[G.R. No. 138677.

February 12, 2002]

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS & SECURITY BANK & TRUST
COMPANY,respondents.
DECISION
VITUG, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and resolutions of the Court of
Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120,000.00 from respondent Security
Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest
of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. In addition,
petitioners agreed to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were
instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension but only up until 29 December
1981.
Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114,416.10. On 30
September 1982, the bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment. Since
petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint for
recovery of the due amount.
After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27 March 1985, rested its case. Petitioners,
instead of introducing their own evidence, had the hearing of the case reset on two consecutive occasions. In view of the absence of petitioners and
their counsel on 28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to consider the case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the trial court declaring them as having
waived their right to present evidence and prayed that they be allowed to prove their case. The court a quo denied the motion in an order, dated 5
September 1988, and on 20 October 1989, it rendered its decision,[1] the dispositiveportion of which read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to the
plaintiff, as follows:
"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty
charge, commencing on 20 May 1982 until fully paid;
"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorneys fees; and
"3. To pay the costs of the suit.[2]
Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court of their motion to present evidence and
assailing the imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney's fees. In its decision[3] of 7 March 1996, the
appellate court affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted pursuant to Central Bank
Circular No. 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective motions for reconsideration.
[4]
Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the payment of
interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties.
On 28 October 1998, the Court of Appeals resolved the two motions thusly:
We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest thereon must commence not on the date of filing of the
complaint as we have previously held in our decision but on the date when the obligation became due.
Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the
obligor in default when the obligation or the law so provides.
In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on its maturity date 'without
necessity of demand.' They also agreed to pay the interest in case of non-payment from the date of default.
xxxxxxxxx

While we maintain that defendants-appellants must be bound by the contract which they acknowledged and signed, we take cognizance of their plea
for the application of the provisions of Article 1229 x x x.
Considering that defendants-appellants partially complied with their obligation under the promissory note by the reduction of the original amount of
P120,000.00 to P114,416.00 and in order that they will finally settle their obligation, it is our view and we so hold that in the interest of justice and
public policy, a penalty of 3% per month or 36% per annum would suffice.
xxxxxxxxx
WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendantsappellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank and Trust Company the
following:
1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month penalty charge
commencing May 20, 1982 until fully paid;
2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorneys fees. [5]
On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly discovered evidence, [6] alleging that while
the case was pending before the trial court, petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate mortgage on 18
January 1984 to secure the existing indebtedness of petitioners Ligutan and dela Llanawith the bank. Petitioners contended that the execution of the
real estate mortgage had the effect of novating the contract between them and the bank. Petitioners further averred that the mortgage
was extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank did not credit them with the proceeds of the
sale. The appellate court denied the omnibus motion for reconsideration and to admit newly discovered evidence, ratiocinating that such a second
motion for reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules of Civil Procedure. Furthermore, the appellate court
said, the newly-discovered evidence being invoked by petitioners had actually been known to them when the case was brought on appeal and when
the first motion for reconsideration was filed.[7]
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9 July 1999 via a petition for
review on certiorari under Rule 45 of the Rules of Court, submitting thusly I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per
month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners loan obligation are still
manifestly exorbitant, iniquitous and unconscionable.
II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent award of attorneys fees
which is highly and grossly excessive, unreasonable and unconscionable.
III. The respondent Court of Appeals gravely erred in not admitting petitioners newly discovered evidence which could not have been
timely produced during the trial of this case.
IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of action of private respondents
complaint in the instant case due to the subsequent execution of the real estate mortgage during the pendency of this case
and the subsequent foreclosure of the mortgage. [8]
Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even
insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of
the peso, particularly vis-a-vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank would stress that only the amount of
P5,584.00 had been remitted out of the entire loan of P120,000.00. [9]
A penalty clause, expressly recognized by law, [10] is an accessory undertaking to assume greater liability on the part of an obligor in case of
breach of an obligation. It functions to strengthen the coercive force of the obligation [11] and to provide, in effect, for what could be the liquidated
damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the
existence and on the measure of damages caused by the breach. [12] Although a court may not at liberty ignore the freedom of the parties to agree on
such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly
complied with.[13]
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such
factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is
addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals,[14] just an example, the Court has tempered
the penalty charges after taking into account the debtors pitiful situation and its offer to settle the entire obligation with the creditor bank. The
stipulated penalty might likewise be reduced when a partial or irregular performance is made by the debtor. [15] The stipulated penalty might even be

deleted such as when there has been substantial performance in good faith by the obligor, [16] when the penalty clause itself suffers from fatal infirmity,
or when exceptional circumstances so exist as to warrant it. [17]
The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% a month which
petitioner still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, the Court
sees no cogent ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce
the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on
its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is
not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that
effect, the two being distinct concepts which may separately be demanded. [18] What may justify a court in not allowing the creditor to impose full
surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of
interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's
existence.[19]
Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for being grossly excessive, exorbitant
and unconscionable vis-a-vis the time spent and the extent of services rendered by counsel for the bank and the nature of the case. Bearing in mind
that the rate of attorneys fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts
as well, the Court, like the appellate court, deems the award of 10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to admit newly discovered evidence. As the
appellate court so held in its resolution of14 May 1999 Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a judgment or final resolution by the same
party shall be entertained. Considering that the instant motion is already a second motion for reconsideration, the same must therefore be denied.
Furthermore, it would appear from the records available to this court that the newly-discovered evidence being invoked by defendants-appellants
have actually been existent when the case was brought on appeal to this court as well as when the first motion for reconsideration was filed. Hence,
it is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this stage when they could have done so in the
earlier pleadings filed before this court.
The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment of 'new' grounds to assail the
judgment, i.e., grounds other than those theretofore presented and rejected. Otherwise, attainment of finality of a judgment might be stayed off
indefinitely, depending on the partys ingenuousness or cleverness in conceiving and formulating 'additional flaws' or 'newly discovered errors'
therein, or thinking up some injury or prejudice to the rights of the movant for reconsideration.[20]
At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would not have resulted in the extinguishment of
the original contract of loan because ofnovation. Petitioners acknowledge that the real estate mortgage contract does not contain any express
stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank. [21] Respondent bank has
correctly postulated that the mortgage is but an accessory contract to secure the loan in the promissory note.
Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the new contract; third, the
extinguishment of the obligation; and fourth, the validity of the new one.[22] In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point
incompatible with each other. [23] An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the
terms of payment or adding compatible covenants or where the old contract is merely supplemented by the new one. [24] When not expressed,
incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical
terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as
from a mere commodatum to lease of things, or from negotiorum gestio to agency, or from a mortgage to antichresis,[25] or from a sale to one of loan;
[26]
(2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor [27] or
the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and
conditions may be carried, expressly or by implication, over to the new obligation.
WHEREFORE, the petition is DENIED.
SO ORDERED.
Melo, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio, JJ., concur.

UNITED COCONUT PLANTERS BANK,

Petitioner,

G.R. No. 159912

Present:

- versus -

SPOUSES SAMUEL and ODETTE BELUSO,

Respondents.

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:

August 17, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

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 2003 and 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 T27828, 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 #

Date of PN

Maturity Date

Amount Secured

8314-96-00083-3

29 April 1996

27 August 1996

P 700,000

8314-96-00085-0

2 May 1996

30 August 1996

P 500,000

8314-96-000292-2

20 November 1996

20 March 1997

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 ofP350,000.00:
PN #

Date of PN

Maturity Date

Amount Secured

97-00363-1

11 December 1997

28 February 1998

P 200,000

98-00002-4

2 January 1998

28 February 1998

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 #

Amount Secured

Interest

Penalty

Total

97-00363-1
97-00366-6

P 200,000
P 700,000
P 1,300,000

98-00002-4

P 150,000

36%
32.786% (102
days)
30.41% (102
days)
36%

P 225,313.24
P 795,294.72

97-00368-2

31%
30.17%
(7 days)
28%
(2 days)
33%
(102 days)

P 1,462,124.54
P 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 toP3,784,603.00.
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 facto render 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

10

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

11

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;

12

(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 the1 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 ormutuum. 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) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2)

13

(4) 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;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) 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.

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 inMakati 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;

14

(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:
1.

2.

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:

15

a.

3.

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 on9 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.

PEOPLE OF THE PHILIPPINES,

Petitioners,

G. R. No. 1 73 65 4 -7 65
Present:

- versus -

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
REYES, and
DE CASTRO,* JJ.
Promulgated:

TE RE SI TA P UI G and RO ME O PO RRAS ,
Re spo nd e nt .
August 28, 2008
x---------------------------------------------------x
DECISION
CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines, represented by the
Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the
6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig and Romeo
Porras, and denying petitioners Motion for Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:

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On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of Qualified
Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private
complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations [1] filed before the RTC were uniform and pro-forma, except for the amounts, date and time of
commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and within the
jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping one another, with grave
abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the
knowledge and/or consent of the management of the Bank and with intent of gain, did then and there willfully, unlawfully and
feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the
damage and prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would have necessitated the issuance
of a warrant of arrest based on the following grounds:
(1)

the element of taking without the consent of the owners was missing on the ground that it is the depositors-clients, and not
the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by respondents and
hence, are the real parties-in-interest; and

(2)

the Informations are bereft of the phrase alleging dependence, guardianship or vigilance between the respondents and
the offended party that would have created a high degree of confidence between them which the respondents could
have abused.

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative of the right of the
respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the right to
be informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the
RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of arrest against Puig and Porras.
A Motion for Reconsideration[2] was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order[3] denying petitioners Motion for Reconsideration was issued by the RTC, finding as follows:
Accordingly, the prosecutions Motion for Reconsideration should be, as it hereby, DENIED. The Order dated January 30,
2006 STANDS in all respects.

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING
WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF
CONFIDENCE.

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June 2006 issued by the trial court,
and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loans. Corollary thereto, Article 1953 of the same Code provides that a person who receives a loan
of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and

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quality. Thus, it posits that the depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of
the money deposited by its clients, making the money taken by respondents as belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that a perusal of the Informations
will show that they specifically allege that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and
that they took various amounts of money with grave abuse of confidence, and without the knowledge and consent of the bank, to the damage and
prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review on Certiorari via Rule 45 is
the wrong mode of appeal because a finding of probable cause for the issuance of a warrant of arrest presupposes evaluation of facts and
circumstances, which is not proper under said Rule.
Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party to file a Petition for Review
on Certiorari, considering that the incident was indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore, because of this defect, there is
no basis for the existence of probable cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that
the Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the
element of taking, with intent to gain and without the consent of the owner, which is the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the Information inadequate. He
ruled that the Information failed to state facts constituting the qualifying circumstance of grave abuse of confidence and the element of taking without
the consent of the owner, since the owner of the money is not the Bank, but the depositors therein. He also cites People v. Koc Song,[4] in which this
Court held:
There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or vigilance, between
the respondents and the offended party that has created a high degree of confidence between them, which the respondents
abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the insufficiency of the
allegations in the Informations concerning the facts constitutive of the elements of the offense charged. This, therefore, makes the issue of
sufficiency of the allegations in the Informations the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:
ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next higher by two degrees than those
respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence, or if
the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation,
fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any
other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers property without violence or intimidation against
persons or force upon things.The elements of the crime under this Article are:
1.

Intent to gain;

2.

Unlawful taking;

3.

Personal property belonging to another;

4.

Absence of violence or intimidation against persons or force upon things.

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To fall under the crime of Qualified Theft, the following elements must concur:
1.

Taking of personal property;

2.

That the said property belongs to another;

3.

That the said taking be done with intent to gain;

4.

That it be done without the owners consent;

5.

That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;

6.

That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information must state the acts or
omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying and
aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language used in the
statute but in terms sufficient to enable a person of common understanding to know what offense is being charged as well as its
qualifying and aggravating circumstances and for the court to pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions complained of as constituting the
offense. The test is whether it enables a person of common understanding to know the charge against him, and the court to render judgment
properly.[5]
The portion of the Information relevant to this discussion reads:
[A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the
Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the
management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the monies deposited therein
enjoy the confidence reposed in them by their employer. Banks, on the other hand, where monies are deposited, are considered the owners
thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. The relationship between banks and
depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner,
provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to
pay to the creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of the money deposits therein,
and the duties being performed by its employees who have custody of the money or have come into possession of it. The Court has consistently
considered the allegations in the Information that such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank,
without particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we
cite Roque v. People,[6] where the accused teller was convicted for Qualified Theft based on this Information:

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That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga, Philippines and
within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG ROQUE, being then employed
as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca,
Pampanga, and as such was authorized and reposed with the responsibility to receive and collect capital contributions from its
member/contributors of said corporation, and having collected and received in her capacity as teller of the BABSLA the sum of
TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with grave abuse of confidenceand without the
knowledge and consent of said corporation, did then and there willfully, unlawfully and feloniously take, steal and carry away
the amount of P10,000.00, Philippine currency, by making it appear that a certain depositor by the name of Antonio Salazar
withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said amount
of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine currency.

In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the tellers possession due to the confidence
reposed on the teller, the felony of qualified theft would be committed. [7]

Also in People v. Sison,[8] the Branch Operations Officer was convicted of the crime of Qualified Theft based on the Information as herein cited:
That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates inclusive, in
the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously, with intent of gain and
without the knowledge and consent of the owner thereof, take, steal and carry away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE COMMERCIAL
INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U. FARGAS,
to the damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused acted with grave abuse of confidence and unfaithfulness, he being
the Branch Operation Officer of the said complainant and as such he had free access to the place where the said amount of
money was kept.

The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank (PCIB), is Qualified
Theft. Appellant could not have committed the crime had he not been holding the position of Luneta Branch Operation Officer
which gave him not only sole access to the bank vault xxx. The management of the PCIB reposed its trust and confidence in the
appellant as its Luneta Branch Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the
damage and prejudice of PCIB x x x.[9]

From another end, People v. Locson,[10] in addition to People v. Sison, described the nature of possession by the Bank. The money in this case
was in the possession of the defendant as receiving teller of the bank, and the possession of the defendant was the possession of the Bank. The
Court held therein that when the defendant, with grave abuse of confidence, removed the money and appropriated it to his own use without the
consent of the Bank, there was taking as contemplated in the crime of Qualified Theft. [11]
Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that the crime was committed
with grave abuse of confidence, with intent to gain and without the knowledge and consent of the Bank, without necessarily stating the phrase being
assiduously insisted upon by respondents, of a relation by reason of dependence, guardianship or vigilance, between the respondents and
the offended party that has created a high degree of confidence between them, which respondents abused, [12] and without employing the
word owner in lieu of the Bank were considered to have satisfied the test of sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no reason to quibble on the
allegation in the Informations that they acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by
accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.

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In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who are entrusted with the
possession of money of the Bank due to the confidence reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently
allege all the essential elements constituting the crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia Products, Inc. v. Hajime
Umezawa[13] is instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is limited
to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a
reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect
thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only, through the
OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by certiorari under Rule 45 of the
Rules of Court, only errors of law may be raised,[14] and herein petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of the preliminary investigation
conducted will show that, indeed, probable cause exists for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of
Court, the judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution of the prosecutor and
its supporting evidence. Soliven v. Makasiar,[15] as reiterated in Allado v. Driokno,[16]explained that probable cause for the issuance of a warrant of
arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to believe that an offense has been
committed by the person sought to be arrested. [17] The records reasonably indicate that the respondents may have, indeed, committed the offense
charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve the respondents from the
pain of going through a trial once it is ascertained that no probable cause exists to form a sufficient belief as to the guilt of the respondents,
conversely, it is also equally imperative upon the judge to proceed with the case upon a showing that there is a prima facie case against the
respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30 January 2006 and 9
June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of
Arrest issue against herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to
proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.
SO ORDERED.

21

SEBASTIAN SIGA-AN,
Petitioner,

G.R. No. 173227

Present:
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
LEONARDO-DE CASTRO,* JJ.

-versus

Promulgated:
ALICIA VILLANUEVA,
Respondent.

January 20, 2009

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision, [2] dated 16
December 2005, and Resolution,[3]dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the Decision,[4] dated
26 January 2001, of the Las Pinas City Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068.

The facts gathered from the records are as follows:

On 30 March 1998, respondent Alicia Villanueva filed a complaint [5] for sum of money against petitioner Sebastian Siga-an before the Las
Pinas City Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged that she was a businesswoman
engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was
a military officer and comptroller of the PNO from 1991 to 1996.

22

Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to loan her the amount
of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted petitioners proposal. The loan agreement was
not reduced in writing. Also, there was no stipulation as to the payment of interest for the loan. [6]

On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. On 31 October 1993, she
issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance of the loan. Petitioner told her that since she
paid a total amount of P700,000.00 for the P540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as interest for the
loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay additional interest. Petitioner threatened to block or disapprove
her transactions with the PNO if she would not comply with his demand. As all her transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in the PNO, she
conceded. Thus, she paid additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for the payments but
petitioner told her that it was not necessary as there was mutual trust and confidence between them. According to her computation, the total amount
she paid to petitioner for the loan and interest accumulated to P1,200,000.00.[7]

Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite absence of agreement to that
effect. Her lawyer told her that petitioner could not validly collect interest on the loan because there was no agreement between her and petitioner
regarding payment of interest. Since she paid petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised
by her lawyer that she made overpayment to petitioner, she sent a demand letter to petitioner asking for the return of the excess amount
of P660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement. [8]

Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1) P660,000.00 plus legal interest from the time
of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an amount equivalent to 25% of P660,000.00 as
attorneys fees.[9]

In his answer[10] to the complaint, petitioner denied that he offered a loan to respondent. He averred that in 1992, respondent approached
and asked him if he could grant her a loan, as she needed money to finance her business venture with the PNO. At first, he was reluctant to deal
with respondent, because the latter had a spotty record as a supplier of the PNO. However, since respondent was an acquaintance of his officemate,
he agreed to grant her a loan. Respondent paid the loan in full. [11]

Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the previous loan in full, he agreed to
grant her another loan. Later, respondent requested him to restructure the payment of the loan because she could not give full payment on the due
date. He acceded to her request. Thereafter, respondent pleaded for another restructuring of the payment of the loan. This time he rejected her plea.
Thus, respondent proposed to execute a promissory note wherein she would acknowledge her obligation to him, inclusive of interest, and that she
would issue several postdated checks to guarantee the payment of her obligation. Upon his approval of respondents request for restructuring of the
loan, respondent executed a promissory note dated 12 September 1994 wherein she admitted having borrowed an amount ofP1,240,000.00,
inclusive of interest, from petitioner and that she would pay said amount in March 1995. Respondent also issued to him six postdated checks
amounting toP1,240,000.00 as guarantee of compliance with her obligation. Subsequently, he presented the six checks for encashment but only one
check was honored. He demanded that respondent settle her obligation, but the latter failed to do so. Hence, he filed criminal cases for Violation of
the Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The cases were assigned to the Metropolitan Trial Court of Makati City,
Branch 65 (MeTC).[12]

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Petitioner insisted that there was no overpayment because respondent admitted in the latters promissory note that her monetary obligation
as of 12 September 1994 amounted to P1,240,000.00 inclusive of interests. He argued that respondent was already estopped from complaining that
she should not have paid any interest, because she was given several times to settle her obligation but failed to do so. He maintained that to rule in
favor of respondent is tantamount to concluding that the loan was given interest-free.Based on the foregoing averments, he asked the RTC to
dismiss respondents complaint.

After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an overpayment of her loan obligation to
petitioner and that the latter should refund the excess amount to the former. It ratiocinated that respondents obligation was only to pay the loaned
amount of P540,000.00, and that the alleged interests due should not be included in the computation of respondents total monetary debt because
there was no agreement between them regarding payment of interest. It concluded that since respondent made an excess payment to petitioner in
the amount of P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to the principle of solutio indebiti.[13]

The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded feelings experienced by
respondent. Further, petitioner should pay exemplary damages by way of example or correction for the public good, plus attorneys fees and costs of
suit.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law and jurisprudence on the
matter, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows:
(1)
Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal interest of 12% per annum
computed from 3 March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages;
(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary damages;
(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as attorneys fees; and
(5) Ordering defendant to pay the costs of suit. [14]

Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its Decision affirming in toto the RTC
Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the assailed decision [is]
AFFIRMED in toto.[15]

Petitioner filed a motion for reconsideration of the appellate courts decision but this was denied. [16] Hence, petitioner lodged the instant
petition before us assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.[17]

Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may
also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. [18] The right to interest arises only by
virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. [19]

24

Article 1956 of the Civil Code, which refers to monetary interest, [20] specifically mandates that no interest shall be due unless it has been
expressly stipulated in writing.As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is
prohibited by law.[21]

It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there convincing proof of
written agreement between the two regarding the payment of interest. Respondent testified that although she accepted petitioners offer of loan
amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the loan. [22]

Petitioner presented a handwritten promissory note dated 12 September 1994 [23] wherein respondent purportedly admitted owing petitioner
capital and interest.Respondent, however, explained that it was petitioner who made a promissory note and she was told to copy it in her own
handwriting; that all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO; that petitioner threatened to
disapprove her transactions with the PNO if she would not pay interest; that being unaware of the law on interest and fearing that petitioner would
make good of his threats if she would not obey his instruction to copy the promissory note, she copied the promissory note in her own handwriting;
and that such was the same promissory note presented by petitioner as alleged proof of their written agreement on interest. [24] Petitioner did not
rebut the foregoing testimony. It is evident that respondent did not really consent to the payment of interest for the loan and that she was merely
tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully said that such promissory note pertains to an express stipulation of
interest or written agreement of interest on the loan between petitioner and respondent.

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and respondent agreed on the payment of 7%
rate of interest on the loan; that the agreed 7% rate of interest was duly admitted by respondent in her testimony in the Batas Pambansa Blg. 22
cases he filed against respondent; that despite such judicial admission by respondent, the RTC and the Court of Appeals, citing Article 1956 of the
Civil Code, still held that no interest was due him since the agreement on interest was not reduced in writing; that the application of Article 1956 of
the Civil Code should not be absolute, and an exception to the application of such provision should be made when the borrower admits that a
specific rate of interest was agreed upon as in the present case; and that it would be unfair to allow respondent to pay only the loan when the latter
very well knew and even admitted in the Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of interest on the loan. [25]

We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that petitioner and respondent agreed
on the payment of interest at the rate of 7% for the loan. The RTC clearly stated that although petitioner and respondent entered into a valid oral
contract of loan amounting to P540,000.00, they, nonetheless, never intended the payment of interest thereon. [26] While the Court of Appeals
mentioned in its Decision that it concurred in the RTCs ruling that petitioner and respondent agreed on a certain rate of interest as regards the loan,
we consider this as merely an inadvertence because, as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner is not entitled
to the payment of interest on the loan. The rule is that factual findings of the trial court deserve great weight and respect especially when affirmed by
the appellate court.[27] We found no compelling reason to disturb the ruling of both courts.

Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22 cases that they had agreed on the payment of
interest at the rate of 7% deserves scant consideration. In the said case, respondent merely testified that after paying the total amount of loan,
petitioner ordered her to pay interest.[28] Respondent did not categorically declare in the same case that she and respondent made
an express stipulation in writing as regards payment of interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was
an express stipulation in writing for the payment of interest.

25

There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment
of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal
interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article
2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent
on this point.

All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It
cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest
and not to monetary interest.[29] The case at bar involves petitioners claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that respondent defaulted in
paying the loan. Also, as earlier found, no interest was due on the loan because there was no written agreement as regards payment of interest.

Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply to the instant case. Thus, he
cannot be compelled to return the alleged excess amount paid by respondent as interest. [30]

Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the
Civil Code concerning solutioindebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides
that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In
such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to
demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the
same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another.
[31]

The principle of solutio indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to

pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. [32] We
have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest. [33]

It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such payment because there
was no express stipulation in writing to that effect. There was no binding relation between petitioner and respondent as regards the payment of
interest. The payment was clearly a mistake. Since petitioner received something when there was no right to demand it, he has an obligation to
return it.

We shall now determine the propriety of the monetary award and damages imposed by the RTC and the Court of Appeals.

Records show that respondent received a loan amounting to P540,000.00 from petitioner.[34] Respondent issued two checks with a total
worth of P700,000.00 in favor of petitioner as payment of the loan. [35] These checks were subsequently encashed by petitioner. [36] Obviously, there
was an excess of P160,000.00 in the payment for the loan.Petitioner claims that the excess of P160,000.00 serves as interest on the loan to which
he was entitled. Aside from issuing the said two checks, respondent also paid cash in the total amount of P175,000.00 to petitioner as interest.
[37]

Although no receipts reflecting the same were presented because petitioner refused to issue such to respondent, petitioner, nonetheless, admitted

in his Reply-Affidavit[38] in the Batas Pambansa Blg. 22 cases that respondent paid him a total amount of P175,000.00 cash in addition to the two
checks. Section 26 Rule 130 of the Rules of Evidence provides that the declaration of a party as to a relevant fact may be given in evidence against
him. Aside from the amounts of P160,000.00 and P175,000.00 paid as interest, no other proof of additional payment as interest was presented by

26

respondent. Since we have previously found that petitioner is not entitled to payment of interest and that the principle of solutio indebiti applies to the
instant case, petitioner should return to respondent the excess amount ofP160,000.00 and P175,000.00 or the total amount of P335,000.00.
Accordingly, the reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be reduced from P660,000.00
to P335,000.00.

As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against respondent. In the said cases, the
MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored checks to petitioner. Nonetheless, respondents
conviction therein does not affect our ruling in the instant case. The two checks, subject matter of this case, totaling P700,000.00 which respondent
claimed as payment of the P540,000.00 worth of loan, were not among the five checks found to be dishonored or bounced in the five criminal cases.
Further, the MeTC found that respondent made an overpayment of the loan by reason of the interest which the latter paid to petitioner. [39]

Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Respondent testified that she
experienced sleepless nights and wounded feelings when petitioner refused to return the amount paid as interest despite her repeated
demands. Hence, the award of moral damages is justified. However, its corresponding amount of P300,000.00, as fixed by the RTC and the Court of
Appeals, is exorbitant and should be equitably reduced. Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion of
the court according to the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably
excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court. [40] To our mind, the amount of P150,000.00 as
moral damages is fair, reasonable, and proportionate to the injury suffered by respondent.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages may be imposed if the defendant
acted in an oppressive manner.Petitioner acted oppressively when he pestered respondent to pay interest and threatened to block her transactions
with the PNO if she would not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so as to deter petitioner and
other lenders from committing similar and other serious wrongdoings. [41]

Jurisprudence instructs that in awarding attorneys fees, the trial court must state the factual, legal or equitable justification for awarding the
same.[42] In the case under consideration, the RTC stated in its Decision that the award of attorneys fees equivalent to 25% of the amount paid as
interest by respondent to petitioner is reasonable and moderate considering the extent of work rendered by respondents lawyer in the instant case
and the fact that it dragged on for several years. [43] Further, respondent testified that she agreed to compensate her lawyer handling the instant case
such amount.[44] The award, therefore, of attorneys fees and its amount equivalent to 25% of the amount paid as interest by respondent to petitioner
is proper.

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

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

27

In the present case, petitioners obligation arose from a quasi-contract of solutio indebiti and not from a loan or forbearance of
money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the
attorneys fees, to be computed from the time of the extra-judicial demand on 3 March 1998, [46] up to the finality of this Decision. In addition, the
interest shall become 12% per annum from the finality of this Decision up to its satisfaction.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December 2005, is hereby AFFIRMED with the
followingMODIFICATIONS: (1) the amount of P660,000.00 as refundable amount of interest is reduced to THREE HUNDRED THIRTY FIVE
THOUSAND PESOS (P335,000.00); (2) the amount of P300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND
PESOS (P150,000.00); (3) an interest of 6% per annum is imposed on the P335,000.00, on the damages awarded and on the attorneys fees to be
computed from the time of the extra-judicial demand on 3 March 1998 up to the finality of this Decision; and (4) an interest of 12% per annum is also
imposed from the finality of this Decision up to its satisfaction. Costs against petitioner.
SO ORDERED.

28

G.R. No. 155223

April 4, 2007

BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner,

vs.
FLORA SAN DIEGO-SISON, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-in-fact, Marie Regine F. Fujita (petitioner)
seeking to annul the Decision1 dated June 18, 2002 and the Resolution2 dated September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No.
52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro Manila, which she acquired from
Island Masters Realty and Development Corporation (IMRDC) by virtue of a Deed of Sale dated Nov. 16, 1990. 3 The property is covered by TCT No.
168173 of the Register of Deeds of Makati in the name of IMRDC. 4
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the SECOND PARTY, entered into a
Memorandum of Agreement5 over the property with the following terms:
NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) receipt of which is hereby acknowledged by
the FIRST PARTY from the SECOND PARTY, the parties have agreed as follows:
1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract within which to notify the FIRST
PARTY of her intention to purchase the aforementioned parcel of land together within (sic) the improvements thereon at the price of SIX
MILLION FOUR HUNDRED THOUSAND PESOS (P6,400,000.00). Upon notice to the FIRST PARTY of the SECOND PARTYs intention
to purchase the same, the latter has a period of another six months within which to pay the remaining balance of P3.4 million.
2. That prior to the six months period given to the SECOND PARTY within which to decide whether or not to purchase the abovementioned property, the FIRST PARTY may still offer the said property to other persons who may be interested to buy the same provided
that the amount of P3,000,000.00 given to the FIRST PARTY BY THE SECOND PARTY shall be paid to the latter including interest based
on prevailing compounded bank interest plus the amount of the sale in excess of P7,000,000.00 should the property be sold at a price
more than P7 million.
3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this contract, no interest shall be
charged by the SECOND PARTY on the P3 million however, in the event that on the sixth month the SECOND PARTY would decide not to
purchase the aforementioned property, the FIRST PARTY has a period of another six months within which to pay the sum of P3 million
pesos provided that the said amount shall earn compounded bank interest for the last six months only. Under this circumstance, the
amount of P3 million given by the SECOND PARTY shall be treated as [a] loan and the property shall be considered as the security for the
mortgage which can be enforced in accordance with law.
x x x x.6
Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check dated February 28, 1990, instead of 1991,
which rendered said check stale.7 Petitioner then gave respondent TCT No. 168173 in the name of IMRDC and the Deed of Absolute Sale over the
property between petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner through a letter 8 dated March 20, 1991, which petitioner received only on
June 11, 1991,9 reminding petitioner of their agreement that the amount of two million pesos which petitioner received from respondent should be
considered as a loan payable within six months. Petitioner subsequently failed to pay respondent the amount of two million pesos.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint 10 for sum of money with preliminary attachment against
petitioner. The case was docketed as Civil Case No. 93-65367 and raffled to Branch 30. Respondent alleged the foregoing facts and in addition
thereto averred that petitioner tried to deprive her of the security for the loan by making a false report 11 of the loss of her owners copy of TCT No.
168173 to the Tagig Police Station on June 3, 1991, executing an affidavit of loss and by filing a petition 12 for the issuance of a new owners duplicate
copy of said title with the RTC of Makati, Branch 142; that the petition was granted in an Order 13 dated August 31, 1991; that said Order was

29

subsequently set aside in an Order dated April 10, 1992 14 where the RTC Makati granted respondents petition for relief from judgment due to the fact
that respondent is in possession of the owners duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to conduct an
investigation of petitioner for perjury and false testimony. Respondent prayed for the ex-parte issuance of a writ of preliminary attachment and
payment of two million pesos with interest at 36% per annum from December 7, 1991, P100,000.00 moral, corrective and exemplary damages
and P200,000.00 for attorneys fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary attachment upon the filing of a bond in the
amount of two million pesos.15
Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement was conceived and arranged by her lawyer, Atty. Carmelita
Lozada, who is also respondents lawyer; that she was asked to sign the agreement without being given the chance to read the same; that the title to
the property and the Deed of Sale between her and the IMRDC were entrusted to Atty. Lozada for safekeeping and were never turned over to
respondent as there was no consummated sale yet; that out of the two million pesos cash paid, Atty. Lozada took the one million pesos which has
not been returned, thus petitioner had filed a civil case against her; that she was never informed of respondents decision not to purchase the
property within the six month period fixed in the agreement; that when she demanded the return of TCT No. 168173 and the Deed of Sale between
her and the IMRDC from Atty. Lozada, the latter gave her these documents in a brown envelope on May 5, 1991 which her secretary placed in her
attache case; that the envelope together with her other personal things were lost when her car was forcibly opened the following day; that she sought
the help of Atty. Lozada who advised her to secure a police report, to execute an affidavit of loss and to get the services of another lawyer to file a
petition for the issuance of an owners duplicate copy; that the petition for the issuance of a new owners duplicate copy was filed on her behalf
without her knowledge and neither did she sign the petition nor testify in court as falsely claimed for she was abroad; that she was a victim of the
manipulations of Atty. Lozada and respondent as shown by the filing of criminal charges for perjury and false testimony against her; that no interest
could be due as there was no valid mortgage over the property as the principal obligation is vitiated with fraud and deception. She prayed for the
dismissal of the complaint, counter-claim for damages and attorneys fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a decision, 17 the dispositive portion of which reads:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two (32%) per cent per annum
beginning December 7, 1991 until fully paid.
2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on the attachment bond with legal
interest thereon counted from the date of this decision until fully paid.
3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and exemplary damages.
4) Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost of litigation.18
The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos with compounded interest pursuant to their
Memorandum of Agreement; that the fraudulent scheme employed by petitioner to deprive respondent of her only security to her loaned money when
petitioner executed an affidavit of loss and instituted a petition for the issuance of an owners duplicate title knowing the same was in respondents
possession, entitled respondent to moral damages; and that petitioners bare denial cannot be accorded credence because her testimony and that of
her witness did not appear to be credible.
The RTC further found that petitioner admitted that she received from respondent the two million pesos in cash but the fact that petitioner gave the
one million pesos to Atty. Lozada was without respondents knowledge thus it is not binding on respondent; that respondent had also proven that in
1993, she initially paid the sum ofP30,000.00 as premium for the issuance of the attachment bond, P20,000.00 for its renewal in 1994,
andP20,000.00 for the renewal in 1995, thus plaintiff should be reimbursed considering that she was compelled to go to court and ask for a writ of
preliminary attachment to protect her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC decision with modification, the dispositive portion
of which reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of interest is reduced from 32% to 25% per
annum, effective June 7, 1991 until fully paid.19
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly as a loan; respondent did not replace
the mistakenly dated check of one million pesos because she had decided not to buy the property and petitioner knew of her decision as early as
April 1991; the award of moral damages was warranted since even granting petitioner had no hand in the filing of the petition for the issuance of an
owners copy, she executed an affidavit of loss of TCT No. 168173 when she knew all along that said title was in respondents possession;
petitioners claim that she thought the title was lost when the brown envelope given to her by Atty. Lozada was stolen from her car was hollow; that
such deceitful conduct caused respondent serious anxiety and emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest should be charged for six months only and no more; that a loan
always bears interest otherwise it is not a loan; that interest should commence on June 7, 1991 20 with compounded bank interest prevailing at the

30

time the two million was considered as a loan which was in June 1991; that the bank interest rate for loans secured by a real estate mortgage in
1991 ranged from 25% to 32% per annum as certified to by Prudential Bank, 21 that in fairness to petitioner, the rate to be charged should be 25%
only.
Petitioners motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE
MEMORANDUM OF AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IS PROPER EVEN IF
NOT MENTIONED IN THE TEXT OF THE DECISION.22
Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per annum as modified by the CA which should
run from June 7, 1991 until fully paid, is contrary to the parties Memorandum of Agreement; that the agreement provides that if respondent would
decide not to purchase the property, petitioner has the period of another six months to pay the loan with compounded bank interest for the last six
months only; that the CAs ruling that a loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code which
provides that no interest shall be due unless it has been expressly stipulated in writing.
We are not persuaded.
While the CAs conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a simple loan may be gratuitous or with a
stipulation to pay interest,23 we find no error committed by the CA in awarding a 25% interest per annum on the two-million peso loan even beyond
the second six months stipulated period.
The Memorandum of Agreement executed between the petitioner and respondent on December 7, 1990 is the law between the parties. In resolving
an issue based upon a contract, we must first examine the contract itself, especially the provisions thereof which are relevant to the
controversy.24 The general rule is that if the terms of an agreement are clear and leave no doubt as to the intention of the contracting parties, the
literal meaning of its stipulations shall prevail. 25 It is further required that the various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly. 26
In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. We agree with and adopt the CAs
interpretation of the phrase in this wise:
Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-appellee (respondent) to make up her
mind whether or not to purchase defendant-appellants (petitioner's) property. The second six-month period was given to defendant-appellant to pay
the P2 million loan in the event that plaintiff-appellee decided not to buy the subject property in which case interest will be charged "for the last six
months only", referring to the second six-month period. This means that no interest will be charged for the first six-month period while appellee was
making up her mind whether to buy the property, but only for the second period of six months after appellee had decided not to buy the property. This
is the meaning of the phrase "for the last six months only". Certainly, there is nothing in their agreement that suggests that interest will be charged for
six months only even if it takes defendant-appellant an eternity to pay the loan. 27
The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring to the second six-month period,
does not mean that interest will no longer be charged after the second six-month period since such stipulation was made on the logical and
reasonable expectation that such amount would be paid within the date stipulated. Considering that petitioner failed to pay the amount given which
under the Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six months continued to accrue until actual
payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor,
regular interest continues to accrue since the debtor continues to use such principal amount. 28 It has been held that for a debtor to continue in
possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would
constitute unjust enrichment on the part of the debtor at the expense of the creditor. 29
Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the certification issued by Prudential
Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA reduced the interest rate to 25% instead of the 32% awarded
by the trial court which petitioner no longer assailed.1awphi1.nt
In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum interest on a P142,326.43 loan. In Garcia v. Court of
Appeals,31 we sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. Thus, the interest rate of 25% per
annum awarded by the CA to a P2 million loan is fair and reasonable.

31

Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent scheme to deprive respondent of her
security for the loan; that such finding is baseless since petitioner was acquitted in the case for perjury and false testimony filed by respondent
against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from the act or omission complained of as a
felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter. 32
While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her, those actions are entirely distinct from the
collection of sum of money with damages filed by respondent against petitioner.
We agree with the findings of the trial court and the CA that petitioners act of trying to deprive respondent of the security of her loan by executing an
affidavit of loss of the title and instituting a petition for the issuance of a new owners duplicate copy of TCT No. 168173 entitles respondent to moral
damages.1a\^/phi1.net Moral damages may be awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in
bad faith. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It partakes of the nature of fraud. 33
The Memorandum of Agreement provides that in the event that respondent opts not to buy the property, the money given by respondent to petitioner
shall be treated as a loan and the property shall be considered as the security for the mortgage. It was testified to by respondent that after they
executed the agreement on December 7, 1990, petitioner gave her the owners copy of the title to the property, the Deed of Sale between petitioner
and IMRDC, the certificate of occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed of Sale. 34 However, notwithstanding
that all those documents were in respondents possession, petitioner executed an affidavit of loss that the owners copy of the title and the Deed of
Sale were lost.
Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was of the belief that since she had demanded from
Atty. Lozada the return of the title, she thought that the brown envelope with markings which Atty. Lozada gave her on May 5, 1991 already contained
the title and the Deed of Sale as those documents were in the same brown envelope which she gave to Atty. Lozada prior to the transaction with
respondent.35 Such statement remained a bare statement. It was not proven at all since Atty. Lozada had not taken the stand to corroborate her
claim. In fact, even petitioners own witness, Benilda Ynfante (Ynfante), was not able to establish petitioner's claim that the title was returned by Atty.
Lozada in view of Ynfante's testimony that after the brown envelope was given to petitioner, the latter passed it on to her and she placed it in
petitioners attach case36 and did not bother to look at the envelope. 37
It is clear therefrom that petitioners execution of the affidavit of loss became the basis of the filing of the petition with the RTC for the issuance of
new owners duplicate copy of TCT No. 168173. Petitioners actuation would have deprived respondent of the security for her loan were it not for
respondents timely filing of a petition for relief whereby the RTC set aside its previous order granting the issuance of new title. Thus, the award of
moral damages is in order.
The entitlement to moral damages having been established, the award of exemplary damages is proper. 38Exemplary damages may be imposed
upon petitioner by way of example or correction for the public good. 39 The RTC awarded the amount of P100,000.00 as moral and exemplary
damages. While the award of moral and exemplary damages in an aggregate amount may not be the usual way of awarding said damages, 40 no
error has been committed by CA. There is no question that respondent is entitled to moral and exemplary damages.
Petitioner argues that the CA erred in awarding attorneys fees because the trial courts decision did not explain the findings of facts and law to justify
the award of attorneys fees as the same was mentioned only in the dispositive portion of the RTC decision.
We agree.
Article 220841 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and
equitable if the same were to be granted.42 Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing
litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to
litigate.43 The award of attorney's fees is the exception rather than the general rule. As such, it is necessary for the trial court to make findings of facts
and law that would bring the case within the exception and justify the grant of such award. The matter of attorney's fees cannot be mentioned only in
the dispositive portion of the decision.44 They must be clearly explained and justified by the trial court in the body of its decision. On appeal, the CA is
precluded from supplementing the bases for awarding attorneys fees when the trial court failed to discuss in its Decision the reasons for awarding
the same. Consequently, the award of attorney's fees should be deleted.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated September 11, 2002 of the Court of Appeals
in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of attorneys fees is DELETED.
No pronouncement as to costs.
SO ORDERED.

32

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

HERMOJINA ESTORES,

G.R. No. 175139

Petitioner,
Present:
CORONA, C.J., Chairperson,
- versus -

LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

SPOUSES ARTURO and

LAURA SUPANGAN,

Promulgated:

Respondents.

April 18, 2012

x-------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
The only issue posed before us is the propriety of the imposition of interest and attorneys fees.
Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is the May 12, 2006 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 83123,
the dispositive portion of which reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed from
September 27, 2000 until its full payment before finality of the judgment.If the adjudged principal and the interest (or any part thereof) remain
unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from the time the judgment becomes final
and executory until it is fully satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the defendants-appellants.
SO ORDERED.[3]
Also assailed is the August 31, 2006 Resolution[4] denying the motion for reconsideration.
Factual Antecedents
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered into a Conditional Deed of Sale [5] whereby petitioner
offered to sell, and respondent-spouses offered to buy, a parcel of land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum
of P4.7 million. The parties likewise stipulated, among others, to wit:
xxxx
1. Vendor will secure approved clearance from DAR requirements of which are (sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings of Vendor/Vendee
f) Affidavit of Non-Tenancy

33

g) Deed of Absolute Sale

xxxx
4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the documents.
xxxx
6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago], said house shall be moved outside the
perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it that such
agreement is carried out before full payment of the sale is made by vendee.
7. If and after the vendor has completed all necessary documents for registration of the title and the vendee fails to complete payment as per
agreement, a forfeiture fee of 25% or downpayment, shall be applied.However, if the vendor fails to complete necessary documents within
thirty days without any sufficient reason, or without informing the vendee of its status, vendee has the right to demand return of full amount
of down payment.
xxxx
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
x x x x [6]

After almost seven years from the time of the execution of the contract and notwithstanding payment of P3.5 million on the part of respondent-spouses,
petitioner still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter[7] dated September 27, 2000,
respondent-spouses demanded the return of the amount of P3.5 million within 15 days from receipt of the letter. In reply,[8] petitioner acknowledged receipt of the P3.5
million and promised to return the same within 120 days. Respondent-spouses were amenable to the proposal provided an interest of 12% compounded annually
shall be imposed on the P3.5 million.[9] When petitioner still failed to return the amount despite demand, respondent-spouses were constrained to file a Complaint[10] for
sum of money before the Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioners
agent. The case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint, respondent-spouses prayed that petitioner and Arias be
ordered to:
1.

Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually starting October 1, 1993 or an
estimated amount of P8,558,591.65;

2.

Pay the following items of damages:

a)

Moral damages in the amount of P100,000.00;

b)

Actual damages in the amount of P100,000.00;

c)

Exemplary damages in the amount of P100,000.00;

d)
e)

[Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable amount from the [petitioner].
[C]ost of suit.[11]

In their Answer with Counterclaim,[12] petitioner and Arias averred that they are willing to return the principal amount of P3.5 million but without any interest
as the same was not agreed upon. In their Pre-Trial Brief,[13] they reiterated that the only remaining issue between the parties is the imposition of interest. They argued
that since the Conditional Deed of Sale provided only for the return of the downpayment in case of breach, they cannot be held liable to pay legal interest as well.[14]
In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties agreed that the principal amount of 3.5 million pesos should be returned to the
[respondent-spouses] by the [petitioner] and the issue remaining [is] whether x x x [respondent-spouses] are entitled to legal interest thereon, damages and attorneys
fees.[16]
Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial court set the presentation of Arias and petitioners evidence on
September 3, 2003.[17]However, despite several postponements, petitioner and Arias failed to appear hence they were deemed to have waived the presentation of their
evidence. Consequently, the case was deemed submitted for decision.[18]

34

Ruling of the Regional Trial Court

On May 7, 2004, the RTC rendered its Decision [19] finding respondent-spouses entitled to interest but only at the rate of 6% per annum and not 12% as prayed by
them.[20] It also found respondent-spouses entitled to attorneys fees as they were compelled to litigate to protect their interest.[21]
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent-spouses] and ordering the [petitioner
and Roberto Arias] to jointly and severally:
1.
Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand pesos (P3,500,000.00) with an
interest of 6% compounded annually starting October 1, 1993 and attorneys fee in the amount of Fifty Thousand pesos (P50,000.00) plus 20%
of the recoverable amount from the defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.
SO ORDERED.[22]

Ruling of the Court of Appeals

Aggrieved, petitioner and Arias filed their notice of appeal.[23] The CA noted that the only issue submitted for its resolution is whether it is proper to impose interest for an
obligation that does not involve a loan or forbearance of money in the absence of stipulation of the parties.[24]
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6% interest proper. [25] However, the same
shall start to run only from September 27, 2000 when respondent-spouses formally demanded the return of their money and not from October 1993 when the contract
was executed as held by the RTC. The CA also modified the RTCs ruling as regards the liability of Arias. It held that Arias could not be held solidarily liable with
petitioner because he merely acted as agent of the latter. Moreover, there was no showing that he expressly bound himself to be personally liable or that he exceeded
the limits of his authority. More importantly, there was even no showing that Arias was authorized to act as agent of petitioner. [26] Anent the award of attorneys fees, the
CA found the award by the trial court (P50,000.00 plus 20% of the recoverable amount) excessive[27] and thus reduced the same to P100,000.00.[28]
The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed from September 27,
2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain[s] unpaid
thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from the time the judgment becomes final and
executory until it is fully satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the [petitioner].
SO ORDERED.[29]

Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA.
Hence, this petition raising the sole issue of whether the imposition of interest and attorneys fees is proper.
Petitioners Arguments
Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of Sale only provided for the return of the downpayment in
case of failure to comply with her obligations. Petitioner also argues that the award of attorneys fees in favor of the respondent-spouses is unwarranted because it
cannot be said that the latter won over the former since the CA even sustained her contention that the imposition of 12% interest compounded annually is totally
uncalled for.
Respondent-spouses Arguments

35

Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering that petitioner failed to return the amount upon demand and
had been using the P3.5 million for her benefit. Moreover, it is undisputed that petitioner failed to perform her obligations to relocate the house outside the perimeter of
the subject property and to complete the necessary documents. As regards the attorneys fees, they claim that they are entitled to the same because they were forced
to litigate when petitioner unjustly withheld the amount. Besides, the amount awarded by the CA is even smaller compared to the filing fees they paid.
Our Ruling
The petition lacks merit.
Interest may be imposed even in the absence of stipulation in the contract.

We sustain the ruling of both the RTC and the CA that it is proper to impose interest notwithstanding the absence of stipulation in the contract. Article 2210
of the Civil Code expressly provides that [i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. In this case, there is no
question that petitioner is legally obligated to return the P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite
demand. She has in fact admitted that the conditions were not fulfilled and that she was willing to return the full amount of P3.5 million but has not actually done
so. Petitioner enjoyed the use of the money from the time it was given to her [30] until now. Thus, she is already in default of her obligation from the date of demand, i.e.,
on September 27, 2000.
The interest at the rate of 12% is applicable in the instant case.

Anent the interest rate, the general rule is that the applicable rate of interest shall be computed in accordance with the stipulation of the parties. [31] Absent
any stipulation, the applicable rate of interest shall be 12% per annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In other
cases, it shall be six percent (6%).[32] In this case, the parties did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the
6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.
The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller (petitioner) must
return the payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller
(petitioner) has admitted this. Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has failed to return the money and
should be considered in default from the time that demand was made on September 27, 2000.
Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money
which required payment of interest at the rate of 12%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals,[33] forbearance was defined as a contractual obligation of lender or creditor to refrain during a given period of
time, from requiring the borrower or debtor to repay a loan or debt then due and payable. This definition describes a loan where a debtor is given a period within which
to pay a loan or debt. In such case, forbearance of money, goods or credits will have no distinct definition from a loan. We believe however, that the phrase
forbearance of money, goods or credits is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is
already sufficiently defined in the Civil Code.[34] Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a
person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the
respondent-spouses parted with their money even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to
use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and when those
conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the
compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is
similar to a loan.

36

Petitioners unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of money which can be
considered as an involuntary loan.Thus, the applicable rate of interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of Appeals,[35]cited in Crismina
Garments, Inc. v. Court of Appeals,[36] the Court suggested the following guidelines:
I.

When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in
determining the measure of recoverable damages.

II.

With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1.

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2.

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

3.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.[37]

Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor case, Reformina v. Tongol[39] both involved torts cases and hence, there was no
forbearance of money, goods, or credits. Further, the amount claimed (i.e., damages) could not be established with reasonable certainty at the time the claim was
made. Hence, we arrived at a different ruling in those cases.
Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate of 12% should be reckoned from
said date of demand until the principal amount and the interest thereon is fully satisfied.
The award of attorneys fees is warranted.
Under Article 2208 of the Civil Code, attorneys fees may be recovered:
xxxx
(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
xxxx
(11)

In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses entitled to recover attorneys fees. There is no doubt that they were forced
to litigate to protect their interest, i.e., to recover their money. However, we find the amount of P50,000.00 more appropriate in line with the policy enunciated in Article
2208 of the Civil Code that the award of attorneys fees must always be reasonable.

37

WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 83123
is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The
award of attorneys fees is further reduced to P50,000.00.
SO ORDERED.

G.R. No. 158382

January 27, 2004

MANSUETO CUATON, petitioner,

vs.
REBECCA SALUD and COURT OF APPEALS (Special Fourteenth Division), respondents.
DECISION
YNARES-SANTIAGO, J.:
Before the Court is a petition for review on certiorari assailing the August 31, 2001 Decision1 of the Court of Appeals in CA-G.R. CV No. 54715
insofar as it affirmed the Judgment2 of the Regional Trial Court of General Santos City, Branch 35, in SPL. Civil Case No. 359, imposing interest at
the rate of 8% to 10% per month on the one-million-peso loan of petitioner.
On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for foreclosure of real estate mortgage with
damages against petitioner Mansueto Cuaton and his mother, Conchita Cuaton, with the Regional Trial Court of General Santos City, Branch 35,
docketed as SPL. Civil Case No. 359.3The trial court rendered a decision declaring the mortgage constituted on October 31, 1991 as void, because it
was executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he was merely acting as a representative of Conchita
Cuaton, in whose name the mortgaged lot was titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the loan secured by the mortgage
in the amount of One Million Pesos plus a total P610,000.00 representing interests of 10% and 8% per month for the period February 1992 to August
1992, thus
Original loan

P1,000,000.00

10% interest for the month of February 1992 balance only

50,000.00

10% interest for the month of March 1992

100,000.00

10% interest for the month of April 1992

100,000.00

10% interest for the month of May 1992

100,000.00

10% interest for the month of June 1992

100,000.00

8% interest for the month of July 1992

80,000.00

8% interest for the month of August 1992

80,000.00

Total amount as of August 1992

P 1, 610,000.004

The dispositive portion of the trial courts decision, reads:

WHEREFORE, premises considered, judgment is hereby rendered:
a) Declaring the mortgage executed by Mansueto Cuaton over the property owned by Conchita Cuaton, covered by TCT NO. T34460, dated October 31, 1991, in favor of Rebecca Salud as unauthorized, void and unenforceable against defendant, Conchita
Cuaton hence, the TRO issued against the foreclosure thereof is hereby made permanent. The annotation of the mortgage over
said property is likewise cancelled;
b) Ordering defendant Mansueto Cuaton to pay plaintiff, Rebecca Salud, the sum of One Million Six Hundred Ten Thousand
(P1,610,000.00) Pesos, with legal interest thereon, from January 5, 1993 until fully paid;
c) Ordering defendant, Mansueto Cuaton, to pay Attorneys fees of P25,000.00 in favor of the plaintiff, Rebecca Salud and to pay
the cost of this suit.
Defendants counterclaims, being merely a result of the filing of plaintiffs complaint are hereby DISMISSED.
SO ORDERED.5

38

Both parties filed their respective notices of appeal. 6

On August 31, 2001, the Court of Appeals rendered the assailed decision affirming the judgment of the trial court. Petitioner filed a motion for partial
reconsideration of the trial courts decision with respect to the award of interest in the amount of P610,000.00, arguing that the same was iniquitous
and exorbitant.7 This was denied by the Court of Appeals on May 7, 2003. 8
Hence, the instant petition on the sole issue of whether the 8% and 10% monthly interest rates imposed on the one-million-peso loan obligation of
petitioner to respondent Rebecca Salud are valid.
We find merit in the petition.
In Ruiz v. Court of Appeals,9 we declared that the Usury Law was suspended by Central Bank Circular No. 905, s. 1982, effective on January 1,
1983, and that parties to a loan agreement have been given wide latitude to agree on any interest rate. However, nothing in the said Circular grants
lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The
stipulated interest rates are illegal if they are unconscionable.
Thus, in Medel v. Court of Appeals,10 and Spouses Solangon v. Salazar,11 the Court annulled a stipulated 5.5% per month or 66% per annum interest
on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous,
unconscionable and exorbitant. In both cases, the interest rates were reduced to 12% per annum.
In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner are even higher than those previously
invalidated by the Court in the above cases. Accordingly, the reduction of said rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (contra bonos mores), if not against the law.12 Under Article
1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a
defense be waived.13
Moreover, the contention regarding the excessive interest rates cannot be considered as an issue presented for the first time on appeal. The records
show that petitioner raised the validity of the 10% monthly interest in his answer filed with the trial court. 14 To deprive him of his right to assail the
imposition of excessive interests would be to sacrifice justice to technicality. Furthermore, an appellate court is clothed with ample authority to review
rulings even if they are not assigned as errors. This is especially so if the court finds that their consideration is necessary in arriving at a just decision
of the case before it. We have consistently held that an unassigned error closely related to an error properly assigned, or upon which a determination
of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as
an error.15 Since respondents pointed out the matter of interest in their Appellants Brief 16 before the Court of Appeals, the fairness of the imposition
thereof was opened to further evaluation. The Court therefore is empowered to review the same.
The case of Eastern Shipping Lines, Inc. v. Court of Appeals,17 laid down the following guidelines on the imposition of interest, to wit:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code.
xxx

xxx

xxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.
Applying the foregoing rules, the interest of 12% per annum imposed by the Court (in lieu of the invalidated 10% and 8% per month interest rates) on
the one-million-peso loan should be computed from the date of the execution of the loan on October 31, 1991 until finality of this decision. After the
judgment becomes final and executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year.
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The August 31, 2001 Decision of the Court of Appeals in CA-G.R. CV
No. 54715, which affirmed the Decision of the Regional Trial Court of General Santos City, Branch 35, in SPL. Civil Case No. 359, is MODIFIED. The
interest rates of 10% and 8% per month imposed by the trial court is reduced to 12% per annum, computed from the date of the execution of the loan
on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due
shall further earn interest at 12% per year.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur.
Azcuna, J., on official leave.

39

[G.R. No. 109087. May 9, 2001]

RODZSSEN SUPPLY CO. INC., petitioner, vs. FAR EAST BANK & TRUST CO., respondent.
DECISION
PANGANIBAN, J.:
When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the
other. Thus, their rights and obligations may be determined equitably. No one shall enrich oneself at the expense of another.
The Case

Before us is a Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court, assailing the January 21, 1993 Decision [2] of the Court of
Appeals[3] (CA) in CA-GR CV No. 26045. The challenged Decision affirmed with modification the ruling of the Regional Trial Court of Bacolod City in
Civil Case No. 2296. The CA ruled as follows:
WHEREFORE, the decision under appeal should be, as it is hereby affirmed in all its aspects, except for the deletion of paragraph 2 of its dispositive
portion, which paragraph shall be replaced by a new paragraph which shall read as follows:
2. ordering the defendant to pay the plaintiff the sum equivalent to 10% of the total amount due and collectible, as attorneys fees; and
No pronouncement as to costs.[4]
On the other hand, the trial court had rendered this judgment:
1. Ordering the defendant to pay the plaintiff the sum of P76,000.00, representing the principal amount being claimed in this action, plus
interest thereon at the rate of 12% per annum counted from October 1979 until fully paid;
2. Ordering the defendant to pay the plaintiff the sum equivalent to 25% of the total amount due and collectible; and
3. Ordering the defendant to pay the costs of the suit. [5]
The Facts

The factual and procedural antecedents of the case are summarized by the Court of Appeals as follows:
In the complaint from which the present proceedings originated, it is alleged that on January 15, 1979, defendant Rodzssen Supply, Inc. opened with
plaintiff Far East Bank and Trust Co. a 30-day domestic letter of credit, LC No. 52/0428/79-D, in the amount of P190,000.00 in favor of Ekman and
Company, Inc. (Ekman) for the purchase from the latter of five units of hydraulic loaders, to expire on February 15, 1979; that subsequent
amendments extended the validity of said LC up to October 16, 1979; that on March 16, 1979, three units of the hydraulic loaders were delivered to
defendant for which plaintiff on March 26, 1979, paid Ekman the sum of P114,000.00, which amount defendant paid plaintiff before the expiry date of
the LC; that the shipment of the remaining two units of hydraulic loaders valued at P76,000.00 sent by Ekman was readily received by the defendant
before the expiry date [of] subject LC; that upon Ekmans presentation of the documents for the P76,000.00 representing final negotiation on the LC
before the expiry date, and after a series of negotiations, plaintiff paid to Ekman the amount of P76,000.00; and that upon plaintiffs demand on
defendant to pay for said amount (P76,000.00), defendant refused to pay ... without any valid reason. Plaintiff prays for judgment ordering defendant
to pay the abovementioned P76,000.00 plus due interest thereon, plus 25% of the amount of the award as attorneys fees.
In the Answer, defendant interposed, inter alia, by way of special and affirmative defenses that plaintiff ha[d] no cause of action against defendant;
that there was a breach of contract by plaintiff who in bad faith paid Ekman, knowing that the two units of hydraulic loaders had been delivered to
defendant after the expiry date of subject LC; and that in view of the breach of contract, defendant offered to return to plaintiff the two units of
hydraulic loaders, presently still with the defendant but plaintiff refused to take possession thereof.
The trial courts ruling that plaintiff [was] entitled to recover from defendant the amount of P76,000.00 was based on its following findings/conclusions:
(1) under the contract of sale of the five loaders between Ekman and defendant, upon Ekmans delivery to, and acceptance by, defendant of the two
remaining units of the five loaders, defendant became liable to Ekman for the payment of said two units.However, as defendant did not pay Ekman,
the latter pressed plaintiff for the payment of said two loaders in the amount of P76,000.00. In the honest belief that it was still under obligation to
Ekman for said amount, considering that Ekman had presented all the necessary documents, plaintiff voluntarily paid the said amount to
Ekman. Plaintiffs x x x voluntary and lawful act of payment g[a]ve rise to a quasi-contract between plaintiff and defendant; and if defendant should
escape liability for said amount, the result would be to allow defendant to enrich itself at plaintiffs expense x x x.

40

x x x. While defendant, indeed offered to return the two loaders to plaintiff, x x x this offer was made 3 years after defendants receipt of the goods,
when plaintiff pressed for payment. By said voluntary acceptance of the two loaders, estoppel works against defendant who should have refused
delivery of, and/or immediately offered to return, the goods.
Accordingly, judgment was rendered in favor of the plaintiff and against the defendant x x x. [6]
The CA Ruling

The CA rejected petitioners imputation of bad faith and negligence to respondent bank for paying for the two hydraulic loaders, which had been
delivered after the expiration of the subject letter of credit.The appellate court pointed out that petitioner received the equipment after the letter of
credit had expired. To absolve defendant from liability for the price of the same, the CA explained, is to allow it to get away with its unjust enrichment
at the expense of the plaintiff.
Hence, this Petition.[7]
Issues

Petitioner presents the following issues for resolution:

1. Whether or not it is proper for a banking institution to pay a letter of credit which has long expired or been cancelled.
2. Whether or not respondent courts were correct in their conclusion that there was a consummated sale between petitioner and Ekman Co.
3. Whether or not Respondent Court of Appeals was correct in evading the issues raised in the appeal that under the trust receipt, petitioner was
merely the depositary of private respondent with respect to the goods covered by the trust receipt. [8]
The Courts Ruling

We affirm the Court of Appeals, but lower the interest rate to only 6 percent and delete the award of attorneys fees.
First Issue:

Efficacy of Letter of Credit

Petitioner asserts that respondent bank was negligent in paying for the two hydraulic loaders, when it no longer had any obligation to do so in
view of the expiration and cancellation of the Letter of Credit.
Petitioner Rodzssen Supply Inc. applied for and obtained an irrevocable 30-day domestic Letter of Credit from Far East Bank and Trust
Company Inc. on January 15, 1979, in favor of Ekman and Company Inc., in order to finance the purchase of five units of hydraulic loaders in the
amount of P190,000. Originally set to expire on February 15, 1979, the subject Letter of Credit was amended several times to extend its validity until
October 16, 1979.
The Letter of Credit expressly restricted the negotiation to respondent bank and specifically instructed Ekman and Company Inc. to tender the
following documents: (1) delivery receipt duly acknowledged by the buyer, (2) accepted draft, and (3) duly signed commercial invoices. Likewise, the
instrument contained a provision with regard to its expiration date. [9]
For the first three hydraulic loaders that were delivered, the bank paid the amount specified in the letter of credit. The present dispute pertains
only to the last two hydraulic loaders.
Clearly, the bank paid Ekman when the former was no longer bound to do so under the subject Letter of Credit. The records show that
respondent paid the latter P76,000 for the last two hydraulic loaders on March 14, 1980, [10] five months after the expiration of the Letter of Credit on
October 16, 1979.[11] In fact, on December 27, 1979, the bank had informed Rodzssen of the cancellation of the commercial paper and
credited P22,800 to the account of the latter. The amount represented the marginal deposit, which petitioner had been required to put up for the
unnegotiated portion of the Letter of Credit --P76,000 for the two hydraulic loaders.[12]
The subject Letter of Credit had become invalid upon the lapse of the period fixed therein. [13] Thus, respondent should not have paid Ekman; it
was not obliged to do so. In the same vein, of no moment was Ekmans presentation, within the prescribed period, of all the documents necessary for
collection, as the Letter of Credit had already expired and had in fact been cancelled.
Second Issue:

Was Petitioner Liable to Respondent?

41

Be that as it may, we agree with the CA that petitioner should pay respondent bank the amount the latter expended for the equipment belatedly
delivered by Ekman and voluntarily received and kept by petitioner.
Respondent banks right to seek recovery from petitioner is anchored, not upon the inefficacious Letter of Credit, but on Article 2142 of the Civil
Code which reads as follows:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or
benefited at the expense of another.
Indeed, equitable considerations behoove us to allow recovery by respondent. True, it erred in paying Ekman, but petitioner itself was not
without fault in the transaction. It must be noted that the latter had voluntarily received and kept the loaders since October 1979.
Petitioner claims that it accepted the late delivery of the equipment, only because it was bound to accept it under the companys trust receipt
arrangement with respondent bank.
Granting that petitioner was bound under such arrangement to accept the late delivery of the equipment, we note its unexplained inaction for
almost four years with regard to the status of the ownership or possession of the loaders. Bewildering was its lack of action to validate the ownership
and possession of the loaders, as well as its stolidity over the purported failed sales transaction. Significant too is the fact that it formalized its offer to
return the two pieces of equipment only after respondents demand for payment, which came more than three years after it accepted delivery.
When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the
other and, as in this case, their rights and obligations may be determined equitably under the law proscribing unjust enrichment.
Payment of Interest

We, however, disagree with both the CA and the trial courts imposition of 12 percent interest on the sum to be paid by petitioner. In Eastern
Shipping Lines v. CA,[14] the Court laid down the following guidelines in the imposition of interest:
xxxxxxxxx
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum.No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
Although the sum of money involved in this case was payable to a bank, the present factual milieu clearly shows that it was not a loan or
forbearance of money. Thus, pursuant to established jurisprudence and Article 2009 of the Civil Code, petitioner is bound to pay interest at 6 percent
per annum, computed from April 7, 1983, the time respondent bank demanded payment from petitioner. From the finality of the judgment until its
satisfaction, the interest shall be 12 percent per annum.
Attorneys Fees

Considering that negligence is imputable to both parties, both should bear their respective costs of the suit. We also delete the award of
attorneys fees in favor of respondent bank.[15]
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED with the following MODIFICATIONS:
1. Petitioner Rodzssen Supply Co., Inc. is ORDERED to reimburse Respondent Far East Bank and Trust Co., Inc. P76,000 plus interest thereon at
the rate of 6 percent per annum computed from April 7, 1983. After this judgment becomes final, the interest shall be 12 percent per annum.
2. The award of attorneys fees in favor of respondent is DELETED.
3. No pronouncement as to costs.
SO ORDERED.
Melo (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

42

G.R. No. 125944

June 29, 2001

SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners,

vs.
JOSE AVELINO SALAZAR, respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the decision of the Court of Appeals in CA-G.R.
CV No. 37899, affirming the decision of the Regional Trial Court, Branch 16, Malolos, Bulacan, in Civil Case No. 375-M-91, "Spouses Danilo and
Ursula Solangon vs. Jose Avelino Salazar" for annulment of mortgage. The dispositive portion of the RTC decision reads:
"WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the defendant Salazar, as follows:
1. Ordering the dismissal of the complaint;
2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;
3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorneys fees; and
4. To pay the costs.
SO ORDERED."1
The facts as summarized by the Court of Appeals in its decision being challenged are:
"On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a parcel of land situated in
Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure payment of a loan of P60,000.00 payable within a period of four (4)
months, with interest thereon at the rate of 6% per month (Exh. "B").
On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land to the
defendant-appellee, to secure payment of a loan of P136,512.00, payable within a period of one (1) year, with interest thereon at the legal
rate (Exh. "1").
On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land
in favor of defendant-appellee, to secure payment of a loan in the amount of P230,000.00 payable within a period of four (4) months, with
interest thereon at the legal rate (Exh. "2", Exh. "C").
This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property. They alleged that they obtained
only one loan form the defendant-appellee, and that was for the amount of P60,000.00, the payment of which was secured by the first of
the above-mentioned mortgages. The subsequent mortgages were merely continuations of the first one, which is null and void because it
provided for unconscionable rate of interest. Moreover, the defendant-appellee assured them that he will not foreclose the mortgage as
long as they pay the stipulated interest upon maturity or within a reasonable time thereafter. They have already paid the defendantappellee P78,000.00 and tendered P47,000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the
loan P230,000.00 plus interest.1wphi1.nt
On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-described mortgages were executed to secure
three separate loans of P60,000.00 P136,512.00 and P230,000.00, and that the first two loans were paid, but the last one was not. He
denied having represented that he will not foreclose the mortgage as long as the plaintiffs-appellants pay interest."
In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the following errors:
1. The Court of Appeals erred in holding that three (3) mortgage contracts were executed by the parties instead of one (1);
2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate mortgage with an interest of 72% per cent per annum
or 6% per month is not unconscionable;
4. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN PAID when the mortgagee himself states in his
ANSWER that the same was already paid; and
5. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the appellants.

43

In his comment, respondent Jose Avelino Salazar avers that the petition should not be given due course as it raises questions of facts which are not
allowed in a petition for review on certiorari.
We find no merit in the instant petition.
The core of the present controversy is the validity of the third contract of mortgage which was foreclosed.
Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the amount of P60,000.00 secured by the first mortgage
of August 1986. According to them, they signed the third mortgage contract in view of respondents assurance that the same will not be foreclosed.
The trial court, which is in the best position to evaluate the evidence presented before it, did not give credence to petitioners corroborated testimony
and ruled:
"The testimony is improbable. The real estate mortgage was signed not only by Ursula Solangon but also by her husband including the
Promissory Note appended to it. Signing a document without knowing its contents is contrary to common experience. The uncorroborated
testimony of Ursula Solangon cannot be given weight."2
Petitioners likewise insist that, contrary to the finding of the Court of appeals, they had paid the amount of P136,512.00, or the second loan. In fact,
such payment was confirmed by respondent Salazar in his answer to their complaint.
It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for review under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, only questions of law may be raised and they must be distinctly set forth. The settled rule is that findings of fact of the lower
courts (including the Court of Appeals) are final and conclusive and will not be reviewed on appeal except: (1) when the conclusion is a finding
grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when
the Court of Appeals, in making its findings, went beyond the issues of the case and such findings are contrary to the admission of both appellant
and appellee; (6) when the findings of the Court of Appeals are contrary to those of the trial court; and (7) when the findings of fact are conclusions
without citation of specific evidence on which they are based. 3
None of these instances are extant in the present case.
Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that the Court of Appeals erred in decreeing that the
stipulated interest rate of 72% per annum or 6% per month is not unconscionable.
The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury Law had been repealed by Central Bank Circular No.
905 there is no more maximum rate of interest and the rate will just depend on the mutual agreement of the parties. Obviously, this was in
consonance with our ruling in Liam Law v. Olympic Sawmill Co.4
The factual circumstances of the present case require the application of a different jurisprudential instruction. While the Usury Law ceiling on interest
rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets. 5 In Medel v. Court of Appeals,6 this court had the occasion to rule on this
question - whether or not the stipulated rate of interest at 5.5% per month on a loan amounting to P500,000.00 is usurious. While decreeing that the
aforementioned interest was not usurious, this Court held that the same must be equitably reduced for
being iniquitous, unconscionable and exorbitant, thus:
"We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant. However, we can not consider the rate usurious because this Court has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law
and that the Usury Law is now legally inexistent.
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 did not repeal
nor in any way amend the Usury Law but simply suspended the latters effectivity. Indeed, we have held that a Central Bank Circular can
not repeal a law. Only a law can repeal another law. In the recent case of Florendo v. Court of Appeals, the Court reiterated the ruling that
by virtue of CB Circular 905, the Usury Law has been rendered ineffective. Usury Law has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon.
Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated upon by the parties in the promissory note
iniquitous or unconscionable, and hence, contrary to morals (contra bonos mores), if not against the law. The stipulation is
void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous
or unconscionable." (Emphasis supplied)
In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum
which is definitely outrageous and inordinate. Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest of
12% per annum is deemed fair and reasonable.

44

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum
is ordered reduced to 12 % per annum.
SO ORDERED.Melo, Vitug, Panganiban, Gonzaga-Reyes, JJ., concur.
[G.R. No. 144712. July 4, 2002]
SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V. RAMOS, respondent.
DECISION
DAVIDE, JR., C.J.:
Before us is a petition for review on certiorari assailing the 5 November 1999 Decision[1] and the 18 August 2000 Resolution[2] of the Court of
Appeals in CA G.R. CV No. 52848. The former affirmed the 5 June 1995 and 7 September 1995 Orders of the Regional Trial Court, Malolos,
Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latter denied petitioners motion for reconsideration.
The case at bar stemmed from the petition [3] for consolidation of title or ownership filed on 5 July 1993 with the trial court by herein
respondent Rodrigo V. Ramos (hereafter RAMOS) against herein petitioners, Spouses Silvestre and Celia Pascual (hereafter the PASCUALs). In his
petition, RAMOS alleged that on 3 June 1987, for and in consideration of P150,000, the PASCUALs executed in his favor a Deed of Absolute Sale
with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan, covered by Transfer
Certificate of Title (TCT) No. 305626 of the Registry of Deeds of Bulacan. This document was annotated at the back of the title. The PASCUALs did
not exercise their right to repurchase the property within the stipulated one-year period; hence, RAMOS prayed that the title or ownership over the
subject parcels of land and improvements thereon be consolidated in his favor.
In their Answer,[4] the PASCUALs admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150,000
but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no
agreement limiting the period within which to exercise the right to repurchase and that they had even overpaid RAMOS. Furthermore, they
interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition; (b) RAMOS had no legal capacity to
sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action; (e) the claim or demand set
forth in RAMOSs pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) RAMOS has not complied with the required
confrontation and conciliation before the barangay.
By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a Deed of Cancellation, Release or Discharge of the Deed
of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mortgage; deliver to them the owners duplicate of TCT No. T-305626; return the
amount they had overpaid; and pay each of them moral damages and exemplary damages in the amounts of P200,000 and P50,000, respectively,
plus attorneys fees of P100,000; appearance fee of P1,500 per hearing; litigation expenses; and costs of suit.
After the pre-trial, the trial court issued an order [5] wherein it identified the following issues: (1) whether the Deed of Absolute Sale with Right to
Repurchase is an absolute sale or a mere mortgage; (2) whether the PASCUALs have paid or overpaid the principal obligation; (3) whether the
ownership over the parcel of land may be consolidated in favor of RAMOS; and (4) whether damages may be awarded.
Among the documents offered in evidence by RAMOS during the trial on the merits was a document denominated as Sinumpaang
Salaysay[6] signed by RAMOS and Silvestre Pascual, but not notarized. The contents of the document read:
Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at kasalukuyang naninirahan sa Bambang, Bulacan, Bulacan, ay
nagsasabing buong katotohanan at sumusumpa sa aking mga salaysay sa kasulatang ito:
1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan ng puhunan ay lumapit ako at nakiusap kay Rodrigo
Ramos ng Taal, Pulilan, Bulacan na pautangin ako ng halagang P150,000.00.
2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo ng seven percent (7%) o P10,500.00 isang
buwan (7% per month).
3. Na bilang sangla (collateral security) sa aking utang, kami ay nagkasundo na mag-execute ng Deed of Sale with Right to
Repurchase para sa aking bahay at lupa (TCT No. 305626) sa Bo. Taliptip, Bambang, Bulacan, Bulacan ngayong June 3,
1987 at binigyan ako ni Mr. Ramos ng isang taon hanggang June 3, 1988 upang mabiling muli ang aking isinanla sa kaniya sa
kasunduang babayaran kong lahat ang capital na P150,000.00 pati na ang P10,500.00 na tubo buwan buwan.
4. Na bilang karagdagang condition, si RODRIGO RAMOS ay pumayag sa aking kahilingan na kung sakali na hindi ko mabayaran
ng buo ang aking pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon, ang nakasanglang bahay at lupa
ay hindi muna niya iilitin (foreclose) o ipalilipat sa pangalan niya at hindi muna kamipaaalisin sa tinitirhan naming bahay
hanggat ang tubo (interest) na P10,500.00 ay nababayaran ko buwan buwan.

45

5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos na pagkatapos ng isang taon mula ngayon hanggang June 3, 1988
at puro interest lamang ang aking naibabayadbuwan-buwan, kung sakaling hindi ako makabayad ng tubo for six (6)
consecutive months (1/2 year after June 3, 1988 (6 na buwang hindi bayad ang interest ang utang ko) si Rodrigo Ramos ay
binibigyan ko ng karapatan at kapangyarihan na mag-mayari ng aming bahay at lupa at kami ng aking pamilya ay kusang loob
na aalis sa nasabing bahay at lupa na lumalabas na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga
pinagkasunduang usapan.
6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi maghahabol ng ano mang sukli sa
pagkakailit ng aming bahay at lupa kung sakali mang dumating sa ganuong pagkakataon o sitwasyon o di
kayay magsasampa ng reklamo kanino man.
Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng aming mga pangalan ngayong ika-3 ng Hunyo, 1987.
(Sgd.)Rodrigo Ramos Sgd.) Silvestre Pascual
Nagpautang Umutang
For their part, the PASCUALs presented documentary evidence consisting of acknowledgment receipts [7] to prove the payments they had
made.
The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of which was
secured by a mortgage of the property covered by TCT No. 305626. It also found that the PASCUALs had made payments in the total sum
of P344,000, and that with interest at 7% per annum, the PASCUALs had overpaid the loan byP141,500. Accordingly, in its Decision[8] of 15 March
1995 the trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff in the following manner:
1. Dismissing the plaintiffs petition;
2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with Right to Repurchase on the dorsal side of TCT
No. 305626;
3. Awarding the defendants the sum of P141,500.00 as overpayment on the loan and interests;
4. Granting the defendants attorneys fee in the sum of P15,000.00 and P3,000.00 for litigation expenses.
With costs against the plaintiff.
RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in using an interest rate of 7% per annum in the
computation of the total amount of obligation because what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. The total
interest due from 3 June 1987 to 3 April 1995 was P987,000. Deducting therefrom the interest payments made in the sum of P344,000, the amount
of P643,000 was still due as interest. Adding the latter to the principal sum of P150,000, the total amount due from the PASCUALs as of 3 April 1995
was P793,000.
Finding merit in the motion for reconsideration, which was not opposed by the PASCUALs, the trial court issued on 5 June 1995 an
Order[9] modifying its decision by deleting the award of P141,500 to the PASCUALs as overpayment of the loan and interest and ordering them to pay
RAMOS P511,000 representing the principal loan plus interest. The trial court acknowledged that it had inadvertently declared the interest rate to be
7% per annum when, in fact, the Sinumpaang Salaysay stipulated 7% per month. It noted that during trial, the PASCUALs never disputed the
stipulated interest rate. However, the court declared that the 7% per month interest is too burdensome and onerous. Invoking the protective mantle of
Article 24 of the Civil Code, which mandates the courts to be vigilant for the protection of a party at a disadvantage due to his moral dependence,
ignorance, indigence, mental weakness, tender age or other handicap, the trial court unilaterally reduced the interest rate from 7% per month to 5%
per month. Thus, the interest due from 3 June 1987 to 3 April 1995 was P705,000.Deducting therefrom the payments made by the PASCUALs in the
amount of P344,000, the net interest due was P361,000. Adding thereto the loan principal of P150,000, the total amount due from the PASCUALs
was P511,000.
Aggrieved by the modification of the decision, the PASCUALs filed a motion to reconsider the Order of 5 June 1995. They alleged that the
motion for reconsideration filed by RAMOS was a mere scrap of paper because they received a copy of said motion only a day before the hearing, in
violation of the 3-day-notice rule. Moreover, they had already paid the interests and had in fact overpaid the principal sum of P150,000. Besides,
RAMOS, being an individual, could not charge more than 1% interest per month or 12% per annum; and, the interest of either 5% or 7% a month is
exorbitant, unconscionable, unreasonable, usurious and inequitable.
RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance with the 3-day-notice rule was cured when the trial
court gave them an opportunity to file their opposition, but despite the lapse of the period given them, no opposition was filed. It is not correct to say
that he was not allowed to collect more than 1% per month interest considering that with the moratorium on the Usury Law, the allowable interest is

46

that agreed upon by the parties. In the absence of any evidence that there was fraud, force or undue influence exerted upon the PASCUALs when
they entered into the transaction in question, their agreement embodied in the Sinumpaang Salaysay should be respected. Furthermore, the trial
court had already reduced the interest rate to 5% per month, a rate which is not exorbitant, unconscionable, unreasonable and inequitable.
Their motion for reconsideration having been denied in the Order [10] of 7 September 1995, the PASCUALs seasonably appealed to the Court of
Appeals. They pointed out that since the only prayer of RAMOS in his petition was to have the title or ownership over the subject land and the
improvements thereon consolidated in his favor and he did not have any prayer for general relief, the trial court had no basis in ordering them to pay
him the sum of P511,000.
In its Decision[11] of 5 November 1999, the Court of Appeals affirmed in toto the trial courts Orders of 5 June 1995 and 7 September 1995. It
ruled that while RAMOSs petition for consolidation of title or ownership did not include a prayer for the payment of the balance of the petitioners
obligation and a prayer for general relief, the issue of whether there was still a balance from the amount loaned was deemed to have been raised in
the pleadings by virtue of Section 5, Rule 10 of the Rules of Court, which provides that [w]hen issues not raised by the pleadings are tried with the
express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. In the course of the trial,
receipts were presented by the PASCUALs evidencing the payments they had made. Taken in conjunction with the Sinumpaang Salaysay which
specified the interest rate at 7% per month, a mathematical computation readily leads to the conclusion that there is still a balance due from the
PASCUALs, even at a reduced interest rate of 5% interest per month.
With the denial of their motion for reconsideration of the decision by the Court of Appeals, the PASCUALs filed before us the instant petition
raising the sole issue of whether they are liable for 5% interest per month from 3 June 1987 to 3 April 1995. Invoking this Courts ruling in Medel v.
Court of Appeals,[12] they argue that the 5% per month interest is excessive, iniquitous, unconscionable and exorbitant. Moreover, respondent should
not be allowed to collect interest of more than 1% per month because he tried to hide the real transaction between the parties by imposing upon
them to sign a Deed of Absolute Sale with Right to Repurchase.
For his part, RAMOS contends that the issue raised by petitioners cannot be entertained anymore because it was neither raised in the
complaint nor ventilated during the trial. In any case, there was nothing illegal on the rate of interest agreed upon by the parties, since the ceilings on
interest rates prescribed under the Usury Law had expressly been removed, and hence parties are left freely at their discretion to agree on any rate
of interest. Moreover, there was no scheme to hide a usurious transaction. RAMOS then prays that the challenged decision and resolution be
affirmed and that petitioners be further ordered to pay legal interest on the interest due from the time it was demanded.
We see at once the proclivity of the PASCUALs to change theory almost every step of the case.
By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually raising as issue the validity of the stipulated interest rate. It
must be stressed that they never raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While overpayment was
alleged in the Answer, no ultimate facts which constituted the basis of the overpayment was alleged. In their pre-trial brief, the PASCUALs made a
long list of issues, but not one of them touched on the validity of the stipulated interest rate. Their own evidence clearly shows that they have agreed
on, and have in fact paid interest at, the rate of 7% per month. Exhibits 1 to 8 specifically mentioned that the payments made were for the interest
due on the P150,000 loan of the PASCUALs. In the course of the trial, the PASCUALs never put in issue the validity of the stipulated interest rate.
After the trial court sustained petitioners claim that their agreement with RAMOS was actually a loan with real estate mortgage, the PASCUALs
should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per month. The PASCUALs should
accept not only the favorable aspect of the courts declaration that the document is actually an equitable mortgage but also the necessary
consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same document should be paid.Besides, when
RAMOS moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should be 7% per
month, the PASCUALs never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995, the
PASCUALs argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in
their Appellants Brief, the only argument raised by the PASCUALs was that RAMOSs petition did not contain a prayer for general relief and, hence,
the trial court had no basis for ordering them to pay RAMOS P511,000 representing the principal and unpaid interest. It was only in their motion for
the reconsideration of the decision of the Court of Appeals that the PASCUALs made an issue of the interest rate and prayed for its reduction to 12%
per annum.
In Manila Bay Club Corp. v. Court of Appeals,[13] this Court ruled that if an issue is raised only in the motion for reconsideration of the decision
of the Court of Appeals, the effect is that it is as if it was never duly raised in that court at all.
Our ruling in Medel v. Court of Appeals [14] is not applicable to the present case. In that case, the excessiveness of the stipulated interest at the
rate of 5.5 % per month was put in issue by the defendants in the Answer. Moreover, in addition to the interest, the debtors were also required, as
per stipulation in the promissory note, to pay service charge of 2% per annum and a penalty charge of 1% per month plus attorneys fee of equivalent
to 25% of the amount due. In the case at bar, there is no other stipulation for the payment of an extra amount except interest on the principal loan.
Thus, taken in conjunction with the stipulated service charge and penalty, the interest rate of 5.5% in the Medel case was found to be excessive,
iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby making such stipulation null and void.
Considering the variance in the factual circumstances of the Medel case and the instant case, we are not prepared to apply the former lest it
be construed that we can strike down anytime interest rates agreed upon by parties in a loan transaction.

47

It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to
stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public
policy.[15]
The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with RAMOS. Neither is there a showing
that in their contractual relations with RAMOS, the PASCUALs were at a disadvantage on account of their moral dependence, ignorance, mental
weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil
Code. Apropos in our ruling in Vales vs. Villa:
All men are presumed to be sane and normal and subject to be moved by substantially the same motives. When of age and sane, they must take
care of themselves. In their relations with others in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash and
contest, sometimes with gain and advantage to all, sometimes to a few only, with loss and injury to others. In these contests men must depend upon
themselves upon their own abilities, talents, training, sense, acumen, judgment. The fact that one may be worsted by another, of itself, furnishes no
cause of complaint. One man cannot complain because another is more able, or better trained, or has better sense or judgment than he has; and
when the two meet on a fair field the inferior cannot murmur if the battle goes against him. The law furnishes no protection to the inferior simply
because he is inferior, any more than it protects the strong because he is strong. The law furnishes protection to both alike to one no more or less
than to the other. It makes no distinction between the wise and the foolish, the great and the small, the strong and the weak. The foolish may lose all
they have to the wise; but that does not mean that the law will give it back to them again. Courts cannot follow one every step of his life and extricate
him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot
constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or
overcome by another, but because he has been defeated or overcomeillegally. Men may do foolish things, make ridiculous contracts, use miserable
judgment, and lose money by then indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in
addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the
situation and remedy it.[16]
With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on loans.
Absent any evidence of fraud, undue influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is binding
upon them. This Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon. As declared in
the decision of Cuizon v. Court of Appeals,[17]
It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation
of the one which they have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the
contract words which it does not contain.
Thus, we cannot supplant the interest rate, which was reduced to 5% per month without opposition on the part of RAMOS.
We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by imposing upon them the
execution of a Deed of Absolute Sale with Right to Repurchase, he should not be allowed to collect more than 1% per month interest. It is undisputed
that simultaneous with the execution of the said deed was the execution of the Sinumpaang Salaysay, which set forth the true agreement of the
parties. The PASCUALs cannot then claim that they did not know the real transaction.
RAMOSs claim that the interest due should earn legal interest cannot be acted upon favorably because he did not appeal from the Order of the
trial court of 5 June 1995, which simply ordered the payment by the PASCUALs of the amount of P511,000 without interest thereon. No relief can be
granted a party who does not appeal.[18] Therefore, the order of the trial court should stand.
Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v. Valle was reproduced by his counsel without the proper
citation. Such act constitutes plagiarism. Atty. Felimon B. Mangahas is hereby warned that a repetition of such act shall be dealt with accordingly.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 52848
is AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.
Vitug, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.

48

ILEANA DR. MACALINAO,

G.R. No. 175490

Petitioner,
Present:
- versus -

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,

BANK OF THE PHILIPPINEISLANDS,

Respondent.

VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

.
Promulgated:
September 17, 2009
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

49

The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the June 30, 2006
Decision[1] of the Court of Appeals (CA) and its November 21, 2006 Resolution [2] denying petitioners motion for reconsideration.

The Facts
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of respondent Bank of the
Philippine Islands (BPI).[3]Petitioner Macalinao made some purchases through the use of the said credit card and defaulted in paying for said
purchases. She subsequently received a letter dated January 5, 2004 from respondent BPI, demanding payment of the amount of one hundred
forty-one thousand five hundred eighteen pesos and thirty-four centavos (PhP 141,518.34), as follows:

Statement
Date
10/27/200
2
11/27/2002
12/31/200
2
1/27/2003
2/27/2003
3/27/2003
4/27/2003
5/27/2003
6/29/2003

Previous
Balance
94,843.70

Purchases
(Payments)

Penalty
Interest
559.72

Finance
Charges
3,061.99

Balance
Due
98,456.41

98,465.41
86,351.02

(15,000)
30,308.80

0
259.05

2,885.61
2,806.41

86,351.02
119,752.28

618.23
990.93
298.72
644.26
402.95
323.57

3,891.07
4,037.62
3,616.05
3,743.28
3,571.71
3,607.32

124,234.58
129,263.13
115,177.90
119,565.44
113,540.10
118,833.49

7/27/2003
8/27/2003
9/28/2003
10/28/200
3
11/28/2003
12/28/200
3
1/27/2004

118,833.49
123,375.65
128,435.56

608.07
1,050.20
1,435.51

3,862.09
4,009.71
4,174.16

123,375.65
128,435.56
134,045.23

141,518.34

8,491.10

4,599.34

154,608.78

119,752.28
124,234.58
129,263.13
115,177.90
119,565.44
113,540.10

(18,000.00)
(10,000.00)
8,362.50
(7,000.00)

Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the charges or balance
thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per
month and an additional penalty fee equivalent to another 3% per month. Particularly:
8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a monthly Statement of Account (SOA) and the
Cardholder agrees that all charges made through the use of the CARD shall be paid by the Cardholder as stated in the SOA on
or before the last day for payment, which is twenty (20) days from the date of the said SOA, and such payment due date may be
changed to an earlier date if the Cardholders account is considered overdue and/or with balances in excess of the approved
credit limit, or to such other date as may be deemed proper by the CARD issuer with notice to the Cardholder on the same
monthly SOA. If the last day fall on a Saturday, Sunday or a holiday, the last day for the payment automatically becomes the last
working day prior to said payment date. However, notwithstanding the absence or lack of proof of service of the SOA of the
Cardholder, the latter shall pay any and all charges made through the use of the CARD within thirty (30) days from date or dates
thereof. Failure of the Cardholder to pay the charges made through the CARD within the payment period as stated in the SOA or
within thirty (30) days from actual date or dates of purchase whichever occur earlier, shall render him in default without the
necessity of demand from BCC, which the Cardholder expressly waives. The charges or balance thereof remaining unpaid
after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per
month for BPI Express Credit, BPI Gold Mastercard and an additional penalty fee equivalent to another 3% of the

50

amount due for every month or a fraction of a months delay. PROVIDED that if there occurs any change on the prevailing
market rates, BCC shall have the option to adjust the rate of interest and/or penalty fee due on the outstanding obligation with
prior notice to the cardholder. The Cardholder hereby authorizes BCC to correspondingly increase the rate of such interest [in]
the event of changes in the prevailing market rates, and to charge additional service fees as may be deemed necessary in order
to maintain its service to the Cardholder. A CARD with outstanding balance unpaid after thirty (30) days from original billing
statement date shall automatically be suspended, and those with accounts unpaid after ninety (90) days from said original
billing/statement date shall automatically be cancel (sic), without prejudice to BCCs right to suspend or cancel any card anytime
and for whatever reason. In case of default in his obligation as provided herein, Cardholder shall surrender his/her card to BCC
and in addition to the interest and penalty charges aforementioned , pay the following liquidated damages and/or fees (a) a
collection fee of 25% of the amount due if the account is referred to a collection agency or attorney; (b) service fee for every
dishonored check issued by the cardholder in payment of his account without prejudice, however, to BCCs right of considering
Cardholders account, and (c) a final fee equivalent to 25% of the unpaid balance, exclusive of litigation expenses and judicial
cost, if the payment of the account is enforced though court action. Venue of all civil suits to enforce this Agreement or any other
suit directly or indirectly arising from the relationship between the parties as established herein, whether arising from crimes,
negligence or breach thereof, shall be in the process of courts of the City of Makati or in other courts at the option of BCC.
[4]
(Emphasis supplied.)

For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial Court (MeTC) of Makati
City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. This was raffled to Branch 66 of the MeTC and was
docketed as Civil Case No. 84462 entitled Bank of the Philippine Islandsvs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.[5]

In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos
and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from
February 29, 2004 and an amount equivalent to 25% of the total amount due as attorneys fees, and of the cost of suit. [6]

After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband, they failed to file their
Answer.[7] Thus, respondent BPI moved that judgment be rendered in accordance with Section 6 of the Rule on Summary Procedure. [8] This was
granted in an Order dated June 16, 2004.[9] Thereafter, respondent BPI submitted its documentary evidence. [10]

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner Macalinao and her husband to
pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month, to wit:
WHEREFORE, finding merit in the allegations of the complaint supported by documentary evidence, judgment is
hereby rendered in favor of the plaintiff, Bank of the Philippine Islands and against defendant-spouses Ileana DR Macalinao
and Danilo SJ Macalinao by ordering the latter to pay the former jointly and severally the following:

1. The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100
(P141,518.34) plus interest and penalty charges of 2% per month from January 05, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of suit.
SO ORDERED.[11]

Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their recourse docketed as Civil
Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in toto the decision of the MeTC and held:

51

In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a recomputation at the
reduced rate of 2% per month. Note that the total amount sought by the plaintiff-appellee was P154,608.75 exclusive of finance
charge of 3.25% per month and late payment charge of 6% per month.
WHEREFORE, the appealed decision is hereby affirmed in toto.
No pronouncement as to costs.
SO ORDERED.[12]

Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R. SP No. 92031. The CA
affirmed with modification the Decision of the RTC:
WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total amount due and interest
rate. Accordingly, petitioners are jointly and severally ordered to pay respondent Bank of the Philippine Islands the following:

1.

The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and Seventy
Centavos plus interest and penalty charges of 3% per month from January 5, 2004 until fully paid;

2.

P10,000.00 as and by way of attorneys fees; and

3.

Cost of Suit.

SO ORDERED.[13]

Although sued jointly with her husband, petitioner Macalinao was the only one who filed the petition before the CA since her husband
already passed away on October 18, 2005.[14]

In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied in the demand letter of
respondent BPI) is clearly not the result of the re-computation at the reduced interest rate as previous higher interest rates were already incorporated
in the said amount. Thus, the said amount should not be made as basis in computing the total obligation of petitioner Macalinao. Further, the CA also
emphasized that respondent BPI should not compound the interest in the instant case absent a stipulation to that effect. The CA also held, however,
that the MeTC erred in modifying the amount of interest rate from 3% monthly to only 2% considering that petitioner Macalinao freely availed herself
of the credit card facility offered by respondent BPI to the general public. It explained that contracts of adhesion are not invalid per se and are not
entirely prohibited.

Petitioner Macalinaos motion for reconsideration was denied by the CA in its Resolution dated November 21, 2006. Hence, petitioner
Macalinao is now before this Court with the following assigned errors:
I.

THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE STIPULATED RATE OF
INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.

II.

52

THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO 3%, CONTRARY
TO THE TENOR OF ITS OWN DECISION.

III.

THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FOR
FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONERS OBLIGATION, OR IN THE
ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT PROOF OF THE
CORRECT AMOUNT THEREOF.

Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month or 24% Per Annum

In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25% per month or 111% per annum.
This was declared as unconscionable by the lower courts for being clearly excessive, and was thus reduced to 2% per month or 24% per annum. On
appeal, the CA modified the rate of interest and penalty charge and increased them to 3% per month or 36% per annum based on the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card, which governs the transaction between petitioner Macalinao and respondent
BPI.

In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month imposed by the CA is iniquitous as the
same translates to 36% per annum or thrice the legal rate of interest. [15] On the other hand, respondent BPI asserts that said interest rate and penalty
charge are reasonable as the same are based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card. [16]

We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to 2%
per month or 24% per annum.

Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest
rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive
and unconscionable. We held in Chua vs. Timan:[17]
The stipulated interest rates of 7% and 5% per month imposed on respondents loans must be equitably reduced to 1%
per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated
interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations
are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1,
1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in
the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging of their assets. (Emphasis supplied.)

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest
rate as reason and equity demand.[18]

53

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the
Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since
what may be iniquitous and unconscionable in one may be totally just and equitable in another. [19]

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her Billing
Statements.[20] Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed iniquitous and
unconscionable.

Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly
and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing
jurisprudence and in accordance with Art. 1229 of the Civil Code.

There Is No Basis for the Dismissal of the Case,

Much Less a Remand of the Same for Further Reception of Evidence

Petitioner Macalinao claims that the basis of the re-computation of the CA, that is, the amount of PhP 94,843.70 stated on the October 27,
2002 Statement of Account, was not the amount of the principal obligation. Thus, this allegedly necessitates a re-examination of the evidence
presented by the parties. For this reason, petitioner Macalinao further contends that the dismissal of the case or its remand to the lower court would
be a more appropriate disposition of the case.

Such contention is untenable. Based on the records, the summons and a copy of the complaint were served upon petitioner Macalinao and
her husband on May 4, 2004. Nevertheless, they failed to file their Answer despite such service. Thus, respondent BPI moved that judgment be
rendered accordingly.[21] Consequently, a decision was rendered by the MeTC on the basis of the evidence submitted by respondent BPI. This is in
consonance with Sec. 6 of the Revised Rule on Summary Procedure, which states:
Sec. 6. Effect of failure to answer. Should the defendant fail to answer the complaint within the period above
provided, the court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts
alleged in the complaint and limited to what is prayed for therein: Provided, however, that the court may in its discretion
reduce the amount of damages and attorneys fees claimed for being excessive or otherwise unconscionable. This is without
prejudice to the applicability of Section 3(c), Rule 10 of the Rules of Court, if there are two or more defendants. (As amended by
the 1997 Rules of Civil Procedure; emphasis supplied.)

Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinaos failure to file an answer and
concomitantly, to allow the latter to submit additional evidence by dismissing or remanding the case for further reception of evidence. Significantly,
petitioner Macalinao herself admitted the existence of her obligation to respondent BPI, albeit with reservation as to the principal amount. Thus, a

54

dismissal of the case would cause great injustice to respondent BPI. Similarly, a remand of the case for further reception of evidence would unduly
prolong the proceedings of the instant case and render inutile the proceedings conducted before the lower courts.

Significantly, the CA correctly used the beginning balance of PhP 94,843.70 as basis for the re-computation of the interest considering that
this was the first amount which appeared on the Statement of Account of petitioner Macalinao. There is no other amount on which the recomputation could be based, as can be gathered from the evidence on record. Furthermore, barring a showing that the factual findings complained
of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must
stand, for this Court is not expected or required to examine or contrast the evidence submitted by the parties. [22]

In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning balance of PhP 94,843.70, this
Court finds the following computation more appropriate:

Statemen
t Date

Previous
Balance

10/27/200
2
11/27/200
2
12/31/200
2
1/27/2003

94,843.70

Purchase
s
(Payment
s)

Balance

Interest
(1%)

Penalty
Charge
(1%)

94,843.70

948.44

948.44

Total
Amount
Due for
the Month
96,740.58

94,843.70

(15,000)

79,843.70

798.44

798.44

81,440.58

79,843.70

30,308.80

110,152.5
0
110,152.5
0
110,152.5
0
92,152.50

1,101.53

1,101.53

1,101.53

1,101.53

1,101.53

1,101.53

921.53

921.53

112,355.5
6
112,355.5
6
112,355.5
6
93,995.56

92,152.50
82,152.50

921.53
821.53

921.53
821.53

93,995.56
83,795.56

83,515.00

835.15

835.15

85,185.30

4/27/2003
5/27/2003

110,152.5
0
110,152.5
0
110,152.5
0
92,152.50
92,152.50

6/29/2003

82,152.50

7/27/2003
8/27/2003
9/28/2003
10/28/200
3
11/28/200
3
12/28/200
3
1/27/2004
TOTAL

83,515.00
83,515.00
83,515.00
83,515.00

83,515.00
83,515.00
83,515.00
83,515.00

835.15
835.15
835.15
835.15

835.15
835.15
835.15
835.15

85,185.30
85,185.30
85,185.30
85,185.30

83,515.00

83,515.00

835.15

835.15

85,185.30

83,515.00

83,515.00

835.15

835.15

85,185.30

83,515.00

83,515.00
83,515.00

835.15
14,397.2
6

835.15
14,397.2
6

85,185.30
112,309.5
2

2/27/2003
3/27/2003

(18,000.0
0)
(10,000.0
0)
8,362.50
(7,000.00)

55

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

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

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

(3) Cost of suit.

56