rate of 18% in five
(5) promissory notes; 17.5% in two (2) promissory notes; 23% in one (1)
promissory note; and 27% in three (3) promissory notes. Obviously, the
interest rates are excessive and arbitrary. Thus, the foregoing interest rates
imposed on [petitioners-spouses’] loan obligation without their knowledge and
consent should be disregarded, not only for being iniquitous and exorbitant,
but also for being violative of the principle of mutuality of contracts.
However, we do not agree with the trial court in fixing the rate of interest of
6%. It is well-settled that when an obligation is breached and consists in the
payment of a sum of money, i.e., loan or forbearance of money, the interest
due shall be that which may have been stipulated in writing. In the absence
of stipulation, the rate of interest shall be 12% interest per annum to be
computed from default, i.e., from judicial or extra-judicial demand and
subject to the provisions of Article 1169 of the Civil Code. Since the interest
rates printed in the promissory notes are void for the reasons above-stated,
the rate of interest to be applied to the loan should be 12% per annum only.10
The CA, consequently, dismissed respondent bank’s appeal and affirmed the
decision of the trial court with the modification that the rate of interest shall
be 12% per annum instead of 6%. Respondent bank filed a Motion for
Reconsideration of the CA decision. Petitioners-spouses, on the other hand,
filed a comment praying for the denial of respondent bank’s motion for
reconsideration. They also filed an "Urgent Manifestation"11 calling the
attention of the CA to its respective decisions in the cases of Spouses Enrique
and Epifania Mercado v. China Banking Corporation, et. al. (CA-GR CV No.
75303)12 and Spouses Bonifacio Caraig and Ligaya Caraig v. The Ex-Officio
Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No. 76029).13
According to petitioners-spouses, in Spouses Mercado v. China Banking, the
Special Seventh Division of the CA held that where the interest rate is
potestative, the entire interest is null and void and no interest is due.
On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff of
RTC, Batangas City, the then Ninth Division of the CA ruled that under the
doctrine of operative facts, no interest is due after the auction sale because
the loan is paid in kind by the auction sale, and interest shall commence to
run again upon finality of the judgment declaring the auction sale null and
void.14
The CA denied respondent bank’s Motion for Reconsideration for lack of
merit. It likewise found no merit in petitioners-spouses’ contention that no
interest is due on their principal loan obligation from the time of foreclosure
until finality of the judgment annulling the foreclosure sale. According to the
CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the
subject promissory notes after finding that the same are iniquitous and
exorbitant, and for being violative of the principle of mutuality of contracts.
Nevertheless, in Equitable PCI Bank v. Ng Sheung Ngor, the Supreme Court
ruled that because the escalation clause was annulled, the principal amount
of the loan was subject to the original or stipulated interest rate of interest,
and that upon maturity, the amount due was subject to legal interest at the
rate of 12% per annum. In this case, while we similarly annulled the
escalation clause contained in the promissory notes, this Court opted not to
impose the original rates of interest stipulated therein for being excessive, the
same being 17.5% to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing
Corporation v. Spouses Cesario Gravador and Norma De Vera, et. al. that
stipulations authorizing the imposition of iniquitous or unconscionable
interest are contrary to morals, if not against the law. x x x. The nullity of the
stipulation on the usurious interest does not, however, affect the lender’s right
to recover the principal of the loan. The debt due is to be considered without
the stipulation of the excessive interest. A legal interest of 12% per annum will
be added in place of the excessive interest formerly imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the
imposition by this Court of a 12% rate of interest per annum on the principal
loan obligation of [petitioners-spouses], computed from the time of default, is
proper as it is consistent with prevailing jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division of
this Court in CA-G.R. CV No. 75303 and in CA-G.R. No. 76029 are final and
executory, the same merely have persuasive effect but do not outweigh the
decisions of the Supreme Court which we are duty-bound to follow,
conformably with the principle of stare decisis.
The doctrine of stare decisis enjoins adherence to judicial precedents. It
requires courts in a country to follow the rule established in a decision of the
Supreme Court thereof. That decision becomes a judicial precedent to be
followed in subsequent cases by all courts in the land. The doctrine of stare
decisis is based on the principle that once a question of law has been
examined and decided, it should be deemed settled and closed to further
argument.15 (Emphasis supplied.)
Petitioners-spouses are now before us, reiterating their position that no
interest should be imposed on their loan, following the respective
pronouncements of the CA in the Caraig and Mercado Cases. Petitioners-
spouses insist that "if the application of the doctrine of operative facts is
upheld, as applied in Caraig vs. Alday, x x x, interest in the instant case
would be computed only from the finality of judgment declaring the respondent bank’s appeal in a Resolution dated 10 January 2011. The
foreclosure sale null and void. If Mercado vs. China Banking Corporation x x Resolution became final and executory on 20 May 2011.19
x, applying by analogy the rule on void usurious interest to void potestative
interest rate, is further sustained, no interest is due when the potestative In addition, pursuant to Circular No. 799, series of 2013, issued by the Office
interest rate stipulation is declared null and void, as in the instant case.16 of the Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in
accordance with the ruling of the Supreme Court in the recent case of Dario
Our Ruling Nacar v. Gallery Frames and/or Felipe Bordey, Jr.,20 effective 1 July 2013, the
rate of interest for the loan or forbearance of any money, goods or credits and
We dismiss the appeal. 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. Accordingly, the
We cannot subscribe to the contention of petitioners-spouses that no interest
rate of interest of 12% per annum on petitioners-spouses’ obligation shall
should be due on the loan they obtained from respondent bank, or that, at
apply from 20 May 2011 – the date of default – until 30 June 2013 only. From
the very least, interest should be computed only from the finality of the
1 July 2013 until fully paid, the legal rate of 6% per annum shall be applied
judgment declaring the foreclosure sale null and void, on account of the
to petitioners-spouses’ unpaid obligation.
exorbitant rate of interest imposed on their loan.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of
It is clear from the contract of loan between petitioners-spouses and
the Court of Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the
respondent bank that petitioners-spouses, as borrowers, agreed to the
MODIFICATION that the 12% interest per annum shall be applied from the
payment of interest on their loan obligation. That the rate of interest was
date of default until 30 June 2013 only, after which date and until fully paid,
subsequently declared illegal and unconscionable does not entitle petitioners-
the outstanding obligation of petitioners-spouses shall earn interest at 6% per
spouses to stop payment of interest. It should be emphasized that only the
annum. Let the records of this case be remanded to the trial court for the
rate of interest was declared void. The stipulation requiring petitioners-
proper computation of the amount of liability of petitioners Spouses Bayani
spouses to pay interest on their loan remains valid and binding. They are,
H. Andal and Gracia G. Andal, in accordance with the pronouncements of the
therefore, liable to pay interest from the time they defaulted in payment until
Court herein and with due regard to the payments previously made by
their loan is fully paid.
petitioners-spouses.
It is worth mentioning that both the RTC and the CA are one in saying that
SO ORDERED.
"[petitioners-spouses] cannot be considered in default for their inability to pay
the arbitrary, illegal and unconscionable interest rates and penalty charges
unilaterally imposed by [respondent] bank."17 This is precisely the reason why
the foreclosure proceedings involving petitioners-spouses’ properties were
invalidated. As pointed out by the CA, "since the interest rates are null and
void, [respondent] bank has no right to foreclose [petitioners-spouses’]
properties and any foreclosure thereof is illegal. x x x. Since there was no
default yet, it is premature for [respondent] bank to foreclose the properties
subject of the real estate mortgage contract."18

Thus, for the purpose of computing the amount of liability of petitioners-

spouses, they are considered in default from the date the Resolution of the
Court in G.R. No. 194164 (Philippine National Bank v. Spouses Bayani H.
Andal and Gracia G. Andal) – which is the appeal interposed by respondent
bank to the Supreme Court from the judgment of the CA – became final and
executory. Based on the records of G.R. No. 194164, the Court denied herein
 G.R. No. 192371 January 15, 2014
LAND BANK OF THE PHILIPPINES, Petitioner,
vs. 01-089
EMMANUEL OÑATE, Respondent.
01-125
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the December 18, 2009
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 89346, which
affirmed with modification the May 31, 2006 Decision3 of the Regional Trial
Court (RTC), Branch 141 Makati City. The RTC dismissed the Complaint4 for
Sum of Money, which petitioner Land Bank of the Philippines (Land Bank)
filed against respondent Emmanuel C. Oñate (Oñate), and ordered Land
Bank to return the amount of ₱1,471,416.52 it unilaterally debited from his
accounts. On separate appeals by both parties, the CA affirmed the RTC
Decision with modification that Land Bank was further ordered to pay Oñate
the sums of ₱60,663,488.11 and US$3,210,222.85 representing the
undocumented withdrawals and drawings from his trust accounts with 12%
per annum interest compounded annually from June 21, 1991 until fully
paid.
Also assailed is the CA’s May 27, 2010 Resolution5 denying Land Bank’s
Motion for Reconsideration.6
01-082 10.25.79 200,001.0012
03.18.80 43.9813
03.13.80 188,161.0014
Each trust account was covered by an Investment Management Account
(IMA) with Full Discretion15 and has a corresponding passbook where
deposits and withdrawals were recorded. Pertinent portions common to the
IMAs read:
You [Land Bank] are appointed as my agent with full powers and discretion,
subject only to the following provisions:
1. You are authorized to hold, invest and reinvest the Fund and keep the
same invested, in your sole discretion, without distinction between principal
and income, in any assets which you deem advisable, without being restricted
to those of the character authorized for fiduciaries under any present or
future law.
2. You shall have full power and authority:
(a) to treat all the Fund as one aggregate amount for purposes of investment,
and to deposit all or any part thereof with a reputable bank including your
own commercial banking department;

Factual Antecedents (b) to pay all costs, expenses and charges incurred in connection with the
administration, preservation, maintenance and protection of the Fund and to
Land Bank is a government financial institution created under Republic Act charge the same to the Fund;
No. 3844.7 From 1978 to 1980, Oñate opened and maintained seven trust
accounts with Land Bank, more particularly described as follows: (c) to vote in person or by proxy on any stocks, bonds or other securities held
by you, for my/our account;
Trust Account No. Date Opened Beginning Balance
(d) to borrow money for the Fund (from your banking department or from
others) with or without giving securities from the Fund;
01-014 09.07.78 ₱250,000.008
(e) to cause any asset of the Fund to be issued, held or registered in your
01-017 11.16.78 1,312,896.009 name or in the name of your nominee, or in such form that title will pass by
delivery, provided your records shall indicate the true ownership of such
01-024 02.23.79 900,000.0010 assets;

(f) to hold the Fund in cash and to invest the same in fixed income
01-075 10.08.79 500,000.0011 placements traded and sold by your own Money Market Division; and
(g) to sign all documents pertinent to the transaction which you will make in
behalf of this Account.
3. All actions taken by you hereunder shall be for my account and risk.
Except for willful default or gross misconduct, you shall not be liable for any
loss or depreciation in the value of the assets of the Fund arising from any
cause whatsoever.
4. You shall maintain accurate records of all investments, receipts,
disbursements and other transactions of the Account. Records relating
thereto shall be open at all reasonable times to inspection and audit by me
either personally or through duly authorized representatives. Statements
consisting of a balance sheet, portfolio analysis, statement of income and
expenses, and summary of investment changes are to be sent to me/us
quarterly.
I/We shall approve such accounting by delivering in writing to you a
statement to that effect or by failure to express objection to such accounting
in writing delivered to you within thirty (30) days from my receipt of the
accounting.
Upon your receipt of a written approval of the accounting, or upon the
passage of said period of time within which objections may be filed, without
written objections having been delivered to you, such accounting shall be
deemed to be approved, and you shall be released and discharged as to all
items, matters and things set forth in such accounting as if such accounting
had been settled and allowed by a decree of a court of competent jurisdiction,
in an action or proceeding in which you and I were parties.16 (Emphasis
supplied)
In a letter17 dated October 8, 1981, however, Land Bank demanded from
Oñate the return of ₱4 million it claimed to have been inadvertently deposited
to Trust Account No. 01-125 as his additional funds but actually represents
the total amount of the checks issued to Land Bank by its corporate
borrowers as payment for their pre-terminated loans. Oñate refused. To settle
the matter, a meeting was held, but the parties failed to reach an agreement.
Since then, the issue of "miscrediting" remained unsettled. Then on June 21,
1991, Land Bank unilaterally applied the outstanding balance in all of
Oñate’s trust accounts against his resulting indebtedness by reason of the
"miscrediting" of funds. Although it exhausted the funds in all of Oñate’s trust
accounts, Land Bank was able to debit the amount of ₱1,528,583.48 only.18
Proceedings before the Regional Trial Court
To recoup the remaining balance of Oñate’s indebtedness, Land Bank filed a
Complaint19 for Sum of Money seeking to recover the amount of
₱8,222,687.8920 plus interest at the legal rate of 12% per annum computed
from May 15, 1992 until fully paid. Pertinent portions of Land Bank’s
Complaint reads:
5. By virtue of the Deeds of Revocable Trust executed on January 9,
198921 [sic] and February 5, 198922 [sic] by Philippine Virginia Tobacco
Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB),
LANDBANK likewise became a Trustee of certain funds belonging to PVTA
and PVTB.
6. As authorized under the [Deeds] of Revocable Trust, on October 10, 1980,
LANDBANK invested ₱4 Million of the trust accounts of PVTA and PVTB,
through a direct lending scheme to the following companies:
(a) Republic Telephone Company, Inc. (RETELCO), under Promissory Note
No. 1145 dated October 10, 1980, for ₱1,021,250.00 with maturity date on
November 24, 1980, subject to automatic roll-over up to October 10, 1981 at
17% interest per annum.
(b) Philippine Blooming Mills Company, Inc. (PBM), under Promissory Note
(unnumbered) dated October 10, 1980, for ₱1,021,250.00, with maturity date
on November 24, 1980, subject to automatic roll-over up to October 10, 1981,
at 17% interest per annum;
(c) Cheng Ban Yek (CBY), under Promissory Note (unnumbered) dated
October 10, 1980, for ₱1,023,138.89, with maturity date on November 28,
1980, subject to automatic roll-over up to October 10, 1981, at 17% interest
per annum;
(d) Philippine Tobacco Filters Corporation (PHILTOFIL), under Promissory
Note (unnumbered) dated October 10, 1980, for ₱1,021,250.00, with maturity
date on November 24, 1980, subject to automatic roll-over up to October 10,
1981, at 17% interest per annum.
xxxx
7. Pursuant to such direct loan transactions granted to the aforementioned
companies, LANDBANK issued four (4) cashier’s checks for ₱1 Million each
payable to RETELCO, PBM, CBY, and PHILTOFIL x x x
8. On or about November 24 and 28, 1980, the aforesaid borrowers
(RETELCO, PBM, CBY, AND PHILTOFIL), pre-terminated their corresponding
loans and paid their respective obligations in the form of checks payable to
LANDBANK and delivered by [Oñate’s] representative, Mr. Eduardo Polonio.
9. When the checks were delivered, [Oñate] fraudulently misrepresented to
LANDBANK that they were [Oñate’s] additional capital contribution to his
personal trust account. On the basis of this misrepresentation, LANDBANK
credited the payments made by the aforementioned corporate borrowers to
[Oñate’s] Trust Account No. 01-125.
10. After the payments were credited to his personal trust account, Oñate
proceeded to withdraw the same, to the damage and prejudice of LANDBANK
as the owner thereof.23
In his Answer (With Compulsory Counterclaim),24 Oñate asserted that the
setoff was without legal and factual bases. He specifically denied any
knowledge or involvement in the transaction between Land Bank and its
clients Philippine Virginia Tobacco Administration (PVTA) and Philippine
Virginia Tobacco Board (PVTB). He also denied that he made fraudulent
misrepresentation to induce the bank to deposit to his Trust Account No. 01-
125 as his additional capital the payments allegedly tendered by the bank’s
corporate borrowers. He maintained that all the funds in his accounts came
from legitimate sources and that he was totally unaware of and had nothing
to do with the alleged "miscrediting." While Oñate admitted having received
the October 8, 1981 demand letter, he argued that he did not acquiesce
thereto and, in fact, disputed the same during a meeting with an officer of
Land Bank. He also refuted Land Bank’s claim that it formally demanded for
the return of the disputed amount as the September 3, 1991 letter25 it alluded
to is not a demand letter. It was sent in response to his counsel’s letter
requesting for an accounting of his trust accounts.
By way of compulsory counterclaim, Oñate pointed out that per Balance
Sheets26 as of June 30, 1982 the funds in his trust accounts already totaled
₱35,555,464.78. And as of January 1993, the accumulated balance of his
accounts reached ₱229,222,160.25 and $3,472,683.94 computed as follows:
With interest at the rate of eighteen percent (18%) compounded every ninety
(90) days from the third quarter of 1982 to January, 1993, the trustor’s equity
of ₱35,555,464.78 has earned interest in the amount of ₱193,666,695.47.
Adding the trustor’s equity to the aforesaid accrued interest thereon, [Oñate’s]
peso deposits [in] his trust accounts with plaintiff bank have an accumulated
balance of ₱229,222,160.25 as of January 1993 .
But that is not all. [Oñate’s] dollar deposits to Trust Account No. 01-014
(which is for an "Undisclosed Principal") from the period July-September,
1980 alone, already amounted to $1,690,943.78. x x x
With interest at the rate of six percent (6%) compounded every ninety (90)
days from the first quarter of 1981, the said dollar deposits have earned
interest of $1,781,740.16 up to January, 1993. Thus, [Oñate’s] dollar
deposits [in] Trust Account No. 01-014 have an aggregate balance of
$3,472,683.94 as of January 1993.27
Hence, even if the amount of ₱8,222,687.89 as of May 15, 1992 is deducted
from the outstanding balance of his trust accounts as of January 1993, the
bank still owes him ₱220,999,472.36 on top of his dollar deposits amounting
to $3,472,683.94.
Oñate prayed that a judgment be issued dismissing the Complaint and
ordering Land Bank to pay him:
i) The sum of ₱220,999,472.36, representing the outstanding balance on the
peso deposits [of Oñate’s] various trust accounts as of January 1993, with
interest thereon from said date at the rate of eighteen percent (18%)
compounded every ninety (90) days, until the said amount is fully paid;
ii) The sum of $3,472,683.94, representing the aggregate balance as of
January 1993 on [Oñate’s] dollar deposits [in] Trust Account No. 01-014, with
interest thereon from said date at the rate of six percent (6%) compounded
every ninety (90) days, until the said amount is fully paid;
iii) The sum of ₱100,000,000.00 as and by way of moral damages;
iv) The sum of ₱50,000,000.00 as and by way of exemplary damages; and
v) The sum of ₱15,000,000.00, or 20% of all sums collected, whichever is
higher, as and for attorney's fees, the further sum of ₱3,000.00 as appearance
fee for each hearing attended, and such other sums that may be proved
during the trial as litigation expenses.28
Upon Oñate’s motion, the RTC issued an Order29 dated May 27, 1994,
creating a Board of Commissioners (the Board) for the purpose of examining
the records of Oñate’s seven trust accounts, as well as to determine the total
amount of deposits, withdrawals, funds invested, earnings, and expenses
incurred. It was composed of Atty. Engracio M. Escasinas, the Clerk of Court
of the RTC of Makati City, as the Chairman; and, Atty. Ma. Cristina C. Malab
and Ms. Adeliza M. Jaranilla representing Land Bank and Oñate, respectively,
as members.
Initially, the Board submitted three reports.30 But for clarity, the trial court
ordered31 the Board to reconvene and to submit a consolidated report
furnishing copies of the same to both parties, who were given 10 days from
receipt thereof to file their respective comments thereto. The Board complied
and on August 16, 2004 submitted its consolidated report.32 As summarized
by the RTC, the said consolidated report revealed that there were
undocumented and over withdrawals and drawings33 from Oñate’s trust
accounts:
Thus, the Commissioners’ Report showed that the total amount of drawings
and withdrawals from each account without withdrawal slips are as follows:
In Trust Account No. 01-014, there was a total withdrawals [sic] without
withdrawal slips but reflected in the passbook in the amount of
₱45,103,297.33 and this account showed a negative balance of
₱40,367,342.34. On the dollar deposit under the same trust account, there
was a total [withdrawal] without withdrawal slips but reflected in the
passbook in the amount of $3,210,222.85.
In Trust Account No. 01-017, there was a total withdrawal without
withdrawal slips in the amount of ₱2,682,088.58 and there was an over
withdrawal of ₱11,738,470.53 and $30,000.00.
In Trust Account No. 01-024, there was a total withdrawal without
withdrawal slips of ₱900,000.00 and over withdrawal of ₱13,310,328.01.
In Trust Account No. 01-075, there was a total withdrawal of ₱500,000.00
without withdrawal slips and there was a negative balance of ₱33,342,132.64
and $286,399.34 on the dollar account.
In Trust Account No. 01-082, the total amount of withdrawal without
withdrawal slips but reflected in the passbook was ₱1,782,741.86 and there
was an over withdrawal of ₱14,031.63.
In Trust Account No. 01-089, there was a total withdrawal without
withdrawal slips in the amount of ₱5,054,809.00 but the report indicated that
there was a negative balance of ₱1,296,441.92.
In Trust Account No. 01-125, there was a total withdrawal without
withdrawal slips in the amount of ₱4,640,551.34 and there was a negative
balance of ₱58,327,459.23.34
On even date, the Board also submitted a Manifestation35 informing the RTC
that its findings as to the outstanding balance of each trust account may not
be accurate considering that it was not given ample opportunity to collate and
sort out the documents related to each trust account and that there may
have been double take up of accounts since the documents previously
reviewed may have been considered again in subsequent reports.
In his Comment,36 Oñate asserted that the undocumented withdrawals
mentioned in the consolidated report should not be considered as cash
outflows. Rather, they should be treated as unauthorized transactions and
the amounts subject thereof must be credited back to his accounts.
Land Bank did not file any comment or objection to the Board’s consolidated
comment.
During the pre-trial conference, the parties agreed that they would submit the
case for decision based on the reports of the Board after they have submitted
their respective memoranda. They also stipulated on the following issues for
resolution of the RTC:
1. Whether x x x Oñate could claim on Trust Account Nos. 01-014 and 01-
017 which were opened for an undisclosed principal;
2. Whether x x x the undocumented withdrawals and drawings are
considered valid and regular and, conversely, if in the negative, whether x x x
such amounts shall be credited [back] to the accounts.37
In his Memorandum38 filed on July 12, 2005, Oñate reiterated that Land
Bank should be held liable for the undocumented withdrawals and drawings.
For its part, Land Bank posited, inter alia, that Trust Account Nos. 01-014
and 01-017 should be excluded from the computation of Oñate’s
counterclaim considering his allegation that said accounts are owned by an
undisclosed principal whom/which he failed to join as indispensable party.
Land Bank further theorized that Oñate must answer for the negative
balances as revealed by the Board’s reports.39
Thereafter, the case was submitted for decision.
Ruling of the Regional Trial Court
On May 31, 2006, the RTC rendered a Decision40 dismissing Land Bank’s
Complaint for its failure to establish that the amount of ₱4,086,888.89
allegedly "miscredited" to Oñate’s Trust Account No. 01-125 actually came
from the investments of PVTA and PVTB. Hence, the RTC ordered Land Bank
to restore the total amount of ₱1,471,416.52 which the bank unilaterally
debited from Oñate’s five trust accounts.41
With regard to Oñate’s counterclaim for the recovery of ₱220,999,472.36, as
well as the alleged US$3,472,683.94 balance of his dollar deposits in Trust
Account No. 01-014, the RTC ruled that under the IMAs, Land Bank had the
authority to withdraw funds (as in fact it was at all times in possession of the
passbooks) from Oñate’s accounts even without a letter of instruction or
withdrawal slip coming from Oñate. It thus gave weight to the entries in the
passbooks since the same were made in the ordinary course of business. The
RTC also ruled that Oñate is deemed to have approved the entries in the
statements of account that were sent to him as he never interposed any
objection thereto within the period given him to do so.
Anent Land Bank’s claim for the negative balances, the RTC likewise denied
the same for Land Bank never sought them in its Complaint. Moreover, being
the manager of the funds and keeper of the records, the RTC held that Land
Bank should not have allowed further withdrawals if there were no more
funds.
The RTC likewise debunked Land Bank’s argument that Oñate’s
counterclaim with respect to Trust Account Nos. 01-014 and 01-017 should
be dismissed for his failure to join his undisclosed principal. According to the
RTC, Land Bank should have earlier invoked such defense when it filed its
answer to the counterclaim. Also, if it is true that said accounts are not
owned by Oñate, then the bank had no right to apply the funds in said
accounts as payment for the alleged personal indebtedness of Oñate.
The dispositive portion of the RTC’s Decision reads:
WHEREFORE, in view of all the foregoing, decision is hereby rendered
dismissing the complaint and ordering [Land Bank] to pay [Oñate] the total
amount of ₱1,471,416.52 representing the total amount of funds debited
from the five (5) trust accounts of the defendant with legal rate of interest of
12% per annum, compounded yearly, effective on 21 June 1991 until fully
paid.
No pronouncement as to costs.
SO ORDERED.42
Land Bank filed a Motion for Reconsideration.43 In an Order44 dated July 11,
2006, however, the RTC denied the same.
Both parties appealed to the CA.
Ruling of the Court of Appeals
In its December 18, 2009 Decision,45 the CA denied Land Bank’s appeal and
granted that of Oñate. The CA affirmed the RTC’s ruling that Land Bank
failed to establish the source of the funds it claimed to have been erroneously
credited to Oñate’s account. With respect to Oñate’s appeal, the CA agreed
that he is entitled to the unaccounted withdrawals which, as found by the
Board, stood at ₱60,663,488.11 and $3,210,222.85.46 The CA’s ruling is
anchored on the bank’s failure to observe Sections X401 and X425 of the
Bangko Sentral ng Pilipinas Manual of Regulation for Banks (MORB)
requiring it to give full disclosure of the services it offered and conduct its
dealings with transparency, as well as to render reports that would
sufficiently apprise its clients of the significant developments in the
administration of their accounts. Aside from allowing undocumented
withdrawals, the CA likewise noted that Land Bank failed to keep an accurate
record and render an accounting of Oñate’s accounts. For the CA, the entries
in the passbooks are not sufficient because they do not specify where the
funds withdrawn from Oñate’s accounts were invested.
The dispositive portion of the CA’s Decision reads:
WHEREFORE, the appeal of plaintiff-appellant Land Bank is DENIED.
The appeal of defendant-appellant Emmanuel Oñate is hereby partially
GRANTED. Accordingly, the May 31, 2006 Decision of the Regional Trial
Court, Branch 141, Makati City is hereby MODIFIED in that, in addition to
the previous grant of ₱1,471,416.52 representing the total amount of funds
debited from defendant-appellant Oñate’s trust accounts, plaintiff-appellant
Land Bank is hereby ordered to pay defendant-appellant Oñate the sum of
₱60,663,488.11 and $3,210,222.85 representing the undocumented
withdrawals it debited from the latter’s trust account with interest at the rate
of 12% per annum, compounded yearly from June 21, 1991 until fully paid.
SO ORDERED.47
Land Bank filed a Motion for Reconsideration.48 In a Resolution49 dated May
27, 2010, however, the CA denied its motion. Hence, Land Bank filed the
instant Petition for Review on
Certiorari based on the following issues:
Issues
1. WHETHER X X X THE ENTRIES IN THE PASSBOOK ISSUED BY LBP IN
OÑATE’S TRUST ACCOUNT (EXPRESS TRUST) COVERED BY AN
INVESTMENT MANAGEMENT AGREEMENT (IMA) WITH FULL
DISCRETION ARE SUFFICIENT TO MEET THE "RULE ON PRESUMPTION
OF REGULARITY OF ENTRIES IN THE COURSE OF BUSINESS" PROVIDED
FOR UNDER SECTION 43, RULE 130 OF THE RULES OF COURT.
2. WHETHER X X X OÑATE IS ENTITLED TO CLAIM FOR ₱1,471,416.52
WHICH IS NOT PLEADED AS COUNTERCLAIM IN HIS ANSWER
PURSUANT TO SECTION 2, RULE 9 OF THE RULES OF COURT.
3. WHETHER X X X OÑATE IS ENTITLED TO THE AWARD OF
₱60,663,488.11 AND $3,210,222.85 REPRESENTING THE ALLEGED
UNDOCUMENTED WITHDRAWALS DEBITED FROM HIS TRUST
ACCOUNTS ON THE GROUND OF LBP’S ALLEGED FAILURE TO MEET
THE STANDARDS SET FORTH UNDER THE 2008 MANUAL ON
REGULATIONS FOR BANKS (MORB) ISSUED BY BSP.
4. WHETHER X X X OÑATE MAY SUE [ON] TRUST ACCOUNT NOS. 01-014
AND 01-017 OPENED FOR AN UNDISCLOSED PRINCIPAL WITHOUT
JOINING HIS UNDISCLOSED PRINCIPAL.
5. WHETHER X X X THE AWARD OF INTEREST TO OÑATE AT THE RATE
OF TWELVE PERCENT (12%) PER ANNUM, COMPOUNDED YEARLY FROM
JUNE 21, 1991 UNTIL FULLY PAID, IS VIOLATIVE OF ARTICLE 1959 OF
THE CIVIL CODE.50
Land Bank’s Arguments
Land Bank disputes the ruling of both lower courts that it failed to prove the
fact of "miscrediting" the amount of ₱4,086,888.89 to Oñate’s Trust Account
No. 01-125 as the deposit slips pertaining thereto were not presented. Land
Bank maintains that in trust accounts the passbooks are always in the
bank’s possession so that it can record the cash inflows and outflows even
without the corresponding deposit or withdrawal slips. Citing Section 43, Rule
130 of the Rules of Court, it asserts that the entries in the passbooks must be
accepted as proof of the regularity of the transactions reflected in the trust
accounts, including the "miscrediting" of ₱4,086,888.89, for they were made
in the regular course of business. In addition, said entries are supported by
demand letters dated October 8, 198151 and September 3, 1991,52 as well as
a Statement of Account53 as of May 15, 1992. Land Bank avers that Oñate
never questioned the statements of account and the reports it presented to
him and, hence, he is deemed to have approved all of them.
Land Bank also imputes error on the lower courts in ordering the restoration
of the amount of ₱1,471,416.52 it debited from Oñate’s five trust accounts
because he never sought it in his Answer.
Petitioner bank vigorously argues that Oñate is not entitled to the
undocumented withdrawals amounting to ₱60,663,488.11 and
$3,210,222.85. According to Land Bank, in holding it liable for the said
amounts, the CA erroneously relied on the 2008 MORB which was not yet in
existence at the time the transactions subject of this case were made or even
at the time when Land Bank filed its Complaint. In any case, Land Bank
insists that it made proper accounting and apprised Oñate of the status of his
investments in accordance with the terms of the IMAs. In its demand
letter54 dated September 3, 1991 Land Bank made a full disclosure that the
total outstanding balance of all the trust accounts amounted to
₱1,471,416.52, but that the same was setoff to recoup the "miscredited"
funds. It faults Oñate for not interposing any objection as his silence
constitutes as his approval after 30 days from receipt thereof. Land Bank
asseverates that Oñate could have also inspected and audited the records of
his accounts at any reasonable time. But he never did.
Land Bank likewise faults the CA in treating the undocumented withdrawals
as unauthorized transactions as the Board’s reports do not state anything to
that effect. It claims that the CA’s reliance on the consolidated report in
awarding the extremely huge amounts of ₱60,663,488.11 and $3,210,222.85
is a grievous mistake because the Board itself already manifested that said
report "may not be accurate." Consequently too, Land Bank asserts that the
reports of the Board cannot prevail over the entries in the passbooks which
were made in the regular course of business.
Land Bank further states that as computed by the Board, the amount of
negative balances in Oñate’s accounts reached ₱131,747,487.02 and
$818,674.71.55 It thus proposes that if the CA awarded to Oñate the
undocumented withdrawals on the basis of the Board’s reports, then it
should have also awarded to Land Bank said negative balances or over
withdrawals as reflected in the same reports. After all, Oñate admitted in his
Answer that all withdrawals from his trust accounts were done in the
ordinary course of business.
Furthermore, Land Bank claims that it argued before the CA that Oñate
cannot sue on Trust Account Nos. 01-014 and 01-017. While Oñate alleged
that said accounts were opened for an undisclosed principal, he did not,
however, join as an indispensable party said principal in violation of Section
3, Rule 3 of the Rules of Court.56 Unfortunately, the CA sidestepped the issue
and proceeded to grant Oñate the unaccounted withdrawals from said
accounts in the aggregate amounts of ₱47,785,385.91 and $3,210,222.85.
Following Quilatan v. Heirs of Lorenzo Quilatan,57 Land Bank insists that this
case should be remanded to the trial court even if the issue of failure to
implead an indispensable party was raised for the first time in a Motion for
Reconsideration of the trial court’s Decision.
Finally, Land Bank questions the ruling of the CA imposing 12% per annum
rate of interest. It contends that trust accounts are in the nature of "Express
Trust" and not in the nature of a regular deposit account where a debtor-
creditor relationship exists between the bank and its depositor. It was not
indebted to Oñate but merely held and managed his funds. There being no
loan or forbearance of money involved, in the absence of stipulation, the
applicable rate of interest is only 6% per annum. Land Bank claims that the
CA further erred when it compounded the 12% interest even in the absence of
any such stipulation.
Oñate’s Arguments
In opposing the Petition, Oñate argues that the issues raised by Land Bank
involve factual matters not proper in a petition for review on certiorari. He
posits that the Petition does not fall under any of the exceptions where this
Court could review factual issues.
As to Land Bank’s allegation that he cannot claim the funds without divulging
and impleading as an indispensable party his undisclosed principal, Oñate
points out that in his Answer (With Compulsory Counterclaim) he alleged that
Trust Account Nos. 01-014 and 01-017 were opened for an "undisclosed
principal." Yet Land Bank did not controvert his allegation. It is, therefore, too
late in the day for Land Bank to invoke non-joinder of principal as an
indispensable party. Besides, when he executed the IMAs, he was acting for
himself and on behalf of an undisclosed principal. Hence, he could claim and
recover the amounts owing not only to himself but also to his undisclosed
principal.
Oñate likewise asserts that Land Bank, as uniformly found by both lower
courts, failed to prove by preponderance of evidence the fact of "miscrediting."
As to the demand letters adverted to by Land Bank, Oñate asserts that the
lower courts did not consider the same because they were not formally
offered. Land Bank also failed to present competent and sufficient evidence
that he admitted his indebtedness on account of the "miscrediting" of funds.
Since Land Bank failed to prove the fact of "miscrediting" it had no right to
debit any amount from his accounts and must restore whatever funds it had
debited therefrom. Oñate also denies having failed to seek the return of the
funds debited from his account.
Oñate further claims that in 1982 his peso trust accounts had a total balance
of ₱35,555,464.78 while the dollar trust accounts had a balance of
US$1,690,943.78. Since then, however, he never received any report or
update regarding his accounts until the bank sent him financial reports dated
June 30, 1991 indicating that the balances of his trust accounts had been
unilaterally setoff. According to Oñate, Land Bank’s failure to keep an
accurate record of his accounts and to make proper accounting violate several
circulars of the Central Bank.58 Hence, it is only proper to require the bank to
return the undocumented withdrawals which, as found by the Board,
amount to ₱60,663,488.11 and $3,210,222.82. In addition, Oñate points out
Land Bank’s failure to keep an accurate record of his accounts as shown by
the huge amounts of unsupported withdrawals and drawings which
constitutes willful default if not gross misconduct in violation of the IMAs
which, in turn, makes the bank liable for its actions.
Anent Land Bank’s invocation that the entries in the passbook made in the
ordinary course of business are presumed correct and regular, Oñate argues
that such presumption does not relieve the trustee, Land Bank in this case,
from presenting evidence that the undocumented withdrawals and drawings
were authorized. In any case, the presumption invoked by Land Bank does
not lie as one of its elements – that the entrant must be deceased or unable to
testify – is lacking. Land Bank cannot also excuse itself for failing to regularly
submit to him accounting reports as, anyway, he was free to inspect the
records at any reasonable day. Oñate emphasizes that it is the duty of the
bank to keep him updated with significant developments in his accounts.
In refutation of Land Bank’s claim to negative balances and over withdrawals,
Oñate posits that the bank cannot benefit from its own negligence in
mismanaging the trust accounts.
Lastly, Oñate defends the CA’s grant of 12% per annum rate of interest as
under BSP Circular No. 416, said rate shall be applied in cases where money
is transferred from one person to another and the obligation to return the
same or a portion thereof is adjudged. In any event, Land Bank is estopped
from disputing said rate for Land Bank itself applied the same 12% per
annum rate of interest when it sought to recover the amount allegedly
"miscredited" to his account. As to the compounding of interest, Oñate claims
that the parties intended that interest income shall be capitalized and shall
form part of the principal.
Our Ruling
We deny the Petition.
 The issues raised are factual and do not
involve questions of law.
From the very start the issues involved in this case are factual – the very
reason why the RTC created a Board of Commissioners to assist it in
examining the records pertaining to Oñate’s accounts and determine the
respective cash inflows and outflows in said accounts. Thereafter, the parties
agreed to submit the case based on the Board’s reports. And when the
controversy reached the CA, the appellate court basically conducted an
"assiduous assessment of the evidentiary records."59 No question of law was
ever raised for determination of the lower courts. Now, Land Bank practically
beseeches us to assess the probative weight of the documentary evidence on
record to resolve the same basic issues of (i) whether Land Bank "miscredited"
₱4,086,888.89 to Trust Account No. 01-125 and (ii) "whether x x x the
undocumented withdrawals and drawings are considered valid and regular
and, conversely, if in the negative, whether x x x such amounts shall be
credited to the accounts."60
These issues could be resolved by consulting the evidence extant on records,
such as the IMAs, the passbooks, the letters of instructions, withdrawal and
deposit slips, statements of account, and the Board’s reports. Land Bank’s
heavy reliance on Section 43, Rule 130 of the Rules of Court61 also attests to
the factual nature of the issues involved in this case. "Well-settled is the rule
that in petitions for review on certiorari under Rule 45, only questions of law
can be raised."62 In Velayo-Fong v. Spouses Velayo,63 we defined a question of
law as distinguished from a question of fact:
A question of law arises when there is doubt as to what the law is on a certain
state of facts, while there is a question of fact when the doubt arises as to the
truth or falsity of the alleged facts.
For a question to be one of law, the same must not involve an examination of
the probative value of the evidence presented by the litigants or any of them.
The resolution of the issue must rest solely on what the law provides on the
given set of circumstances. Once it is clear that the issue invites a review of
the evidence presented, the question posed is one of fact. Thus, the test of
whether a question is one of law or of fact is not the appellation given to such
question by the party raising the same; rather, it is whether the appellate
court can determine the issue raised without reviewing or evaluating the
evidence, in which case, it is a question of law; otherwise, it is a question of
fact. (Italics supplied)
While there are recognized exceptions64 to this rule, none exists in this case.
Anent Land Bank’s contention that the determination of whether the CA
erred in retroactively applying the 2008 MORB poses a legal question, the
same deserves scant consideration. True, the CA included in its ratio
decidendi a discussion on the 2008 MORB to give emphasis to the duties of
banks to keep an accurate record and regularly apprise their clients of the
status of their accounts. But the issue of whether Land Bank failed to comply
with those duties can be resolved even without the MORB as the same duties
are also imposed on Land Bank by the IMAs, the contract that primarily
governs the parties in this case. "As a general rule, a contract is the law
between the parties. Thus, ‘from the moment the contract is perfected, the
parties are bound not only to the fulfilment of what has been expressly
stipulated but also to all consequences which, according to their nature, may
be in keeping with good faith, usage and law.’ Also, ‘the stipulations of the
contract being the law between the parties, courts have no alternative but to
enforce them as they were agreed [upon] and written’ x x x."65
Based on the factual milieu of this case even without touching on the MORB,
we found that Land Bank still failed to perform its bounden duties to keep
accurate records and render regular accounting. We also found no cogent
reason to disturb the other factual findings of the CA.
Land Bank failed to prove that the
"miscredited" funds came from the
proceeds of the pre-terminated loans of
its corporate borrowers.
Land Bank argues that the entries in the passbooks were made in the regular
course of business and should be accepted as prima facie evidence of the
facts stated therein. But before entries made in the course of business may
qualify under the exception to the hearsay rule and given weight, the party
offering them must establish that: (1) the person who made those entries is
dead, outside the country, or unable to testify; (2) the entries were made at, or
near the time of the transaction to which they refer; (3) the entrant was in a
position to know the facts stated therein; (4) the entries were made in the
professional capacity or in the course of duty of the entrant; and, (5) the
entries were made in the ordinary or regular course of business or duty.66
Here, Land Bank has neither identified the persons who made the entries in
the passbooks nor established that they are already dead or unable to testify
as required by Section 43,67 Rule 130 of the Rules of Court. Also, and as
correctly opined by the CA, "[w]hile the deposit entries in the bank’s passbook
enjoy a certain degree of presumption of regularity x x x," the same do "not
indicate or explain the source of the funds being deposited or withdrawn from
an individual account."68 They are mere prima facie proof of what are stated Date WITHDRAWAL DEPOSIT BALANCE
therein – the dates of the transactions, the amounts deposited or withdrawn,
and the outstanding balances. They do not establish that the total amount of
xxx xxx ₱250,704.60
₱4,086,888.89 deposited in Oñate’s Trust Account No. 01-125 in November
1980 came from the proceeds of the pre-terminated loans of Land Bank’s
corporate borrowers. It would be too presumptuous to immediately conclude 24NOV80 159,000.00 409,704.60
that said amount came from the checks paid to Land Bank by its corporate
borrowers just because the maturity dates of the loans coincided with the 24NOV80 3,063,750.00CK 3,473,454.60
dates said total amount was deposited. There must be proof showing an
unbroken link between the proceeds of the pre-terminated loans and the 24NOV80 42,000.00 3,431,454.60
amount allegedly "miscredited" to Oñate’s Trust Account No. 01-125. As a
bank and custodian of records, Land Bank could have easily produced 25NOV80 275,923.75 CK 3,707,378.35
documents showing that its borrowers pre-terminated their loans, the checks
they issued as payment for such loans, and the deposit slips used in
depositing those checks. But it did not. 25NOV 80 1,235,962.00 2,471,416.35

Land Bank did not also bother to explain how Oñate or his representative, 26NOV80 193,800.00 CK 2,665,216.35
Eduardo Polonio (Polonio), obtained possession of the checks when, according
to it, the corporate borrowers issued the checks in its name as payment for 26NOV80 250,000.00 CK 2,915,216.35
their loans.69 Under paragraph 8 of its Complaint, Land Bank alleged that its
corporate borrowers "paid their respective obligations in the form of checks
2,915,216.35
payable to LANDBANK x x x".70 If it is true, then why were the checks credited
to Oñate’s account? Unless subsequently endorsed to Oñate, said checks can
only be deposited in the account of the payee appearing therein. We cannot 26NOV80 2,915,216.35
thus lend credence to Land Bank’s excuse that the proximate cause of the
alleged "miscrediting" was the fraudulent representation of Polonio, for 321,188.38 CK 3,236,404.73
assuming that the latter indeed employed fraudulent machinations, with the
degree of prudence expected of banks, Land Bank and its tellers could have 26NOV80 1,373,167.00 1,863,237.73
easily detected that Oñate was not the intended payee. In Traders Royal Bank
v. Radio Philippines Network, Inc.,71 we held that petitioner bank was remiss
27NOV80 1,021,250.00 CK 2,884,487.73
in its duty and obligation for accepting and paying a check to a person other
than the payee appearing on the face of the check sans valid endorsement.
Consequently, it was made liable for its own negligence and in disregarding 28NOV80 70,833.33 CK 2,955,321.06
established banking rules and procedures.
27NOV80 919,300.00 2,036,021.06
We are also groping in the dark as to the number of checks allegedly
deposited by Polonio to Oñate’s Trust Account No. 01-125. According to Land
28NOV80 1,023,138.89 CK 3,059,159.9572
Bank, the entire amount of ₱4,086,888.89 represents the proceeds of the pre-
terminated loans of four of its clients, namely, RETELCO, PBM, CBY and
Were there only two checks issued as payment for the separate loans of these
PHILTOFIL. But it could only point to two entries made on two separate dates
four different entities? These hanging questions only confirm the correctness
in the passbook as reproduced below:
of the lower courts’ uniform conclusion that Land Bank failed to prove that
the amount allegedly "miscredited" to Oñate’s account came from the
proceeds of the pre-terminated loans of its clients. It is worth emphasizing
that in civil cases, the party making the allegations has the burden of proving
them by preponderance of evidence. Mere allegation is not sufficient.73
As a consequence of its failure to prove
the source of the claimed "miscredited"
funds, Land Bank had no right to debit
the total amount of ₱1,471,416.52 and
must, therefore, restore the same.
In view of the above, Land Bank’s argument that the lower courts erred in
ordering the return of the amount of ₱1,471,416.52 it debited from Oñate’s
five trust accounts since he did not seek such relief in his Answer as a
counterclaim, falls flat on its face. The order to restore the debited amount is
consistent with the lower courts’ ruling that Land Bank failed to prove that
the amount of ₱4,086,888.89 was "miscredited" to Oñate’s account and,
hence, it had no right to seek reimbursement or debit any amount from his
accounts in payment therefor.
Without such right, Land Bank should return the amount of ₱1,471,416.52 it
debited from Oñate’s accounts in its attempt to recoup what it allegedly lost
due to "miscrediting." Moreover, contrary to Land Bank’s assertion, Oñate
contested the bank’s application of the balance of his trust accounts in
payment for the allegedly "miscredited" amount in his Answer (With
Compulsory Counterclaim) for being "without any factual and legal [bases]."74
Land Bank was remiss in performing
its duties under the IMAs and as a
banking institution.
The contractual relation between Land Bank and Oñate in this case is
primarily governed by the IMAs. Paragraph 4 thereof expressly imposed on
Land Bank the duty to maintain accurate records of all his investments,
receipts, disbursements and other transactions relating to his accounts. It
also obliged Land Bank to provide Oñate with quarterly balance sheets,
statements of income and expenses, summary of investments, etc. Thus:
4. You shall maintain accurate records of all investments, receipts,
disbursements and other transactions of the Account. Records relating
thereto shall be open at all reasonable times to inspection and audit by me
either personally or through duly authorized representatives.
Statements consisting of a balance sheet, portfolio analysis, statement of
income and expenses, and summary of investment changes are to be sent to
me/us quarterly.
I/We shall approve such accounting by delivering in writing to you a
statement to that effect or by failure to express objections to such accounting
in writing delivered to you within thirty (30) days from my receipt of the
accounting.
Upon your receipt of a written approval of the accounting, or upon the
passage of said period of time within which objections may be filed, without
written objections having been delivered to you, such accounting shall be
deemed to be approved, and you shall be released and discharged as to all
items, matters and things set forth in such accounting as if such accounting
had been settled and allowed by a decree of a court of competent jurisdiction,
in an action or proceeding in which you and I were parties.75 (Emphasis
supplied)
These are the obligations of Land Bank which it should have faithfully
complied with in good faith.76 Unfortunately, Land Bank failed in its
contractual duties to maintain accurate records of all investments and to
regularly furnish Oñate with financial statements relating to his accounts.
Had Land Bank kept an accurate record there would have been no need for
the creation of a Board of Commissioners or at least the latter’s work would
have been a lot easier and more accurate. But because of Land Bank’s
inefficient record keeping, the Board performed the tedious task of trying to
reconcile messy and incomplete records. The lackadaisical attitude of Land
Bank in keeping an updated record of Oñate’s accounts is aggravated by its
reluctance to accord the Board full and unrestricted access to the records
when it was conducting a review of the accounts upon the orders of the trial
court. Thus, in its Manifestation77 dated August 16, 2004, the Board
informed the trial court that its report pertaining to outstanding balances may
not be accurate because "the documents were then in the custody of Land
Bank and the documents to be reviewed by the Board at a designated hearing
depended on what was released by the then handling lawyer of Land Bank."
They were "not given the opportunity to collate/sort-out the documents
related to each trust account"78and "the folders being reviewed contained
documents related to different trust accounts."79 As a result, "[t]here may
have been double take up of accounts since the documents previously
reviewed may have been repeatedly considered in the reports."80
For its failure to faithfully comply with
its obligations under the IMAs and for
 having agreed to submit the case on the
basis of the reports of the Board of
Commissioners, the latter’s findings are
binding on Land Bank.
Because of Land Bank’s failure to keep an updated and accurate record of
Oñate’s account, it would have been difficult, if not impossible, to determine
with some degree of accuracy the outstanding balances in Oñate’s accounts.
Indeed, the creation of a Board of Commissioners was a significant
development in this case as it facilitated the examination of the records and
helped in the determination of the balances in each of Oñate’s accounts. In a
span of four years, the Board held 60 meetings and scoured the voluminous
and scattered records of subject accounts. In the course thereof, it found
several undocumented withdrawals and over withdrawals. Thereafter, the
Board submitted its consolidated report, to which Land Bank did not file its
comment despite having been given the opportunity to do so. It did not
question the result of the examinations conducted by the Board, particularly
the Board’s computation of the outstanding balance in each account, the
existence of undocumented and over withdrawals, and how often the bank
sent Oñate statements of account. In fact, during the pre-trial conference,
Land Bank agreed to submit the case based on the reports of the Board.
Consequently, we found no cogent reason to deviate from the same course
taken by the CA – give weight to the consolidated report of the Board and
treat it as competent and sufficient evidence of what are stated therein. After
all, the dearth of evidentiary documents that could have shed light on the
alleged unintended crediting and unexplained withdrawals was brought
about by Land Bank’s failure to maintain accurate records as required by the
IMAs. In Simex International (Manila), Inc. v. Court of Appeals,81 we
elucidated on the nature of banking business and the responsibility of banks:
The banking system is an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wage-
earner has not hesitated to entrust his life’s savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest
for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly
bills and the payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help in the
running of their affairs, not only in the form of loans when needed but more
often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos or
of millions. The bank must record every single transaction accurately, down
to the last centavo and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs. x x x
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligations to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. x x x (Emphasis supplied)
As to the conceded inaccuracies in the reports, we cannot allow Land Bank to
benefit therefrom. Time and again, we have cautioned banks to spare no
effort in ensuring the integrity of the records of its clients.82 And in Philippine
National Bank v. Court of Appeals,83 we held that "as between parties where
negligence is imputable to one and not to the other, the former must perforce
bear the consequences of its neglect." In this case, the Board could have
submitted a more accurate report had Land Bank faithfully complied with its
duty of maintaining a complete and accurate record of Oñate’s accounts. But
the Board could not find and present the corresponding slips for the
withdrawals reflected in the passbooks. In addition, and as earlier mentioned,
Land Bank was less than cooperative when the Board was examining the
records of Oñate’s accounts. It did not give the Board enough leeway to go
over the records systematically or in orderly fashion. Hence, we cannot allow
Land Bank to benefit from possible inaccuracies in the reports.
Neither does Oñate’s failure to exercise his rights to inspect the records and
audit his accounts excuse the bank from sending the required notices, for
under the IMAs it behooved upon Land Bank to keep him fully informed of
the status of his investments by sending him regular reports and statements.
Oñate’s failure to inspect the record of his accounts should neither be
construed as his waiver to be furnished with updates on his accounts nor
authority for the bank to make undocumented withdrawals. As aptly opined
by the CA:
x x x The least that Land Bank could have done was to keep a detailed
quarterly report on [its] file. In this case, Land Bank did away with this
procedure that made [its] records a complete mess of voluminous and
meaningless records of numerous folders containing more than 7,600
leaves/pages and some 90 passbooks, with 1,355 leaves/pages of entries,
corresponding to the seven (7) Trust Accounts.
The passbook entries alone are insufficient compliance with Land Bank’s
duty to keep "accurate records of all investments, receipts, disbursements
and other transactions of the Account." These passbooks do not inform what
investments were made on the funds withdrawn. Moreover, these passbook
entries do not show if the amounts purported to have been invested were
indeed received by the concerned entity, facility, or borrower. From these
entries alone, Oñate would have no way of knowing where his money went.84
But Land Bank next postulates that if Oñate is entitled to the undocumented
withdrawals on the basis of the reports of the Board, then it should also be
entitled to the negative balances or over withdrawals as reflected in the same
reports.
We cannot agree for a number of reasons. First, as earlier discussed, Land
Bank is guilty of negligence while Oñate (at least insofar as over withdrawals
are concerned) is not. Had Land Bank maintained an accurate record, it
would have readily detected and prevented over withdrawals. But without any
qualms, Land Bank asks for the negative balances, unmindful that such
claim is actually detrimental to its cause because it amounts to an admission
that it allowed over withdrawals. As aptly observed by the CA:
Corollarily, the Court cannot allow Land Bank to recover the negative
balances from Oñate’s trust accounts. Examining the Commissioners’ Report,
the Court notes that the funds of Oñate’s trust accounts became seriously
depleted due to the unaccounted withdrawals that Land Bank charged
against his accounts. At any rate, those negative balances on Oñate’s
accounts show Land Bank’s inefficient performance in managing his trust
accounts. Reasonable bank practice and prudence [dictate] that Land Bank
should not have authorized the withdrawal of various sums from Oñate’s
accounts if it would result to overwithdrawals. x x x85
Second, Land Bank never prayed for the recovery of the negative balances in
its Complaint.
It is settled that courts cannot grant a relief not prayed for in the pleadings or
in excess of what is being sought by the party. x x x Due process
considerations require that judgments must conform to and be supported by
the pleadings and evidence presented in court. In Development Bank of the
Philippines v. Teston,86 this Court expounded that:
Due process considerations justify this requirement. It is improper to enter an
order which exceeds the scope of relief sought by the pleadings, absent notice
which affords the opposing party an opportunity to be heard with respect to
the proposed relief. The fundamental purpose of the requirement that
allegations of a complaint must provide the measure of recovery is to prevent
surprise to the defendant.87
Last, during the pre-trial conference, the issue of the validity of
undocumented withdrawals was properly put into issue. The parties also
agreed, as a collateral issue, that should it appear that the bank was not
authorized to make the undocumented withdrawals, the next issue for
consideration would be whether the amount subject thereof should be
credited back to Oñate’s accounts.88 The case of negative balances as alluded
to by Land Bank, however, is different. It was never put into issue during the
pre-trial conference. In Caltex (Philippines), Inc. v. Court of Appeals,89 we held
that "to obviate the element of surprise, parties are expected to disclose at a
pre-trial conference all issues of law and fact which they intend to raise at the
trial, except such as may involve privileged or impeaching matters. The
determination of issues at a pre-trial conference bars the consideration of
other questions on appeal." Land Bank interposed its claim to the negative
balances for the first time only when it filed its Memorandum with the RTC.
Land Bank knew from the start and
admitted during trial that Trust
Account Nos. 01-014 and 01-017 do not
belong to Oñate; hence, it should not
have debited any amount therefrom to
compensate for the alleged personal
indebtedness of Oñate.
Land Bank claims that Oñate cannot sue on Trust Account Nos. 01-014 and
01-017 without joining as an indispensable party his undisclosed principal.
But if anyone in this case is guilty of failing to join an indispensable party, it is
Land Bank that first committed a violation. The IMAs covering Trust Account
Nos. 01-014 and 01-017 attached as Annexes "A"90 and "B,"91respectively, of
Land Bank’s Complaint clearly state that Oñate signed the same "FOR:
UNDISCLOSED PRINCIPAL." As party to the said IMAs, Land Bank knew
and ought not to forget that Oñate is merely an agent and not the owner of
the funds in said accounts. Yet Land Bank garnished the total amount of
₱792,595.25 from Trust Account Nos. 01-014 and 01-017 to answer for the
alleged personal indebtedness of Oñate. Worse, when Land Bank filed its
Complaint for Sum of Money, it did not implead said undisclosed principal or
inform the trial court thereof. Now that Oñate is seeking the restoration of the From what is available on the voluminous records of this case and as borne
amounts debited and withdrawn without withdrawal slips from said out by the Board’s consolidated report dated August 16, 2004, the statements
accounts, Land Bank is invoking the defense of failure to implead an which Land Bank sent to Oñate are only the following:
indispensable party. We cannot allow Land Bank to do this. As aptly observed
by the trial court: Based on the Annexes95 attached to Oñate’s Answer (With Compulsory
Counterclaim)
Under the circumstances obtaining, it is highly unfair, unjust and iniquitous,
to dismiss the suit with respect to the two Trust Accounts after [Land Bank] ITF No. Balance Sheet Total Liabilities and
had garnished the balances of said accounts to pay the alleged indebtedness As of Trustor’s Equity
of [Oñate] allegedly incurred by the erroneous crediting of ₱4 million to x x x
Trust Account No. 01-125 which does not appear to be owned by an 01-014 June 30, 1982 ₱1,909,349.80
undisclosed principal. Trust Account No. 01-125 is [Oñate’s] personal trust
account with plaintiff. Stated differently, [Land Bank] having now recognized
01-017 June 30, 1982 6,003,616.35
and admitted that Trust Account Nos. 01-014 and 01-017 were not owned by
[Oñate], it has perforce no right, nay unlawful for it, to apply the funds in said
accounts to pay the alleged indebtedness of [Oñate’s] personal account. 01-089 June 30, 1982 551,267.24
Equity and justice so demand that the funds be restored to Trust Account
Nos. 01-014 and 01-017.92 01-082 June 30, 1982 1,915.28

Oñate protested the contents of the

01-075 June 30, 1982 12,113,262.95
statements of account at the earliest
opportunity.
01-125 June 30, 1982 13,595,271.16
As to Land Bank’s insistence that Oñate is deemed to have accepted the
contents of the statements of account for his failure to manifest his objection 01-024 June 30, 1982 1,131,854.20
thereto within 30 days from receipt thereof, it should be recalled that from the
time the alleged "miscrediting" occurred in November 1980, the first Based on the Consolidated Report
communication coming from Land Bank was its letter dated October 8,
1981.93 This, however, was the subject of a failed negotiation between the ITF No. Report Details Last Date Balances
parties. Besides, said letter can hardly be considered as an statement that of Report
would apprise Oñate of the status of his investments. It is not "a balance
sheet, portfolio analysis, statement of income and expenses or a summary of 01-024 Schedule of Money Market Placement 03.31.82 ₱453,140.69
investment changes" as contemplated in paragraph 4 of the IMAs. It is a
demand letter seeking the return of the alleged "miscredited" amount. The
01-075 Statement of Income and Expenses 03.31.90 0.00
same goes true with Land Bank’s letter dated September 3, 1991. As can be
Balance Sheet 03.31.90 1,207,501.69
readily seen from its opening paragraph, said letter is in response to Oñate’s
"demand" for information regarding the offsetting,94 which Oñate protested
and is now one of the issues involved in this case. In fine, it cannot be said 01-014 Schedule of Money Market Placement 06.30.91 14,767.20
that Oñate approved and adopted the outstanding balances in his accounts Statement of Income and Expenses 06.31.91 3,267.19
for his failure to object to the contents of those letters within the 30-day Balance Sheet 06.31.91 20,673.58
period allotted to him under the IMAs.
01-017 Schedule of Investment 06.30.91 38,502.06
 Statement of Income and Expenses 06.30.91 10,437.22
Balance Sheet 06.30.91 39,659.56
01-082 Statement of Income and Expenses 06.30.91 59.75
Balance Sheet 06.30.91 70.28
01-125 Schedule of Investment 06.30.91 44,055.72
Statement of Income and Expenses 06.30.91 10,079.16
Balance Sheet 06.30.91 60,920.42
The patent wide gap between the time Land Bank furnished Oñate with
Balance Sheets as of June 30, 1982 and the date it sent him an Statement of
Income and Expenses, as well as a Balance Sheet, on March 31, 1990 is a
clear and gross violation of the IMAs requiring it to furnish him with balance
sheet, portfolio analysis, statement of income and expenses and the like,
quarterly. As to the reports dated June 30, 1991 and letters subsequent
thereto, it should be noted that during those times Oñate had already
interposed his objections to the outstanding balances of his accounts.96
The proper rate of legal interest.
Land Bank’s argument that the lower courts erred in imposing 12% per
annum rate of interest is likewise devoid of merit. The unilateral offsetting of
funds without legal justification and the undocumented withdrawals are
tantamount to forbearance of money. In the analogous case of Estores v.
Supangan,97 we held that "[the] unwarranted withholding of the money which
rightfully pertains to [another] amounts to forbearance of money which can
be considered as an involuntary loan." Following Eastern Shipping Lines, Inc.
v. Court of Appeals,98 therefore, the applicable rate of interest in this case is
12% per annum. Besides, Land Bank is estopped from assailing the award of
12% per annum rate of interest. In its Complaint, Land Bank arrived at
₱8,222,687.89 as the outstanding indebtedness of Oñate by using the same
12% per annum rate of interest. It was only after the lower courts rendered
unfavorable decisions that Land Bank started to insist that the applicable
rate of interest is 6% per annum.
Of equal importance is the determination of when the said 12% per annum
rate of interest should commence.Recall that both the RTC and the CA
reckoned the running of the 12% per annum rate of interest from June 21,
1991, or the day Land Bank unilaterally applied the outstanding balance in
all of Oñate’s trust accounts, until fully paid. The compounding of interest, on
the other hand, was based on the provision of the IMAs granting Land Bank
"to hold, invest and reinvest the Fund and keep the same invested, in your
sole discretion, without distinction between principal and income."
While we find sufficient basis for the compounding of interest, we find it
necessary however to modify the commencement date. In Eastern
Shipping,99 it was observed that the commencement of when the legal interest
should start to run varies depending on the factual circumstances obtaining
in each case.100 As a rule of thumb, it was suggested that "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 made101 (at which time the quantification of damages
may be deemed to have been reasonably ascertained)."102
In the case at bench, while Oñate protested the setting off, no proof was
presented that he formally demanded for the return of the amount so debited
prior to the filing of the Complaint. Quite understandably so because at that
time he could not determine with some degree of certainty the outstanding
balances of his accounts as Land Bank neglected on its duty to keep him
updated on the status of his accounts. Land Bank even undertook to furnish
him with "the exact computation"103 of what remains in his accounts after the
set off. But this never happened until Land Bank initiated the Complaint on
September 7, 1992. Oñate, on the other hand, filed his Answer (With
Compulsory Counterclaim) on May 26, 1993. In other words, we cannot
reckon the running of the interest prior to the filing of the Complaint or
Oñate’s Counterclaim as no demand prior thereto was made. Neither could
the interest commence to run at the time of filing of any of aforesaid pleadings
(as to constitute judicial demand) since the undocumented withdrawals in the
sums of ₱60,663,488.11 and US$3,210,222.85, as well as the amount
actually debited from all of Oñate’s accounts, were determined only after the
Board submitted its consolidated report on August 16, 2004 or more than 10
years after Land Bank and Oñate filed their Complaint and Answer,
respectively. Note too that while Oñate sought to recover the amount of
undocumented withdrawals before the RTC,104 the same was denied in the
latter’s May 31, 2006 Decision. The RTC granted Oñate only the total amount
of funds debited from his trust accounts. It was only when the CA rendered
its December 18, 2009 Decision that Oñate was awarded the undocumented
withdrawals. Hence, we find it just and proper to reckon the running of the
interest of 12% per annum, compounded yearly, for the debited amount and
undocumented withdrawals on different dates. The debited amount of
₱1,471,416.52, shall earn interest beginning May 31, 2006 or the day the
RTC rendered its Decision granting said amount to Oñate. As to the
undocumented withdrawals of ₱60,663,488.11 and US 3,210,222.85, the
legal rate of interest should start to run the day the CA promulgated its
Decision on December 18, 2009.

During the pendency of this case, however, the Monetary Board issued
Resolution No. 796 dated May 16, 2013, stating that in the absence of
express stipulation between the parties, the rate of interest in loan or
forbearance of any money, goods or credits and the rate allowed in judgments
shall be 6% per annum. Said Resolution is embodied in Bangko Sentral ng
Pilipinas Circular No. 799, Series of2013, which took effect on July 1, 2013.
Hence, the 12% annual interest mentioned above shall apply only up to June
30, 2013. Thereafter, or starting July 1, 2013, the applicable rate of interest
for both the debited amount and undocumented withdrawals shall be 6% per
annum compounded annually, until fully paid.

WHEREFORE, the Petition is hereby DENIED and the December 18, 2009
Decision of the Court of Appeals in CA-G.R. CV No. 89346 is AFFIRMED with
modification in that the interest of 12% per annum compounded annually,
for the debited amount of ₱1,471,416.52 shall commence to run on May 31,
2006, while the same rate of interest shall apply to the undocumented
withdrawals in the amounts of ₱60,663,488.11 and US 3,210,222.85 starting
December 18 2009. Beginning July 1, 2013, however, the applicable rate of
interest on all amounts awarded shall earn interest at the rate of 6% per
annum compounded yearly, until fully paid.

SO ORDERED.
 G.R. No. 211666 February 25, 2015
REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF
PUBLIC WORKS AND HIGHWAYS,Petitioners,
vs.
ARLENE R. SORIANO, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review under Rule 45 of the Rules of Court
assailing the Decision1 dated November 15, 2013 and Order2 dated March 10,
2014 of the Regional Trial Court (RTC), Valenzuela City, Branch 270, in Civil
Case No. 140-V-10.
The antecedent facts are as follows:
On October 20, 2010, petitioner Republic of the Philippines, represented by
the Department of Public Works and Highways (DPWH), filed a Complaint3 for
expropriation against respondent Arlene R. Soriano, the registered owner of a
parcel of land consisting of an area of 200 square meters, situated at Gen. T
De Leon, Valenzuela City, and covered by Transfer Certificate of Title (TCT)
No. V-13790.4 In its Complaint, petitioner averred that pursuant to Republic
Act (RA) No. 8974, otherwise known as "An Act to Facilitate the Acquisition of
Right-Of-Way, Site or Location for National Government Infrastructure
Projects and for other Purposes," the property sought to be expropriated shall
be used in implementing the construction of the North Luzon Expressway
(NLEX)- Harbor Link Project (Segment 9) from NLEX to MacArthur Highway,
Valenzuela City.5
Petitioner duly deposited to the Acting Branch Clerk of Court the amount of
₱420,000.00 representing 100% of the zonal value of the subject property.
Consequently, in an Order6 dated May 27, 2011, the RTC ordered the
issuance of a Writ of Possession and a Writ of Expropriation for failure of
respondent, or any of her representatives, to appear despite notice during the
hearing called for the purpose.
In another Order7 dated June 21, 2011, the RTC appointed the following
members of the Board of Commissioners for the determination of just
compensation: (1) Ms. Eunice O. Josue, Officer-in-Charge, RTC, Branch 270,
Valenzuela City; (2) Atty. Cecilynne R. Andrade, Acting Valenzuela City
Assessor,City Assessor’s Office, Valenzuela City; and (3) Engr. Restituto
Bautista, of Brgy. Bisig,Valenzuela City. However, the trial court subsequently
revoked the appointment of the Board for their failure to submit a report as to
the fair market value of the property to assist the court in the determination of
just compensation and directed the parties to submit their respective position
papers.8 Thereafter, the case was set for hearing giving the parties the
opportunity to present and identify all evidence in support of their arguments
therein. According to the RTC, the records of the case reveal that petitioner
adduced evidence to show that the total amount deposited is just, fair, and
equitable. Specifically, in its Position Paper, petitioner alleged that pursuant to
a Certification issued by the Bureau of Internal Revenue (BIR), Revenue
Region No. 5, the zonal value of the subject property in the amount of
₱2,100.00 per square meter is reasonable, fair, and just to compensate the
defendant for the taking of her property in the total area of 200 square
meters.9 In fact, Tax Declaration No. C-018-07994, dated November 13, 2009
submitted by petitioner, shows that the value of the subject property is at a
lower rate of ₱400.00per square meter. Moreover, as testified to by Associate
Solicitor III Julie P. Mercurio, and as affirmed by the photographs submitted,
the subject property is poorly maintained, covered by shrubs and weeds, and
not concretely-paved. It is located far from commercial or industrial
developments in an area without a proper drainage system, can only be
accessed through a narrow dirt road, and is surrounded by adjacent
dwellings of sub-standard materials.
Accordingly, the RTC considered respondent to have waived her right to
adduce evidence and to object to the evidence submitted by petitioner for her
continued absence despite being given several notices to do so.
On November 15, 2013, the RTC rendered its Decision, the dispositive portion
of which reads: WHEREFORE, with the foregoing determination of just
compensation, judgment is hereby rendered:
1) Declaring plaintiff to have lawful right to acquire possession of and title to
200 square meters of defendant Arlene R. Soriano’s parcel of land covered by
TCT V-13790 necessary for the construction of the NLEX – Harbor Link
Project(Segment 9) from NLEX to MacArthur Highway Valenzuela City;
2) Condemning portion to the extent of 200 square meters of the above-
described parcel of land including improvements thereon, if there be any, free
from all liens and encumbrances;
3) Ordering the plaintiff to pay defendant Arlene R. Soriano Php2,100.00 per
square meter or the sum of Four Hundred Twenty Thousand Pesos
(Php420,000.00) for the 200 square meters as fair, equitable, and just
compensation with legal interest at 12% per annum from the taking of the
possession of the property, subject to the payment of all unpaid real property
taxes and other relevant taxes, if there be any;
4) Plaintiff is likewise ordered to pay the defendant consequential damages
which shall include the value of the transfer tax necessary for the transfer of
the subject property from the name of the defendant to that of the plaintiff;
5) The Office of the Register of Deeds of Valenzuela City, Metro Manila is
directed to annotate this Decision in Transfer Certificate of Title No. V-13790
registered under the name of Arlene R. Soriano.
Let a certified true copy of this decision be recorded in the Registry of Deeds of
Valenzuela City.
Records of this case show that the Land Bank Manager’s Check Nos.
0000016913 dated January 21, 2011 in the amount of Php400,000.00 and
0000017263 dated April 28, 2011 in the amount of Php20,000.00 issued by
the Department of Public Works and Highways (DPWH) are already stale.
Thus, the said Office is hereby directed to issue another Manager’s Check in
the total amount Php420,000.00 under the name of the Office of the Clerk of
Court, Regional Trial Court, Valenzuela City earmarked for the instant case.10
Petitioner filed a Motion for Reconsideration maintaining that pursuant to
Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013, which
took effect on July 1, 2013, the interest rate imposed by the RTC on just
compensation should be lowered to 6% for the instant case falls under a loan
or forbearance of money.11 In its Order12 dated March 10, 2014, the RTC
reduced the interest rate to 6% per annum not on the basis of the
aforementioned Circular, but on Article 2209 of the Civil Code, viz.:
However, the case of National Power Corporation v. Honorable Zain B. Angas
is instructive.
In the aforementioned case law, which is similar to the instant case, the
Supreme Court had the occasion to rule that it is well-settled that the
aforequoted provision of Bangko Sentral ng Pilipinas Circular applies only to a
loan or forbearance of money, goods or credits. However, the term
"judgments" as used in Section 1 of the Usury Law and the previous Central
Bank Circular No. 416, should be interpreted to mean only judgments
involving loan or forbearance of money, goods or credits, following the
principle of ejusdem generis. And applying said rule on statutory
construction, the general term "judgments" can refer only to judgments in
cases involving loans or forbearance of any money, goods, or credits. Thus,
the High Court held that, Art. 2209 of the Civil Code, and not the Central
Bank Circular, is the law applicable.
Art. 2009 of the Civil Code reads:
"If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum."
Further in that case, the Supreme Court explained that the transaction
involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the interest adjudged by
the trial court is in the nature of indemnity for damages. The legal interest
required to be paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for the delay
in the payment thereof. It ultimately held that Art. 2209 of the Civil Code shall
apply.13
On May 12, 2014, petitioner filed the instant petition invoking the following
arguments:
I.
RESPONDENT IS NOT ENTITLED TO THE LEGAL INTEREST OF 6% PER
ANNUM ON THE AMOUNT OF JUST COMPENSATION OF THE SUBJECT
PROPERTY AS THERE WAS NO DELAY ON THE PART OF PETITIONER.
II.
BASED ON THE NATIONAL INTERNAL REVENUE CODE OF 1997 AND
THE LOCAL GOVERNMENT CODE, IT IS RESPONDENT’S OBLIGATION TO
PAY THE TRANSFER TAXES.
Petitioner maintains that if property is taken for public use before
compensation is deposited with the court having jurisdiction over the case,
the final compensation must include interests on its just value computed
from the time the property is taken up to the time when compensation is
actually paid or deposited with the court.14 Thus, legal interest applies only
when the property was taken prior to the deposit of payment with the court
and only to the extent that there is delay in payment. In the instant case,
petitioner posits that since it was able to deposit with the court the amount
representing the zonal value of the property before its taking, it cannot be said
to be in delay, and thus, there can be no interest due on the payment of just
compensation.15 Moreover, petitioner alleges that since the entire subject
property was expropriated and not merely a portion thereof, it did not suffer
an impairment or decrease in value, rendering the award of consequential
damages nugatory. Furthermore, petitioner claims that contrary to the RTC’s
instruction, transfer taxes, in the nature of Capital Gains Tax and
Documentary Stamp Tax, necessary for the transfer of the subject property
from the name of the respondent to that of the petitioner are liabilities of
respondent and not petitioner.
The petition is partly meritorious.
At the outset, it must be noted that the RTC’s reliance on National Power
Corporation v. Angasis misplaced for the same has already been overturned
by our more recent ruling in Republic v. Court of Appeals,16 wherein we held
that the payment of just compensation for the expropriated property amounts
to an effective forbearance on the part of the State, to wit:
Aside from this ruling, Republic notably overturned the Court’s previous
ruling in National Power Corporation v. Angas which held that just
compensation due for expropriated properties is not a loan or forbearance of
money but indemnity for damages for the delay in payment; since the interest
involved is in the nature of damages rather than earnings from loans, then
Art. 2209 of the Civil Code, which fixes legal interest at 6%, shall apply.
In Republic, the Court recognized that the just compensation due to the
landowners for their expropriated property amounted to an effective
forbearance on the part of the State. Applying the Eastern Shipping Lines
ruling, the Court fixed the applicable interest rate at 12% per annum,
computed from the time the property was taken until the full amount of just
compensation was paid, in order to eliminate the issue of the constant
fluctuation and inflation of the value of the currency over time. In the Court’s
own words:
The Bulacan trial court, in its 1979 decision, was correct in imposing
interest[s] on the zonal value of the property to be computed from the time
petitioner instituted condemnation proceedings and "took" the property in
September 1969. This allowance of interest on the amount found to be the
value of the property as of the time of the taking computed, being an effective
forbearance, at 12% per annum should help eliminate the issue of the
constant fluctuation and inflation of the value of the currency over time.
We subsequently upheld Republic’s 12% per annum interest rate on the
unpaid expropriation compensation in the following cases: Reyes v. National
Housing Authority, Land Bank of the Philippines v. Wycoco, Republic v. Court
of Appeals, Land Bank of the Philippines v. Imperial, Philippine Ports
Authority v. Rosales-Bondoc, and Curata v. Philippine Ports
Authority.17 Effectively, therefore, the debt incurred by the government on
account of the taking of the property subject of an expropriation constitutes a
forbearance18 which runs contrary to the trial court’s opinion that the same is
in the nature of indemnity for damages calling for the application of Article
2209 of the Civil Code. Nevertheless, in line with the recent circular of the
Monetary Board of the Bangko Sentral ng Pilipinas (BSP-MB) No. 799, Series
of 2013, effective July 1, 2013, the prevailing rate of interest for loans or
forbearance of money is six percent (6%) per annum, in the absence of an
express contract as to such rate of interest.
Notwithstanding the foregoing, We find that the imposition of interest in this
case is unwarranted in view of the fact that as evidenced by the
acknowledgment receipt19 signed by the Branch Clerk of Court, petitioner was
able to deposit with the trial court the amount representing the zonal value of
the property before its taking. As often ruled by this Court, the award of
interest is imposed in the nature of damages for delay in payment which, in
effect, makes the obligation on the part of the government one of forbearance
to ensure prompt payment of the value of the land and limit the opportunity
loss of the owner.20 However, when there is no delay in the payment of just
compensation, We have not hesitated in deleting the imposition of interest
thereon for the same is justified only in cases where delay has been
sufficiently established.21
The records of this case reveal that petitioner did not delay in its payment of
just compensation as it had deposited the pertinent amount in full due to
respondent on January 24, 2011, or four (4) months before the taking
thereof, which was when the RTC ordered the issuance of a Writ of
Possession and a Writ of Expropriation on May 27, 2011. The amount
deposited was deemed by the trial court to be just, fair, and equitable, taking
into account the well-established factors in assessing the value of land, such
as its size, condition, location, tax declaration, and zonal valuation as
determined by the BIR. Considering, therefore, the prompt payment by the
petitioner of the full amount of just compensation as determined by the RTC,
We find that the imposition of interest thereon is unjustified and should be
deleted.
Similarly, the award of consequential damages should likewise be deleted in
view of the fact that the entire area of the subject property is being
expropriated, and not merely a portion thereof, wherein such remaining
portion suffers an impairment or decrease in value, as enunciated in Republic
of the Philippines v. Bank of the Philippine Islands,22thus:
x x x The general rule is that the just compensation to which the owner of the
condemned property is entitled to is the market value. Market value is that
sum of money which a person desirous but not compelled to buy, and an
owner willing but not compelled to sell, would agree on as a price to be paid
by the buyer and received by the seller. The general rule, however, is modified
where only a part of a certain property is expropriated. In such a case, the
owner is not restricted to compensation for the portion actually taken, he is
also entitled to recover the consequential damage, if any, to the remaining
part of the property.
xxxx
No actual taking of the building is necessary to grant consequential damages.
Consequential damages are awarded if as a result of the expropriation, the
remaining property of the owner suffers from an impairment or decrease in
value. The rules on expropriation clearly provide a legal basis for the award of
consequential damages. Section 6 of Rule 67 of the Rules of Court provides:
x x x The commissioners shall assess the consequential damages to the
property not taken and deduct from such consequential damages the
consequential benefits to be derived by the owner from the public use or
public purpose of the property taken, the operation of its franchise by the
corporation or the carrying on of the business of the corporation or person
taking the property. But in no case shall the consequential benefits assessed
exceed the consequential damages assessed, or the owner be deprived of the
actual value of his property so taken.
In B.H. Berkenkotter & Co. v. Court of Appeals, we held that:
To determine just compensation, the trial court should first ascertain the
market value of the property, to which should be added the consequential
damages after deducting therefrom the consequential benefits which may
arise from the expropriation. If the consequential benefits exceed the
consequential damages, these items should be disregarded altogether as the
basic value of the property should be paid in every case.23
Considering that the subject property is being expropriated in its entirety,
there is no remaining portion which may suffer an impairment or decrease in
value as a result of the expropriation. Hence, the award of consequential
damages is improper.
Anent petitioner’s contention that it cannot be made to pay the value of the
transfer taxes in the nature of capital gains tax and documentary stamp tax,
which are necessary for the transfer of the subject property from the name of
the respondent to that of the petitioner, the same is partly meritorious.
With respect to the capital gains tax, We find merit in petitioner’s posture that
pursuant to Sections 24(D) and 56(A)(3) of the 1997 National Internal
Revenue Code (NIRC), capital gains tax due on the sale of real property is a
liability for the account of the seller, to wit:
Section 24. Income Tax Rates–
xxxx
(D) Capital Gains from Sale of Real Property. –
(1) In General. – The provisions of Section 39(B) notwithstanding, a final tax of
six percent (6%) based on the gross selling price or current fair market value
as determined in accordance with Section 6(E) of this Code, whichever is
higher, is hereby imposed upon capital gains presumed to have been realized
from the sale, exchange, or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro sales and
other forms of conditional sales, by individuals, including estates and trusts:
Provided, That the tax liability, if any, on gains from sales or other disposition
of real property to the government or any of its political subdivisions or
agencies or to government-owned or controlled corporations shall be
determined either under Section 24(A)or under this Subsection, at the option
of the taxpayer.
xxxx
Section 56. Payment and Assessment of Income Tax for Individuals and
Corporations. – (A) Payment of Tax –
xxxx
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and
prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall
be paid on the date the return prescribed therefor is filed by the person liable
thereto: Provided, That if the seller submits proof of his intention to avail
himself of the benefit of exemption of capital gains under existing special laws,
no such payments shall be required : Provided, further, That in case of failure
to qualify for exemption under such special laws and implementing rules and
regulations, the tax due on the gains realized from the original transaction
shall immediately become due and payable, subject to the penalties
prescribed under applicable provisions of this Code: Provided, finally, That if
the seller, having paid the tax, submits such proof of intent within six (6)
months from the registration of the document transferring the real property,
he shall be entitled to a refund of such tax upon verification of his compliance
with the requirements for such exemption.
Thus, it has been held that since capital gains is a tax on passive income, it is
the seller, not the buyer, who generally would shoulder the tax.24 Accordingly,
the BIR, in its BIR Ruling No. 476-2013, dated December 18, 2013,
constituted the DPWH as a withholding agent to withhold the six percent (6%)
final withholding tax in the expropriation of real property for infrastructure
projects. As far as the government is concerned, therefore, the capital gains
tax remains a liability of the seller since it is a tax on the seller's gain from the
sale of the real estate.25
As to the documentary stamp tax, however, this Court finds inconsistent
petitioner’s denial of liability to the same. Petitioner cites Section 196 of the
1997 NIRC as its basis in saying that the documentary stamp tax is the
liability of the seller, viz.:
SECTION 196. Stamp Tax on Deeds of Sale and Conveyances of Real
Property. - On all conveyances, deeds, instruments, or writings, other than
grants, patents or original certificates of adjudication issued by the
Government, whereby any land, tenement or other realty sold shall be
granted, assigned, transferred or otherwise conveyed to the purchaser, or
purchasers, or to any other person or persons designated by such purchaser
or purchasers, there shall be collected a documentary stamp tax, at the rates
herein below prescribed, based on the consideration contracted to be paid for
such realty or on its fair market value determined in accordance with Section
6(E) of this Code, whichever is higher: Provided, That when one of the
contracting parties is the Government, the tax herein imposed shall be based
on the actual consideration: (a) When the consideration, or value received or
contracted to be paid for such realty, after making proper allowance of any
encumbrance, does not exceed One thousand pesos (₱1,000), Fifteen pesos
(₱15.00).
(b) For each additional One thousand pesos (₱1,000), or fractional part thereof
in excess of One thousand pesos (₱1,000) of such consideration or value,
Fifteen pesos (₱15.00).
When it appears that the amount of the documentary stamp tax payable
hereunder has been reduced by an incorrect statement of the consideration
in any conveyance, deed, instrument or writing subject to such tax the
Commissioner, provincial or city Treasurer, or other revenue officer shall,
from the assessment rolls or other reliable source of information, assess the
property of its true market value and collect the proper tax thereon.
Yet, a perusal of the provision cited above does not explicitly impute the
obligation to pay the documentary stamp tax on the seller. In fact, according
to the BIR, all the parties to a transaction are primarily liable for the
documentary stamp tax, as provided by Section 2 of BIR Revenue
Regulations No. 9-2000, which reads:26
SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the
Tax. –
(a) In General. - The documentary stamp taxes under Title VII of the Code is a
tax on certain transactions. It is imposed against "the person making, signing,
issuing, accepting, or transferring" the document or facility evidencing the
aforesaid transactions. Thus, in general, it may be imposed on the
transaction itself or upon the document underlying such act. Any of the
parties thereto shall be liable for the full amount of the tax due: Provided,
however, that as between themselves, the said parties may agree on who shall
be liable or how they may share on the cost of the tax.
(b) Exception. - Whenever one of the parties to the taxable transaction is
exempt from the tax imposed under Title VII of the Code, the other party
thereto who is not exempt shall be the one directly liable for the tax.27
As a general rule, therefore, any of the parties to a transaction shall be liable
for the full amount of the documentary stamp tax due, unless they agree
among themselves on who shall be liable for the same.
In this case, there is no agreement as to the party liable for the documentary
stamp tax due on the sale of the land to be expropriated. But while petitioner
rejects any liability for the same, this Court must take note of petitioner’s
Citizen’s Charter,28 which functions as a guide for the procedure to be taken
by the DPWH in acquiring real property through expropriation under RA
8974. The Citizen’s Charter, issued by petitioner DPWH itself on December
4,2013, explicitly provides that the documentary stamp tax, transfer tax, and
registration fee due on the transfer of the title of land in the name of the
Republic shall be shouldered by the implementing agency of the DPWH, while
the capital gains tax shall be paid by the affected property owner.29 Thus,
while there is no specific agreement between petitioner and respondent,
petitioner's issuance of the Citizen's Charter serves as its notice to the public
as to the procedure it shall generally take in cases of expropriation under RA
8974. Accordingly, it will be rather unjust for this Court to blindly accede to
petitioner's vague rejection of liability in the face of its issuance of the Citizen's
Charter, which contains a clear and unequivocal assumption of
accountability for the documentary stamp tax. Had petitioner provided this
Court with more convincing basis, apart from a mere citation of an indefinite
provision of the 1997 NIRC, showing that it should be respondent-seller who
shall be liable for the documentary stamp tax due on the sale of the subject
property, its rejection of the payment of the same could have been sustained.
WHEREFORE, premises considered, the instant pet1t10n 1s PARTIALLY
GRANTED. The Decision and Order, dated November 15, 2013 and March
10, 2014, respectively, of the Regional Trial Court, Valenzuela City, Branch
270, in Civil Case No. 140-V-10 are hereby MODIFIED, in that the imposition
of interest on the payment of just compensation as well as the award of
consequential damages are deleted. In addition, respondent Arlene R. Soriano
is ORDERED to pay for the capital gains tax due on the transfer of the
expropriated property, while the documentary stamp tax, transfer tax, and
registration fee shall be for the account of petitioner.

SO ORDERED.
 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 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.
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 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
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.
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.

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. 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
 G.R. No. 210831 November 26, 2014 On February 9, 1987, respondent spouses addressed a letter4 to petitioners
demanding the payment of ₱234,021.90, representing the unpaid balance
SPOUSES TAGUMPAY N. ALBOS and AIDA C. ALBOS, Petitioners, and interests from the loan. This was followed, on April 14, 1987, by another
vs. letter5 of the same tenor, but this time demanding from the petitioners the
SPOUSES NESTOR M. EMBISAN and ILUMINADA A. EMBISAN, DEPUTY obligation due amounting to ₱258,009.15.
SHERIFF MARINO V. CACHERO, and the REGISTER OF DEEDS OF
QUEZON CITY, Respondents. Obviously in a bid to prevent the foreclosure of their mortgaged property,
petitioners paid respondent spouses the sum of ₱44,500.00 on October 2,
DECISION 1987. The respondent spouses accepted the partial payment of the principal
loan amount owed to them, which, based on the Statement of Account6 the
VELASCO, JR., J.:
respondent spouses prepared, by that time, has already ballooned to
Nature of the Case ₱296,658.70. As extrapolated from the Statement of Account:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Month Year Loan Interest Payment Balance
Rules of Court seeking the reversal and the setting aside of the Decision1 of
the Court of Appeals (CA) dated May 29, 2013 and its Resolution dated October 1984 84,000.00 84,000.00
January 13, 2014 in CA-G.R. CV No. 93667. Said rulings upheld the validity
of the extra-judicial foreclosure sale over the property that petitioners,
spouses Tagumpay and Aida Albos, mortgaged in favor of private November 1984 4,200.00 8,000.00 80,200.00
respondents.
December 1984 4,200.00 84,400.00
The Facts

On October 17, 1984, petitioners entered into an agreement, denominated as January 1985 4,200.00 4,000.00 84,600.00
"Loan with Real Estate Mortgage, "2with respondent spouses Nestor and
Iluminada Embisan (spouses Embisan) in the amount of ₱84,000.00 payable February 1985 4,200.00 88,800.00
within 90 days with a monthly interest rate of 5%. To secure the
indebtedness, petitioners mortgaged to the spouses Embisan a parcel of land March 1985 4,200.00 93,000.00
in Project 3, Quezon City, measuring around 207.6 square meters and
registered under their name, as evidenced by Transfer Certificate Title No. April 1985 4,200.00 97,200.00
257697.3

For failure to settle their account upon maturity, petitioner Aida Albos May 1985 4,200.00 101,400.00
requested and was given an extension of eleven (11) months, or until
December 17, 1985, within which to pay the loan obligation. However, when June 1985 4,200.00 105,600.00
the said deadline came anew, petitioners once again defaulted and so, on
agreement of the parties, another extension of five (5) months, or until May July 1985 4,200.00 109,800.00
17, 1986, was set.

May 17, 1986 came and went but the obligation remained unpaid. Thus, August 1985 4,200.00 114,000.00
when the petitioners requested a third extension, as will later be alleged by
the respondent spouses, anadditional eight (8) months was granted on the September 1985 4,200.00 118,200.00
condition that the monthly 5% interest from then on, i.e. June 1986 onwards,
will be compounded. This stipulation, however, was not reduced in writing.
October 1985 4,200.00 122,400.00April 1987 12,286.15 258,009.15

November 1985 4,200.00 126,600.00May 1987 12,900.45 270,909.60

December 1985 4,200.00 130,800.00June 1987 13,545.48 284,455.10

January 1986 4,200.00 135,000.00July 1987 14,222.75 298,677.85

February 1986 4,200.00 139,200.00August 1987 14,933.90 313,611.75

March 1986 4,200.00 143,400.00September 1987 15,680.60 329,292.35

April 1986 4,200.00 147,600.00October 1987 44,500.00 284,792.35

May 1986 4,200.00 151,800.00Interest for 15 days 7,119.80 291,912.15

June 1986 7,590.00 159,390.00Interest for 10 days 4,746.55 296,658.70

July 1986 7,969.50 167,359.50 Due to petitioners’ failure to settle their indebtedness, respondent spouses
proceeded to extra-judicially foreclose the mortgaged property on October 12,
1987. At the auction sale conducted by the respondent sheriff, respondent
August 1986 8,367.98 175,727.45
spouses emerged as the highest bidders at ₱330,000.00 and were later issued
a Sheriff’s Certificate of Sale.7
September 1986 8,786.37 184,513.82
The property was never redeemed, and so the respondent spouses executed
October 1986 9,225.69 192,739.50 an Affidavit of Consolidation8 over the property on November 23, 1988. The
affidavit was subsequently registered with the Registry of Deeds of Quezon
City, consolidating ownership to the spouses Embisan. Petitioners alleged
November 1986 9,417.50 202,157.00
that afterwards, on February 4, 1989, they were pressured by the respondent
spouses to execute a Contract of Lease9 over the property wherein the
December 1986 10,107.75 212,264.75 petitioners, as lessees, are obligated to pay the respondent spouses, as
lessors, monthly rent in the amount of ₱2,500.00.
January 1987 10,613.25 222,878.00
On August 14, 1989, herein petitioners filed a complaint for the annulment of
the Loan with Real Estate Mortgage, Certificate of Sale, Affidavit of
February 1987 11,143.90 234,021.90
Consolidation, Deed of Final Sale, and Contract of Lease before the Regional
Trial Court of Quezon City (RTC). In their complaint, docketed as Civil Case
March 1987 11,701.10 245,723.00 No. 89-3246, and later raffled to Branch 99 of the court, petitioners alleged
that the foreclosure sale is void because respondents only released
₱60,000.00 out of the ₱84,000.00 amount loaned, which has already been
paid. As petitioner Aida Albos testified during trial, she was able to pay
₱50,000 out of the ₱60,000 principal loan released, and also ₱4,500.00
monthly interests, as evidenced by receipts dated December 19, 1984 and
February 9, 1985.10
In their Answer, the spouses Embisan countered that the loan was legally
and validly entered at arms length after a series of meetings and negotiations;
that petitioners agreed to pay compounded interest in exchange for extending
the payment period the third time; that never during the life of the mortgage
did petitioners pay 50,000.00; and, that petitioners, having defaulted, left the
spouses Embisan with no other option except to extrajudicially foreclose the
property security as stipulated in the mortgage.
Ruling of the Trial Court
Following trial, the RTC rendered a Decision11 on December 15, 2008
dismissing the complaint for lack of merit, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing considerations, the complaint filed by
plaintiff is DISMISSEDfor lack of merit.
Defendants’ counterclaim is denied.
SO ORDERED.
In so doing, the trial court did notgive credence to petitioners’ claim that only
₱60,000.00 of the loaned amount was released tothem. It also found that
between October 17, 1984 to October 28, 1987, petitioners only paid the total
amount of ₱56,000.00, which is not sufficient to cover both the principal loan
and the accrued interest. In addition, the trial court shrugged aside
petitioners’ contention that they wereforced to affix their signatures in the
adverted Contract of Lease, adding that having signed the lease agreement,
they were estopped from asserting title over the property.
Petitioners filed a Motion for Reconsideration, but the same was denied by the
trial court through a Resolution dated January 13, 2014. Aggrieved, they
elevated the case to the CA.
Ruling of the Court of Appeals
On appeal, petitioners argued that the imposition by the respondent spouses
of a 5% compounded interest on the loan, without the petitioners’ consent or
knowledge, is fraudulent and contrary to public morals. Respondents, on the
other hand, insisted that the compounding of the interest was agreed upon as
a condition for the third and final extension of time given for the petitioners to
make good their promise to pay.
On May 29, 2013, the CA promulgated the assailed Decision, affirming in toto
the ruling of the trial court. The appellate court held that, under the
circumstances, inasmuch as the request for the third extension––for another
eight months––was made after the expiration of one year and four months
from when the payment first became due, the agreement to compound the
interest was just and reasonable. It added that it was precisely the petitioners’
repeated non-compliance which prompted the imposition of a compounded
interest rate and, therefore, petitioners could no longer feign ignorance of its
imposition.
Through the challenged Resolution dated January 13, 2014, the CA denied
petitioners’ Motion for Reconsideration.
Hence, the instant petition.
The Issues
Petitioners anchor their plea for the reversal of the assailed Decision on the
following grounds:12
I.
THERE IS NO DOCUMENTARY PROOF TO SHOW THAT THE PETITIONERS
AGREED IN WRITING TO THE IMPOSITION OF THE 5% COMPOUNDED
MONTHLY INTEREST, CONTRARY TO ARTICLE 1956 OF THE CIVIL CODE
II.
THE 5% COMPOUNDED MONTHLY INTEREST UNILATERALLY IMPOSED
BY RESPONDENT EMBISAN ON THE PETITIONERS IS EXCESSIVE,
EXORBITANT, OPPRESSIVE, INIQUITOUS AND UNCONSCIONABLE,
THEREFORE, THE SAME IS VOID FOR BEING CONTRARY TO LAW AND
MORALS
III.
THE FORECLOSURE PROCEEDINGS INSTITUTED BY THE RESPONDENT
SPOUSES EMBISAN SHOULD BE NULLIFIED FOR BEING BASED ON A
WRONG COMPUTATION OF THE OUTSTANDING LOAN OF THE
PETITIONERS WHICH WAS WRONGLY COMPUTED ON THE BASIS OF A
5% COMPOUNDED MONTHLY INTEREST
Succinctly put, the pivotal issue to be resolved is whether or not the extra-
judicial foreclosure proceedings should be nullified for being based on an
allegedly erroneous computation of the loan’s interest.
Respondent spouses, in their Comment, contend that the issues raised in the
petition are questions of fact that cannot be entertained by this Court; that
parole evidence can be introduced, as was properly appreciated by the RTC
and CA, to ascertain the true intention of the parties on how the interest on
the loan will accrue; and that petitioners’ cause of action is barred by
prescription, counting four (4) years from the original due date of the loan,
which was December 17, 1984.
The Court’s Ruling
The petition is meritorious.
The compounding of interest should be in writing
For academic purposes, We first determine whether or not the stipulation
compounding the interest charged should specifically be indicated in a
written agreement.
We rule in the affirmative.
Article 1956 of the New Civil Code, which refers to monetary interest,
provides:
Article 1956.No interest shall be due unless it has been expressly stipulated
in writing.
As mandated by the foregoing provision, payment of monetary interest shall
be due only if: (1) there was an express stipulation for the payment of interest;
and (2) the agreement for such payment was reduced in writing. Thus, We
have held that collection of interest without any stipulation thereof in writing
is prohibited by law.13
In the case at bar, it is undisputed that the parties have agreed for the loan to
earn 5% monthly interest, the stipulation to that effect put in writing. When
the petitioners defaulted, the period for payment was extended, carrying over
the terms of the original loan agreement, including the 5% simple interest.
However, by the third extension of the loan, respondent spouses decided to
alter the agreement by changing the manner of earning interest rate,
compounding it beginning June 1986. This is apparent from the Statement of
Account prepared by the spouses Embisan themselves.
Given the circumstances, We rule that the first requirement––that there be an
express stipulation for the payment of interest––is not sufficiently complied
with, for purposes of imposing compounded interest on the loan. The
requirement does not only entail reducing in writing the interest rate to be
earned but also the manner of earning the same, if it is to be compounded.
Failure to specify the manner of earning interest, however, shall not
automatically render the stipulation imposing the interest rate void since it is
readily apparent from the contract itself that the parties herein agreed for the
loan to bear interest. Instead, in default of any stipulation on the manner of
earning interest, simple interest shall accrue.
Settled is the rule that ambiguities in a contract are interpreted against the
party that caused the ambiguity. Any ambiguity in a contract whose terms
are susceptible of different interpretations must be read against the party who
drafted it.14 In the extant case, respondent spouses, having imposed,
unilaterally at that, the compounded interest rate, had the correlative duty of
clarifying and reducing in writing how the said interest shall be earned.
Having failed to do so, the silence of the agreement on the manner of earning
interest is a valid argument for prohibiting them from charging interest at a
compounded rate.
Further, by analogy, We have had the occasion to hold that, when a final
money judgment ordered the payment of "legal interest" without mention of
payment of compound interest, a judge who orders payment of compound
interest does so in excess of his authority.15 As held in Philippine American
Accident Insurance v. Flores:16
The judgment which was sought to be executed ordered the payment of
simple "legal interest" only. It said nothing about the payment of compound
interest. Accordingly, when the respondent judge ordered the payment of
compound interest he went beyond the confines of his own judgment which
had been affirmed by the Court of Appeals and which had become final. x x x
Therefore, in default of any unequivocal wording in the contract, the legal
interest stipulated by the parties should be understood to be simple, not
compounded.
Imposing 5% monthly interest, whether compounded or simple, is
unconscionable
Nevertheless, even if there was suchan agreement that interest will be
compounded, We agree with the petitioners that the 5% monthly rate, be it
simple or compounded, written or verbal, is void for being too exorbitant, thus
running afoul of Article 1306 of the New Civil Code, which provides:
Article 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary tolaw, morals, good customs, public order, or public policy.
(emphasis added)
As case law instructs, 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.17
Summarizing the jurisprudential trend towards this direction is the recent
case of Castro v. Tan18 in which We held:
While we agree with petitioners that parties to a loan agreement have wide
latitude to stipulate on any interest ratein view of the Central Bank Circular
No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective
January 1, 1983, it is also worth stressing that interest rates whenever
unconscionable may still be declared illegal. There is certainly nothing in said
circular which grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets.
In several cases, we have ruled that stipulations authorizing iniquitous or
unconscionable interests are contrary to morals, if not against the law. In
Medel v. Court of Appeals,19 we annulled a stipulated 5.5% per month or 66%
per annum interest on a ₱500,000.00 loan and a 6% per month or 72% per
annum interest on a ₱60,000.00 loan, respectively, for being excessive,
iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals,20 we
declared a 3% monthly interest imposed on four separate loans to be
excessive. Inboth cases, the interest rates were reduced to 12% per annum.
In this case, the 5% monthly interest rate, or 60% per annum, compounded
monthly, stipulated in the Kasulatan is even higher than the 3% monthly
interest rate imposed in the Ruiz case. Thus, we similarly hold the 5%
monthly interest to be excessive, iniquitous, unconscionable and exorbitant,
contrary to morals, and the law. It is therefore void ab initio for being violative
of Article 1306 of the Civil Code. With this, and in accord with the Medel and
Ruiz cases, we hold that the Court of Appeals correctly imposed the legal
interest of 12% per annum in place of the excessive interest stipulated in the
Kasulatan. (emphasis added)
As can be gleaned, jurisprudence on the nullity of excessive interest rates is
both clear and consistent. Wefind no cogent reason to deviate therefrom. As
the lender in Castro, respondent spouses herein similarly imposed a 5%
monthly interest in the loan contracted by petitioners. Following the judicial
pronouncement in the said cases, the interest rate so imposed herein is
nullified for being unconscionable. In lieu thereof, a simple interest of 12% per
annum should be imposed.
The foreclosure sale should be Nullified
In view of the above disquisitions, We are constrained to nullify the
foreclosure proceedings with respect to the mortgaged property in this case,
following the doctrine in Heirs of Zoilo and Primitiva Espiritu v. Landrito.21
In Heirs of Espiritu, the spouses Maximo and Paz Landrito, sometime in
1986, borrowed from the spouses Zoilo and Primitiva Espiritu the amount of
₱350,000.00, secured by a real estatemortgage. Because of the Landritos’
continued inability to pay the loan, the due date for payment was extended on
the condition that the interest that has already accrued shall, from then on,
form part of the principal. As such, after the third extension, the principal
amounted to ₱874,125.00 in only two years. Despite the extensions, however,
the debt remained unpaid, prompting the spouses Espiritu to foreclose the
mortgaged property.
The foreclosure proceeding in Heirs of Espiritu, however, was eventually
nullified by this Court because the Landritos were deprived of the opportunity
to settle the debt, in viewof the overstated amount demanded from them. As
held:
Since the Spouses Landrito, the debtors in this case, were not given an
opportunity to settle their debt, at the correct amount and without the
iniquitous interest imposed, no foreclosure proceedings may be instituted. A
judgment ordering a foreclosure sale is conditioned upon a finding on the
correct amount of the unpaid obligation and the failure of the debtor to pay
the said amount. In this case, it has notyet been shown that the Spouses
Landrito had already failed to pay the correct amount of the debt and,
therefore, a foreclosure sale cannot be conducted in order to answer for the
unpaid debt. x x x
As a result, the subsequent registration of the foreclosure sale cannot transfer
any rights over the mortgaged property to the Spouses Espiritu. The
registration of the foreclosure sale, herein declared invalid, cannot vest title
over the mortgaged property. x x x

Applying Espiritu, the extra-judicial foreclosure of the mortgaged property

dated October 12, 1987 is declarednull, void, and of no legal effect.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The

Decision and Resolution of the Court of Appeals, dated May 29, 2013 and
January 13, 2014, respectively, in CA-G.R. CV No. 93667 are hereby
REVERSED and SET ASIDE. Let a new Decision be entered, the dispositive
portion of which reads:

1. The stipulation in the Loan with Real Estate Mortgage imposing an interest
of 5% monthly is declared void.

2. In view of the nullity of the interest imposed on the loan which affected the
total arrearages upon which foreclosure was based, the foreclosure of
mortgage, Certificate of Sale, Affidavit of Consolidation, Deed of Final Sale,
and Contract of Lease are declared void.

3. The case is remanded to the Regional Trial Court to compute the current
arrearages of petitioners taking into account the partial payments made by
them and the imposition of the simple interest rate of 12% per annum.

SO ORDERED.