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SPOUSES DUMLAO VS MARLON REALTY

SPOUSES ELVIRA AND CESAR DUMLAO VS G.R. No. 131491 August 17, 2007 SANDOVAL-GUTIERREZ, J.: MARLON REALTY CORPORATION, .

For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision[1]dated August 25, 1997 and Resolution[2] dated November 13, 1997 rendered by the Court of Appeals in CA-G.R. SP No. 43366, entitled MARLON REALTY CORPORATION, petitioner, v. HON. JUDGE REGIONAL TRIAL COURT OF PARAAQUE, BRANCH 258 and ELVIRA D. DUMLAO, ET AL., respondents. The following facts are undisputed: On November 26, 1991, spouses Elvira and Cesar Dumlao, petitioners, and Marlon Realty Corporation, respondent, entered into a Contract to Sell[3] involving a 109 square meter lot in Welcome Village, Paraaque City. The terms of payment are: Petitioners shall pay respondent P218,000.00 as cost of the lot; The sum of P61,000.00 shall be paid upon the signing of the contract; and The balance of P157,000.00 shall be paid with interest at 24% per annum within six (6) months.

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Petitioners paid P61,000.00 as downpayment upon the signing of the contract. In the meantime, interest began to accrue on the P157,000.00 balance of the purchase price. On November 4, 1992, the Urban Bank informed respondent corporation that petitioners loan of P148,000.00, intended as payment for their obligation, was approved. However, the bank imposed the following conditions: the amount shall be released only after its mortgage lien shall have been registered in the Registry of Deeds and annotated on petitioners land title; and that respondent must first execute a deed of absolute sale in favor of petitioners. On November 26, 1992, the parties entered into a Compromise Agreement[4] whereby petitioners agreed to pay respondent, on or before March 26, 1993, the amount of P38,203.33 representing the accrued interest as of that date on the P157,000.00 balance of the purchase price; and that respondent shall execute a Deed of Sale to facilitate the transfer of title to petitioners. On the same day, petitioners paid the buyers equity of P9,000.00. On December 1, 1992, respondent, pursuant to the Compromise Agreement, executed a Deed of Sale[5] in favor of petitioners. But they refused to pay the interest agreed upon despite respondents repeated demand. On January 26, 1995, respondent filed with the Metropolitan Trial Court (MTC), Branch 78, Paraaque City a complaint for a sum of money against petitioners. The MTC, in its Decision[6] dated June 17, 1996, dismissed the complaint, holding that it is for specific performance cognizable by the Regional Trial Court (RTC). On appeal by respondent, the RTC, Branch 258, Paraaque City rendered its Decision dated November 19, 1996 affirming the MTC judgment dismissing the complaint not on the ground of lack of jurisdiction, but for lack of cause of action. [7] Petitioners filed a motion for reconsideration but it was denied by the RTC in its Order of February 04, 1997. On February 28, 1997, respondent filed with the Court of Appeals a petition for review. In its Decision dated August 25, 1997, the appellate court held that respondents complaint is for a sum of money, the Contract to

Sell being a unilateral acknowledgment of an existing debt on petitioners part. The dispositive portion of the Decision reads: WHEREFORE, premises considered, the petition is hereby given DUE COURSE and the assailed Decision dated November 19, 1996 of the RTC of Paraaque, Branch 258, and its Order dated February 4, 1997 denying therein plaintiffs Motion for Reconsideration, as well as the Decision dated June 17, 1996 of the Metropolitan Trial Court of Paraaque, Branch 78, are REVERSED and SET ASIDE. A new judgment is hereby entered ordering defendant spouses Cesar and Elvira Dumlao to pay the sum of P109,929.79 representing the accumulated interests as of January 6, 1995with interest at 2% per month computed from January 6, 1995. SO ORDERED.[8] Petitioners filed a motion for reconsideration but it was denied by the Court of Appeals in its Resolution dated November 13, 1997. Hence, this petition. The issue for our resolution is whether petitioners are liable to pay interest on the balance of the purchase price. Petitioners insist that they are not liable to pay interest since the loan proceeds were released, not to petitioners, but directly to respondent; and that pending the release, no interest should accrue. Petitioners arguments are misplaced. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[9] We must look into the terms of the contract to determine the respective obligations of the parties thereto. If the terms of a contract are clear and leave no doubt upon the contracting parties intention, then such terms should be applied in their literal meaning.[10] In this case, there is no question that the parties voluntarily entered into a Contract to Sell a parcel of land. The terms of payment of the purchase price are clear and unambiguous, thus: SECOND That in consideration of the agreement to sell the above described property, the VENDEE obligates himself/herself to pay the VENDOR the sum of TWO HUNDRED EIGHTEEN THOUSAND (P218,000.00) PESOS, Philippine Currency from the date of execution of this contract until paid as follows: a) The amount of SIXTY ONE THOUSAND xxx (P61,000.00) PESOS when this contract is signed, and b) The balance of ONE HUNDRED FIFTY SEVEN THOUSAND (P157,000.00) PESOS shall be paid with interest at 24% per annum to be computed based on the outstanding and payable balance, as of the date of downpayment, within a period of SIX (6) MONTHS x x x. Any installment not paid on or before the due date, or within the grace period of five (5) days thereafter, shall bear a penalty of 2% per month based on the remaining unpaid monthly installments. Note: As per agreement, the amount of P148,000.00 is receivable thru an URBAN BANK Letter of Guaranty (Pag-ibig Loan) THIRD That demand for payment by the VENDOR is not necessary to make the VENDEE incur delay (default). Note: Buyers equity is P9,000.00. Pursuant to the above agreement, it is clear that a 24% interest per annum on the balance of P157,000.00 shall be paid to respondent by petitioners. Having signed the contract, petitioners are bound to comply with its terms and conditions in good faith. We reiterate that the contract is the law between them. We observe that respondent, faithful to its part of the bargain, executed a deed of sale in favor of petitioners. In fact, a Transfer Certificate of Title was already issued in their names. Fairness demands that petitioners also fulfill their obligation to pay interest on the balance of the purchase price. WHEREFORE, we DENY the petition. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 43366 are AFFIRMED. Costs against petitioners. SO ORDERED.

PSBA vs. CA, GR No. 84698, Feb.4, 1992 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO and LT. M. SORIANO, petitioners, vs. COURT OF APPEALS, HON. REGINA ORDOEZ-BENITEZ, in her capacity as Presiding Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA and ARSENIA D. BAUTISTA, respondents. G.R. No. 84698 February 4, 1992 PADILLA, J.: FACTS: A stabbing incident on 30 August 1985 which caused the untimely demise of Carlitos Bautista while on the second-floor premises of the Philippine School of Business Administration (PSBA) prompted the parents of the deceased to file suit for damages against the school and its authorities for negligence, recklessness and lack of security precautions, means and methods before, during and after the attack on the victim who was in his third year when he was stabbed by outsiders. Petitioners sought to have the suit dismissed, alleging that since they are presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action against them, as jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are beyond the ambit of the rule in the afore-stated article. Trial Court denied their motion to dismiss. CA further affirmed the lower courts decision. CA anchored its decision based on the rule on quasi delicts holding the teachers and heads of the school staff liable unless they proved that they observed all the diligence to prevent damage. ISSUE: Whether or not the petitioners may be held liable for damages HELD: The record is bereft of all the material facts. However the courts disagree with the premises of the CAs ruling. The fact that the assailants in the case at bar are not students of the PSBA, wherein under Art 2180, the petitioners cannot be held liable, it does not necessarily follow that they can be exculpated from liability. There is a contract between the school and students resulting bilateral obligations which both parties are bound to comply. The school undertakes to provide the student with education and an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Necessarily, the school must ensure that the adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. On the other hand, the students shall abide by the schools academic requirements and observe its rules and regulations. It was held in Cangco vs. Manila Railroad that the mere fact that a person is bound to another contract does not relieve him from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the contract would have constituted the source of an extra-contractual obligation had no contract existed between the parties. In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between the school and Bautista had been breached thru the former's negligence in providing proper security measures. This would be for the trial court to determine. And, even if there be a finding of negligence, the same could give rise generally to a breach of contractual obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact, that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a contractual relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently of the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code. Philippine School of Business Administration et al vs. Court of Appeals et al Date (4 February 1992) | Ponente: Padilla Overview: PSBA is being made to account by the parents of its student, Carlitos Bautista, who was stabbed to death by assailants from outside the school inside the school premises. The Court of Appeals ruled that the RTC decision to deny the schools motion to dismiss was correct, affirming the order, following the rule on quasi-delicts (NCC Arts. 2180 and 2176). The Supreme Court, however, ruled that the law on quasi-delicts does not apply, as there exists a contract between school and student including an obligation to safety; it rules that torts may be the acts that break a contract and thus liability may still be incurred by the school following NCC Art. 21. Topic: Obligations; quasi-delicts; torts Statement of the Case The death of one Carlitos Bautista on the premises of the Philippine School of Business Administration (PSBA) prompted his parents to file a suit for damages resulting from negligence, recklessness, and insufficiency of safety

precautions against said school, specifically its officials, at the RTC of Manila, which was presided over by Judge Regina Ordonez-Benitez. As defendants, PSBA et al sought the dismissal of the case on the ground that PSBA, as an academic institution, is beyond the ambit of Article 2180 of the NCC, under which they are being sued. The RTC denied their motion to dismiss, then the subsequent motion for reconsideration. Defendants-turned-petitioners assailed the RTCs dispositions before the CA, but the appellate court upheld the ruling given by the RTC, and denied the subsequent motion for reconsideration, bringing the appellants to the Supreme Court. Statement of Facts 30 August 1985: Carlitos Bautista was stabbed to death on the second floor balcony of PSBA. Bautista was a student in said school, a junior commerce major. It was established that the assailants were outsiders, not enrolled nor affiliated with the school. o His parents (the private respondents Segunda [?] and Arsenia), filed suit for damages against the school and the following school officials: Juan D. Lim (President), Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief of Security) and Lt. M. Soriano (Assistant Chief of Security). The last, during the proceedings, resigned from his position. 8 December 1987: The respondent Manila RTC, having overruled instant petitioners contentions, denies their motion to dismiss the case. 25 January 1988: The RTC dismisses the motion for reconsideration as well. 10 June 1988: The CA affirms the trial courts orders; petitioners file a motion for reconsideration. 22 August 1988: The CA denies the motion for reconsideration. Applicable Laws: ART. 1157(5), NCC: OBLIGATIONS ARISE FROM: (5) QUASI-DELICTS ART. 1162, NCC: OBLIGATIONS DERIVED FROM QUASI-DELICTS SHALL BE GOVERNED BY THE PROVISIONS OF CHAPTER 2, TITLE XVII OF THIS BOOK, AND BY SPECIAL LAWS. ART. 2176, NCC: WHOEVER BY ACT OR OMISSION CAUSES DAMAGE TO ANOTHER, THERE BEING FAULT OR NEGLIGENCE, IS OBLIGED TO PAY FOR THE DAMAGE DONE. SUCH FAULT OR NEGLIGENCE, IF THERE IS NO PRE-EXISTING CONTRACTUAL RELATION BETWEEN THE PARTIES, IS CALLED A QUASI-DELICT AND IS GOVERNED BY THE PROVISIONS OF THIS CHAPTER. ART. 2180, PARS. 1, 7, NCC: THE OBLIGATION IMPOSED BY ARTICLE 2176 IS DEMANDABLE NOT ONLY FOR ONE'S OWN ACTS OR OMISSIONS, BUT ALSO FOR THOSE OF PERSONS FOR WHOM ONE IS RESPONSIBLE. XXX LASTLY, TEACHERS OR HEADS OF ESTABLISHMENTS OF ARTS AND TRADES SHALL BE LIABLE FOR DAMAGES CAUSED BY THEIR PUPILS AND STUDENTS OR APPRENTICES, SO LONG AS THEY REMAIN IN THEIR CUSTODY. ART. 21, NCC: ANY PERSON WHO WILFULLY CAUSES LOSS OR INJURY TO ANOTHER IN A MANNER THAT IS CONTRARY TO MORALS, GOOD CUSTOMS OR PUBLIC POLICY SHALL COMPENSATE THE LATTER FOR THE DAMAGE. Issues: 1. Was the Court of Appeals correct in affirming the decision of the RTC not to dismiss the case against PSBA? Held Yes. Rationale: HOWEVER, the Supreme Court disagrees with the CAs basis for the decision being anchored on Arts. 2176 and 2180 of the NCC. The SC agrees with the CA that the case must be remanded to the RTC for trial on its merits. But the reason provided by the CA, which is that in light of previous jurisprudence and the fact that Article 2180 is a holdover from the Spanish era, the school administrators should be made liable for damages until they prove themselves absolved of liability in trial by merits, is erroneous. The SC points out that Arts 2180 and 2176 establish the rule of in loco parentis (in place of the parents Mikey) and that in the discussions provided in the cases cited by the CA, it was clear that the liability of the school exists only for the acts performed by students while in school custody, something which was established to have not been the case here. Thus the rule on quasi-delicts does not apply. The SC rules that despite the inapplicability of the rule on quasi-delicts, the school is still liable because all academic institutions enter into a contract with all its enrollees. Part of the obligations of this contract is the providence of an adequate atmosphere of safety for its students (x x x no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb.). Obligations from quasi-delict or tort* do not govern, since these are extra-contractual and a contract has been made here. However, in Air France vs. Carroscoso, it was established that liability from tort may still exist even if there is a contract, because the act that breaks the contract may also be a tort. This rule obeys Art. 21. The SC here dictates that a trial is necessary in order to determine whether such willful

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negligence really lies, in order that liability should be properly determined. Judgment: Case remanded to Manila RTC, the court of origin. Notes: * tort. 1. A civil wrong for which a remedy may be obtained, usu. in the form of damages; a breach of duty that the law imposes on everyone in the same relation to one another as those involved in a given transaction. 2. (pl.) The branch of law dealing with such wrongs. (Blacks Law Dictionary Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 84698 February 4, 1992 PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO and LT. M. SORIANO, petitioners, vs. COURT OF APPEALS, HON. REGINA ORDOEZ-BENITEZ, in her capacity as Presiding Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA and ARSENIA D. BAUTISTA, respondents. Balgos and Perez for petitioners. Collantes, Ramirez & Associates for private respondents. PADILLA, J.: A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-floor premises of the Philippine School of Business Administration (PSBA) prompted the parents of the deceased to file suit in the Regional Trial Court of Manila (Branch 47) presided over by Judge (now Court of Appeals justice) Regina Ordoez-Benitez, for damages against the said PSBA and its corporate officers. At the time of his death, Carlitos was enrolled in the third year commerce course at the PSBA. It was established that his assailants were not members of the school's academic community but were elements from outside the school. Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim (President), Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief of Security) and a Lt. M. Soriano (Assistant Chief of Security). Substantially, the plaintiffs (now private respondents) sought to adjudge them liable for the victim's untimely demise due to their alleged negligence, recklessness and lack of security precautions, means and methods before, during and after the attack on the victim. During the proceedings a quo, Lt. M. Soriano terminated his relationship with the other petitioners by resigning from his position in the school. Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are presumably sued under Article 2180 of the Civil Code, the complaint states no cause of action against them, as jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are beyond the ambit of the rule in the afore-stated article. The respondent trial court, however, overruled petitioners' contention and thru an order dated 8 December 1987, denied their motion to dismiss. A subsequent motion for reconsideration was similarly dealt with by an order dated 25 January 1988. Petitioners then assailed the trial court's disposition before the respondent appellate court which, in a decision * promulgated on 10 June 1988, affirmed the trial court's orders. On 22 August 1988, the respondent appellate court resolved to deny the petitioners' motion for reconsideration. Hence, this petition. At the outset, it is to be observed that the respondent appellate court primarily anchored its decision on the law ofquasidelicts, as enunciated in Articles 2176 and 2180 of the Civil Code. 1 Pertinent portions of the appellate court's now assailed ruling state: Article 2180 (formerly Article 1903) of the Civil Code is an adoption from the old Spanish Civil Code. The comments of Manresa and learned authorities on its meaning should give way to present day changes. The law is not fixed and flexible (sic); it must be dynamic. In fact, the greatest value and significance of law as a rule of conduct in (sic) its flexibility to adopt to changing social conditions and its capacity to meet the new challenges of progress. Construed in the light of modern day educational system, Article 2180 cannot be construed in its narrow concept as held in the old case of Exconde vs. Capuno 2 and Mercado vs. Court of Appeals; 3 hence, the ruling in the Palisoc 4 case that it should apply to all kinds of educational institutions, academic or vocational. At any rate, the law holds the teachers and heads of the school staff liable unless they relieve themselves of such liability pursuant to the last paragraph of Article 2180 by "proving that they observed all the diligence to prevent damage." This can only be done at a trial on the merits of the case. 5 While we agree with the respondent appellate court that the motion to dismiss the complaint was correctly denied and the complaint should be tried on the merits, we do not however agree with the premises of the appellate court's ruling. Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis. This Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza, Palisoc and, more recently, in Amadora vs.Court of Appeals. 6 In all such cases, it had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or inflicted by pupils or students of he educational institution sought to be held liable for the acts of its pupils or students while in its custody. However, this material situation does not exist in the present case for, as earlier indicated, the assailants of Carlitos were not students of the PSBA, for whose acts the school could be made liable.

However, does the appellate court's failure to consider such material facts mean the exculpation of the petitioners from liability? It does not necessarily follow. When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. 7 For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied. However, this impression has not prevented this Court from determining the existence of a tort even when there obtains a contract. In Air France vs. Carrascoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one arising from tort, not one arising from a contract of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is a contract, for the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas, 248 Fed. 231). This view was not all that revolutionary, for even as early as 1918, this Court was already of a similar mind. InCangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus: The field of non-contractual obligation is much broader than that of contractual obligation, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the contract would have constituted the source of an extra-contractual obligation had no contract existed between the parties. Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21, which provides: Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good custom or public policy shall compensate the latter for the damage. (emphasis supplied). Air France penalized the racist policy of the airline which emboldened the petitioner's employee to forcibly oust the private respondent to cater to the comfort of a white man who allegedly "had a better right to the seat." In AustroAmerican, supra, the public embarrassment caused to the passenger was the justification for the Circuit Court of Appeals, (Second Circuit), to award damages to the latter. From the foregoing, it can be concluded that should the act which breaches a contract be done in bad faith and be violative of Article 21, then there is a cause to view the act as constituting a quasi-delict. In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between the school and Bautista had been breached thru the former's negligence in providing proper security measures. This would be for the trial court to determine. And, even if there be a finding of negligence, the same could give rise generally to a breach of contractual obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact, that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a contractual relation is a condition sine qua nonto the school's liability. The negligence of the school cannot exist independently of the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code. This Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-mentioned, for conceptually a school, like a common carrier, cannot be an insurer of its students against all risks. This is specially true in the populous student communities of the so-called "university belt" in Manila where there have been reported several incidents ranging from gang wars to other forms of hooliganism. It would not be equitable to expect of schools to anticipate all types of violent trespass upon their premises, for notwithstanding the security measures installed, the same may still fail against an individual or group determined to carry out a nefarious deed inside school premises and environs. Should this be the case, the school may still avoid liability by proving that the breach of its contractual obligation to the students was not due to its negligence, here statutorily defined to be the omission of that degree of diligence which is required by the nature of the obligation and corresponding to the circumstances of persons, time and place. 9 As the proceedings a quo have yet to commence on the substance of the private respondents' complaint, the record is bereft of all the material facts. Obviously, at this stage, only the trial court can make such a determination from the evidence still to unfold. WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin (RTC, Manila, Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the Court. Costs against the petitioners. SO ORDERED. Chief Justice

Ongsiako vs. IAC, 152 SCRA 627


Antonio Ramon Ongsiako vs. Intermediate Appellate Court and The People of the Philippines G.R. L-69901, July 31, 1987 Cruz, J.: FACTS: Petitioner with companion Heras was driving a car, south-bound toward Manila along MacArthur highway; Robert Ha was driving a jeep from the opposite direction with 7 passengers. A Philippine Rabbit bus ahead of the jeep swerved into the petitioners lane to overtake a tricycle, as a result of the sudden move, petitioner veered his car to the shoulder of the highway to avoid head-on collision. The car collided with Has jeep damaging it and causing injuries to its passengers. The Philippine Rabbit bus sped away. Trial Court held that petitioner was 150 meters away from the bus, the Supreme Court found through evidence that the distance is not 150 meters but 150 feet. ISSUE: Whether or not petitioner is both criminally and civilly liable. HELD: No. The evidence of record is that the distance was not 150 meters but 150 feet, which makes quite a difference. The Court considers this discrepancy important because the finding of negligence by the trial court is based on whether or not the accused had enough opportunity to avoid the collision. Guilt of petitioner has not been proved beyond reasonable doubt. Consequently he should not have been guilty of even simple negligence and instead is entitled to be completely absolved of the criminal responsibility. The civil liability is, however a different question. There is preponderance of evidence to hold the petitioner liable in damages for the injuries sustained by the victims. Although it is really doubtful that he was criminally negligent, we find there is enough evidence to sustain the conclusion that a little more caution and discretion on his part in reacting to the threat of a head-on collision with the bus could have avoided the unfortunate incident. We apply the doctrine announced in the case of People vs. Ligon, we make a similar finding in this case and hold petitioner civilly answerable for his quasi delict.

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Phil. Communications Sattelite Corp. vs. Globe Telecom, GR No. 147324, May 25, 2004 PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION vs. GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation) G.R. No. 147324 May 25, 2004 Tinga, J.: FACTS: Globe Telecom (formerly Mckay Cable and Radio Corp) is engaged in the provision of communication facilities in US military bases in Clark and Subic, Pampanga. In May 1991, it entered into an Agreement with Philippine Communications Satellite Corp (Philcomsat) whereby Philcomsat would operate an IBS Standard B earth station with in Cubi Point for the exclusive use of two bases. The term of contract was for 60 months (5 years). Globe promised to pay the monthly rentals for each leased circuit involved. However, in September 1991, the Philippine Government sent a note to the US Government signifying the termination of RP-US Military Bases Agreement. In August 1991, Globe notified Philcomsat of its intention to discontinue the use of earth station in view of the withdrawal of US military personnel. Globe invoked as basis for the termination the clause on non-liability of any party if the failure in the performance of the obligation results directly or indirectly from force majeure. Philcomsat demanded payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to heed Philcomsats demand. Philcomsat filed with the RTC of Makati a Complaint against Globe, praying that the latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorneys fees and costs of suit. ISSUE: W/N the termination of the RP-US Military Bases Agreement can be considered a fortuitous event which would exempt Globe from complying with its obligation to pay rentals HELD: YES. In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992. The

aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement. SANTOS VENTURA V. SANTOS QUISUMBING, J. / NOVEMBER 5, 2004 PARTIES: SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs. ERNESTO V. SANTOS and RIVERLAND, INC., respondents Art. 1169 CC. Those obliged to deliver or to do something incur in delay from the time the oblige judicially or extrajudicially demands from them the fulfillment of their obligation. NATURE: Review on certiorari of the decision and resolution of the Court of Appeals FACTS: Santos had filed several civil cases against Santos Ventura Hocorma Foundation, Inc. (SVHFI). On October 26, 1990, they executed a Compromise Agreement which amicably ended all their pending litigations subject to the following:

that SVHFI shall pay Santos Php14.5 M with Php1.5 M immediately upon the execution of the agreement and the balance of Php13 M whether in lump sum or in installments within a period of not more than 2 years from the execution of the agreement; provided that in the event that SVHFI does not pay the whole or any part of the balance, it shall be paid with the land or real properties of SVHFI which were previously covered by lis pendens but in no case shall the payment of such balance be later than 2 years from the date of the agreement. that immediately upon the execution of the agreement and the receipt of the Php1.5 M, Santos shall cause the dismissal of Civil Cases and voluntarily withdraw the appeals from the other civil cases; provided that in the event that SVHFI shall sell or dispose any lands previously subject of lis pendens, the proceeds of such sale may be required and shall be partially devoted to the payment of the SVHFIs foundations. that if there is failure of compliance, the aggrieved party shall be entitled to a write of execution for the enforcement of the agreement. Santos moved for the dismissal of the civil cases and the lifting of the notices of lis pendens on the real properties involved. SVHFI also paid the Php1.5M. Subsequently, SVHFI sold two real properties which were previously subjects of lis pendens. Upon discovery of this, Santos sent a letter to SVHFI demanding the payment of the Php13 M which was ignored by SVHFI. Meanwhile, on September 20, 1991, the Compromise Agreement was judicially approved. Santos applied for the issuance of a writ of execution of the Compromise agreement which was granted. The sheriff levied on the real properties of the petitioner which were auctioned and awarded to Riverland Inc. Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging delay on the part of SVHFI in paying the balance and that under the Compromise Agreement, the obligation became due on October 26, 1992 but the payment of Php12 M was effected only on November 22, 1994. The suit covered claims for legal interest on the obligation, penalty, attorneys fees, costs of litigation and that the sales to Riverland Inc be declared final and not subject to redemption. RTC: decision for SVFHI CA: decision for Santos and Riverland Inc. Arguments of SVHFI: The compromise agreement does not provide for the payment of interest, thus the legal interest by way of penalty on account of fault or delay shall not be due and payable. Also, the said agreement did not provide for a period within which the obligation will become due and demandable, thus it is incumbent upon respondent to ask for judicial intervention to fix the period. It is only when a fixed period exists that the legal interests can be computed. Argument of Santos and Riverland Inc: Their right to damages is based on delay in the payment of the obligation provided in the compromise agreement which as stated is 2 years from its execution. This was approved by the trial court and became the law governing their contract. Thus, SVHFIs failure to comply entitles them to damages, by way of interest. ISSUE: WON there was delay on the part of SVHFI so as to entitle Santos and Riverland Inc to legal interest DECISION: Yes. Petition is Denied. REASONING: In order for the debtor to be in delay or default (otherwise knows as mora which means the delay in the fulfillment of obligations), the following requisites are to be present: 1.that the obligation be demandable and already liquidated:

In the case, the obligation was already due and demandable after the lapse of the 2 year period from the execution of the contract (October 26, 1990) and not from the judicial approval of the compromise agreement (September 20, 1991). The 2 year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, the obligation was already due and demandable and the obligation is liquidated because SVFHI knows how must he is to pay and when he is to pay. 2.that the debtor delays performance: In the case, SVHFI delayed in the performance. It was only able to settle the entire balance on February 8, 1995, more than 2 years after the extrajudicial demand. It also filed several motions to delay the fulfillment of its obligation. 3.that the creditor requires the performance judicially or extra judicially: In the case, the demand letter was sent to SVHFI on October 28, 1992 which was in accordance with an extrajudicial demand contemplated by law. Aside: When the debtor knows the amount and period when he is to pay, interest as damages is allowed as a matter of right. The complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of interest. In the absence of agreement, the legal interest shall prevail which is 12% per annum to be computed from the extrajudicial demand.

Barzaga vs CA 1998 (DELAY) 268 SCRA 105


Facts: Petitioners wife died and her wish is to be buried before Christmas. After her death on Dec 21, 1990, in fulfillment of her wishes, petitioner went to respondents store to inquire the availability of materials to be used in building his wifes niche. Respondents employee advised petitioner that to come back the following morning. That following morning, petitioner made a payment of P2,100 to secure the delivery of the materials. However, the materials were not delivered on time. Several times petitioner went to respondents store to ask for the delivery. Later that day, the petitioner was forced to dismiss his laborer since there is nothing to work with for the materials did not arrive. Petitioner however purchased the materials from other stores. After his wife was buried, he sued respondent for damages because of delay For his part, respondent offered a lame excuse of fortuitous event that the reason for delay is because the trucks tires were flat. Issue: Whether or not respondent is guilty of delay that will entitle petitioner for damages, although it was not specified in the invoice the exact time of delivery? Held: Yes! The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. (Art 1170 of the Civil Code). The appellate court appears to have belittled petitioners submission that under the prevailing circumstances time was of the essence in the delivery of the materials to the grave site. However, we find petitioners assertion to be anchored on solid ground. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondents delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioners wife. This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put off on Christmas day. This case is clearly one of non-performance of a reciprocal obligation. 7 In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach.

Phil. Communications Satelite Corp. vs. Globe Telecom, GR No. 147324, May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION vs. GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation) G.R. No. 147324 May 25, 2004

Tinga, J.: FACTS: Globe Telecom (formerly Mckay Cable and Radio Corp) is engaged in the provision of communication facilities in US military bases in Clark and Subic, Pampanga. In May 1991, it entered into an Agreement with Philippine Communications Satellite Corp (Philcomsat) whereby Philcomsat would operate an IBS Standard B earth station with in Cubi Point for the exclusive use of two bases. The term of contract was for 60 months (5 years). Globe promised to pay the monthly rentals for each leased circuit involved. However, in September 1991, the Philippine Government sent a note to the US Government signifying the termination of RP-US Military Bases Agreement. In August 1991, Globe notified Philcomsat of its intention to discontinue the use of earth station in view of the withdrawal of US military personnel. Globe invoked as basis for the termination the clause on non-liability of any party if the failure in the performance of the obligation results directly or indirectly from force majeure. Philcomsat demanded payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to heed Philcomsats demand. Philcomsat filed with the RTC of Makati a Complaint against Globe, praying that the latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorneys fees and costs of suit. ISSUE: W/N the termination of the RP-US Military Bases Agreement can be considered a fortuitous event which would exempt Globe from complying with its obligation to pay rentals HELD: YES. In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992. The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement. SICAM vs. JORGE G.R. No. 159617 August 8, 2007 Facts: Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to secure a loan. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. Sicam sent respondent Lulu a letter informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Respondent Lulu expressed disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on but petitioner Sicam failed to return the jewelry. Respondent Lulu is seeking indemnification for the loss of pawned jewelry and payment of damages. Petitioner is interposing the defense of caso fortuito on the robber committed against the pawnshop. Issue: WON Sicam is liable for the loss of the pawned articles in their possession? YES Held: Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. No sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Sicams admission that the vault was open at the time of robbery is clearly a proof of petitioners failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles. In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed

NPC vs CA, ECI 1986 (Quasi-Delict; Fortuitous Event) Facts: ECI entered into a contract with NAWASA to undertake a construction of a tunnel from Ipo Dam to Bicti including all materials, equipment and labor for the said construction for 800 days. The project involved 2 phases. The first involves tunnel works and the second consists of outworks at both ends of the tunnel. As soon as ECI finished the tunnel works in Bicti, it transferred all its equipments to Ipo Dam to finish the second phase of the project. The record shows that on November 4,1967, typhoon Welming hit Central Luzon, passing through defendants (NPC) Angat Hydro-electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent an overflow of water from the dam, since the water level had reached the danger height of 212 meters above sea level, the defendant corporation caused the opening of the spillway gates. ECI sued NPC for damages. The trial court and the court of appeals found that defendant NPC was negligent when opened the gates only at the height of the typhoon holding that it could have opened the spill gates gradually and should have done so before the typhoon came. Thus both courts awarded ECI for damages. NPC assails the decision of the CA as being erroneous on the grounds, inter alia, that the loss sustained by ECI was due to force majeure. It argued that the rapid rise of water level in the reservoir due to heavy rains brought about by the typhoon is an extraordinary occurrence that could not have been foreseen. On the other hand, ECI assails the decision of the court of appeals modifying the decision of the trial court eliminating the awarding of exemplary damages. Hence this present appeal. Issues: 1. Whether or not NPC is liable for damages even though the cause of the damage is due to a force majeure? Otherwise stated, whether or not the damage sustained by ECI could be attributed to NPC notwithstanding the occurrence of a force majeure? 2. Whether or not ECI is entitled to exemplary damages? Held: Yes. NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon Welming when it knew very well that it was safer to have opened the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot escape liability because its negligence was the proximate cause of the loss and damage. As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607): Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175). Thus, it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). Substantial evidence is defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Philippine Metal Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985]) Exemplary Damages No. As to the question of exemplary damages, we sustain the appellate court in eliminating the same since it found that there was no bad faith on the part of NPC and that neither can the latters negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we ruled: Neither may private respondent recover exemplary damages since he is not entitled to moral or compensatory damages, and again because the petitioner is not shown to have acted in a wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377; Francisco v. Government Service Insurance System, 7

SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24 SCRA 888). Comments: Under Art. 1170 of the Civil Code, When those who in the performance of their obligations are guilty of fraud, delay, or negligence, or in any manner contravene in the tenor of the obligation, are liable for damages. What the provision contemplates is that there is an express obligation between the obligor and the obligee arising from a contractual obligation that must be complied with in good faith. And what the aforestated provision liable for damages is that breach either because of fraud, delay, or negligence, or contravention to the tenor of obligation. Hence it should not be applied generally in all cases, especially in quasi-delict which is treated specifically by law. In the case at bar, ECI and NPC has no pre-existing obligation arising from a contract. Although negligence is indubitably present in the case, there cannot be located from the facts that there is a prior obligation arising form NPC and ECI. But instead the applicable law in the case at bar is Art. 2176 which provides, Whoever by act or omission causes damage to another, there being fraud or negligence, is obliged to pay for the damage done. Such fault of negligence, if there is no pre-existing contractual relation between the parties, is called quasi-delict and is governed by the provisions of this chapter. I should rather say that the Honorable Supreme Court misplaced the application of the law. I should further say that the Act of God Doctrine should be applied inversely to that

GERALDEZ V. COURT OF APPEALS REGALADO J. / FEB. 23, 1994 Petition for review of decision of the Court of Appeals PARTIES: Petitioner: Lydia L. Geraldez Respondents: Court of Appeals and Kenstar Travel Corporation FACTS: Petitioner Geraldez filed an action for damages by reason of contractual breach against respondent Kenstar Travel Corp. Petitioner booked the Volare 3 tour with Kenstar. The tour covered a 22-day tour of Europe for $2,990.00 which petitioner paid for her and her sister At the tour, petitioner claimed that what was alleged in the brochure was not what they experienced. There was no European tour manager as stated in the brochure The hotels where they stayed in which were billeted as first class were not The UGC leather factory which was specifically included as a highlight of the tour was not visited The Filipino tour guide provided by Kenstar was a first timer The Quezon City RTC rendered a decision ordering respondent Kenstar to pay moral, nominal, and exemplary damages totaling P1M and P50,000 attorneys fees On appeal, respondent Court of Appeals deleted the award for moral and exemplary damages and reduced the nominal damages and attorneys fees to P30,000 and P10,000 respectively. ISSUES: Did private respondent Kenstar act in bad faith or with gross negligence in discharging its obligations in the contract? Are moral, exemplary and nominal damages warranted? HELD: Yes, Kenstar acted in bad faith and with gross negligence in discharging its obligation Yes, the CA erred in removing the moral and exemplary damages RATIO: Private respondent committed fraudulent misrepresentation amounting to bad faith, to the prejudice of petitioner and the members of the group Kenstars choice of the tour guide is a manifest disregard of its specific assurances to the tour group, and which deliberate omission is contrary to the elementary rules of good faith and fair play By providing the Volare 3 group with an inexperienced first timer as a tour guide, Kenstar manifested indifference to the satisfaction, convenience and peace of mind to its clients Selection of the tour guide was a deliberate and conscious choice on the part of Kenstar in order to afford her on-the job-training making the tour group her unknowing guinea pigs. The inexperienced tour guide will not know how to anticipate the possible problems and needs of its group, therefore not being able to provide the tour group with the necessary accommodations and personal necessities promised. Furthermore the inability to visit the UGC leather factory is reflective of the ineptness and neglect of the tour guide.

The UGC was one of the highlights and Kenstar should have ensured that it would be visited The shortcomings of the tour guide can be traced to the lack of due diligence on the part of Kenstar in the selection of its employees Although Kenstar argues that the tour guide made daily calls to show diligence does not hold The reason she had to call was so that Kenstar could monitor her progress and training and provide instructions for her The failure of Kenstar to provide a European Tour Manager although it specifically advertised and promised to do so is also a contractual breach Kenstar expressly stated in its advertisement that a European Tour Manager would be present Kenstars contention that the European Tour Manager does not refer to a natural person but a juridical personality does not hold Cursory reading of the advertisement reveals the express representation that the tour manager would be a natural person Corporate entity could not possibly accompany the tour group Kenstars contention that the word he used in the advertisement also includes the word it to include females and corporations does not hold as well Hard to believe that the word he was used to denote an artificial or corporate being From its advertisement, it is beyond cavil that the import of the word he is a natural and not a juridical person Kenstars contention that it explained the concept of the European manager to its client at the pre-departure briefing also does not hold Respondent failed to present even one member of the tour group to substantiate its claim If it was really its intention to provide a juridical entity it wouldnt have repeatedly promised the arrival of a natural tour manager

The contract of adhesion as printed on the face of the brochure does not delimit the responsibility of Kenstar from providing its clients with what it promised The contract stated: Kenstar, its employees...assume no responsibility or liability arising out of or in connection with the services or lack of servicesneither will they be responsible for any act, error or omission or of any damages, injury, loss, accident or delay or irregularity which may be occasioned by reason (of) or any defect inlodging place or any facilities The contract of adhesion, wherein only one party creates the contract and the other party either takes it or leaves it is not necessarily void but it must nevertheless be construed strictly against the one who drafted it. This is especially true when the stipulations are printed in fine letters and are hardly legible, as is the case of the tour contract Even assuming arguendo that the contractual limit is enforceable, Kenstar still cannot be exculpated for the reason that responsibility arising from fraudulent acts cannot be stipulated against by reason of public policy Kenstar committed grave misrepresentation when it assured in its tour package that the hotels provided would provide complete amenities and would be conveniently located along the way for the daily itineraries Testimonies by petitioner and private respondent show that the hotels were unsanitary and sometimes did not even provide towels and soap Further testimonies claim that the hotels were also located in locations far from the city making it difficult to go to Respondents contention that the hotels were listed in the Official Hotel and resort Guide and Worldwide Hotel Guide do not hold Kuoni Traveler, the tour operator of Kenstar which prepared the listing could have easily verified the same Nor can it be logically claimed that first-class hotels in Europe are different from first-class hotels in the Philippines Reasonable that petitioner would assume that the meaning of first-class would be the same Even assuming that there is a difference in quality, it cant be said that a first-class hotel in Europe does not provide the basic necessities and sanitary accommodations The fact that Kenstar could only book them in such hotels because of budget constraints is not the fault of the tour group Kenstar contends that it could only book them in such hotels because what they paid will only allow them to pay for such accommodations does not hold Kenstar should not have promised such accommodations if they couldnt afford it. Kenstar should have increased the price to ensure that the accommodations. Fact that the tourists were to pay a supposedly lower amount, such that respondent allegedly retained hardly enough as reasonable profit, does not justify a substandard form of service Respondent Court erred in deleting the award for moral and exemplary damages. Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in bad faith

Kenstar can be faulted with fraud in the inducement which is employed by a party in securing the consent of the other This fraud or dolo which is present or employed at the time of birth or perfection of the contract may either be dolo causante or dolo incidente Dolo Causante or Causal Fraud Referred to in Art 1338, are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract Dolo causante determines or is the essential cause of the consent Effect: nullity of the contract and the indemnification of damages Dolo Incidente or Incidental Fraud Referred to in Art. 1344, are those which are not serious in character and without which the other party still would have entered into the contract Dolo incidente refers only to some particular or accident of the obligation Effect: obliges person employing it to pay damages In either case, whether Kenstar has committed dolo causante or dolo incidente, it is indubitably liable for damages both moral and exemplary

Lydia L. Geraldez v. Court of Appeals and Kenstar Travel Corporation G.R. No. 108253, February 23 (1994) Facts: With reference to Civil Case No. Q-90-4649 of the RTC of Quezon City, Petitioner Geraldez filed an action for damages against Respondent Kenstar Travel Corporation for breach of contract with antecedent facts as follows: Petitioner opt a 22-day Europe tour travel package offered by Respondent Corporation paying 2,990 dollars as consideration. The tour did not end up as expected by herein petitioner, it did not as represented in the brochure: no European tour manager, hotls were not 1st class and the Filipino tour guide who is supposed to accompany them is a 1st timer. Petitioner then filed a breach of contract against Respondent Corporation for committing acts of representations constituting fraud in contracting the obligation. RTC rendered judgment ordering Respondent Corporation to pay petitioner 500,000 as moral damages, 200,000 as nominal damages, 300,000 as exemplary damages and 50,000 as litigation and attorneys fees (all in pesos). On appeal, award for moral and exemplary damages were deleted and a reduction of nominal damages to 40,000 pesos, this on account that the Respondent has substantially complied with the prestation and no malice or bad faith is imputable as a consequence . Hence, the petition. Issue: Whether or not private respondent acted in bad faith or with gross negligence in discharging its obligation under contract. Held: On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary damages which may be awarded in breaches of contract where fraud is evident. Private respondent faulted with fraud in the inducement, which is employed by a party to a contract in securing the consent of the other. In the case at bar, the Private respondent has committed either dolo causante or dolo incidente by making false misrepresentation. Either which oblige a person to indemnify damages. Wherefore, premises considered, the decision of Respondent Court of Appeals is hereby set aside, and another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia Geraldez the sums of P 100,000 by way of moral damages, P 50,000 as exemplary damages, and P 20,000 as attorneys fees with litigation cost against private respondent. The nominal award of damages is hereby deleted.

JAVIER VS CA
JOSE M. JAVIER and ESTRELLA F. JAVIER vs. COURT OF APPEALS and LEONARDO TIRO GR No. 48194 March 15, 1990 Regalado, J.: FACTS: Leonardo Tiro executed a Deed of assignment concerning his shares of stock in Timberwealth Corporation on Feb. 15, 1966 in favor of spouses Jose and Estrella Javier and for the amount of P 120,000. Spouses paid P20,000 as initial Payment and the balance to be paid in instalments as agreed. The parties entered into another deed on Feb. 28, 1966 for

the addtl forest concession, subject of a pending application, adjoining the area covered in the first deed. As agreed, the payment therefor of P 30,000 shall be paid as soon as the application is approved. On Nov. 18, 1966, the Dir. of Forestry directed a consolidation for the renewal of the concession. By virtue of the deed, spouses Javier consolidated with the other adjoining concessionaires.On July 16, 1968, Tiro filed a complaint for failure of the spouses to pay the remaining balance.Spouses filed their answer arguing therein the nullity of the deeds and the return of the payments made by them. It appeared in record that the Timberwealth Corporation was a non-existent organization.The trial court dismissed the complaint hence, Tiro appealed to CA. CA reversed the judgment. Petition to review filed with SC. ISSUE: W/N THE TWO DEEDS ARE NULL AND VOID, THE FORMER FOR TOTAL ABSENCE OF CONSIDERATION AND THE LATTER FOR NON-FULFILLMENT OF CONDITIONS. RULING: Decision Modified. Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private respondent in timberwealth Corporation, as stated in the deed itself. Since said corporation never came into existence, no share of stocks was ever transferred to them, hence the said deed is null and void for lack of cause or consideration. The true cause or consideration of said deed was the transfer of the forest concession of private respondent to petitioners for P120,000.00. This finding is supported by the contemporaneous and subsequent acts of petitioners and private respondent. It is settled that the previous and simultaneous and subsequent acts of the parties are properly cognizable indicia of their true intention. Their acts reveal that the cause stated in the questioned deed of assignment is false. The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false cause or consideration, or one where the parties conceal their true agreement. A contract with a false consideration is not null and void per se. Under Article 1346 of the Civil Code, a relatively simulated contract, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. As to the nullity for the non-fulfilment of the conditions, SC agrees. The efficacy of said deed of assignment is subject to the condition that the application of private respondent for an additional area for forest concession be approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said deed produces no effect. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled. Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. In this case, since private respondent never acquired any right over the additional area for failure to secure the approval of the Bureau of Forestry, the agreement executed therefore, which had for its object the transfer of said right to petitioners, never became effective or enforceable. Nakpil and Sons Vs Court of appeals 1986 Facts: Philippine Bar Association, an NGO, entered into a contract with UCCI on administration basis and Nakpil & Sons to construct a building; the latter will provide the design and specifications of the said building. Two years after the building is constructed and is being leased by PBA, an earthquake, unusually strong hit Metro Manila. As a result, the building is severely damaged (partially collapsed) which compelled the tenants to vacate the premises. PBA, sued UCCI and Nakpil. Since the case involves a high degree of technicality to ascertain the cause of action, the trial court appointed a Commissioner to report to him his findings. According to the Commissioner the damage is caused by: 1. Earthquake 2. defects in the plans and specifications prepared by the third-party defendants architects. 3. deviations from said plans and specifications by the defendant contractors 4. failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects 5. failure of the owners to exercise the requisite degree of supervision in the construction of subject building

The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full nine supervision of the construction. The Court sees no legal or contractual basis for such conclusion. Defendants appealed the decision of the trial court to CA. CAs decision is to affirm the lower courts decision with the additional P200K damages. Issue: The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence. Held: No. ART 1723 NCC Liability of the engineer or architect is if the building should collapse within 15 years because of a defect in the plans and specification OR due to the defects in the ground. The liability of the contractor lies if the building should collapse w/in 15 years because of (1) defects in the CONSTRUCTION (2) USE of materials of INFERIOR QUALITY furnished by contractor or (3) VIOLATION of the terms of the contract. If the construction was supervised by the engineer or architect, he shall be solidarily liable with the contractor. If the owner of the building accepts the building after it is constructed does not mean a WAIVER of any cause of action by reason of defects. The action should be brought within 10 years. Upon the other hand, 1174 of NCC: Except in cases expressly specified by law, or otherwise when it is declared in stipulation or when from the nature of the obligation requires the assumption of risk, no person shall be liable for those events which could not be foreseen, or which, though foreseen, were ineveitable. Elements of 1174, fortuitous event (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals that while it is not possible to state with certainty that the building would not have collapsed were those defects not present, the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected, cannot be ignored. One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss. As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal difference; gross negligence and evident bad faith, without which the damage would not have occurred. THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., vs. MGG MARINE SERVICES, INC. G.R. No. 135645 FACTS: San Miguel Corporation insured several beer bottle cases with petitioner Philippine American General Insurance Company. The cargo were loaded on board the M/V Peatheray Patrick-G to be transported from Mandaue City to Bislig, Surigao del Sur. After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the port of Mandaue City for Bislig, Surigao del Sur. The weather was calm when the vessel started its voyage. The following day, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel Corporation was lost. Petitioner paid San Miguel Corporation the full amount of the cargo pursuant to the terms of their insurance contract, and as subrogee filed with the Regional Trial Court (RTC) of Makati City a case for collection against private respondents to recover the amount it paid. ISSUE: WON respondent MGG be held liable. HELD: No. Common carriers, from the nature of their business and for reasons of public policy, are mandated to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods transported by them are lost, destroyed or if the same deteriorated. In order that a common carrier may be absolved from liability where the loss, destruction or deterioration of the goods is due to a natural disaster or calamity, it must further be shown that the such natural disaster or calamity was the proximate and only cause of the loss; there must be an entire exclusion of human agency from the cause of the injury of the loss. Moreover, even in cases where a natural disaster is the proximate and only cause of the loss, a common carrier is still required to exercise due diligence to prevent or minimize loss before, during and after the occurrence of the natural

disaster, for it to be exempt from liability under the law for the loss of the goods. If a common carrier fails to exercise due diligenceor that ordinary care which the circumstances of the particular case demand to preserve and protect the goods carried by it on the occasion of a natural disaster, it will be deemed to have been negligent, and the loss will not be considered as having been due to a natural disaster under Article 1734. The Court of Appeals, citing the decision of the Board of Marine Inquiry in the administrative case against the vessels crew found that the loss of the cargo was due solely to the existence of a fortuitous event, particularly the presence of strong winds and huge waves.

Fil-Estate vs. Go
FIL-ESTATE PROPERTIES vs. GO G.R. No. 165164 August 17, 2007 Facts: On December 29, 1995, petitioner Fil-Estate Properties, Inc. entered into a contract to sell a condominium unit to respondent spouses Gonzalo and Consuelo Go. The spouses paid a total ofP3.4M of the full contract price set at P3.6M. Petitioner failed to develop the condominium project. The spouses demanded the refund of the amount they paid, plus interest. When petitioner did not refund the spouses, the latter filed a complaint against petitioner for reimbursement of P3.6M plus interest, attorneys fees, and expenses of litigation. Petitioner claimed that respondents had no cause of action since the delay in the construction of the condominium was caused by the financial crisis that hit the Asian region, a fortuitous event over which petitioner had no control. Issue: WON Fil-Estate can exculpate itself from liability in its claim of caso fortuito based on the 1997 Asian Financial Crisis? NO Held: In Mondragon Leisure vs. Court of Appeals, the Asian financial crisis in 1997 is not among the fortuitous events contemplated under Article 1174 of the Civil Code. The Asian financial crisis in 1997 was not unforeseeable and beyond the control of a business corporation. However, a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen every day, thus, not an instance of caso fortuito. The delay in the construction of the building was not attributable to the Asian financial crisis which happened in 1997 because petitioner did not even start the project in 1995 when it should have done, so that it could have finished it in 1997, as stipulated in the contract. Under Section 23 of P.D. No. 957, the respondents are entitled to reimbursement but only to the P3.4M that they have paid. UCPB v. Spouses Beluso Facts: The UCPB granted the spouses Beluso a Promissory Note Line under a Credit Agreement. The spouses Beluso constituted other than their promissory notes, a real estate mortgage over parcels of land as additional security for the obligation. In any case,UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. The spouses, however, failed to make any payment of their obligations with the bank. Spouses Beluso filed a petition for the annulment , accounting and damages against UCPB. Issue: Whether or not UCPB is authorized to unilaterally fix the interest rates. Ruling: A promissory note which grants the creditor the power to unilaterally fix the interest rate means that the promissory note does not contain a clear statement in writing of the finance charge. Such provision is illegal not only because it violates the provisions of the Civil Code on mutuality of contracts but also because it violates the Truth in Lending Law. The penalty for the violation of the law is P100.00 or an amount equal to twice of the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000 on any credit transaction. The action to recover the penalty should be brought within one year from the date of the occurrence of the violation. As the penalty depends on the finance charge required of the borrower, the borrowers cause of action would only accrue when such finance charge is required. The action to recover the penalty may be instituted by the aggrieved private person separately and independently from the criminal case for the same

DECISION CHICO-NAZARIO, J.: This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to annul the Court of Appeals Decision[1] dated 21 January 2003and its Resolution[2] dated 9 September 2003 in CA-G.R. CV No. 67318. The assailed Court of Appeals Decision and Resolution affirmed in turn the Decision [3]dated 23 March 2000 and Order[4] dated 8 May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99-314, declaring void the interest rate provided in the promissory notes executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB). The procedural and factual antecedents of this case are as follows: On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to 28 February 1998. The spouses Beluso availed themselves of the credit line under the following Promissory Notes: PN # 8314-96-00083-3 8314-96-00085-0 8314-96-000292-2 Date of PN 29 April 1996 2 May 1996 20 November 1996 Maturity Date 27 August 1996 30 August 1996 20 March 1997 Amount Secured P 700,000 P 500,000 P 800,000

The three promissory notes were renewed several times. On 30 April 1997, the payment of the principal and interest of the latter two promissory notes were debited from the spouses Belusos account with UCPB; yet, a consolidated loan for P1.3 Million was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed two more promissory notes for a total of P350,000.00: PN # 97-00363-1 98-00002-4 Date of PN 11 December 1997 2 January 1998 Maturity Date 28 February 1998 28 February 1998 Amount Secured P 200,000 P 150,000

However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never released or credited to their account and, thus, claimed that the principal indebtedness was only P2 Million. In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From 1996 to February 1998 the spouses Beluso were able to pay the total sum of P763,692.03. From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the obligations of the spouses Beluso, as follows: PN # 97-00363-1 97-00366-6 97-00368-2 Amount Secured P P 200,000 700,000 Interest Penalty P P Total 225,313.24 795,294.72

P 1,300,000

31% 36% 30.17% 32.786% (102 (7 days) days) 28% 30.41% (102 (2 days) days)

P 1,462,124.54

98-00002-4

150,000

33% (102 days)

36%

170,034.71

The spouses Beluso, however, failed to make any payment of the foregoing amounts. On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00. On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the RTC of Makati City. On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows: PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by [UCPB] void and the foreclosure and Sheriffs Certificate of Sale void. [UCPB] is hereby ordered to return to [the spouses Beluso] the properties subject of the foreclosure; to pay [the spouses Beluso] the amount of P50,000.00 by way of attorneys fees; and to pay the costs of suit. [The spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.[5]

On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration,[6] prompting UCPB to appeal the RTC Decision with the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit: WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial Court, Branch 65, Makati City in Civil Case No. 99-314 is hereby AFFIRMED subject to the modification that defendant-appellant UCPB is not liable for attorneys fees or the costs of suit.[7] On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration for lack of merit. UCPB thus filed the present petition, submitting the following issues for our resolution: I WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON INTEREST RATE AGREED UPON BETWEEN PETITIONER AND RESPONDENTS

II WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED EIGHT PESOS (P1,560,308.00) III WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED INCORRECT COMPUTATION OF RESPONDENTS INDEBTEDNESS IV WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF THE TRUTH IN LENDING ACT

V WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM SHOPPING[8]

Validity of the Interest Rates The Court of Appeals held that the imposition of interest in the following provision found in the promissory notes of the spouses Beluso is void, as the interest rates and the bases therefor were determined solely by petitioner UCPB: FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE BELUSO (BORROWER), jointly and severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of ______________ PESOS, (P_____), Philippine Currency, with interest thereon at the rate indicative of DBD retail rate or as determined by the Branch Head.[9]

UCPB asserts that this is a reversible error, and claims that while the interest rate was not numerically quantified in the face of the promissory notes, it was nonetheless categorically fixed, at the time of execution thereof, at the rate indicative of the DBD retail rate. UCPB contends that said provision must be read with another stipulation in the promissory notes subjecting to review the interest rate as fixed: The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after due consideration of all dealings with the BORROWER.[10] In this regard, UCPB avers that these are valid reference rates akin to a prevailing rate or prime rate allowed by this Court in Polotan v. Court of Appeals.[11] Furthermore, UCPB argues that even if the proviso as determined by the branch head is considered void, such a declaration would not ipso factorender the connecting clause indicative of DBD retail rate void in view of the separability clause of the Credit Agreement, which reads: Section 9.08 Separability Clause. If any one or more of the provisions contained in this AGREEMENT, or documents executed in connection herewith shall be declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.[12] According to UCPB, the imposition of the questioned interest rates did not infringe on the principle of mutuality of contracts, because the spouses Beluso had the liberty to choose whether or not to renew their credit line at the new interest rates pegged by petitioner.[13] UCPB also claims that assuming there was any defect in the mutuality of the contract at the time of its inception, such defect was cured by the subsequent conduct of the spouses Beluso in availing themselves of the credit line from April 1996 to February 1998 without airing any protest with respect to the interest rates imposed by UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel.[14] We agree with the Court of Appeals, and find no merit in the contentions of UCPB. Article 1308 of the Civil Code provides: Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. We applied this provision in Philippine National Bank v. Court of Appeals,[15] where we held: In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita

Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.

The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined by the Branch Head is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts. Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate as determined by the Branch Head gives the latter unfettered discretion on what the rate may be. The Branch Head may choose any rate he or she desires. As regards the rate indicative of the DBD retail rate, the same cannot be considered as valid for being akin to a prevailing rate or prime rate allowed by this Court in Polotan. The interest rate in Polotan reads: The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and Trust Company. x x x.
[16]

In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can easily determine the interest rate by applying simple arithmetic. On the other hand, the provision in the case at bar does not specify any margin above or below the DBD retail rate. UCPB can peg the interest at any percentage above or below the DBD retail rate, again giving it unfettered discretion in determining the interest rate. The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by UCPB of interest rates on the obligations of the spouses Beluso valid. According to said stipulation: The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after due consideration of all dealings with the BORROWER.[17]

It should be pointed out that the authority to review the interest rate was given UCPB alone as the lender. Moreover, UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above provision, UCPB may give as much weight as it desires to each of the following considerations: (1) the prevailing financial and monetary condition; (2) the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no fixed margin above or below these considerations. In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the interest to be imposed, as both options violate the principle of mutuality of contracts. UCPB likewise failed to convince us that the spouses Beluso were in estoppel. Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy.[18]

The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot countenance. It is against the policy of the State as stated in the Truth in Lending Act: Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are found in the promissory notes themselves, not in the credit line. In fixing the interest rates in the promissory notes to cover the renewed credit line, UCPB still reserved to itself the same two options (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. Error in Computation UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed by UCPB, both failed to include in their computation of the outstanding obligation of the spouses Beluso the legal rate of interest of 12% per annum. Furthermore, the penalty charges were also deleted in the decisions of the RTC and the Court of Appeals. Section 2.04, Article II on Interest and other Bank Charges of the subject Credit Agreement, provides: Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this ARTICLE, any principal obligation of the CLIENT hereunder which is not paid when due shall be subject to a penalty charge of one percent (1%) of the amount of such obligation per month computed from due date until the obligation is paid in full. If the bank accelerates teh (sic) payment of availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge shall be used on the total principal amount outstanding and unpaid computed from the date of acceleration until the obligation is paid in full.[20]

Paragraph 4 of the promissory notes also states: In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally, agree to pay an additional sum equivalent to twenty-five percent (25%) of the total due on the Note as attorneys fee, aside from the expenses and costs of collection whether actually incurred or not, and a penalty charge of one percent (1%) per month on the total amount due and unpaid from date of default until fully paid.[21]

Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to Section 9.06 of the Credit Agreement, thus: If the BANK shall require the services of counsel for the enforcement of its rights under this AGREEMENT, the Note(s), the collaterals and other related documents, the BANK shall be entitled to recover attorneys fees equivalent to not less than twenty-five percent (25%) of the total amounts due and outstanding exclusive of costs and other expenses.
[22]

Another alleged computational error pointed out by UCPB is the negation of the Compounding Interest agreed upon by the parties under Section 2.02 of the Credit Agreement: Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and shall be subject to the same interest rate as herein stipulated.[23]

and paragraph 3 of the subject promissory notes: Interest not paid when due shall be added to, and become part of the principal and shall likewise bear interest at the same rate.[24]

UCPB lastly avers that the application of the spouses Belusos payments in the disputed computation does not reflect the parties agreement. The RTC deducted the payment made by the spouses Beluso amounting to P763,693.00 from the principal of P2,350,000.00. This was allegedly inconsistent with the Credit Agreement, as well as with the agreement of the parties as to the facts of the case. In paragraph 7 of the spouses Belusos Manifestation and Motion on Proposed Stipulation of Facts and Issues vis--vis UCPBs Manifestation, the parties agreed that the amount of P763,693.00 was applied to the interest and not to the principal, in accord with Section 3.03, Article II of the Credit Agreement on Order of the Application of Payments, which provides: Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in accordance with the following order of preference: 1. 2. 3. 4. 5. 6. 7. 8. Accounts receivable and other out-of-pocket expenses Front-end Fee, Origination Fee, Attorneys Fee and other expenses of collection; Penalty charges; Past due interest; Principal amortization/Payment in arrears; Advance interest; Outstanding balance; and All other obligations of CLIENT to the BANK, if any.[25]

Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had been erroneously excluded by the RTC and the Court of Appeals from the computation of the total amount due and demandable from spouses Beluso. The spouses Belusos defense as to all these issues is that the demand made by UCPB is for a considerably bigger amount and, therefore, the demand should be considered void. There being no valid demand, according to the spouses Beluso, there would be no default, and therefore the interests and penalties would not commence to run. As it was likewise improper to foreclose the mortgaged properties or file a case against the spouses Beluso, attorneys fees were not warranted. We agree with UCPB on this score. Default commences upon judicial or extrajudicial demand.[26] The excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. A contrary ruling would put commercial transactions in disarray, as validity of demands would be dependent on the exactness of the computations thereof, which are too often contested. There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with respect to the proper amount and, therefore, the interests and the penalties began to run at that point. As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest should be imposed, thus: There being no valid stipulation as to interest, the legal rate of interest shall be charged.[27] It seems that the RTC inadvertently overlooked its non-inclusion in its computation. The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in both the body and the prayer of its petition with the RTC: 12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank is null and void, only the legal rate of interest which is 12% per annum can be legally charged and imposed by the bank, which would amount to only about P599,000.00 since 1996 up to August 31, 1998. xxxx WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:

xxxx 2. By way of example for the public good against the Banks taking unfair advantage of the weaker party to their contract, declaring the legal rate of 12% per annum, as the imposable rate of interest up to February 28, 1999 on the loan of 2.350 million.[28]

All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a 12% legal interest on their loans. When the RTC failed to include the 12% legal interest in its computation, however, the spouses Beluso merely defended in the appellate courts this non-inclusion, as the same was beneficial to them. We see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in the case at bar, as what we have voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn interest. We must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit Agreement and in the promissory notes providing for the compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests has furthermore been declared by this Court to be legal. We have held in Tan v. Court of Appeals,[29] that: Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest.

As regards the imposition of penalties, however, although we are likewise upholding the imposition thereof in the contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the penalty stipulated in the contract may also be reduced by the courts if it is iniquitous or unconscionable.[30] We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the fact that this penalty is already over and above the compounded interest likewise imposed in the contract. If a 36% interest in itself has been declared unconscionable by this Court,[31] what more a 30.41% to 36% penalty, over and above the payment of compounded interest? UCPB itself must have realized this, as it gave us a sample computation of the spouses Belusos obligation if both the interest and the penalty charge are reduced to 12%. As regards the attorneys fees, the spouses Beluso can actually be liable therefor even if there had been no demand. Filing a case in court is the judicial demand referred to in Article 1169[32] of the Civil Code, which would put the obligor in delay. The RTC, however, also held UCPB liable for attorneys fees in this case, as the spouses Beluso were forced to litigate the issue on the illegality of the interest rate provision of the promissory notes. The award of attorneys fees, it must be recalled, falls under the sound discretion of the court.[33] Since both parties were forced to litigate to protect their respective rights, and both are entitled to the award of attorneys fees from the other, practical reasons dictate that we set off or compensate both parties liabilities for attorneys fees. Therefore, instead of awarding attorneys fees in favor of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso. In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of 12% per annum and a penalty charge of 12% per annum. We also hold that, instead of awarding attorneys fees in favor of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso. Annulment of the Foreclosure Sale Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated on 19 February 2001 and 20 March 2001 in the name of UCPB, as the spouses Beluso failed to exercise their right of redemption which expired on 25 March 2000. The RTC, however, annulled the foreclosure of mortgage based on an alleged incorrect computation of the spouses Belusos indebtedness.

UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at bar. Furthermore, the annulment of the foreclosure proceedings and the certificates of sale were mooted by the subsequent issuance of new certificates of title in the name of said bank. UCPB claims that the spouses Belusos action for annulment of foreclosure constitutes a collateral attack on its certificates of title, an act proscribed by Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, which provides: Section 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law.

The spouses Beluso retort that since they had the right to refuse payment of an excessive demand on their account, they cannot be said to be in default for refusing to pay the same. Consequently, according to the spouses Beluso, the enforcement of such illegal and overcharged demand through foreclosure of mortgage should be voided. We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that a valid demand was made by UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso are considered in default with respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts to which UCPB is rightfully entitled. As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this case. The grounds for the proper annulment of the foreclosure sale are the following: (1) that there was fraud, collusion, accident, mutual mistake, breach of trust or misconduct by the purchaser; (2) that the sale had not been fairly and regularly conducted; or (3) that the price was inadequate and the inadequacy was so great as to shock the conscience of the court.[34]

Liability for Violation of Truth in Lending Act The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPBs alleged violation of Republic Act No. 3765, otherwise known as the Truth in Lending Act. UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act which mandates the filing of an action to recover such penalty must be made under the following circumstances: Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. x x x (Emphasis ours.) According to UCPB, the Court of Appeals even stated that [a]dmittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act and no action to formally admit the amended petition [which expressly alleges violation of the Truth in Lending Act] was made either by [respondents] spouses Beluso and the lower court. x x x.[35] UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act had been barred by the one-year prescriptive period provided for in the Act. UCPB asserts that per the records of the case, the latest of the subject promissory notes had been executed on 2 January 1998, but the original petition of the spouses Beluso was filed before the RTC on 9 February 1999, which was after the expiration of the period to file the same on 2 January 1999. On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act and no action to formally admit the amended petition was made either by [respondents] spouses Beluso and the lower court. In such transactions, the debtor and the lending institutions do not deal on an equal footing and this law was intended to protect the public from hidden or undisclosed charges on their loan obligations, requiring a full disclosure thereof by the lender. We find that its infringement may be inferred or implied from allegations that when [respondents] spouses Beluso executed the promissory notes, the interest rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to discharge its duty to disclose in full to [respondents] Spouses Beluso the charges applicable on their loans.[36]

We agree with the Court of Appeals. The allegations in the complaint, much more than the title thereof, are controlling. Other than that stated by the Court of Appeals, we find that the allegation of violation of the Truth in Lending Act can also be inferred from the same allegation in the complaint we discussed earlier: b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the provision of their promissory note granting respondent bank the power to unilaterally fix the interest rates, which rate was not determined in the promissory note but was left solely to the will of the Branch Head of the respondent Bank, x x x.[37]

The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates certainly also means that the promissory notes do not contain a clear statement in writing of (6) the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. [38] Furthermore, the spouses Belusos prayer for such other reliefs just and equitable in the premises should be deemed to include the civil penalty provided for in Section 6(a) of the Truth in Lending Act. UCPBs contention that this action to recover the penalty for the violation of the Truth in Lending Act has already prescribed is likewise without merit. The penalty for the violation of the act is P100 or an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000.00 on any credit transaction.[39] As this penalty depends on the finance charge required of the borrower, the borrowers cause of action would only accrue when such finance charge is required. In the case at bar, the date of the demand for payment of the finance charge is 2 September 1998, while the foreclosure was made on 28 December 1998. The filing of the case on 9 February 1999 is therefore within the one-year prescriptive period. UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be inferred nor implied from the allegations made in the complaint.[40] Pertinent provisions of the Act read: Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable for reasonable attorneys fees and court costs as determined by the court. xxxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,000 or more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said Act gives rise to both criminal and civil liabilities. Section 6(c) considers a criminal offense the willful violation of the Act, imposing the penalty therefor of fine, imprisonment or both. Section 6(a), on the other hand, clearly provides for a civil cause of action for failure to disclose any information of the required information to any person in violation of the Act. The penalty therefor is an amount of P100 or in an amount equal to twice the finance charge required by the creditor in connection with such

transaction, whichever is greater, except that the liability shall not exceed P2,000.00 on any credit transaction. The action to recover such penalty may be instituted by the aggrieved private person separately and independently from the criminal case for the same offense. In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the action to declare the foreclosure void. This joinder is allowed under Rule 2, Section 5 of the Rules of Court, which provides: SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions: (a) The party joining the causes of action shall comply with the rules on joinder of parties; (b) The joinder shall not include special civil actions or actions governed by special rules; (c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court and the venue lies therein; and (d) Where the claims in all the causes of action are principally for recovery of money, the aggregate amount claimed shall be the test of jurisdiction.

In attacking the RTCs disposition on the violation of the Truth in Lending Act since the same was not alleged in the complaint, UCPB is actually asserting a violation of due process. Indeed, due process mandates that a defendant should be sufficiently apprised of the matters he or she would be defending himself or herself against. However, in the 1 July 1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil sanctions for violation of the Truth in Lending Act was expressly alleged, thus: Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing the borrower in writing before the execution of the Promissory Notes of the interest rate expressed as a percentage of the total loan, the respondent bank instead is liable to pay petitioners double the amount the bank is charging petitioners by way of sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly raised the following issue: b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act provision to express the interest rate as a simple annual percentage of the loan?[42]

These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the assertion of this issue in this case as to prevent it from putting up a defense thereto is plainly hogwash. Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and adjudicate the alleged violation of the Truth in Lending Act, considering that the present action allegedly involved a single credit transaction as there was only one Promissory Note Line. We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the action to declare the foreclosure void. There had been no question that the above actions belong to the jurisdiction of the RTC. Subsection (c) of the above-quoted Section 5 of the Rules of Court on Joinder of Causes of Action provides: (c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court and the venue lies therein.

Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit

transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. In the case at bar, the violation of the Truth in Lending Act allegedly occurred not when the parties executed the Credit Agreement, where no interest rate was mentioned, but when the parties executed the promissory notes, where the allegedly offending interest rate was stipulated. UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory notes after their execution, then they were duly notified of the terms thereof, in substantial compliance with the Truth in Lending Act. Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be furnished prior to the consummation of the transaction: SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) (2) (3) (4) the cash price or delivered price of the property or service to be acquired; the amounts, if any, to be credited as down payment and/or trade-in; the difference between the amounts set forth under clauses (1) and (2) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; the total amount to be financed; the finance charge expressed in terms of pesos and centavos; and the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

(5) (6) (7)

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof, proceeding from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like. The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their loan, to enable them to give full consent to the contract, and to properly evaluate their options in arriving at business decisions. Upholding UCPBs claim of substantial compliance would defeat these purposes of the Truth in Lending Act. The belated discovery of the true cost of credit will too often not be able to reverse the ill effects of an already consummated business decision. In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory notes. Forum Shopping UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) on the ground that the spouses Beluso instituted another case (Civil Case No. V-7227) before the RTC of Roxas City, involving the same parties and issues. UCPB claims that while Civil Case No. V-7227 initially appears to be a different action, as it prayed for the issuance of a temporary restraining order and/or injunction to stop foreclosure of spouses Belusos properties, it poses issues which are similar to those of the present case. [43] To prove its point, UCPB cited the spouses Belusos Amended Petition in Civil Case No. V-7227, which contains similar allegations as those in the present case. The RTC of Makati denied UCPBs Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised the same issue with the Court of Appeals, and is raising the same issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a Petition for Injunction Against Foreclosure, is the propriety of the foreclosure before the true account of spouses Beluso is determined. On the other hand, the issue in Case No. 99-314 before the RTC of Makati City is the validity of the interest rate provision. The spouses Beluso claim that Civil Case No. V-7227 has become moot because, before the RTC of Roxas City could act on the restraining order, UCPB proceeded with the foreclosure and auction sale. As the act sought to be restrained by Civil Case No. V-7227 has already been accomplished, the spouses Beluso had to file a different action, that of Annulment of the Foreclosure Sale, Case No. 99-314 with the RTC, Makati City. Even if we assume for the sake of argument, however, that only one cause of action is involved in the two civil actions, namely, the violation of the right of the spouses Beluso not to have their property foreclosed for an amount they do not owe, the Rules of Court nevertheless allows the filing of the second action. Civil Case No. V-7227 was dismissed by the RTC of Roxas City before the filing of Case No. 99-314 with the RTC of Makati City, since the venue of litigation as provided for in the Credit Agreement is in Makati City. Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances: SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a motion to dismiss based on paragraphs (f), (h) and (i) of section 1 hereof shall bar the refiling of the same action or claim. (n) Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1, not in paragraphs (f), (h) and (i): SECTION 1. Grounds.Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds: (a) That the court has no jurisdiction over the person of the defending party; (b) That the court has no jurisdiction over the subject matter of the claim; (c) That venue is improperly laid; (d) That the plaintiff has no legal capacity to sue; (e) That there is another action pending between the same parties for the same cause; (f) That the cause of action is barred by a prior judgment or by the statute of limitations; (g) That the pleading asserting the claim states no cause of action; (h) That the claim or demand set forth in the plaintiffs pleading has been paid, waived, abandoned, or otherwise extinguished; (i) That the claim on which the action is founded is unenforceable under the provisions of the statute of frauds; and (j) That a condition precedent for filing the claim has not been complied with.[44] (Emphases supplied.)

When an action is dismissed on the motion of the other party, it is only when the ground for the dismissal of an action is found in paragraphs (f), (h) and (i) that the action cannot be refiled. As regards all the other grounds, the complainant is allowed to file same action, but should take care that, this time, it is filed with the proper court or after the accomplishment of the erstwhile absent condition precedent, as the case may be. UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the spouses Beluso on 15 January 1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when the spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence, there were allegedly two pending actions between the same parties on the same issue at the time of the filing of Civil Case No. 99-314 on 9 February 1999 with the RTC of

Makati. This will still not change our findings. It is indeed the general rule that in cases where there are two pending actions between the same parties on the same issue, it should be the later case that should be dismissed. However, this rule is not absolute. According to this Court in Allied Banking Corporation v. Court of Appeals[45]: In these cases, it is evident that the first action was filed in anticipation of the filing of the later action and the purpose is to preempt the later suit or provide a basis for seeking the dismissal of the second action. Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if the later action is the more appropriate vehicle for the ventilation of the issues between the parties. Thus, in Ramos v. Peralta, it was held: [T]he rule on litis pendentia does not require that the later case should yield to the earlier case. What is required merely is that there be another pending action, not a prior pending action. Considering the broader scope of inquiry involved in Civil Case No. 4102 and the location of the property involved, no error was committed by the lower court in deferring to the Bataan court's jurisdiction. Given, therefore, the pendency of two actions, the following are the relevant considerations in determining which action should be dismissed: (1) the date of filing, with preference generally given to the first action filed to be retained; (2) whether the action sought to be dismissed was filed merely to preempt the later action or to anticipate its filing and lay the basis for its dismissal; and (3) whether the action is the appropriate vehicle for litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction against a foreclosure sale that has already been held, while Civil Case No. 99-314 before the RTC of Makati City includes an action for the annulment of said foreclosure, an action certainly more proper in view of the execution of the foreclosure sale. The former case was improperly filed in Roxas City, while the latter was filed in Makati City, the proper venue of the action as mandated by the Credit Agreement. It is evident, therefore, that Civil Case No. 99-314 is the more appropriate vehicle for litigating the issues between the parties, as compared to Civil Case No. V-7227. Thus, we rule that the RTC of Makati City was not in error in not dismissing Civil Case No. 99-314. WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the following MODIFICATIONS: In addition to the sum of P2,350,000.00 as determined by the courts a quo, respondent spouses Samuel and Odette Beluso are also liable for the following amounts: a. Penalty of 12% per annum on the amount due[46] from the date of demand; and b. Compounded legal interest of 12% per annum on the amount due[47] from date of demand; The following amounts shall be deducted from the liability of the spouses Samuel and Odette Beluso: a. Payments made by the spouses in the amount of P763,692.00. These payments shall be applied to the date of actual payment of the following in the order that they are listed, to wit: i. penalty charges due and demandable as of the time of payment; ii. interest due and demandable as of the time of payment; iii. principal amortization/payment in arrears as of the time of payment; iv. outstanding balance. b. Penalty under Republic Act No. 3765 in the amount of P26,000.00. This amount shall be deducted from the liability of the spouses Samuel and Odette Beluso on 9 February 1999 to the following in the order that they are listed, to wit: i. penalty charges due and demandable as of time of payment; ii. interest due and demandable as of the time of payment; iii. principal amortization/payment in arrears as of the time of payment; iv. outstanding balance. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts which the Regional Trial Court and the Court of Appeals ordered respondents to pay, as modified in this Decision, shall be deducted from the proceeds of the foreclosure sale.

SO ORDERED.