8lzal Commerclal 8anklng CorporaLlon (8C8C) vs CourL of Appeals C8 128833 20 Aprll 1998

also 8C8C vs CourL of Appeals C8 128834

Second ulvlslon Melo (!) 4 concur
lacLs
Coyu Sons lnc (Coyu) applled for credlL faclllLles and accommodaLlons wlLh 8lzal Commerclal8anklng CorporaLlon (8C8C) aL
lLs 8lnondo 8ranch AfLer due evaluaLlon 8C8C 8lnondo 8ranch LhroughlLs key offlcers peLlLloners uy Chun 8lng and Lll u Lao
recommended Coyus appllcaLlon for approval by8C8Cs execuLlve commlLLee A credlL faclllLy ln Lhe amounL of 30 mllllon was
lnlLlally granLed uponCoyus appllcaLlon and uys and Laos recommendaLlon 8C8Cs execuLlve commlLLee lncreased Coyus
credlLfaclllLy Lo 30 mllllon Lhen Lo 90 mllllon and flnally Lo 117 mllllon As securlLy for lLs credlL faclllLles wlLh8C8C Coyu
execuLed Lwo real esLaLe morLgages and Lwo chaLLel morLgages ln favor of 8C8C whlch werereglsLered wlLh Lhe 8eglsLry of
ueeds aL valenzuela MeLro Manlla under each of Lhese four morLgageconLracLs Coyu commlLLed lLself Lo lnsure Lhe
morLgaged properLy wlLh an lnsurance company approved by8C8C and subsequenLly Lo endorse and dellver Lhe lnsurance
pollcles Lo 8C8C Coyu obLalned ln lLs name aLoLal of 10 lnsurance pollcles from MlCC ln lebruary 1992 AlchesLer lnsurance
Agency lnc Lhe lnsuranceagenL where Coyu obLalned Lhe Malayan lnsurance pollcles lssued 9 endorsemenLs ln favor
of 8C8Cseemlngly upon lnsLrucLlons of Coyu Cn 27 Aprll 1992 one of Coyus facLory bulldlngs ln valenzuela wasguLLed by flre
ConsequenLly Coyu submlLLed lLs clalm for lndemnlLy on accounL of Lhe loss lnsured agalnsLMlCC denled Lhe clalm on
Lhe ground LhaL Lhe lnsurance pollcles were elLher aLLached pursuanL Lo wrlLs ofaLLachmenLs/garnlshmenLs lssued by varlous
courLs or LhaL Lhe lnsurance proceeds were also clalmed by oLhercredlLors of Coyu alleglng beLLer rlghLs Lo Lhe proceeds Lhan
Lhe lnsured Coyu flled a complalnL for speclflcperformance and damages whlch was dockeLed aL Lhe 8eglonal 1rlal CourL of Lhe
naLlonal CaplLal !udlclal8eglon (Manlla 8ranch 3) as Clvll Case 9363442 8C8C one of Coyus credlLors also flled wlLh MlCC
lLsformal clalm over Lhe proceeds of Lhe lnsurance pollcles buL sald clalms were also denled for Lhe samereasons LhaL ACCC
denled Coyus clalms ln an lnLerlocuLory order daLed 12 CcLober 1993 Lhe 8eglonal 1rlal

CourL of Manlla (8ranch 3) conflrmed LhaL Coyus oLher credlLors namely urban 8ank Alfredo SebasLlanand hlllpplne 1rusL
Company obLalned Lhelr respecLlve wrlLs of aLLachmenLs from varlous courLs coverlng anaggregaLe amounL of 1493808023
and ordered LhaL Lhe proceeds of Lhe 10 lnsurance pollcles be deposlLedwlLh Lhe sald courL mlnus Lhe aforemenLloned
1493808023 Accordlngly on 7 !anuary 1994 MlCCdeposlLed Lhe amounL of 3030339460 wlLh 8ranch 3 of Lhe Manlla
81C ln Lhe meanLlme anoLher noLlce ofgarnlshmenL was handed down by anoLher Manlla 81C sala (8ranch 28) for Lhe amounL
of 869683873AfLer Lrlal 8ranch 3 of Lhe Manlla 81C rendered [udgmenL ln a favor of Coyu orderlng Malayan Lo pay CoyulLs
flre loss clalms ln Lhe LoLal amounL of 7404031838 less Lhe amounL of 3000000000 whlch lsdeposlLed wlLh Lhe CourL
damages by way of lnLeresL for Lhe duraLlon of Lhe delay slnce 27 !uly 1992 (90 daysafLer Malayans recelpL of Lhe requlred
proof of loss and noLlce of loss) aL Lhe raLe of Lwlce Lhe celllngprescrlbed by Lhe MoneLary 8oard on Lhe amounLs of (1)
3000000000 from 27 !uly 1992 up Lo Lhe Llmesald amounL was deposlLed wlLh Lhe CourL on 7 !anuary 1994 and (2)
2404031838 from 17 !uly 1992up Lo Lhe Llme when Lhe wrlLs of aLLachmenLs were recelved by Malayan 1he courL also
ordered 8C8C Lo payCoyu acLual and compensaLory damages ln Lhe amounL of 200000000 and boLh Malayan and 8C8C
Losolldarlly pay Coyu (1) 100000000 as exemplary damages (2) 100000000 as and for aLLorneys feesand (3) CosLs
of sulL 1he CourL on Lhe CounLerclalm of 8C8C ordered Coyu Lo pay lLs loan obllgaLlons wlLh8C8C ln Lhe amounL of
6878306904 as of 27 Aprll 1992 wlLh lnLeresL Lhereon aL Lhe raLe sLlpulaLed ln LherespecLlve promlssory noLes (wlLhouL
surcharges and penalLles) lrom Lhls [udgmenL all parLles lnLerposedLhelr respecLlve appeals Coyu was unsaLlsfled wlLh Lhe
amounLs awarded ln lLs favor MlCC and 8C8CdlspuLed Lhe Lrlal courLs flndlngs of llablllLy on Lhelr parL 1he CourL of Appeals
parLly granLed Coyus appealbuL susLalned Lhe flndlngs of Lhe Lrlal courL wlLh respecL Lo MlCC and 8C8Cs llablllLles 1he
appellaLe courLmodlfled Lhe declslon by orderlng Malayan Lo pay Coyu lLs flre loss clalm ln Lhe LoLal amounL of7404031838
less Lhan Lhe amounL of 3030334960 (per C8 no 3649283) plus deposlLed ln courL anddamages by way of lnLeresL
commenclng 27 !uly 1992 unLll Lhe Llme Coyu recelves Lhe sald amounL aL Lhe raLeof 37 per annum whlch ls Lwlce Lhe celllng
prescrlbed by Lhe MoneLary 8oard orderlng 8C8C Lo pay CoyuacLual and compensaLory damages ln Lhe amounL of
300000000 and Malayan and 8C8C uy Chun 8lngand Lll Lao Lo pay Coyu solldarlly ln Lhe amounLs of (1) 130000000 as
exemplary damages and (2)130000000 as and for aLLorneys fees 1he CourL on 8C8Cs CounLerclalm ordered CoyuLo pay
lLs loanobllgaLlon wlLh 8C8C ln Lhe amounL of 6878306904 as of 27 Aprll 1992 wlLhouL any lnLeresL surchargesand penalLles
8C8C and Malayan appealed separaLely buL ln vlew of Lhe common facLs and lssues lnvolvedLhelr lndlvldual peLlLlons were
consolldaLed

lssue 2
WheLher Coyu can lnslsL LhaL Lhe proceeds of lnsurance shall excluslvely apply Lo Lhe lnLeresL of Lheperson ln whose name or
for whose beneflL lL ls made
eld 2
nC Coyu cannoL seek rellef under SecLlon 33 of Lhe lnsurance Code whlch provldes LhaL Lheproceeds of lnsurance shall
excluslvely apply Lo Lhe lnLeresL of Lhe person ln whose name or for whose beneflLlL ls made 1he pecullarlLy of Lhe
clrcumsLances obLalnlng ln Lhe lnsLanL case presenLs a [usLlflcaLlon Lo LakeexcepLlon Lo Lhe sLrlcL appllcaLlon of sald provlslon lL
havlng been sufflclenLly esLabllshed LhaL lL was LhelnLenLlon of Lhe parLles Lo deslgnaLe 8C8C as Lhe parLy for whose beneflL Lhe
lnsurance pollcles were LakenouL Conslder Lhus Lhe followlng (1) lL ls undlspuLed LhaL Lhe lnsured pleces of properLy were Lhe
sub[ecL ofmorLgage conLracLs enLered lnLo beLween 8C8C and Coyu ln conslderaLlon of and for securlng Coyus credlLfaclllLles
from 8C8C 1he morLgage conLracLs conLalned common provlslons whereby Coyu as morLgagorunderLook Lo have Lhe
morLgaged properLy properly covered agalnsL any loss by an lnsurance companyaccepLable Lo 8C8C (2) Coyu volunLarlly
procured lnsurance pollcles Lo cover Lhe morLgaged properLy fromMlCC no less Lhan a slsLer company of 8C8C and deflnlLely
an accepLable lnsurance company Lo 8C8C (3)LndorsemenL documenLs were prepared by MlCCs underwrlLer AlchesLer
lnsurance Agency lnc and coplesLhereof were senL Lo Coyu MlCC and 8C8C Coyu dld noL assall unLll of laLe Lhe valldlLy of
saldendorsemenLs (4) Coyu conLlnued unLll Lhe occurrence of Lhe flre Lo en[oy Lhe beneflLs of Lhe credlL faclllLlesexLended by
8C8C whlch was condlLloned upon Lhe endorsemenL of Lhe lnsurance pollcles Lo be Laken
byCoyu Lo cover Lhe morLgaged properLles 1he facL LhaL upon recelvlng lLs coples of Lhe endorsemenLdocumenLs prepared by
AlchesLer Coyu desplLe Lhe absence wrlLLen conformlLy LhereLo obvlously conslderedsald endorsemenL Lo be sufflclenL
compllance wlLh lLs obllgaLlon under Lhe morLgage conLracLs slnce 8C8Caccordlngly conLlnued Lo exLend Lhe beneflLs of lLs
credlL faclllLles and Coyu conLlnued Lo beneflL Lherefrom!usL as plaln Loo ls Lhe lnLenLlon of Lhe parLles Lo consLlLuLe 8C8C as
Lhe beneflclary of Lhe varlous lnsurancepollcles obLalned by Coyu 1he lnLenLlon of Lhe parLles wlll have Lo be glven full force
and effecL ln LhlsparLlcular case 1he lnsurance proceeds may Lherefore be excluslvely applled Lo 8C8C whlch under LhefacLual
clrcumsLances of Lhe case ls Lruly Lhe person or enLlLy for whose beneflL Lhe pollcles were clearlylnLended Moreover Lhe laws
evldenL lnLenLlon Lo proLecL Lhe lnLeresLs of Lhe morLgagee upon Lhe morLgagedproperLy ls expressed ln ArLlcle 2127 of Lhe Clvll
Code 1he proceeds of Lhe 8 lnsurance pollcles endorsed Lo8C8C aggregaLe Lo 8997448836 8elng excluslvely payable Lo
8C8C by reason of Lhe endorsemenL byAlchesLer Lo 8C8C whlch we already ruled Lo have Lhe force and effecL of an
endorsemenL by Coyu lLselfLhese 8 pollcles can noL be aLLached by Coyus oLher credlLors up Lo Lhe exLenL of Lhe Coyus
ouLsLandlngobllgaLlon ln 8C8Cs favor SecLlon 33 of Lhe lnsurance Code ordalns LhaL Lhe lnsurance proceeds of Lheendorsed
pollcles shall be applled excluslvely Lo Lhe proper lnLeresL of Lhe person for whose beneflL lL wasmade ln Lhls case Lo Lhe
exLenL of Coyus obllgaLlon wlLh 8C8C Lhe lnLeresL of Coyu ln Lhe sub[ecL pollcleshad been Lransferred Lo 8C8C effecLlve as of
Lhe Llme of Lhe endorsemenL 1hese pollcles may no longer beaLLached by Lhe oLher credlLors of Coyu llke Alfredo SebasLlan ln
C8 128834 whlch may noneLheless
forLhwlLh be dlsmlssed for belng mooL and academlc ln vlew of Lhe resulLs reached hereln Cnly Lhe Lwo oLherpollcles
amounLlng Lo 1964622492 may be valldly aLLached garnlshed and levled upon by Coyus oLhercredlLors 1o Lhe exLenL of
Coyus ouLsLandlng obllgaLlon wlLh 8C8C all Lhe resL of Lhe oLher lnsurancepollcles whlch were endorsed Lo 8C8C
are Lherefore Lo be released from aLLachmenL garnlshmenL and levyby Lhe oLher credlLors of Coyu

Medel vs CourL of Appeals 299 SC8A 481 C8 no 131622 november 27 1998 dlgesLed

lacLs uefendanLs obLalned a loan from lalnLlff ln Lhe amounL 30 00000 payable ln 2 monLhs and execuLed a promlssory
noLe lalnLlff gave only Lhe amounL of 47 00000 Lo Lhe borrowers and reLalned 3 00000 as advance lnLeresL for 1 monLh aL
6 per monLh
uefendanLs obLalned anoLher loan from uefendanL ln Lhe amounL of 90 00000 payable ln 2 monLhs aL 6 lnLeresL per
monLh 1hey execuLed a promlssory noLe Lo evldence Lhe loan and recelved only 84 00000 ouL of Lhe proceeds of Lhe loan
lor Lhe Lhlrd Llme uefendanLs secured from lalnLlff anoLher loan ln Lhe amounL of 300 00000 maLurlng ln 1 monLh and
secured by a real esLaLe morLgage 1hey execuLed a promlssory noLe ln favor of Lhe lalnLlff owever only Lhe sum of 273
00000 was glven Lo Lhem ouL of Lhe proceeds of Lhe loan
upon maLurlLy of Lhe Lhree promlssory noLes uefendanLs falled Lo pay Lhe lndebLedness
uefendanLs consolldaLed all Lhelr prevlous unpald loans LoLalllng 440 00000 and soughL from lalnLlff anoLher loan ln Lhe
amounL of 60 00000 brlnglng Lhelr lndebLedness Lo a LoLal of 3000000 1hey execuLed anoLher promlssory noLe ln favor of
lalnLlff Lo pay Lhe sum of 300 00000 wlLh a 33 lnLeresL per monLh plus 2 servlce charge per annum wlLh an addlLlonal
amounL of 1 per monLh as penalLy charges
Cn maLurlLy of Lhe loan Lhe uefendanLs falled Lo pay Lhe lndebLedness whlch prompL Lhe lalnLlffs Lo flle wlLh Lhe 81C a
complalnL for collecLlon of Lhe full amounL of Lhe loan lncludlng lnLeresLs and oLher charges
ueclarlng LhaL Lhe due execuLlon and genulneness of Lhe four promlssory noLes has been duly proved Lhe 81C ruled LhaL
alLhough Lhe usury Law had been repealed Lhe lnLeresL charged on Lhe loans was unconsclonable and revolLlng Lo Lhe
consclence" and ordered Lhe paymenL of Lhe amounL of Lhe flrsL 3 loans wlLh a 12 lnLeresL per annum and 1 per monLh as
penalLy
Cn appeal lalnLlffappellanLs argued LhaL Lhe promlssory noLe whlch consolldaLed all Lhe unpald loans of Lhe defendanLs ls
Lhe law LhaL governs Lhe parLles
1he CourL of Appeals ruled ln favor of Lhe lalnLlffappellanLs on Lhe ground LhaL Lhe usury Law has become legally lnexlsLenL
wlLh Lhe promulgaLlon by Lhe CenLral 8ank ln 1982 of Clrcular no 903 Lhe lender and Lhe borrower could agree on any lnLeresL
LhaL may be charged on Lhe loan and ordered Lhe uefendanLs Lo pay Lhe lalnLlffs Lhe sum of 300000 plus 33 per monLh
lnLeresL and 2 servlce charge per annum and 1 per monLh as penalLy charges
uefendanLs flled Lhe presenL case vla peLlLlon for revlew on cerLlorarl
lssue WCn Lhe sLlpulaLed 33 lnLeresL raLe per monLh on Lhe loan ln Lhe sum of 300 00000 ls usurlous
eld no
A sLlpulaLed raLe of lnLeresL aL 33 per monLh on Lhe 300 00000 loan ls excesslve lnlqulLous unconsclonable and
exorblLanL buL lL cannoL be consldered usurlous" because CenLral 8ank Clrcular no 903 has expressly removed Lhe lnLeresL
celllngs prescrlbed by Lhe usury Law and LhaL Lhe usury Law ls now legally lnexlsLenL"
uocLrlne A C8 Clrcular cannoL repeal a law Cnly a law can repeal anoLher law
!urlsprudence provldes LhaL C8 Clrcular dld noL repeal nor ln a way amend Lhe usury Law buL slmply suspended Lhe laLLer's
effecLlvlLy (SecurlLy 8ank and 1rusL Co vs 81C) usury has been legally nonexlsLenL ln our [urlsdlcLlon lnLeresL can now be
charged as lender and borrower may agree upon
Law ArLlcle 2227 Clvll Code
1he courLs shall reduce equlLably llquldaLed damages wheLher lnLended as an lndemnlLy or a penalLy lf Lhey are lnlqulLous or
unconsclonable
noLe Whlle Lhe usury Law celllng on lnLeresL raLes was llfLed by Lhe C8 Clrcular 903 noLhlng ln Lhe sald clrcular could posslbly
be read as granLlng carLe blanche auLhorlLy Lo lenders Lo ralse lnLeresL raLes Lo levels whlch would elLher enslave Lhelr
borrowers or lead Lo a haemorrhaglng of Lhelr asseLs (Almeda vs CA 236 SC8A 292 1996)

Cl Sharp vs norLhwesL Alrllnes 381SC8A314
lacLs Cn May 9 1974 Cl Sharp was auLhorlzed Lo sell LlckeLs of norLhwesL Alrllnes!apan by enLerlng an lnLernaLlonal
assenger Sales Agency AgreemenL however ClSharp falled Lo remlL Lhe proceeds of Lhe LlckeL sales 1hls prompLed
norLhwesL AlrllnesLo flle a collecLlon sulL agalnsL Lhe Cl Sharp before Lhe 1oko ulsLlrcL CourL !udgmenLwas rendered ln lLs
favor orderlng Cl Sharp Lo pay norLhwesL Alrllnes lncludlngdamages for Lhe delay unable Lo execuLe Lhe declslon ln !apan Lhe
respondenL flled acase Lo enforce sald [udgmenL wlLh Lhe 81C 1hereafLer Lhe 81C lssued a wrlL of execuLlon for forelgn courL's
declslon 1he peLlLloner flled for cerLlorarl asserLlnglL has already made parLlal paymenLs 1he CA lowered Lhe amounL Lo be
pald andlncluded ln lLs declslon LhaL Lhe amounL may be pald ln local currency aL raLe prevalllngaL Llme of paymenL parLly
afflrmed by Lhe Supreme CourL Cl Sharp was Lhen ordered Lo pay norLhwesL soLhaL Lhe 81C lssued a wrlL of execuLlon of
declslon rullng LhaL Sharp ls Lo pay norLhwesLLhe sum of 83138193 yen aL Lhe exchange raLe prevalllng on Lhe daLe of Lhe
forelgn [udgmenL plus 6 per annum unLll fully pald 6 damages and 6 lnLeresL An appealLhe CourL of Appeals reduced
Lhe lnLeresL and lL ruled LhaL Lhe basls of Lhe converslon of eLlLloner's llablllLy ln lLs peso equlvalenL should be Lhe prevalllng
raLe aL Lhe Llme of paymenL and noL Lhe raLe on Lhe daLe of Lhe forelgn [udgmenLlssue WheLher or noL Lhe basls for Lhe
paymenL of Lhe amounL due ls Lhe value of Lhecurrency aL Lhe Llme of Lhe esLabllshmenL of Lhe obllgaLlon8ullng nC Lhe rule
LhaL Lhe value of currency aL Lhe Llme of Lhe esLabllshmenL of LheobllgaLlon shall be Lhe basls of paymenL flnds appllcaLlon only
when Lhere ls an offlclal pronouncemenL or declaraLlon of Lhe exlsLence of an exLraordlnary lnflaLlon or deflaLlonence
peLlLloners conLenLlon LhaL ArLlcle 1230 of Lhe Clvll Code whlch provldes LhaL
lncase of an exLra ordlnary lnflaLlon or deflaLlon of Lhe currency sLlpulaLed shouldsupervene Lhe value of Lhe currency aL Lhe
Llme of esLabllshmenL of Lhe obllgaLlon shall beLhe basls of paymenL unless Lhere ls an agreemenL Lo Lhe conLrary" shall apply
ln Lhls casels unLenable
under 8A 329 sLlpulaLlons on Lhe saLlsfacLlon of obllgaLlons
ln forelgn currencyare vold aymenLs of moneLary obllgaLlons sub[ecL Lo cerLaln excepLlons shall bedlscharged ln Lhe currency
whlch ls Lhe legal Lender of Lhe hlllpplnes 8uL slnce Lhe
lawdoesnL provlde for Lhe raLe of exchange for Lhe paymenL of forelgn currencyobllgaLlons lncurred afLer lLs enacLmenL
[urlsprudence held LhaL Lhe exchange raLeshould be Lhe prevalllng raLe aL Llme of paymenL 1hls law has been amended
ln paymenLs for obllgaLlons Lo be made ln currency oLher Lhan hlllpplne currency buL Lhen agaln lL falled Lo sLaLe whaL
Lhe exchange raLe LhaL should be used 1hls belng Lhe case Lhe [urlsprudence regardlng Lhe use of Lhe exchange raLe aL Llme
of paymenL shall be used

8lvA1L uLvLLCMLn1 CC8C8A1lCn Cl 1L lLllnLS L1l1lCnL8 vS 1L ln1L8MLulA1L ALLLA1L CCu81 Anu
L8nLS1C C uLL 8CSA8lC 8LSCnuLn1S

8efore us ls an appeal from Lhe declslon1 of Lhe Lhen lnLermedlaLe AppellaLe CourL whlch overruled Lhe Lrlals courL
ueclslon2 ln Clvll Case no 828088
1he undlspuLed facLs of Lhe case are as follows
Cn May 21 1974 uavao 1lmber CorporaLlon uA1lCC8 for brevlLy and Lhe rlvaLe uevelopmenL CorporaLlon (uC) enLered
lnLo a loan agreemenL3 whereby uC exLended Lo uA1lCC8 a loan ln forelgn currency equlvalenL Lo uS$ 26300000 and
anoLher ln Lhe amounL of 230000000 for Lhe purpose of esLabllshlng a klln drylng and woodworklng planL ln MaLl uavao
CrlenLal
lL was sLlpulaLed ln Lhe loan agreemenL LhaL Lhe forelgn currency loan was Lo be pald wlLh an lnLeresL raLe of eleven and Lhree
fourLhs (113/4) per cenL per annum on Lhe dlsbursed amounL of Lhe forelgn currency and Lhe peso loan aL Lhe raLe of Lwelve
(12) per cenL per annum on Lhe dlsbursed amounL of Lhe peso loan ouLsLandlng commenclng on Lhe several daLes on whlch
dlsbursemenLs of Lhe proceeds of Lhe loans were made4
1he loans were orlglnally secured by a flrsL morLgage3 execuLed by LrnesLo del 8osarlo resldenL of uA1lCC8 ln hls personal
capaclLy and hls slsLer Lourdes C Cuerva as Lhlrd parLy morLgagors on a parcel of land whlch Lhey owned ln common Cn
uecember 28 1976 Lhe Lhlrd parLy morLgagors uel 8osarlo and Cuerva parLlLloned Lhls morLgaged properLy whlch Lhey owned
ln common such LhaL sald parcel was resurveyed and Lwo cerLlflcaLes of LlLles were lssued each wlLh an area of 3834 square
meLers one ln Lhe name of uel 8osarlo and Lhe oLher ln Lhe name of Cuerva
1hereafLer uC execuLed a parLlal release of morLgage6 on Lhe parcel of land owned by Cuerva on Lhe condlLlon LhaL ln lleu
Lhereof uA1lCC8 was Lo morLgage an addlLlonal flve (3) parcels of land conslsLlng of prlme lndusLrlal lands wlLh bulldlngs
Lhereon As a consequence uA1lCC8 execuLed an Addendum Lo MorLgage7 ln favor of uC
uA1lCC8 llkewlse execuLed a ueed of ChaLLel MorLgage8 on Lhe machlnerles and equlpmenLs aLLached Lo Lhe land ln uavao
CrlenLal as added securlLy for sald loans
1he approved value of Lhe parcel of land of uel 8osarlo lncludlng Lhe bulldlng Lhereon was 1200000000 whlle Lhe appralsed
value of Lhe uA1lCC8 properLles conslsLlng of Lhe flve parcels of land ln uavao CrlenLal lncludlng Lhe bulldlngs and sLrucLure
Lhereon and Lhe machlnerles and equlpmenLs ls aL leasL 1300000000 or a LoLal of 2700000000 for Lhe loan of abouL 44
mllllon pesos
uC asked uA1lCC8 Lo pay a servlce fee of one (1) per cenL per annum on Lhe ouLsLandlng balance of Lhe peso loan Lo cover
Lhe cosL of admlnlsLerlng uA1lCC8s accounL and supervlslon of Lhe pro[ecL9 1hls servlce fee was subsequenLly lncreased Lo
slx (6) per cenL per annum ln addlLlon Lo Lhe Lwelve (12) per cenL per annum lnLeresL on Lhe peso loan10 lurLhermore
uA1lCC8 was asked Lo pay penalLy charges aL Lhe raLe of Lwo (2) per cenL per monLh11
A LoLal of 300000000 was already pald by uel 8osarlo Lo uC and whlch Lhe laLLer applled Lo lnLeresLs servlce fees and
penalLy charges such LhaL accordlng Lo uC uA1lCC8 sLlll has an ouLsLandlng balance on Lhe prlnclpal loan of 1088783699
as of May 13 1983
8y vlrLue of whlch uC lnlLlaLed exLra[udlclal foreclosure proceedlngs12 agalnsL Lhe parcel of land owned by uel 8osarlo ln
Manlla and Lhe flve (3) parcels of land owned by uA1lCC8 ln uavao CrlenLal
uel 8osarlo and Cuerva Lhen flled a complalnL13 on March 31 1982 agalnsL Lhe uC ln Lhe CourL of llrsL lnsLance of Manlla
ln Clvll Case no 828088 for vlolaLlon of Lhe usury Law annulmenL of conLracL and damages wlLh prayer for Lhe lssuance of a
wrlL of prellmlnary ln[uncLlon Cn Aprll 13 1982 a resLralnlng order14 was lssued by Lhe CourL of llrsL lnsLance of Manlla
uA1lCC8 flled anoLher case on Aprll 1 1982 ln Lhe CourL of llrsL lnsLance of uavao CrlenLal seeklng a wrlL of ln[uncLlon Lo
prevenL uC from forecloslng lLs properLles ln uavao and llkewlse praylng for Lhe annulmenL of Lhe loan conLracL as lL ls ln
vlolaLlon of Lhe usury Law and damages13
Cn !anuary 23 1983 Lhe CourL of llrsL lnsLance of Manlla rendered a declslon16dlsmlsslng uel 8osarlos peLlLlon A moLlon for
reconslderaLlon was flled and was sLlll pendlng when Lhe uC flled anoLher peLlLlon for exLra[udlclal foreclosure of Lhe real
properLles of uel 8osarlo ln Manlla and anchored on Lhe same grounds requesLlng Lhe Sherlff Lo conducL Lhe same 1he Sherlff
had Lhus posLed and caused publlcaLlon of Lhe publlc aucLlon sale scheduled on !uly 27 1983
uel 8osarlo and Cuerva Lherefore soughL a resLralnlng order from anoLher branch of Lhe 8eglonal 1rlal CourL ln Manlla as Lhelr
rlghL Lo appeal would be rendered meanlngless lf Lhe foreclosure proceedlngs were conducLed ln Lhe meanLlme LhaL Lhelr
moLlon for reconslderaLlon wlLh !udge L[erclLo ln Clvll Case no 828088 was sLlll pendlng resoluLlon
Cn AugusL 3 1983 hereln respondenLs recelved a copy of Lhe order ln Clvll Case no 828088 denylng Lhelr moLlon for
reconslderaLlon for lack of merlL Cn LhaL same day Lhey appealed Lo Lhe Lhen lnLermedlaLe AppellaLe CourL seeklng an
ln[uncLlon Lo lssue agalnsL Lhe sherlff of Manlla from proceedlng wlLh Lhe aucLlon sale and llkewlse appeallng Lhe dlsmlssal of
Lhelr complalnL ln Clvll Case no 828088 for vlolaLlon of Lhe usury Law annulmenL of conLracL and damages
1he Lhen lnLermedlaLe AppellaLe CourL rendered lLs declslon17 Lhe dlsposlLlve porLlon of whlch reads
WL8LlC8L Lhe declslon appealed from ls hereby seL aslde and anoLher one ls rendered declarlng vold and of no effecL Lhe
sLlpulaLlons of lnLeresL ln Lhe loan agreemenL (Annex A) beLween uA1lCC8 and uC as lf Lhe loan agreemenL ls wlLhouL
sLlpulaLlon as Lo paymenL of lnLeresL
ence Lhls appeal
We flnd no merlL ln Lhe lnsLanL peLlLlon
lnasmuch as Lhe loan agreemenL hereln was enLered lnLo on May 21 1974 Lhe prevalllng law appllcable ls AcL no 2633
oLherwlse known as Lhe usury Law as amended by u no 116 whlch Look effecL on !anuary 29 1974
SecLlon 2 of AcL no 2633 provldes
no person or corporaLlon shall dlrecLly or lndlrecLly Lake or recelve money or oLher properLy real or personal or choses ln
acLlon a hlgher raLe of lnLeresL or greaLer sum of value lncludlng commlsslon premlums flnes and penalLles for Lhe loan or
renewal Lhereof or forbearance of money goods or credlL where such loan or renewal or forbearance ls secured ln whole or ln
parL by a morLgage upon real esLaLe Lhe LlLle Lo whlch ls duly reglsLered or by a documenL conveylng such real esLaLe aL an
lnLeresL Lhan Lwelve percenL per annum
1he usury law Lherefore as amended by resldenLlal uecree 116 flxed all lnLeresL raLes for all loans wlLh maLurlLy of more Lhan
360 days aL Lwelve (12) per cenL per annum lncludlng premlums flnes and penalLles
lL ls Lo be noLed LhaL uC was charglng penalLles aL Lhe raLe of Lwo (2) per cenL per monLh or an effecLlve raLe of LwenLy four
(24) per cenL per annum on Lhe peso loan and onehalf (1/2) per cenL per monLh or an effecLlve slx (6) per cenL per annum
on Lhe forelgn currency loan lL ls Lherefore very clear LhaL uC has been charglng and lmposlng lnLeresLs ln vlolaLlon of Lhe
prevalllng usury laws
ln Lhe beglnnlng uC was charglng a LoLal of nlneLeen (19) per cenL lnLeresL per annum on Lhe peso loan and elghLeen and
Lhree fourLhs (183/4) per cenL on Lhe forelgn currency loan Slnce Lhe penalLy charges was lncreased Lo Lwo (2) per cenL per
monLh wlLh regard Lo Lhe peso loan uC began charglng a LoLal of forLy Lwo (42) per cenL per annum on Lhe peso loan
clearly ln vlolaLlon of Lhe usury law
uA1lCC8 obLalned a loan of 44 mllllon pesos and has pald a LoLal of abouL 3 mllllon pesos Lhe remalnlng balance on Lhe
prlnclpal debL lefL unpald ls abouL 14 mllllon pesos Lo whlch respondenLs musL sLlll pay Lhe peLlLloner
1he law should noL be lnLerpreLed Lo mean forfelLure of Lhe prlnclpal loan as LhaL would be un[usLly enrlchlng Lhe borrower
1he unpald prlnclpal debL sLlll sLands and remalns valld buL Lhe sLlpulaLlon as Lo Lhe usurlous lnLeresL ls vold consequenLly Lhe
debL ls Lo be consldered wlLhouL sLlpulaLlon as Lo Lhe lnLeresL
As held ln Angel !ose Warehouslng Co lnc vs Chelda LnLerprlses eL al18
ln slmple loan wlLh sLlpulaLlon of usurlous lnLeresL Lhe presLaLlon of Lhe debLor Lo pay Lhe prlnclpal debL whlch ls Lhe cause
of Lhe conLracL (ArLlcle 1330 Clvll Code) ls noL lllegal 1he lllegallLy lles only as Lo Lhe presLaLlon Lo pay Lhe sLlpulaLed lnLeresL
hence belng separable Lhe laLLer only should be deemed vold slnce lL ls only one LhaL ls lllegal
x x x x x x x x x
1he foregolng lnLerpreLaLlon ls reached wlLh Lhe phllosophy of usury leglslaLlon ln mlnd Lo dlscourage sLlpulaLlons on usurlous
lnLeresL sald sLlpulaLlons are LreaLed as wholly vold so LhaL Lhe loan becomes one wlLhouL sLlpulaLlon as Lo Lhe paymenL of
lnLeresL lL should noL however be lnLerpreLed Lo mean forfelLure even of Lhe prlnclpal for Lhls would un[usLly enrlch Lhe
borrower aL Lhe expense of Lhe lender lurLhermore penal sancLlons are avallable agalnsL a usurlous lender as a furLher
deLerrence Lo usury
1he prlnclpal debL remalnlng wlLhouL sLlpulaLlon for paymenL of lnLeresL can Lhus be recovered by [udlclal acLlon
eLlLloner conLends LhaL peLlLloner uel 8osarlo ls noL a parLylnlnLeresL ln Lhe case
We do noL agree
uel 8osarlo morLgaged hls properLles ln hls personal capaclLy Lo secure Lhe debL of uA1lCC8 As such Lhe credlLor uC may
proceed agalnsL uel 8osarlo or uA1lCC8 or boLh of Lhem slmulLaneously for Lhe paymenL of Lhe loan or for Lhe performance of
Lhe obllgaLlon ln facL uC flled for Lhe foreclosure of Lhe real properLles belonglng Lo uel 8osarlo
eLlLloner furLher conLends LhaL Lhe cause of acLlon of LrnesLo del 8osarlo ln Clvll Case no 828088 ls barred by prescrlpLlon
and LhaL LhaL Lhere ls a pendlng case before Lhe CourL of llrsL lnsLance of MaLl uavao wlLh Lhe same cause of acLlon
WlLh regard Lo Lhe flrsL conLenLlon ArLlcle 1937 of Lhe Clvll Code provldes
tox x x conLracLs and sLlpulaLlons under any cloak or devlce whaLever lnLended Lo clrcumvenL Lhe law agalnsL usury shall be
vold
lurLhermore ArLlcle 1410 provldes
1he acLlon or defense for Lhe declaraLlon of Lhe lnexlsLence of a conLracL does noL prescrlbe
1he aforesald arLlcles Lherefore sLaLe LhaL all usurlous sLlpulaLlons are vold and as such an acLlon Lo annul such usurlous
sLlpulaLlons does noL prescrlbe
As Lo Lhe lssue of llLls pendencla such prlnclple ls noL appllcable Lo Lhe case aL bar 8ecords show and as admlLLed by peLlLloner
Lhe acLlon flled ln Lhe CourL of llrsL lnsLance of Manlla ln Clvll Case no 828088 was agalnsL uel 8osarlo whlle Lhe case flled ln
Lhe CourL of llrsL lnsLance of MaLl uavao CrlenLal ln Clvll Case no 998 was agalnsL uA1lCC8 1he flrsL case agalnsL a naLural
person whlle Lhe second agalnsL a [urldlcal person Clearly Lhere ls no ldenLlLy of parLles hence llLls pendencla cannoL apply
WL8LlC8L flndlng no reverslble error ln Lhe declslon appealed herefrom Lhe same ls hereby Alll8MLu ln LoLo
SC C8uL8Lu

narvasa C! (Chalrman) adllla and 8egalado !! concur
Melo ! no parL