Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172592

July 9, 2008

SPOUSES WILFREDO N. ONG and EDNA SHEILA PAGUIO-ONG, Petitioners,

vs.
ROBAN LENDING CORPORATION, Respondent.
AUSTRIA-MARTINEZ,*
DECISION
CARPIO MORALES, J.:
On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo N. Ong and
Edna Sheila Paguio-Ong obtained several loans from Roban Lending Corporation (respondent)
in the total amount of P4,000,000.00. These loans were secured by a real estate mortgage on
petitioners parcels of land located in Binauganan, Tarlac City and covered by TCT No. 297840. 1
On February 12, 2001, petitioners and respondent executed an Amendment to Amended Real
Estate Mortgage2consolidating their loans inclusive of charges thereon which
totaled P5,916,117.50. On even date, the parties executed a Dacion in Payment
Agreement3 wherein petitioners assigned the properties covered by TCT No. 297840 to
respondent in settlement of their total obligation, and a Memorandum of Agreement 4 reading:
That the FIRST PARTY [Roban Lending Corporation] and the SECOND PARTY [the petitioners]
agreed to consolidate and restructure all aforementioned loans, which have been all past due
and delinquent since April 19, 2000, and outstanding obligations totaling P5,916,117.50. The
SECOND PARTY hereby sign [sic] another promissory note in the amount of P5,916,117.50 (a
copy of which is hereto attached and forms xxx an integral part of this document), with a promise
to pay the FIRST PARTY in full within one year from the date of the consolidation and
restructuring, otherwise the SECOND PARTY agree to have their "DACION IN PAYMENT"
agreement, which they have executed and signed today in favor of the FIRST PARTY be
enforced[.]5
In April 2002 (the day is illegible), petitioners filed a Complaint, 6 docketed as Civil Case No. 9322,
before the Regional Trial Court (RTC) of Tarlac City, for declaration of mortgage contract as
abandoned, annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages,
alleging that the Memorandum of Agreement and the Dacion in Payment executed are void for
being pactum commissorium.7
Petitioners alleged that the loans extended to them from July 14, 1999 to March 20, 2000 were
founded on several uniform promissory notes, which provided for 3.5% monthly interest rates,
5% penalty per month on the total amount due and demandable, and a further sum of 25%
attorneys fees thereon,8 and in addition, respondent exacted certain sums denominated as
"EVAT/AR."9 Petitioners decried these additional charges as "illegal, iniquitous, unconscionable,

and revolting to the conscience as they hardly allow any borrower any chance of survival in case
of default."10
Petitioners further alleged that they had previously made payments on their loan accounts, but
because of the illegal exactions thereon, the total balance appears not to have moved at all,
hence, accounting was in order.11
Petitioners thus prayed for judgment:
a) Declaring the Real Estate Mortgage Contract and its amendments x x x as null and
void and without legal force and effect for having been renounced, abandoned, and given
up;
b) Declaring the "Memorandum of Agreement" xxx and "Dacion in Payment" x x x as null
and void for being pactum commissorium;
c) Declaring the interests, penalties, Evat [sic] and attorneys fees assessed and loaded
into the loan accounts of the plaintiffs with defendant as unjust, iniquitous,
unconscionable and illegal and therefore, stricken out or set aside;
d) Ordering an accounting on plaintiffs loan accounts to determine the true and correct
balances on their obligation against legal charges only; and
e) Ordering defendant to [pay] to the plaintiffs: -e.1 Moral damages in an amount not less than P100,000.00 and exemplary
damages of P50,000.00;
e.2 Attorneys fees in the amount of P50,000.00 plus P1,000.00 appearance fee
per hearing; and
e.3 The cost of suit.12
as well as other just and equitable reliefs.
In its Answer with Counterclaim,13 respondent maintained the legality of its transactions with
petitioners, alleging that:
xxxx
If the voluntary execution of the Memorandum of Agreement and Dacion in Payment Agreement
novated the Real Estate Mortgage then the allegation of Pactum Commissorium has no more
legal leg to stand on;
The Dacion in Payment Agreement is lawful and valid as it is recognized x x x under Art. 1245 of
the Civil Code as a special form of payment whereby the debtor-Plaintiffs alienates their property
to the creditor-Defendant in satisfaction of their monetary obligation;
The accumulated interest and other charges which were computed for more than two (2) years
would stand reasonable and valid taking into consideration [that] the principal loan is P4,000,000

and if indeed it became beyond the Plaintiffs capacity to pay then the fault is attributed to them
and not the Defendant[.]14
After pre-trial, the initial hearing of the case, originally set on December 11, 2002, was reset
several times due to, among other things, the parties efforts to settle the case amicably.15
1avvphi1

During the scheduled initial hearing of May 7, 2003, the RTC issued the following order:
Considering that the plaintiff Wilfredo Ong is not around on the ground that he is in Manila and he
is attending to a very sick relative, without objection on the part of the defendants counsel, the
initial hearing of this case is reset to June 18, 2003 at 10:00 oclock in the morning.
Just in case [plaintiffs counsel] Atty. Concepcion cannot present his witness in the person of Mr.
Wilfredo Ong in the next scheduled hearing, the counsel manifested that he will submit the case
for summary judgment.16(Underscoring supplied)
It appears that the June 18, 2003 setting was eventually rescheduled to February 11, 2004 at
which both counsels were present17 and the RTC issued the following order:
The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 oclock in the morning.
However, the counsels are directed to be ready with their memorand[a] together with all the
exhibits or evidence needed to support their respective positions which should be the basis for
the judgment on the pleadings if the parties fail to settle the case in the next scheduled setting.
x x x x18 (Underscoring supplied)
At the scheduled April 14, 2004 hearing, both counsels appeared but only the counsel of
respondent filed a memorandum.19
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on the basis of the
pleadings that there was no pactum commissorium, dismissed the complaint.20
On appeal,21 the Court of Appeals22 noted that
x x x [W]hile the trial court in its decision stated that it was rendering judgment on the pleadings,
x x x what it actually rendered was a summary judgment. A judgment on the pleadings is proper
when the answer fails to tender an issue, or otherwise admits the material allegations of the
adverse partys pleading. However, a judgment on the pleadings would not have been proper in
this case as the answer tendered an issue, i.e. the validity of the MOA and DPA. On the other
hand, a summary judgment may be rendered by the court if the pleadings, supporting affidavits,
and other documents show that, except as to the amount of damages, there is no genuine issue
as to any material fact.23
Nevertheless, finding the error in nomenclature "to be mere semantics with no bearing on the
merits of the case",24 the Court of Appeals upheld the RTC decision that there was no pactum
commissorium.25
Their Motion for Reconsideration26 having been denied,27 petitioners filed the instant Petition for
Review on Certiorari,28 faulting the Court of Appeals for having committed a clear and reversible
error

I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL REQUISITES

WHICH WOULD WARRANT THE SETTING ASIDE OF THE SUMMARY JUDGMENT IN
VIOLATION OF APPELLANTS RIGHT TO DUE PROCESS;
II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS NECESSARY
BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE;
III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE MEMORANDUM OF
AGREEMENT (MOA) AND THE DACION EN PAGO AGREEMENT (DPA) WERE
DESIGNED TO CIRCUMVENT THE LAW AGAINST PACTUM COMMISSORIUM; and
IV. . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF AGREEMENT
(MOA) AND THE DACION EN PAGO (DPA) ARE NULL AND VOID FOR BEING
CONTRARY TO LAW AND PUBLIC POLICY.29
The petition is meritorious.
Both parties admit the execution and contents of the Memorandum of Agreement and Dacion in
Payment. They differ, however, on whether both contracts constitute pactum
commissorium or dacion en pago.
This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of the Civil Code which provides:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void."
The elements of pactum commissorium, which enables the mortgagee to acquire ownership of
the mortgaged property without the need of any foreclosure proceedings, 30 are: (1) there should
be a property mortgaged by way of security for the payment of the principal obligation, and (2)
there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within the stipulated period. 31
In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no
provisions for foreclosure proceedings nor redemption. Under the Memorandum of Agreement,
the failure by the petitioners to pay their debt within the one-year period gives respondent the
right to enforce the Dacion in Payment transferring to it ownership of the properties covered by
TCT No. 297840. Respondent, in effect, automatically acquires ownership of the properties upon
petitioners failure to pay their debt within the stipulated period.
Respondent argues that the law recognizes dacion en pago as a special form of payment
whereby the debtor alienates property to the creditor in satisfaction of a monetary
obligation.32 This does not persuade. In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.33 In the case at bar, the alienation of the properties was by way
of security, and not by way of satisfying the debt.34 The Dacion in Payment did not extinguish
petitioners obligation to respondent. On the contrary, under the Memorandum of Agreement
executed on the same day as the Dacion in Payment, petitioners had to execute a promissory
note for P5,916,117.50 which they were to pay within one year.35

Respondent cites Solid Homes, Inc. v. Court of Appeals36 where this Court upheld a
Memorandum of Agreement/Dacion en Pago.37 That case did not involve the issue of pactum
commissorium.38
That the questioned contracts were freely and voluntarily executed by petitioners and respondent
is of no moment, pactum commissorium being void for being prohibited by law.39
Respecting the charges on the loans, courts may reduce interest rates, penalty charges, and
attorneys fees if they are iniquitous or unconscionable. 40
This Court, based on existing jurisprudence,41 finds the monthly interest rate of 3.5%, or 42% per
annum unconscionable and thus reduces it to 12% per annum. This Court finds too the penalty
fee at the monthly rate of 5% (60% per annum) of the total amount due and demandable
principal plus interest, with interest not paid when due added to and becoming part of the
principal and likewise bearing interest at the same rate, compounded monthly42 unconscionable
and reduces it to a yearly rate of 12% of the amount due, to be computed from the time of
demand.43 This Court finds the attorneys fees of 25% of the principal, interests and interests
thereon, and the penalty fees unconscionable, and thus reduces the attorneys fees to 25% of
the principal amount only.44
The prayer for accounting in petitioners complaint requires presentation of evidence, they
claiming to have made partial payments on their loans, vis a vis respondents denial thereof. 45 A
remand of the case is thus in order.
Prescinding from the above disquisition, the trial court and the Court of Appeals erred in holding
that a summary judgment is proper. A summary judgment is permitted only if there is no genuine
issue as to any material fact and a moving party is entitled to a judgment as a matter of law.46 A
summary judgment is proper if, while the pleadings on their face appear to raise issues, the
affidavits, depositions, and admissions presented by the moving party show that such issues are
not genuine.47 A genuine issue, as opposed to a fictitious or contrived one, is an issue of fact that
requires the presentation of evidence.48 As mentioned above, petitioners prayer for accounting
requires the presentation of evidence on the issue of partial payment.
But neither is a judgment on the pleadings proper. A judgment on the pleadings may be rendered
only when an answer fails to tender an issue or otherwise admits the material allegations of the
adverse partys pleadings.49 In the case at bar, respondents Answer with Counterclaim disputed
petitioners claims that the Memorandum of Agreement and Dation in Payment are illegal and
that the extra charges on the loans are unconscionable. 50Respondent disputed too petitioners
allegation of bad faith.51
WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET ASIDE. The
Memorandum of Agreement and the Dacion in Payment executed by petitioner- spouses
Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on
February 12, 2001 are declared NULL AND VOID for being pactum commissorium.
In line with the foregoing findings, the following terms of the loan contracts between the parties
are MODIFIED as follows:
1. The monthly interest rate of 3.5%, or 42% per annum, is reduced to 12% per annum;

2. The monthly penalty fee of 5% of the total amount due and demandable is reduced to
12% per annum, to be computed from the time of demand; and
3. The attorneys fees are reduced to 25% of the principal amount only.
Civil Case No. 9322 is REMANDED to the court of origin only for the purpose of receiving
evidence on petitioners prayer for accounting.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175490

September 17, 2009

ILEANA DR. MACALINAO, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
VELASCO, JR., J.:
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 Decision1 of the Court of Appeals (CA) and its
November 21, 2006 Resolution2 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

Previous
Balance

10/27/2002

94,843.70

11/27/2002

98,465.41

12/31/2002

86,351.02

1/27/2003

Purchases
(Payments)

Penalty
Interest

Finance
Charges

Balance
Due

559.72

3,061.99

98,456.41

(15,000)

2,885.61

86,351.02

30,308.80

259.05

2,806.41

119,752.28

119,752.28

618.23

3,891.07

124,234.58

2/27/2003

124,234.58

990.93

4,037.62

129,263.13

3/27/2003

129,263.13

298.72

3,616.05

115,177.90

4/27/2003

115,177.90

644.26

3,743.28

119,565.44

5/27/2003

119,565.44

(10,000.00)

402.95

3,571.71

113,540.10

6/29/2003

113,540.10

8,362.50
(7,000.00)

323.57

3,607.32

118,833.49

7/27/2003

118,833.49

608.07

3,862.09

123,375.65

8/27/2003

123,375.65

1,050.20

4,009.71

128,435.56

9/28/2003

128,435.56

1,435.51

4,174.16

134,045.23

(18,000.00)

10/28/2003
11/28/2003
12/28/2003
1/27/2004

141,518.34

8,491.10

4,599.34

154,608.78

Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI
Mastercard, the charges or balance thereof remaining unpaid after the payment due date
indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month
and an additional penalty fee equivalent to another 3% per month. Particularly:
8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a monthly Statement of Account
(SOA) and the Cardholder agrees that all charges made through the use of the CARD shall be
paid by the Cardholder as stated in the SOA on or before the last day for payment, which is
twenty (20) days from the date of the said SOA, and such payment due date may be changed to
an earlier date if the Cardholders account is considered overdue and/or with balances in excess
of the approved credit limit, or to such other date as may be deemed proper by the CARD issuer
with notice to the Cardholder on the same monthly SOA. If the last day fall on a Saturday,
Sunday or a holiday, the last day for the payment automatically becomes the last working day
prior to said payment date. However, notwithstanding the absence or lack of proof of service of
the SOA of the Cardholder, the latter shall pay any and all charges made through the use of the
CARD within thirty (30) days from date or dates thereof. Failure of the Cardholder to pay the
charges made through the CARD within the payment period as stated in the SOA or within thirty
(30) days from actual date or dates of purchase whichever occur earlier, shall render him in
default without the necessity of demand from BCC, which the Cardholder expressly waives. The
charges or balance thereof remaining unpaid after the payment due date indicated on the
monthly Statement of Accounts shall bear interest at the rate of 3% per month for BPI Express
Credit, BPI Gold Mastercard and an additional penalty fee equivalent to another 3% of the
amount due for every month or a fraction of a months delay. PROVIDED that if there occurs any
change on the prevailing market rates, BCC shall have the option to adjust the rate of interest
and/or penalty fee due on the outstanding obligation with prior notice to the cardholder. The
Cardholder hereby authorizes BCC to correspondingly increase the rate of such interest [in] the
event of changes in the prevailing market rates, and to charge additional service fees as may be
deemed necessary in order to maintain its service to the Cardholder. A CARD with outstanding
balance unpaid after thirty (30) days from original billing statement date shall automatically be
suspended, and those with accounts unpaid after ninety (90) days from said original
billing/statement date shall automatically be cancel (sic), without prejudice to BCCs right to
suspend or cancel any card anytime and for whatever reason. In case of default in his obligation
as provided herein, Cardholder shall surrender his/her card to BCC and in addition to the interest
and penalty charges aforementioned , pay the following liquidated damages and/or fees (a) a
collection fee of 25% of the amount due if the account is referred to a collection agency or
attorney; (b) service fee for every dishonored check issued by the cardholder in payment of his
account without prejudice, however, to BCCs right of considering Cardholders account, and (c)
a final fee equivalent to 25% of the unpaid balance, exclusive of litigation expenses and judicial
cost, if the payment of the account is enforced though court action. Venue of all civil suits to
enforce this Agreement or any other suit directly or indirectly arising from the relationship
between the parties as established herein, whether arising from crimes, negligence or breach
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.)
1avvphi1

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

In 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
1avvphi1

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:
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.
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
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 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 recomputation 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:
Statement
Date

Previous
Balance

10/27/2002

94,843.70

Purchases
(Payments)

Balance
94,843.70

Interest
(1%)
948.44

Penalty
Charge
(1%)
948.44

Total Amount
Due for the
Month
96,740.58

11/27/2002

94,843.70

12/31/2002

79,843.70

798.44

798.44

81,440.58

79,843.70

30,308.80 110,152.50

1,101.53

1,101.53

112,355.56

1/27/2003

110,152.50

110,152.50

1,101.53

1,101.53

112,355.56

2/27/2003

110,152.50

110,152.50

1,101.53

1,101.53

112,355.56

3/27/2003

110,152.50

92,152.50

921.53

921.53

93,995.56

4/27/2003

92,152.50

92,152.50

921.53

921.53

93,995.56

5/27/2003

92,152.50

(10,000.00)

82,152.50

821.53

821.53

83,795.56

6/29/2003

82,152.50

8,362.50
(7,000.00)

83,515.00

835.15

835.15

85,185.30

7/27/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

8/27/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

9/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

10/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

11/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

12/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

1/27/2004

83,515.00

83,515.00

835.15

835.15

85,185.30

83,515.00 14,397.26 14,397.26

112,309.52

TOTAL

(15,000)

(18,000.00)

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CAG.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.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 192986

January 15, 2013

ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B. OLAGUER, Petitioners,

vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman, GOVERNOR
ARMANDO M. TETANGCO, JR., and its incumbent members: JUANITA D. AMATONG,
ALFREDO C. ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE and
CESAR V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance to the public, filed
directly with this Court this Petition for Certiorari under Rule 65 of the 1997 Rules of Court,
seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the
Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no
authority to continue enforcing Central Bank Circular No. 905, 1 issued by the CB-MB in 1982,
which "suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock corporation
organized to engage in pro bono concerns and activities relating to money lending issues. It was
incorporated on July 9, 2010,2 and a month later, it filed this petition, joined by its founder and
president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed by the Usury
Law. Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may fix the
maximum rates of interest which banks may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates of
interest which banks may charge for different types of loans and for any other credit operations,
or may fix the maximum differences which may exist between the interest or rediscount rates of
the Central Bank and the rates which the banks may charge their customers if the respective
credit documents are not to lose their eligibility for rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or lending
operations of the banks shall apply only to future operations and not to those made prior to the
date on which the modification becomes effective.

In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the
Board may also fix the maximum rates that banks may pay to or collect from their customers in
the form of commissions, discounts, charges, fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving
the CB-MB authority to prescribe different maximum rates of interest which may be imposed for a
loan or renewal thereof or the forbearance of any money, goods or credits, provided that the
changes are effected gradually and announced in advance. Thus, Section 1-a of Act No. 2655
now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to
change such rate or rates whenever warranted by prevailing economic and social conditions:
Provided, That changes in such rate or rates may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the Monetary Board may prescribe higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as
such loans made by pawnshops, finance companies and other similar credit institutions although
the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board
is also authorized to prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries. (Underlining and
emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued CB Circular No. 905,
Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its General
Provisions, removed the ceilings on interest rates on loans or forbearance of any money, goods
or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan
or forbearance of any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or juridical, shall not
be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
(Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the CBs "Manual of Regulations for Banks
and Other Financial Intermediaries" (Manual of Regulations) by removing the applicable ceilings
on specific interest rates. Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I,
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the ceilings for
interest and other charges, commissions, premiums, and fees applicable to commercial banks;
Sections 12 and 17 removed the interest ceilings for thrift banks (Book II, Subsections 2303,
2349); Sections 19 and 21 removed the ceilings applicable to rural banks (Book III, Subsection
3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial
intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P). 4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof, Section 135,
reads:

Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and 132 of this
Act, Republic Act No. 265, as amended, the provisions of any other law, special charters, rule or
regulation issued pursuant to said Republic Act No. 265, as amended, or parts thereof, which
may be inconsistent with the provisions of this Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to this Court to secure a writ of
certiorari, petitioners contend that the transcendental importance of their Petition can readily be
seen in the issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or
constitutional authority to prescribe the maximum rates of interest for all kinds of credit
transactions and forbearance of money, goods or credit beyond the limits prescribed in
the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905,
which removed all interest ceilings and thus suspended Act No. 2655 as regards usurious
interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular
No. 905.5
Petitioners attached to their petition copies of several Senate Bills and Resolutions of the 10th
Congress, which held its sessions from 1995 to 1998, calling for investigations by the Senate
Committee on Banks and Financial Institutions into alleged unconscionable commercial rates of
interest imposed by these entities. Senate Bill (SB) Nos. 37 6 and 1860,7 filed by Senator Vicente
C. Sotto III and the late Senator Blas F. Ople, respectively, sought to amend Act No. 2655 by
fixing the rates of interest on loans and forbearance of credit; Philippine Senate Resolution (SR)
No. 1053,8 10739 and 1102,10 filed by Senators Ramon B. Magsaysay, Jr., Gregorio B. Honasan
and Franklin M. Drilon, respectively, urged the aforesaid Senate Committee to investigate ways
to curb the high commercial interest rates then obtaining in the country; Senator Ernesto Maceda
filed SB No. 1151 to prohibit the collection of more than two months of advance interest on any
loan of money; and Senator Raul Roco filed SR No. 114411 seeking an investigation into an
alleged cartel of commercial banks, called "Club 1821", reportedly behind the regime of high
interest rates. The petitioners also attached news clippings 12 showing that in February 1998 the
banks prime lending rates, or interests on loans to their best borrowers, ranged from 26% to
31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684, the
CB-MB was authorized only to prescribe or set the maximum rates of interest for a loan or
renewal thereof or for the forbearance of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social conditions, the changes to be effected
gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB to lift or
suspend the limits of interest on all credit transactions, when it issued CB Circular No. 905. They
further insist that under Section 109 of R.A. No. 265, the authority of the CB-MB was clearly only
to fix the banks maximum rates of interest, but always within the limits prescribed by the Usury
Law.

Thus, according to petitioners, CB Circular No. 905, which was promulgated without the benefit
of any prior public hearing, is void because it violated Article 5 of the New Civil Code, which
provides that "Acts executed against the provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity."
They further claim that just weeks after the issuance of CB Circular No. 905, the benchmark 91day Treasury bills (T-bills),13 then known as "Jobo" bills14 shot up to 40% per annum, as a result.
The banks immediately followed suit and re-priced their loans to rates which were even higher
than those of the "Jobo" bills. Petitioners thus assert that CB Circular No. 905 is also
unconstitutional in light of Section 1 of the Bill of Rights, which commands that "no person shall
be deprived of life, liberty or property without due process of law, nor shall any person be denied
the equal protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to Section 109
of R.A. No. 265, and therefore, in view of the repealing clause in Section 135 of R.A. No. 7653,
the BSP-MB has been stripped of the power either to prescribe the maximum rates of interest
which banks may charge for different kinds of loans and credit transactions, or to suspend Act
No. 2655 and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for certiorari, as well as to grant due course
thereto, is addressed to the sound discretion of the court. 15 A petition for certiorari being an
extraordinary remedy, the party seeking to avail of the same must strictly observe the procedural
rules laid down by law, and non-observance thereof may not be brushed aside as mere
technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal exercising
judicial or quasi-judicial functions.17 Judicial functions are exercised by a body or officer clothed
with authority to determine what the law is and what the legal rights of the parties are with
respect to the matter in controversy. Quasi-judicial function is a term that applies to the action or
discretion of public administrative officers or bodies given the authority to investigate facts or
ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for
their official action using discretion of a judicial nature. 18
The CB-MB (now BSP-MB) was created to perform executive functions with respect to the
establishment, operation or liquidation of banking and credit institutions, and branches and
agencies thereof.19 It does not perform judicial or quasi-judicial functions. Certainly, the issuance
of CB Circular No. 905 was done in the exercise of an executive function. Certiorari will not lie in
the instant case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given question." In
private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that "every action
must be prosecuted or defended in the name of the real party in interest," who is "the party who

stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of
the suit." Succinctly put, a partys standing is based on his own right to the relief sought. 21
Even in public interest cases such as this petition, the Court has generally adopted the "direct
injury" test that the person who impugns the validity of a statute must have "a personal and
substantial interest in the case such that he has sustained, or will sustain direct injury as a
result."22 Thus, while petitioners assert a public right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to make out a sufficient interest in the
vindication of the public order and the securing of relief. It is significant that in this petition, the
petitioners do not allege that they sustained any personal injury from the issuance of CB Circular
No. 905.
Petitioners also do not claim that public funds were being misused in the enforcement of CB
Circular No. 905. In Kilosbayan, Inc. v. Morato,23 involving the on-line lottery contract of the
PCSO, there was no allegation that public funds were being misspent, which according to the
Court would have made the action a public one, "and justify relaxation of the requirement that an
action must be prosecuted in the name of the real party-in-interest." The Court held, moreover,
that the status of Kilosbayan as a peoples organization did not give it the requisite personality to
question the validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for bringing this suit. It does
not detract from the high regard for petitioners as civic leaders to say that their interest falls short
of that required to maintain an action under the Rule 3, Sec. 2.24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good Government, 25 it was held that no
question involving the constitutionality or validity of a law or governmental act may be heard and
decided by the court unless there is compliance with the legal requisites for judicial inquiry,
namely: (a) that the question must be raised by the proper party; (b) that there must be an actual
case or controversy; (c) that the question must be raised at the earliest possible opportunity; and
(d) that the decision on the constitutional or legal question must be necessary to the
determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the requirements before
taxpayers, voters, concerned citizens, and legislators can be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the
tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election
law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes
upon their prerogatives as legislators.

While the Court may have shown in recent decisions a certain toughening in its attitude
concerning the question of legal standing, it has nonetheless always made an exception where
the transcendental importance of the issues has been established, notwithstanding the
petitioners failure to show a direct injury.27 In CREBA v. ERC,28the Court set out the following
instructive guides as determinants on whether a matter is of transcendental importance, namely:
(1) the character of the funds or other assets involved in the case; (2) the presence of a clear
case of disregard of a constitutional or statutory prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any other party with a more direct and
specific interest in the questions being raised. Further, the Court stated in Anak Mindanao PartyList Group v. The Executive Secretary29 that the rule on standing will not be waived where these
determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the implementation of CB
Circular No. 905. Neither were borrowers who were actually affected by the suspension of the
Usury Law joined in this petition. Absent any showing of transcendental importance, the petition
must fail.
More importantly, the Court notes that the instant petition adverted to the regime of high interest
rates which obtained at least 15 years ago, when the banks prime lending rates ranged from
26% to 31%,30 or even 29 years ago, when the 91-day Jobo bills reached 40% per annum. In
contrast, according to the BSP, in the first two (2) months of 2012 the bank lending rates
averaged 5.91%, which implies that the banks prime lending rates were lower; moreover, deposit
interests on savings and long-term deposits have also gone very low, averaging 1.75% and
1.62%, respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be approaching 0%. In
the auctions held on November 12, 2012, the rates of 3-month, 6-month and 1-year T-bills have
dropped to 0.150%, 0.450% and 0.680%, respectively.32 According to Manila Bulletin, this very
low interest regime has been attributed to "high liquidity and strong investor demand amid
positive economic indicators of the country."33
1wphi1

While the Court acknowledges that cases of transcendental importance demand that they be
settled promptly and definitely, brushing aside, if we must, technicalities of procedure, 34 the delay
of at least 15 years in the filing of the instant petition has actually rendered moot and academic
the issues it now raises.
For its part, BSP-MB maintains that the petitioners allegations of constitutional and statutory
violations of CB Circular No. 905 are really mere challenges made by petitioners concerning the
wisdom of the Circular. It explains that it was in view of the global economic downturn in the early
1980s that the executive department through the CB-MB had to formulate policies to achieve
economic recovery, and among these policies was the establishment of a market-oriented
interest rate structure which would require the removal of the government-imposed interest rate
ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No.
905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long
been recognized and upheld in many cases. As the Court explained in the landmark case of
Medel v. CA,36 citing several cases, CB Circular No. 905 "did not repeal nor in anyway amend the

Usury Law but simply suspended the latters effectivity;" 37 that "a CB Circular cannot repeal a law,
[for] only a law can repeal another law;"38 that "by virtue of CB Circular No. 905, the Usury Law
has been rendered ineffective;"39 and "Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon." 40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc.41 cited in DBP v.
Perez,42 we also belied the contention that the CB was engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latters effectivity. The illegality of usury is wholly the creature of legislation. A
Central Bank Circular cannot repeal a law. Only a law can repeal another law. x x x. 43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement authorized the PNB to
unilaterally increase the rate of interest to 25% per annum, plus a penalty of 6% per annum on
past dues, then to 30% on October 15, 1984, and to 42% on October 25, 1984. The Supreme
Court invalidated the rate increases made by the PNB and upheld the 12% interest imposed by
the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely
regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward,
the interest previously stipulated. x x x.45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld the
parties freedom of contract to agree freely on the rate of interest. It cited Article 1306 of the New
Civil Code, under which the contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended." It does not purport to suspend the Usury Law only as it
applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the new
BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No. 7653,
which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks,
whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as well
as such loans made by pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.

Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No.
7653, merely supplemented it as it concerns loans by banks and other financial institutions. Had
R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in
unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because laws are
presumed to be passed with deliberation and full knowledge of all laws existing pertaining to the
subject.46 An implied repeal is predicated upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws. Thus, in the absence of an express repeal,
a subsequent law cannot be construed as repealing a prior law unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and old laws. 47 We find no such
conflict between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor is there any reason whatsoever
which may justify such imposition as righteous and as one that may be sustained within the
sphere of public or private morals.50
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down
for being contrary to morals, if not against the law.51 Indeed, under Article 1409 of the Civil Code,
these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor
may the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lenders right to
recover the principal of a loan, nor affect the other terms thereof.52 Thus, in a usurious loan with
mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by the
creditor upon failure by the debtor to pay the debt due. The debt due is considered as without the
stipulated excessive interest, and a legal interest of 12% per annum will be added in place of the
excessive interest formerly imposed,53following the guidelines laid down in the landmark case of
Eastern Shipping Lines, Inc. v. Court of Appeals,54 regarding the manner of computing legal
interest:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of
credit.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals,

56

as follows:

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only
to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan
or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil
Code applies "when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint was filed until the [adjudged]
amount is fully paid." In either instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition "that the courts are vested with
discretion, depending on the equities of each case, on the award of interest." 57 (Citations omitted)
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 177260

March 30, 2011

LOTTO RESTAURANT CORPORATION, represented by SUAT KIM GO, Petitioner,

vs.
BPI FAMILY SAVINGS BANK, INC., Respondent.
DECISION
ABAD, J.:
This case is about a banks right under the loan agreement to adjust the loan interest from a fixed
rate to the prevailing market rate and, further, to foreclose the real estate mortgage that secures
the same upon the borrowers default.
The Facts and the Case
On December 23, 1999 petitioner Lotto Restaurant Corporation (Lotto) got a loan
of P3,000,000.00 from the DBS Bank (DBS) at an interest rate of 11.5% per annum. The
promissory note it executed provided that Lotto would pay DBS a monthly amortization
of P35,045.69 for 180 months. To secure payment of the loan, Lotto, represented by Suat Kim
Go (Go), its General Manager, mortgaged to DBS a condominium unit that belonged to it. 1
Lotto paid its monthly amortizations for 12 months from December 24, 1999 to December 24,
2000. But in January 2001, after DBS increased the interest to 19% per annum, Lotto contested
the increase and stopped paying the loan. After respondent BPI Family Savings Bank, Inc. (BPI)
acquired DBS, Lotto tried to negotiate with BPI for reduction of interest but the latter agreed to
reduce it to only 14.7% per annum, which was still unacceptable to Lotto. 2
On October 21, 2002 BPI foreclosed the mortgage on Lottos condominium unit 3 to satisfy its
unpaid claim of P5,283,470.26, which included interest, penalties, fire insurance premium,
attorneys fees, and estimated foreclosure expenses. BPIs computation applied an interest rate
of 19% per annum for the period December 24, 2000 to November 24, 2001; and 14.7% per
annum for the period December 24, 2001 to October 10, 2002.4
To stop the foreclosure, Lotto filed against BPI with the Regional Trial Court (RTC) of Manila 5 in
Civil Case 02-105415 an action for reformation or annulment of real estate mortgage with prayer
for a temporary restraining order (TRO) and preliminary injunction. 6 The RTC issued a TRO on
January 3, 2003 and a preliminary injunction on February 6, 2003, 7 enjoining the foreclosure sale
of the condominium unit. Mediation in the case failed. 8
On January 11, 2005 the RTC rendered a decision in Lottos favor,9 finding that DBS breached
the stipulations in the promissory note when it unilaterally increased the interest rate on its loan
from 11.5% to 19% per annum. Further, the RTC held that the mortgage on the condominium unit
was void since the Lotto Board of Directors did not authorize Go to sign the document. The RTC
directed the Register of Deeds to cancel the encumbrance on Lottos title and ordered Lotto to
pay BPI its loan of P2,990,832.00 at P35,045.69 a month, less the amortizations that it already
paid.

Aggrieved, BPI appealed to the Court of Appeals (CA), which reversed the RTC Decision on
November 22, 200610 in CA-G.R. CV 84701. The CA held that Lotto was estopped from
questioning the validity of the promissory note and the real estate mortgage since, having
authorized Go to take out a loan from the bank, it followed that it also authorized her to provide
the security that the loan required. The CA also clarified that Lottos gross loan
was P3,000,000.00; the P2,990,832.00 that the RTC referred to was the net proceeds of the
loan.
As to the increase in the interest rate, the CA found that the 11.5% rate provided in the
promissory note pertained only to the period from December 24, 1999 to December 24, 2000.
The note provided that, upon the lapse of that period, the loan would already bear an interest
based on the prevailing market rate. The increase from 11.5% to 19% for the subsequent period
was thus valid. The CA upheld the mortgage and lifted the RTCs writ of preliminary injunction.
With the denial of its motion for reconsideration,11 Lotto filed the present petition for review.
The Issues Presented
The issues in this case are:
1. Whether or not DBS, now BPI, validly adjusted the rate of interest on Lottos loan from
11.5% to 19% per annum beginning on December 24, 2000; and
2. Whether or not BPI has the right to foreclose the real estate mortgage for non-payment
of the loan.
The Courts Ruling
One. Lotto insists that DBS had no right to unilaterally increase the interest rate on its loan from
11.5% to 19% per annum after the passage of a year. Lotto argues that DBS could, under the
terms and conditions of the promissory note, make such adjustments only after 180 months
following the execution of the promissory note.
But, paragraphs 7 and 8 of the promissory note12 clearly provide that the 11.5% interest rate per
annum applied only to the first year of the loan. Thus:
7. EFFECTIVE INTEREST RATE (nr=er) 11.5* %p.a.
(Method of Computation attached) 12.24.99-12.24.2000
8. SCHEDULE OF PAYMENT
a.

Single payment due on _________ P_______

(Date)

b.

Total Installment Payments __________ P_______

Payable in 180* months/year
(no. of payments) *
Thereafter interest to be based
on prevailing market rate.
at P 35,045.69 each installment___________
1.24.00 (sic)-12.24.00 (Emphasis added)

It is plainly clear from paragraph 7 above that the 11.5% per annum interest was to apply to the
period December 24, 1999 to December 24, 2000 ("12.24.99-12.24.00"). They form but one
statement of the stipulated interest rate and the period to which such interest rate applied.
Additionally, the statement of applicable interest rate bears an asterisk sign, which footnoted the

information that "[t]hereafter interest to be based on prevailing market rate." This means that the
rate of interest would be adjusted to the prevailing market rate after December 24, 2000.
Lotto of course calls attention to the statement down in paragraph 8 of the promissory note
(Schedule of Payment), particularly in its sub-paragraph b, that the "Total Installment Payments"
are "Payable in 180* months x x x." Lotto claims that the asterisk sign after the figure "180"
means that the interest would be adjusted to the prevailing market rate at the end of 180 months.
But Lottos interpretation would have a ridiculous implication since that "180 months" is the
statement of the pay out period for the loan. The loan would have been paid after 180 months
and, therefore, there would be no occasion for charging Lotto a new rate of interest on a past
loan.
Besides such interpretation would directly contravene the clear provision of paragraph 7 that the
11.5% per annum interest was to apply only to the period December 24, 1999 to December 24,
2000 ("12.24.99-12.24.00"). As held in Manila International Airport Authority v. Judge
Gingoyon,13 various stipulations in a contract must be read together and given effect as their
meanings warrant. Taken together, paragraphs 7 and 8 intended the 11.5% interest rate to apply
only to the first year of the loan.
1avvphi1

The Court has previously upheld as valid the proviso in loans that the interest rate would be
made to depend on the prevailing market rate. Such provision does not signify an automatic
increase in the interest. It simply means that the bank may adjust the interest according to the
prevailing market rate. This may result to either an increase or a decrease in the interest. 14
Two. Lotto claims that the real estate mortgage that Go executed was void since it did not
authorize her to execute the same and since DBS did not sign it. But Lotto admitted in its
complaint below that Go had obtained a loan from DBS on its behalf, with the condominium unit
as collateral.15 With this admission, Lotto should be deemed estopped from assailing the validity
and due execution of that mortgage deed.
As to BPIs right to foreclose, the records show that Lotto defaulted in its obligation when it
unjustifiably stopped paying its amortizations after the first year. Consequently, there is no
question that BPI (which succeeded DBS) had a clear right to foreclose on Lottos collateral. The
Court held in Equitable PCI Bank, Inc. v. OJ-Mark Trading, Inc.16 that foreclosure is but a
necessary consequence of non-payment of mortgage indebtedness. The creditor-mortgagee has
the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the
satisfaction of the unpaid loan.17
At any rate, not all is lost for Lotto. It could avail itself of lower interest where the prevailing
market rate warrants. And, under Section 4718 of the General Banking Law, it has the right to
redeem the property by paying the amount due, with interest rate specified under the mortgage
deed, as well as all the costs and expenses incurred by the bank.19
WHEREFORE, the Court DENIES the petition and AFFIRMS the November 22, 2006 decision
and the March 28, 2007 resolution of the Court of Appeals in CA-G.R. CV 84701.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 189871

August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the
Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution 2 dated October 9, 2009
denying petitioners motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of
the National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF)
and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that
he was dismissed from employment without a valid or just cause. Thus, petitioner was awarded
backwages and separation pay in lieu of reinstatement in the amount of P158,919.92. The
dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the burden of
showing that complainant was dismissed from employment for a just or valid cause. All the more,
it is clear from the records that complainant was never afforded due process before he was
terminated. As such, we are perforce constrained to grant complainants prayer for the payments
of separation pay in lieu of reinstatement to his former position, considering the strained
relationship between the parties, and his apparent reluctance to be reinstated, computed only up
to promulgation of this decision as follows:
SEPARATION PAY
Date Hired

August 1990

Rate

P198/day

Date of Decision

Aug. 18, 1998

Length of Service

8 yrs. & 1 month

P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES
Date Dismissed

January 24, 1997

Rate per day

P196.00

Date of Decisions

Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.

= P62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day

= P62,986.00

P198.00 x 26 days x 6.4 mos.

= P32,947.20
TO TAL

= P95.933.76

xxxx
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of
constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred
eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred
thirty-three and 36/100 (P95,933.36) representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor
Arbiter. Respondents filed a motion for reconsideration, but it was denied. 6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24,
2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion for
Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001. 7
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332.
Finding no reversible error on the part of the CA, this Court denied the petition in the Resolution
dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became final and executory
on May 27, 2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution
conference was consequently scheduled, but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
backwages be computed from the date of his dismissal on January 24, 1997 up to the finality of
the Resolution of the Supreme Court on May 27, 2002. 11 Upon recomputation, the Computation
and Examination Unit of the NLRC arrived at an updated amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff
to collect from respondents the total amount of P471,320.31. Respondents filed a Motion to
Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded
separation pay of P62,986.56 and limited backwages of P95,933.36, no more recomputation is
required to be made of the said awards. They claimed that after the decision becomes final and
executory, the same cannot be altered or amended anymore. 14 On January 13, 2003, the Labor

Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on
January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a
Resolution17 granting the appeal in favor of the respondents and ordered the recomputation of
the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to
be final and executory. Consequently, another pre-execution conference was held, but
respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed judgment award in the sum
of P471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for
recomputation, where the judgment award of petitioner was reassessed to be in the total amount
of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the
original amount as determined by the Labor Arbiter in his Decision dated October 15, 1998,
pending the final computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment
award that was due to petitioner in the amount of P147,560.19, which petitioner eventually
received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary
award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the
amount of P11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that
should be enforced considering that it was the one that became final and executory. However,
the Labor Arbiter reasoned that since the decision states that the separation pay and backwages
are computed only up to the promulgation of the said decision, it is the amount of P158,919.92
that should be executed. Thus, since petitioner already received P147,560.19, he is only entitled
to the balance of P11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its
Resolution22 dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was
likewise denied in the Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that
since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which
already became final and executory, a belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to enforce the said judgment. Consequently, it
can no longer be modified in any respect, except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution 25 dated October
9, 2009.
Hence, the petition assigning the lone error:
I

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED,

COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN
UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER
LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the
Labor Arbiters decision, the same is not final until reinstatement is made or until finality of the
decision, in case of an award of separation pay. Petitioner maintains that considering that the
October 15, 1998 decision of the Labor Arbiter did not become final and executory until the April
17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of
Entries on May 27, 2002, the reckoning point for the computation of the backwages and
separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was
rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the payment of
interest from the finality of the decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were
awarded to petitioner by the October 15, 1998 decision of the Labor Arbiter, no more
recomputation is required to be made of said awards. Respondents insist that since the decision
clearly stated that the separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no longer appealed the decision,
petitioner is only entitled to the award as computed by the Labor Arbiter in the total amount
of P158,919.92. Respondents added that it was only during the execution proceedings that the
petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to
petitioner at this point of the proceedings would substantially vary the decision of the Labor
Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of
Appeals (Sixth Division),27 wherein the issue submitted to the Court for resolution was the
propriety of the computation of the awards made, and whether this violated the principle of
immutability of judgment. Like in the present case, it was a distinct feature of the judgment of the
Labor Arbiter in the above-cited case that the decision already provided for the computation of
the payable separation pay and backwages due and did not further order the computation of the
monetary awards up to the time of the finality of the judgment. Also in Session Delights, the
dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the
labor arbiter's original computation of the awards made, pegged as of the time the decision was
rendered and confirmed with modification by a final CA decision, is legally proper. The question is
posed, given that the petitioner did not immediately pay the awards stated in the original labor
arbiter's decision; it delayed payment because it continued with the litigation until final judgment
at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the
way the original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed
with finality. This is the finding of the illegality of the dismissal and the awards of separation pay
in lieu of reinstatement, backwages, attorney's fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor
arbiter made shows that it was time-bound as can be seen from the figures used in the
computation. This part, being merely a computation of what the first part of the decision
established and declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the computation is already in the
labor arbiter's decision that the CA had affirmed. The public and private respondents, on the
other hand, posit that a re-computation is necessary because the relief in an illegal dismissal
decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality
of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken
place, also made a computation of the award, is understandable in light of Section 3, Rule VIII of
the then NLRC Rules of Procedure which requires that a computation be made. This Section in
part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
practicable, shall embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiter's
decision. As we noted above, this implication is apparent from the terms of the computation itself,
and no question would have arisen had the parties terminated the case and implemented the
decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the
finding of illegality as well as on all the consequent awards made. Hence, the petitioner appealed
the case to the NLRC which, in turn, affirmed the labor arbiter's decision. By law, the NLRC
decision is final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through
a timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its
authority in affirming the payment of 13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of
the original labor arbiter's decision, the implementing labor arbiter ordered the award recomputed; he apparently read the figures originally ordered to be paid to be the computation due
had the case been terminated and implemented at the labor arbiter's level. Thus, the labor arbiter
re-computed the award to include the separation pay and the backwages due up to the finality of
the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's
approved computation went beyond the finality of the CA decision (July 29, 2003) and included
as well the payment for awards the final CA decision had deleted - specifically, the proportionate
13th month pay and the indemnity awards. Hence, the CA issued the decision now questioned in
the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially
considered the labor arbiter's original decision in accordance with its basic component parts as
we discussed above. To reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary consequences of
the illegal dismissal, computed as of the time of the labor arbiter's original decision. 28
Consequently, from the above disquisitions, under the terms of the decision which is sought to be
executed by the petitioner, no essential change is made by a recomputation as this step is a
necessary consequence that flows from the nature of the illegality of dismissal declared by the
Labor Arbiter in that decision.29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law specifically, Article 279 of the Labor Code and
the established jurisprudence on this provision that is read into the decision. By the nature of

an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under
Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal upon
execution of the decision does not constitute an alteration or amendment of the final decision
being implemented. The illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of the principle of
immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it
cannot avoid as it is the risk that it ran when it continued to seek recourses against the Labor
Arbiter's decision. Article 279 provides for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In allowing
separation pay, the final decision effectively declares that the employment relationship ended so
that separation pay and backwages are to be computed up to that point. 31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc.
v. Court of Appeals,32 the Court laid down the guidelines regarding the manner of computing legal
interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit. 33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution
No. 796 dated May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series
of 1982 and, accordingly, issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the
pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall
be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and
Sections 4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank
Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No.
799 - but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate
of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
Bangko Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest
rates and to issue and enforce Circulars when it ruled that "the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as well
as such loans made by pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July
1, 2013, said judgments shall not be disturbed and shall continue to be implemented applying the
rate of interest fixed therein.
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To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on "Damages" of the Civil Code govern in determining the
measure of recoverable damages.
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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:
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 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%

per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6%
per annum from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of
Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED
and SET ASIDE. Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24,
1997 up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became
final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one
month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed
from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013
until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary
benefits awarded and due to petitioner in accordance with this Decision.
SO ORDERED.