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FRANCISCO SAURE vs. HON. PRUDENCIO S.

PENTECOSTES, BP25 provides that the monthly rentals of all residential units not
[G.R. No. L-46468. May 27, 1981.] FERNANDO, J p: exceeding 300 pesos shall not be increased, for any 1 year period, by
Private respondents sought the ejectment of petitioner for refusing more than 10% of the monthly rentals existing at the time of the
to submit to an increase in rentals. Respondent municipal judge, in approval of the Act. The yearly increases authorized therein shall
disregard of PD20 which suspended indefinitely the filing of be cumulative.
ejectment cases except when the lease is for a definite period and HELD: petition for certiorari is granted nullifying the decision of
which prohibited the increase in rentals of dwelling units where the respondent Judge dated 11/17/1976 and the writ of execution issued
monthly rentals do not exceed P300 a month, ruled in favor of on 12/15/ 1976 by virtue thereof. The order of 3/10/1977 of
private respondents and denied the motion for relief from judgment respondent Judge denying the petition for relief from the aforesaid
filed thereafter by the petitioner. Hence, this petition to set aside decision is likewise declared of no force and effect. The writ of
the aforesaid decision. prohibition is granted enjoining respondent Judge and respondent
Supreme Court granted the petition and nullified respondent Deputy Sheriff Vivencio Palancio or any person acting on their stead
judge's decision, it being a clear case of jurisdictional infirmity and or behalf from taking any further action in connection with Civil
ruled that the applicable provision of PD20 should he applied as Case No. 3066 of the Municipal Court of Camiling between the
petitioner occupied a residential unit and not a commercial spouses Telesforo and Nieves Galang, now private respondents, as
establishment, notwithstanding the small photography shop in the plaintiffs, and FACTS: Francisco Saure, now petitioner, as one of
premises. Petitioner was declared entitled to remain as lessee after the defendants. The restraining order issued by this Court on
paying all back rentals due and owing, his failure to make the 7/18/1977 is permanent. Petitioner Saure is granted a period of 90
necessary consignation being excusable. days within which to pay the back rentals. No costs.
Petition granted. FACTS: certiorari and prohibition proceeding why the Citizens
1. CONSTITUTIONAL LAW; STATUTES; RENT CONTROL LAW; PRESIDENTIAL Legal Assistance Office of the Ministry of Justice to nullify and set
DECREE NO. 20. — Presidential Decree No. 20 indefinitely suspended the filing of
ejectment cases except when the lease is for a definite period and prohibited the
aside a decision of respondent Municipal Judge Pentecostes of
increase in rentals of dwelling units where the monthly rentals do not exceed P300.00 Camiling, Tarlac ejecting petitioner as lessee from the building
a month. owned by private respondents, the spouses Telesforo and Nieves
2. A POLICE POWER MEASURE TO BE LIBERALLY CONSTRUED. — The Galang, order denying a motion for relief from judgment.
legislation or decree relating to rent control is a police power measure intended to
alleviate the plight of lessees occupying premises with a monthly rental of less than Respondent Judge disregarded the plain command of PD20 which
P300.00. The construction that should be given to it therefore should be of a liberal suspended indefinitely the filing of ejectment cases except when the
character. Otherwise, its beneficent purpose could be frustrated. lease is for a definite period and which prohibited the increase in
3. ID.; ID.; ID.; ID.; APPLICABLE TO EXISTING CONTRACTS. — rentals of dwelling units where the monthly rentals do not exceed
Gutierrez vs. Cantada, SC held: The applicability of PD20 to P300.00 a month.
existing contracts cannot be denied. From Pangasinan There is no evidence whatsoever that disproves the allegation that
Transportation Co. vs. Public Service Commission, such a doctrine petitioner Saure is occupying the premises in question as his
has been repeatedly adhered to by this Court. As was held in residence. The fact that he has a small photography shop
Ongsiako vs. Gamboa, decided in 1950, a police power measure undoubtedly to supplement his income does not transform it into a
being remedial in character covers existing situations; otherwise, it commercial establishment.
would be self-defeating. Moreover, no period had been fixed for the duration of his
4. ID.; ID.; ID.; RESIDENTIAL UNIT, DEFINED. —BP25 defines a occupancy. As a matter of fact, the only reason of private
residential unit as that which "refers to an apartment, house and/or respondents for seeking his ejectment was his refusal to submit to
land on which another's dwelling is located used for residential an increase in rentals from P50.00 to P180.00, the PD 20
purposes and shall include not only buildings, parts or units thereof notwithstanding.
used solely as dwelling places, except motels, motel rooms, hotels, In the light of the undisputed facts, the jurisdictional infirmity of the actuation of
hotel rooms, boarding houses, dormitories, rooms and bedspaces fur respondent Judge is quite obvious. It is surprising how he could have decided the matter
rent, but also those used for home industries, retail stores or other the way he did. The explanation, but not the justification, apparently lies in the fact
that the building in question, a unit of which is the residence of petitioner, is located in
business purposes if the owner thereof and his family actually live the commercial district of Camiling, Tarlac. That does not suffice.
therein and use it principally for dwelling purposes: Provided, That ISSUE: Whether the petition to nullify decision of respondent judge
in the case of a retail store, home industry or business. the will succeed?
capitalization thereof shall not exceed (P5,000.00): and Provided, There is merit to the petition.
further, that in the operation of the store, industry or business, the 1. Salaria v. Buenviaje, opinion by Justice Guerrero, is quite categorical. Where PD20
owner thereof shall not require the services of any person other than calls for application, the fact that the lessor needed the premises for his personal use
could not defeat its application. Accordingly, it was categorically held that the lessee
the immediate members of his family." "cannot be ordered to vacate the premises of the land in question" pursuant to the
5. ID.; ID.; ID.; CIRCUMSTANCES IN THE CASE AT BAR CALL applicable law. Private respondents could not even allege such purpose. All they were
FOR THE APPLICATION OF PD20. — The belief of respondent interested in was that the rentals be increased, contrary to what is ordained by PD20.
judge that the premises in question, being located in a commercial The case for petitioner is thus much stronger.
2. Gutierrez v. Cantada, the same approach was followed. In that
section of the town of Camiling. was outside the operation of the
case, the decision of the then respondent Judge Tanada was upheld,
decree is unjustified. Petitioner was occupying only one of the units
a suit for certiorari against him filed by the lessor being dismissed.
in the building in question, all of which served as the dwelling places
Such special civil action was filed in this Court as a suit for
of the lessees. They therefore fall within the explicit language of
ejectment against the tenant did not prosper. It was pointed out in
PD20. It is not the location but the use of the premises in question
the opinion that PD20 as well as the previous act regulating
that is decisive. Nor is the application of the decree defeated by the
rentals which it amended "had a common objective to remedy the
fact that there is a small photo shop owned by petitioner. Again,
plight of the lessees, PD20 , moreover, having a constitutional
what calls for the setting aside of a decision is the fact that
sanction in that it is specifically referred to in the fundamental law
respondent Judge disregarded the evidence which showed that
as part of 'the law of the land.' Under the former statute, actions for
petitioner and his family had lived in such place for the last 10
ejectment were 'suspended from 2 years from the effectivity' thereof.
years. Under the circumstances, to refuse to recognize that the case
. . . Such a period was made indefinite by PD20 thus: 'Except when
of petitioner comes within the operation of the decree is to disregard
the lease is for a definite period, the provisions of paragraph (1) of
and ignore its command. Furthermore, there is testimony,
Article 1673 of the Civil Code of the Philippines insofar as they refer
unrefuted, that the capital of the photo shop was in the amount of
to dwelling unit or land on which another's dwelling is located shall
P2,500.00 and that services of persons other than the immediate
be suspended until otherwise provided; but other provisions of the
members of petitioner's family were not required.
Civil Code and the Rules of Court of the Philippines on lease
6. ID.; ID.; ID.; ID.; PAYMENT OF BACK RENTALS REQUIRED.
contracts, insofar as they are not in conflict with the provisions of
— The failure of petitioner to deposit the rental is mitigated by the
this Act, shall apply.' Under paragraph (1) of Article 1673 of the
fact that he did offer to pay the former rental, but private
Civil Code, one of the grounds for judicially ejecting the lessee is the
respondents made it clear that they would not accept. Petitioner was
expiration of the period fixed for the duration of the lease."
not advised by his counsel to make the necessary consignation. At
It bears repeating that the legislation or decree of the above
any rate, it can be stated legally that the action for ejectment not
character is a police power measure intended to alleviate the plight
being allowable in law at all, and a clear case of jurisdictional
of lessees occupying premises with a monthly rental of less than
infirmity being apparent, such failure could be considered
P300.00. The construction that should be given to it therefore should
excusable. Petitioner, however, must pay all the back rentals due
be of a liberal character. Otherwise, its beneficent purpose could be
and owing. In according him justice through law, no injustice should
frustrated. Nor could any doubt be entertained that the decree
be visited on private respondents.
applied to leases entered into prior to its issuance. There is
7. ID.; ID.; ID.; BP25; ANNUAL 10% INCREASE ALLOWED. —
relevance to this excerpt from Gutierrez v. Cantada: "The
Effective April 10, 1979 and for a duration of 5 years thereafter,
applicability thereof to existing contracts cannot be denied. From
Pangasinan Transportation Co. v. Public Service Commission, such declared a special public holiday. In the meantime, Castro had filed
a doctrine has been repeatedly adhered to by this Court. As was held a complaint against petitioners, among others, claiming that the
in Ongsiako v. Gamboa, decided in 1950, a police power measure Valencias had fraudulently induced her to sign as co-maker and to
being remedial in character covers existing situations; otherwise, it constitute a mortgage on her property to secure the spouses's loan.
would be self-defeating." Castro deposited with the Clerk of Court the amount of P3,383.00
3. As was pointed out earlier, the only explanation for this failure to in full payment of her personal P3K loan plus interest. The
abide by PD20 must have been the belief of respondent Judge that trial Court declared void: (I) the questioned promissory note as
the premises in question, being located in a commercial section of against Castro; (2) the mortgage contract in so far as it exceeded
the town of Camiling, was outside the operation of the Decree. Such Castro's personal loan; and (3) the extra-judicial foreclosure
a belief is unjustified. Petitioner was occupying only one of the units sale of Castro's property. The TC also ordered the application of the
in the building in question, all of which served as the dwelling places amount deposited by Castro to her personal loan plus interest.
of the lessees. They therefore fall within the explicit language of the The Court of Appeals affirmed the decision. Hence, this petition.
Decree. It is not the location but the use of the premises in question The Supreme Court held, that the questioned contracts are void
that is decisive. Nor is the application of the Decree defeated by the because substantial mistake vitiated the consent of both Castro and
fact that there is a small photo shop owned by petitioner. Again, the bank as a result of fraud upon Castro and misrepresentation to
what calls for the setting aside of a decision is the fact that the bank inflicted by the Valencias; that the consignation made by
respondent Judge disregarded the evidence which showed that Castro even prior to offer or tender of payment is valid under
petitioner and his family had lived in such place for the last 10 considerations of equity; and that the auction sale held on the day
years. Under the circumstances, to refuse to recognize that the case succeeding the day fixed by the deputy sheriff (which was declared
for petitioner comes within the operation of the Decree is to a special public holiday) without the notices of the sale on that day
disregard and ignore its command. being posted as prescribed in Section 9, Act 3135 is null and void.
Whatever doubt there may be on that score is removed by this 1. REMEDIAL LAW; EVIDENCE;
FINDINGS OF FACT OF TRIAL COURT DEEMED FINAL; FINDINGS WELL
definition of a residential unit in BP25 : "A residential unit — refers SUPPORTED BY EVIDENCE IN CASE AT BAR. — Where the questioned decision
to an apartment, house and/or land on which another's dwelling is declared the Valencias solely responsible for the defraudation of Castro, petitioners'
located used for residential purposes and shall include not only contention that the decision was silent regarding the participation of the bank in the
buildings, parts or units thereof used solely as dwelling places, fraud, is therefore, correct. For the records of the case reveal that respondent court's
findings of fraud against the Valencias is well supported by evidence. Moreover, the
except motels, motel rooms, hotels, hotel rooms, boarding houses, findings of fact by respondent court in the matter is deemed final.
dormitories, rooms and bedspaces for rent, but also those used for 2. CIVIL LAW; CONTRACTS; VOIDABLE WHERE CONSENT
home industries, retail stores or other business purposes if the VITIATED AS A RESULT OF MISTAKE. — A contract may be
owner thereof and his family actually live therein and use it annulled on the ground of vitiated consent, if deceit by a third
principally for dwelling purposes: Provided, That in the case of a person, even without connivance or complicity with one of the
retail store, home industry or business, the capitalization thereof contracting parties, resulted in mutual error on the part of the
shall not exceed (P5,000.00): and Provided, further, That in the parties to the contract. In the case at bar, therefore the promissory
operation of the store, industry or business, the owner thereof shallnote signed by Castro as co-maker for the Valencias may not be
not require the services of any person other than the immediate declared valid between the bank and Castro, and the mortgage
members of his family." There is testimony, unrefuted, that the contract on Castro's property, insofar as it secures the Valencia's
capital of the photo shop was in the amount of P2,500.00. Nor can obligation, binding on Castro. For, while the contracts may not be
there be any doubt that the services of a person other than the invalidated insofar as they affect the bank and Castro on the
immediate members of petitioner's family were not required. ground of fraud because the bank was not a participant thereto,
4. There is, however, this matter to consider. Petitioner did not such may however be invalidated on the ground of substantial
deposit during the pendency of this litigation the monthly rental of mistake mutually committed by them as a consequence of the fraud
P50.00 agreed upon. It could be argued that in Salaria, there was at and misrepresentation inflicted by the Valencias. If Castro had been
least a deposit of P200.00 during the pendency of the litigation. aware of what she signed and the bank of the true
Admittedly, such amount was not enough, as shown by the last qualifications of the loan applicants, it is evident that they would
sentence of its dispositive portion: "The petitioner is, however, not have given their consent to the contracts.
ordered to pay back rentals for the period of his stay on the land at3. REMEDIAL LAW; EVIDENCE; FRAUD AVERRED IN
the rate of P10.00 a month, which is not covered by the deposit." In COMPLAINT AND DULY PROVEN DEEMED SUFFICIENT
this case, however, the failure of petitioner to deposit the rental is
BASIS TO DECLARE CONTRACTS INVALID ON
mitigated by the fact that he did offer to pay the former rental, butGROUND OF VITIATED CONSENT DUE TO MISTAKE; CASE
private respondents made it clear that they would not accept. AT BAR. — Although the amended complaint made no
Counsel for petitioner ought to have advised him to make the mention of mistake being incurred in by the bank and Castro, such
necessary consignation. This is one instance however where the mention is not essential in order that the promissory note may be
client should not be made to suffer for the omission of counsel. At declared of no binding effect between them and the mortgage valid
any rate, it can be stated legally that the action for ejectment not up to the amount of P3,000.00 only. The reason is that the mistake
being allowable in law at all, and a clear case of jurisdictional they mutually suffered was a mere consequence of the fraud
infirmity being apparent, such failure could be considered perpetrated by the Valencias against them. Thus, the fraud
excusable. Petitioner, however, must pay all the back rentals due particularly averred in the complaint, having been proven, is
and owing. In according him justice through law, no injustice should deemed sufficient basis for the declaration of the promissory note
be visited on private respondents. invalid insofar as it affects Castro vis-a-vis the bank, and the
5. Moreover, Batas Pambansa Blg. 25 affords private respondents mortgage contract valid only up to the amount of P3,000.00.
some degree of relief. As therein set forth: "Upon the effectivity of4. CIVIL LAW; CONTRACTS; NEGLIGENCE MAY NOT BE
this Act and for a duration of five years thereafter the monthly ATTRIBUTED BY ONE PARTY TO THE OTHER WHERE THE
rentals of all residential units not exceeding three hundred pesos FORMER IS LIKEWISE GUILTY THEREOF. —
shall not be increased, for any 1year period, by more than (10%) of Petitioner bank may not attribute all consequences of the loss to
the monthly rentals existing at the time of the approval of this Act.Castro where it is evident that the bank was as much guilty, as
The yearly increases authorized herein shall be cumulative." The Castro was, of negligence in giving its consent to the contracts,
Act took effect on April 10, 1979. having apparently relied on representations made by the Valencia
spouses when it should have directly obtained the needed data from
Castro who was the acknowledged owner of the property offered as
RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, collateral. Moreover, considering Castro's personal circumstances-
JR., , vs. CA her lack of education, ignorance and old age-she cannot be
[G.R. No. L-32116. April 21, 1981.] DE CASTRO, J p: considered utterly neglectful for having been defrauded. On the
Maxima Castro, 70 years old. ignorant and unlettered, obtained a contrary, it is demanded of petitioners to exercise the highest
P3K loan from petitioner bank with the help of Severino Valencia order of care and prudence in its Business dealings with the
who arranged everything regarding the loan and supplied Valencias considering that it is engaged in a banking business-a
the bank with the personal data required for her loan. On the same business affected with public interests. It should have ascertained
date Castro got her loan, the Valencia spouses also obtained a P3K Castro's awareness of what she was signing or made her
loan from petitioner and caused Castro to affix her signature as co- understand what obligations she was assuming, considering that
maker in their promissory note. The two loans were secured by a she was giving accommodation to, without any consideration from,
real estate mortgage on Castro's house and lot. Consequently, the the Valencia spouses.
mortgage was extra-judicially foreclosed and the property sold at 5. ID.; ID.; AGENCY; NOT PRESENT IN CASE AT BAR. — The
public auction on the day following the scheduled date which was fact that the Valencias were not the agents authorized by Castro to
borrow for her but were only authorized to follow-up application The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house
and lot of 150 square meters, covered by Transfer Certificate of Title No. 7419 of the
with the bank is apparent from the fact that Castro went to Office of the Register of Deeds of Manila.
the Bank to sign the promissory note for her loan of P3,000.00. If On February 13, 1961, the sheriff of Manila, thru Acting Chief
her act had been understood by the Bank to be a grant of authority Deputy Sheriff Basilio Magsambol, sent a notice of sheriff's sale
to the Valencias to borrow money in her behalf, it should have addressed to Castro, announcing that her property covered by
required a special power of attorney executed by Castro in their T.C.T. No. 7419 would be sold at public auction on March 10, 1961
favor. Since the bank did not, it can rightly be assumed that it did to satisfy the obligation covering the two promissory notes plus
not entertain the notion that the Valencias were in any manner interest and attorney's fees.
acting as an agent of Castro. Upon request by Castro and the Valencias and with
6. ID.; ID.; BANKS REQUIRED TO OBSERVE DUE CARE AND conformity of the bank, the auction sale that was scheduled for
PRUDENCE TO PROTECT ITS INTEREST AND THAT OF THE March 10, 1961 was postponed for April 10, 1961. But when April
PUBLIC. — Considering that for the loan in which the Valencias 10, 1961 was subsequently declared a special holiday, the
appeared as principal borrowers, it was the property of Castro that sheriff of Manila sold the property covered by T.C.T. No. 7419 at a
was being mortgaged to secure said Iran, the Bank should have public auction sale that was held on April 11, 1961, which was the
exercised due care and prudence by making proper inquiry if next succeeding business day following the special holiday.
Castro's consent to the mortgage was without any taint or defect. Castro alleged that it was only when she received the letter from the
The possibility of her not knowing that she signed the promissory Acting Deputy Sheriff on February 13, 1961, when she learned for
note as co-maker with the Valencias, and that her property was the first time that the mortgage contract (Exhibit "6") which was an
mortgaged to secure the two loans instead of her own personal loan encumbrance on her property was for P6K and not for P3K and that
only, in view of her personal circumstances — ignorance, she was made to sign as co-maker of the promissory note (Exhibit
lack of education and old age — should have placed the Bank on "2") without her being informed of this.
prudent inquiry to protect its interest and that of the public it On April 4, 1961, Castro filed a suit denominated "Re:
serves. With the recent occurrence of events that have supposedly Sum of Money," against petitioner's Bank and Desiderio, the
affected adversely our banking system, attributable to laxity in the spouses Valencia, Basilio Magsambol and Arsenio Reyes as
conduct of bank business by its bank officials, the need of extreme defendants in Civil Case No. 46698 before the CFI upon the charge,
caution and prudence by said officials and employees in the amongst others, that thru mistake on her part or fraud on the
discharge of their functions cannot be over-emphasized. part of Valencias she was induced to sign as co-maker of a
7. ID.; OBLIGATIONS; EXTINGUISHMENT THEREOF; promissory note (Exhibit "2") and to constitute a mortgage on her
CONSIGNATION; HELD VALID EVEN WITHOUT PRIOR house and lot to secure the questioned note. At the time of filing her
TENDER OF PAYMENT IN CASE AT BAR BY complaint, respondent Castro deposited the amount of P3,383.00
REASONOF EQUITY. — Consignation made without prior offer or with the court a quo in full payment of her personal loan plus
tender of payment is valid, if not under the strict provision of law, interest.
under the more liberal considerations of equity, under the following In her amended complaint, Castro prayed, amongst other, for the annulment as far as
circumstances: (1) the creditor Bank was holding Castro liable for she is concerned of the promissory note (Exhibit "2") and mortgage contract (Exhibit
the sum of P6K plus 12% interest per annum, while the amount "6") insofar as it exceeds P3,000.00; for the discharge of her personal obligation with
the bank by reason of a deposit of P3,383.00 with the court a quo upon the filing of her
consigned was only P3K plus 12% interest; (2) at the time of the complaint; for the annulment of the foreclosure sale of her property covered by T.C.T.
consignation, the Bank had long foreclosed the mortgage No 7419 in favor of Arsenio Reyes; and for the award in her favor of attorney's fees,
extrajudicially and the sale of the mortgage property had already damages and cost.
In their answers, petitioners interposed counterclaims and prayed for the
been scheduled for April 10, 1961 for non-payment of the obligation; dismissal of said complaint, with damages, attorney's fees and costs.
and (3) despite the fact that the Bank already knew of the deposit The Court of Appeals, upon evaluation of the evidence, affirmed in
made by Castro because the receipt of the deposit was attached to toto the decision of the CFI of Manila, the dispositive
the record of the case, said Bank had not made any claim of such portion of which reads:
deposit, and that therefore, Castro was right in thinking that it was "FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment and:
futile and useless for her to make previous offer and "(1) Declares that the promissory note, Exhibit '2', is invalid as
tender of payment directly to the Bank only in the aforesaid against plaintiff herein;
amount of P3K plus 12% interest. "(2) Declares that the contract of mortgage, Exhibit '6', is null and
8. ADMINISTRATIVE LAW; RULE OF PRETERMISSION OF HOLIDAY NOT void, in so far as the amount thereof exceeds the sum of P3,000.00
APPLICABLE TO A DAY FIXED BY A GOVERNMENT OFFICER OR OFFICE. — The
pretermission of a holiday applies only "where the day, or the last day for doing representing the principal obligation of plaintiff, plus the interest
any act required or permitted bylaw falls on a holiday," or when the last day of a given thereon at 12% per annum;
period for doing an act falls on a holiday. It does not apply to a day fixed by an office or "(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged
officer of the government for an act to be done, which may be on any day within that property held on April 11, 1961, as well as all the process and actuations made in
specified period. For example if a party is required by law to file his answer to a pursuance of or in implementation thereto;
complaint within (15) days from receipt of the summons and the last day falls on a "(4) Holds that the total unpaid obligation of plaintiff to
holiday, the last day is deemed moved to the next succeeding business day. But, if defendant Rural Bank of Caloocan, Inc., is only the amount of P3,000.00, plus the
the court fixes the trial of a case on a certain day but the said date is subsequently interest thereon at 12% per annum, as of April 3, 1961, and orders that plaintiff's
declared a public holiday, the trial thereof is not automatically transferred to the next deposit of P3,383.00 in the Office of the Clerk of Court be applied to the payment
succeeding business day. Since April 10, 1961 was not the day or the last day of a given thereof;
period, but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made "(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio
on the next succeeding business day without the notices of the sale on that day being Reyes the purchase price the latter paid for the mortgaged property at the public
auction, as well as reimburse him of all the expenses he has incurred relative to the
posted as prescribed in Section 9, Act No. 3135. sale thereof;
HELD: finding no reversible error in the judgment under review, "(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay
We affirm the same in toto. defendant Rural Bank of Caloocan, Inc. the amount of P3,000.00 plus the
corresponding 12% interest thereon per annum from December 11, 1960 until fully paid;
FACTS: petition for certiorari of the decision of the CA in CA-G.R. and
No. 39760 - R entitled "Maxima Castro versus Severino Valencia, et "Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses
al., defendants; Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. Severino D. Valencia and Catalina Valencia to pay plaintiff, jointly and severally, the
sum of P600.00 by way of attorney's fees, as well as costs.
and Arsenio Reyes, defendants-appellants," which affirmed in
"In view of the conclusion that the court has thus reached, the
toto the decision of the CFI in favor of plaintiff-appellee, the herein counterclaims of defendant Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and
private respondent Maxima Castro. Arsenio Reyes are hereby dismissed, as a corollary.
On December 7, 1959, respondent Maxima Castro, accompanied by "The Court further denies the motion of defendant Arsenio Reyes for an Order
requiring Maxima Castro to deposit rentals filed on November 16, 1963, resolution
Severino Valencia, went to the Rural Bank of Caloocan to apply for of which was held in abeyance pending final determination of the case on the merits,
an industrial loan. It was Severino Valencia who arranged also as a consequence of the conclusion aforesaid."
everything about the loan with the bank and who supplied to the Petitioners Bank and Jose Desiderio moved for the
reconsideration of respondent court's decision. The motion having been denied, they
latter the personal data required for Castro's loan application. On
now come before this Court in the instant petition, with the following
December 11, 1959, after the bank approved the loan for the Assignment of Errors, to wit:
amount of P3K Castro, accompanied by the Valencia spouses, ISSUE: whether respondent court correctly affirmed the
signed a promissory note corresponding to her loan in lower court in declaring the promissory note (Exhibit 2) invalid
favor of the bank. insofar as they affect respondent Castro vis-a-vis petitioner bank,
On the same day, December 11, 1959, the Valencia spouses obtained and the mortgage contract (Exhibit 6) valid up to the
from the bank an equal amount of loan for P3K. They signed a amount of P3,000.00 only.
promissory note (Exhibit "2") corresponding to their loan in HELD: Respondent court declared that the consent of Castro to the
favor of the bank and had Castro affixed thereon her signature as promissory note (Exhibit 2) where she signed as co-maker with the
co-maker. Valencias as principal borrowers and her acquiescence to the
mortgage contract (Exhibit 6) where she encumbered her property
to secure the amount of P6,000.00 was obtained by fraud
perpetrated on her by the Valencias who had abused her confidence, picul of the sugarcane production in her hacienda and 500 cavans on the palay
production."
taking advantage of her old age and ignorance of her financial need. From the foregoing, it is evident that the bank was as much guilty, as Castro
Respondent court added that "the mandate of fair play decrees that was, of negligence in giving its consent to the contracts. It is apparently relied on
she should be relieved of her obligation under the contract" representations made by the Valencia spouses when it should have directly obtained
pursuant to Articles 24 and 1332 of the Civil Code. the needed data from Castro who was the acknowledged owner of the property offered
as collateral. Moreover, considering Castro's personal circumstances  her
The decision in effect relieved Castro of any liability to the lack of education, ignorance and old age  she cannot be considered utterly neglectful
promissory note (Exhibit 2) and the mortgage contract (Exhibit 6) for having been defrauded. On the contrary, it is demanded of petitioners to exercise
was deemed valid up to the amount of P3,000.00 only which was the highest order of care and prudence in its business dealings with the Valencias
considering that it is engaged in a banking business  a business affected with public
equivalent to her personal loan to the bank. interest. It should have ascertained Castro's awareness of what she was signing or
Petitioners argued that since the Valencias were solely declared in the decision to be
made her understand what obligations she was assuming, considering that she was
responsible for the fraud against Castro, in the light of the res inter alios acta rule, a
giving accommodation to, without any consideration from, the Valencia spouses.
finding of fraud perpetrated by the spouses against Castro cannot be taken to operate
prejudicially against the bank. Petitioners concluded that respondent court erred in not Petitioners further argue that Castro's act of holding the Valencias
giving effect to the promissory note (Exhibit 2) insofar as they affect Castro and as her agent led the bank to believe that they were authorized to
the bank and in declaring that the mortgage contract (Exhibit 6) was valid only to the speak and bind her. She cannot now be permitted to deny the
extent of Castro's personal loan of P3,000.00.
authority of the Valencias to act as her agent for one who clothes
The records of the case reveal that respondent court's
another with apparent authority as her agent is not permitted to
findings of fraud against the Valencias is well supported by
deny such authority.
evidence. Moreover, the findings of fact by respondent court in the
The authority of the Valencias was only to follow-up Castro's loan
matter is deemed final. The decision declared the Valencias solely
application with the bank. They were not authorized to borrow for
responsible for the defraudation of Castro. Petitioners' contention
her. This is apparent from the fact that Castro went to the Bank to
that the decision was silent regarding the
sign the promissory note for her loan of P3,000.00. If her act had
participation of the bank in the fraud is, therefore, correct.
been understood by the Bank to be a grant of an authority to the
We cannot agree with the contention of petitioners that
Valencias to borrow in her behalf, it should have required a special
the bank was defrauded by the Valencias. For, one, no claim was
power of attorney executed by Castro in their favor. Since
made on this in the lower court. For another, petitioners did not
the bank did not, We can rightly assume that it did not entertain
submit proof to support its contention.
the notion, that the Valencia spouses were in any manner acting as
At any rate, We observe that while the Valencias defrauded Castro
an agent of Castro.
by making her sign the promissory note (Exhibit 2) and the
When the Valencias borrowed from the Bank a personal
mortgage contract (Exhibit 6), they also misrepresented to
loan of P3,000.00 evidenced by a promissory note (Exhibit 2) and
the bank Castro's personal qualifications in order to secure its
mortgaged (Exhibit 6) Castro's property to secure said loan, the
consent to the loan. This must be the reason which prompted
Valencias acted for their own behalf. Considering however that for
the bank to contend that it was defrauded by the Valencias. But to
the loan in which the Valencias appeared as principal borrowers, it
reiterate, We cannot agree with the contention for reasons above-
was the property of Castro that was being mortgaged to secure said
mentioned. However, if the contention deserves any consideration
loan, the Bank should have exercised due care and prudence by
at all, it is in indicating the admission of petitioners that
making proper inquiry if Castro's consent to the mortgage was
the bank committed mistake in giving its consent to the contracts.
without any taint or defect. The possibility of her not knowing that
Thus, as a result of the fraud upon Castro and the
she signed the promissory note (Exhibit 2) as co-maker with the
misrepresentation to the bank inflicted by the Valencias, both
Valencias, and that her property was mortgaged to secure the two
Castro and the bank committed mistake in giving their consents to
loans instead of her own personal loan only, in view of her personal
the contracts. In other words, substantial mistake vitiated their
circumstances — ignorance, lack of education and old age — should
consents given. For if Castro had been aware of what she signed and
have placed the Bank on prudent inquiry to protect its interest and
the bank of the true qualifications of the loan applicants, it is
that of the public it serves. With the recent occurrence of events
evident that they would not have given their consents to the
that have supposedly affected adversely our banking system,
contracts.
attributable to laxity in the conduct of bank business by its officials,
"Art. 1342. Misrepresentation by a third person does not vitiate
the need of extreme caution and prudence by said officials and
consent, unless such misrepresentation has created substantial
employees in the discharge of their functions cannot be
mistake and the same is mutual."
overemphasized.
We cannot declare the promissory note (Exhibit 2) valid between
Question is, likewise, raised as to the
the bank and Castro and the mortgage contract (Exhibit 6) binding
propriety of respondent court's decision which declared that
on Castro beyond the amount ofP3,000.00, for while the contracts
Castro's consignation in court of the amount of P3,383.00 was
may not be invalidated insofar as they affect the bank and Castro
validly made. It is contended that the consignation was made
on the ground of fraud because the bank was not a participant
without prior offer of tender of payment to the Bank, and is
thereto, such may however be invalidated on the
therefore, not valid. In holding that there is a substantial
ground of substantial mistake mutually committed by them as a
compliance with the provision of Article 1256 of the Civil Code,
consequence of the fraud and misrepresentation inflicted by the
respondent court considered the fact that the Bank was holding
Valencias.
Hill vs. Veloso, this Court declared that a contract may be annulled on the Castro liable for the sum of P6,000.00 plus 12% interest per annum,
ground of vitiated consent, if deceit by a third person, even without connivance or while the amount consigned was only P3,000.00 plus 12% interest;
complicity with one of the contracting parties, resulted in mutual error on the that at the time of consignation, the Bank had long foreclosed the
part of the parties to the contract.
mortgage extrajudicially and the sale of the mortgaged property
Petitioners argued that the amended complaint fails to contain even a general
averment of fraud or mistake, and its mention in the prayer is definitely not a had already been scheduled for April 10, 1961 for non-
substantial compliance with the requirement of Section 5, Rule 8 of the Rules of Court. payment of the obligation, and that despite the fact that
The records of the case, however, will show that the amended complaint contained a the Bank already knew of the deposit made by Castro
particular averment of fraud against the Valencias in full compliance with the
provision of the Rules of Court. Although, the amended complaint made no
because of receipt of the deposit was attached to the record of the
mention of mistake being incurred in by the bank and Castro, such mention is not case, said Bank had not made any claim of such deposit, and that
essential in order that the promissory note (Exhibit 2) may be declared of no binding therefore, Castro was right in thinking that it was futile and useless
effect between them and the mortgage (Exhibit 6) valid up to the amount of P3,000.00
for her to make previous offer and tender of payment directly to
only. The reason is that the mistake they mutually suffered was a mere
consequence of the fraud perpetrated by the Valencias against them. Thus, the fraud the Bank only in the aforesaid amount of P3,000.00 plus 12%
particularly averred in the complaint, having been proven, is deemed sufficient basis interest. Under the foregoing circumstances, the consignation made
for the declaration of the promissory note (Exhibit 2) invalid insofar as it affects Castro by Castro was valid, if not under the strict provision of the law,
vis-a-vis the bank, and the mortgage contract (Exhibit 6) valid only up to the
amount of P3,000.00.
under the more liberal considerations of equity. llcd
2nd issue raised in the fourth assignment of error is who between 3 issue raised is the validity or invalidity of the extrajudicial
rd

Castro and the bank should suffer the consequences of the fraud foreclosure sale at public auction of the mortgaged property that
perpetrated by the Valencias. was held on April 11, 1961.
In attributing to Castro all consequences of the loss, petitioners argue that it was her Petitioners contended that the public auction sale that was held on
negligence or acquiescence if not her actual connivance that made the fraud possible. April 11, 1961 which was the next business day after the scheduled
Petitioners' argument utterly disregards the
date of the sale on April 10, 1961, a special public holiday, was
findings of respondent Court of Appeals wherein petitioners' negligence in the
contracts has been aptly demonstrated, to wit: permissible and valid pursuant to the provisions of Section 31 of the
"A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the Revised Administrative Code which ordains:
plaintiff-appellee to several interviews. If this were true why is it that her age was "Pretermission of holiday.—Where the day, or the last day, for doing
placed at 61 instead of 70; why was she described in the application (Exh. B-1-9) as drug
manufacturer when in fact she was not; why was it placed in the application that she any act required or permitted by law falls on a holiday, the act may
has an income of P20,000.00 when according to plaintiff-appellee, she has not even be done on the next succeeding business day."
given such kind of information — the true fact being that she was being paid P1.20 per
Respondent court ruled that the aforesaid sale is null and void, it consignation of the thing or sum due, and that consignation alone
not having been carried out in accordance with Section 9 of Act No. shall produce the same effect in the five cases enumerated therein;
3135, which provides: Article 1257 provides that in order that the consignation of the thing
"Section 9. — Notice shall be given by posting notices of the sale for not less than twenty (or sum) due may release the obligor, it must first be announced to
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice shall
the persons interested in the fulfillment of the obligation; and
also be published one a week for at least three consecutive weeks in a Article 1258 provides that consignation shall be made by depositing
newspaper of general circulation in the municipality or city." the thing (or sum) due at the disposal of the judicial authority and
We agree with respondent court. The pretermission of a holiday that the interested parties shall also be notified thereof.
applies only where the day, or the last day for doing 5. ID.; ID.; ID.; ID.; DISTINGUISHED FROM CONSIGNATION. —
any act, required or permitted by law falls on a holiday," or when Soco vs. Militante: "Tender of payment must be distinguished from
the last day of a given period for doing an act falls on a holiday. It consignation. Tender is the antecedent of consignation, that is,
does not apply to a day fixed by an office or officer of the government an act preparatory to the consignation, which is the principal, and
for an act to be done, as distinguished from a period of time within from which are derived the immediate consequences which the
which an act should be done, which may be on any day within that debtor desires or seeks to obtain. Tender of payment may be
specified period. For example, if a party is required by law to file his extrajudicial, while consignation is necessarily judicial, and the
answer to a complaint within fifteen (15) days from receipt of the priority of the first is the attempt to make a private settlement
summons and the last day falls on a holiday, the last day is deemed before proceeding to the solemnities of consignation.
moved to the next succeeding, business day. But, if the court fixes HELD: decision of CA is AFFIRMED with the following
the trial of a case on a certain day but the said date is subsequently modifications:
declared a public holiday, the trial thereof is not automatically (a) Petitioner is ordered to accept from private respondent the Metrobank Cashier's
transferred to the next succeeding business day. Since April 10, Check No. CC 004233 in her favor in the amount of P76,059.71 or another certified
check of a reputable bank drawn in her favor in the same amount;
1961 was not the day or the last day set by law for the extrajudicial (b) Private respondent is ordered to pay petitioner, within (60) days from the
foreclosure sale, nor the last day of a given period, but a date fixed finality of this decision, the rentals in arrears of P1,000.00 a month from January 1,
by the deputy sheriff, the aforesaid sale cannot legally be made on 1981 until full payment thereof; and
the next succeeding business day without the notices of the sale on (c) Petitioner is ordered to execute a deed of absolute sale in favor of private respondent
over the real property in question upon full payment of the amounts as provided in
that day being posted as prescribed in Section 9, Act No. 3135. ]] paragraphs (a) and (b) above. No costs.
FACTS: appeal by certiorari from the decision of the CA:
MCLAUGHLIN vs. CA AND RAMON FLORES "IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and
[G.R. No. L-57552. October 10, 1986.] FERIA, Actg. C.J p: mandamus is hereby GRANTED and the Orders of respondent court dated November
21 and 27 both 1980 are hereby nullified and set aside and respondent Judge is ordered
1. CIVIL LAW; CONTRACTS: RESCISSION; NOT PROPER to order private respondent to accept petitioner's Pacific Banking Corporation certified
WHEN THERE IS SUBSTANTIAL COMPLIANCE IN THE manager's Check No. MC-A-000311 dated November 17, 1980 in the
AGREEMENT. — We agree with the appellate court that it would amount of P76,059.71 in full settlement of petitioner's obligation, or another
be inequitable to cancel the contract of conditional sale and to have check of equivalent kind and value, the earlier check having become stale."
On February 28, 1977, petitioner McLaughlin and private
the amount of P101,550.00 (P148,126.97 according to private
respondent Ramon Flores entered into a contract of conditional
respondent in his brief) already paid by him under said contract,
sale of real property. Paragraph one of the deed of conditional sale
excluding the monthly rentals paid, forfeited in favor of petitioner,
fixed the total purchase price of P140,000.00 payable as follows: a)
particularly after private respondent had tendered the amount of
P26,550.00 upon the execution of the deed; and b) the balance of
P76,059.71 in full payment of his obligation. In the analogous
P113,450.00 to be paid not later than May 31, 1977. The parties also
case of De Guzman vs. Court of Appeals, this Court sustained the
agreed that the balance shall bear interest at the rate of 1% per
order of the respondent judge denying the petitioners' motion for
month to commence from December 1, 1976, until the full purchase
execution on the ground that the private respondent had
price was paid.
substantially complied with the terms and conditions of the
On June 19, 1979, petitioner filed a complaint in the then CFI Rizal
compromise agreement, and directing the petitioners to
(Civil Case No. 33573) for the rescission of the deed of conditional
immediately execute the necessary documents transferring to the
sale due to the failure of private respondent to pay the balance due
private respondent the title to the properties. In the case at bar,
on May 31, 1977.
there was also substantial compliance with the compromise
On December 27, 1979, the parties submitted a Compromise
agreement.
Agreement on the basis of which the court rendered a decision on
2. ID.; OBLIGATION; EXTINGUISHMENT OF OBLIGATION;
January 22, 1980. In said compromise agreement, private
TENDER OF PAYMENT; VALID IN CASE AT BAR. — Private
respondent acknowledged his indebtedness to petitioner under the
respondent's tender of payment of the amount of P76,059.71
deed of conditional sale in the amount of P119,050.71, and the
together with his motion for reconsideration on November 17, 1980
parties agreed that said amount would be payable as follows: a)
was, therefore, well within the 30-day period granted by law. The
P50,000.00 upon signing of the agreement; and b) the
tender made by private respondent of a certified bank manager's
balance of P69,059.71 in two equal installments on June 30, 1980
check payable to petitioner was a valid tender of payment. The
and December 31, 1980.
certified check covered not only the balance of the purchase price in
As agreed upon, private respondent paid P50,000.00 upon the
the amount of P69,059.71, but also the arrears in the rental
signing of the agreement and in addition he also paid an "escalation
payments from June to December, 1980 in the amount of P7,000.00,
cost" of P25,000.00.
or a total of P76,059.71.
On this point the appellate court correctly applied the ruling in the case of New Pacific Under paragraph 3 of the Compromise Agreement, private
Timber & Supply Co., Inc. vs. Seneris to the case at bar. respondent agreed to pay (P1,000.00) pesos monthly rental
3. ID.; ID.; ID.; ID.; DOES NOT IN ITSELF BELIEVE THE beginning December 5, 1979 until the obligation is duly paid, for the
VENDOR FROM HIS LIABILITY TO PAY THE REDEMPTION use of the property subject matter of the deed of conditional sale.
PRICE. — Although private respondent had made a valid Paragraphs 6 and 7 of the Compromise Agreement further state:
tender of payment which preserved his rights as a vendee in the "That the parties are agreed that in the event the defendant (private respondent) fails
contract of conditional sale of real property, he did not follow it with to comply with his obligations herein provided, the plaintiff (petitioner) will be entitled
to the issuance of a writ of execution rescinding the Deed of Conditional Sale of Real
a consignation or deposit of the sum due with the court. As Property. In such eventuality, defendant (private respondent) hereby waives his right
this Court has held: "The rule regarding payment of redemption to appeal to (from) the Order of Rescission and the Writ of Execution which
prices is invoked. True that consignation of the redemption price is the Court shall render in accordance with the stipulations herein provided for.
"That in the event of execution all payments made by defendant (private respondent)
not necessary in order that the vendor may compel the vendee to will be forfeited in favor of the plaintiff (petitioner) as liquidated damages."
allow the repurchase within the time provided by law or by contract. On October 15, 1980, petitioner wrote to private respondent
(Rosales vs. Reyes and Ordoveza) We have held that in such cases a demanding that the latter pay the balance of P69,059.71 on or
mere tender of payment is enough, if made on time, as a basis for before October 31, 1980. This demand included not only the
action against the vendee to compel him to resell. But that tender installment due on June 30, 1980 but also the installment due on
does not in itself relieve the vendor from his obligation to pay the December 31, 1980.
price when redemption is allowed by the court. In other words, On October 30, 1980, private respondent sent a letter to petitioner
tender of payment is sufficient to compel redemption but is not in signifying his willingness and intention to pay the full
itself a payment that relieves the vendor from his liability to pay the balance of P69,059.71, and at the same time demanding to see the
redemption price." certificate of title of the property and the tax payment receipts.
4. ID.; ID.; ID.; ID.; RULE WHEN CREDITOR REFUSES TO Private respondent states on page 14 of his brief that on November
ACCEPT WITHOUT JUST CAUSE. — According to Article 3, 1980, the first working day of said month, he tendered payment
1256 of the Civil Code of the Philippines, if the creditor to whom to petitioner but this was refused acceptance by petitioner.
tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the
However, this does not appear in the Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides as
follows:
decision of the Court of Appeals. "In case where less than two years of installments were paid, the seller shall give the
On November 7, 1980, petitioner filed a Motion for buyer a grace period of not less than 60 days from the date the installment became due.
Writ of Execution alleging that private respondent failed to pay the If the buyer fails to pay the installments due at the expiration of the grace period, the
installment due on June 1980 and that since June 1980 he had seller may cancel the contract after thirty days from receipt by the buyer of the
notice of the cancellation or the demand for rescission of the contract by a notarial act."
failed to pay the monthly rental of P1,000.00. Section 7 of said law provides as follows:
Petitioner prayed that a) the deed of conditional sale of real property be declared "Any stipulation in any contract hereafter entered into contrary to the
rescinded with forfeiture of all payments as liquidated damages; and b) the court order provisions of Sections 3, 4, 5 and 6, shall be null and void."
the payment of P1,000.00 back rentals since June 1980 and the eviction of private
respondent.
The spirit of these provisions further supports the decision of the
the trial court granted the motion for writ of execution. appellate court. The record does not contain the complete text of the
On November 17, 1980, private respondent filed a motion for compromise agreement dated December 20, 1979 and the decision
reconsideration tendering at the same time a Pacific Banking approving it.
Corporation certified manager's check in the amount of P76,059.71, However, assuming that under the terms of said agreement the
payable to the order of petitioner and covering the entire obligation December 31, 1980 installment was due and payable when on
including the installment due on December 31, 1980. However, the October 15, 1980, petitioner demanded payment of the
trial court denied the motion for reconsideration in an order dated balance of P69,059.71 on or before October 31, 1980, petitioner could
November 21, 1980 and issued the writ of execution on November cancel the contract after 30 days from receipt by private
25, 1980. respondent of the notice of cancellation. Considering petitioner's
In an order dated November 27, 1980, the trial court granted petitioner's ex-parte motion for execution filed on November 7, 1980 as a notice of
motion for clarification of the order of execution rescinding the deed of conditional cancellation, petitioner could cancel the contract of conditional sale
sale of real property. after 30 days from receipt by private respondent of said motion.
On November 28, 1980, private respondent filed with Private respondent's tender of payment of the
the Court of Appeals a petition for certiorari and prohibition amount of P76,059.71 together with his motion for reconsideration
assailing the orders dated November 21 and 27, 1980. on November 17, 1980 was, therefore, well within the 30-day period
As initially stated above, the appellate court nullified and set aside granted by law.
the disputed orders of the lower court. In its decision, the The tender made by private respondent of a certified bank
appellate court ruled in part as follows: manager's check payable to petitioner was a valid
ISSUE :whether respondent court committed a grave tender of payment. The certified check covered not only the
abuse of discretion in issuing the orders dated November 21, 1980 balance of the purchase price in the amount of P69,059.71, but also
and November 27, 1980. the arrears in the rental payments from June to December, 1980 in
"The general rule is that rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are substantial and fundamental the amount of P7,000.00, or a total of P76,059.71. On this point the
as to defeat the object of the parties in making the agreement. (Song Fo & Co. vs. appellate court correctly applied the ruling in the case of New
Hawaiian-Philippine Co.,) Pacific Timber & Supply Co., Inc. vs. Seneris to the case at bar.
"In aforesaid case, it was held that a delay in payment for a small quantity of molasses,
for some 20 days is not such a violation of an essential condition of the contract as
Section 49, Rule 130 of the Revised Rules of Court :
warrants rescission for nonperformance. "An offer in writing to pay a particular sum of money or to deliver a
"In Universal Food Corp. vs. Court of Appeals, , the Song Fo ruling was reaffirmed. written instrument or specific property is, if rejected, equivalent to
"In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that the actual production and tender of the money, instrument, or
Flores pay the balance of P69,059.71 on or before October 31, 1980. Thus it is
undeniable that despite Flores' failure to make the payment which was due on June property."
1980, McLaughlin waived whatever right she had under the compromise agreement as However, although private respondent had made a valid
incorporated in the decision of respondent court, to demand rescission. tender of payment which preserved his rights as a vendee in the
"It is significant to note that on November 17, 1980, or just (17) days contract of conditional sale of real property, he did not follow it with
after October 31, 1980, the deadline set by McLaughlin, Flores a consignation or deposit of the sum due with the court. As
tendered the certified manager's check. We hold that the Song Fo this Court has held:
ruling is applicable herein considering that in the latter case, there "The rule regarding payment of redemption prices is invoked. True
was a 20-day delay in the payment of the obligation as compared to that consignation of the redemption price is not necessary in order
a 17-day delay in the instant case. that the vendor may compel the vendee to allow the repurchase
New Pacific Timber & Supply Co., Inc. vs. Hon. Alberto Seneris, it is the accepted
practice in business to consider a cashier's or manager's check as cash and that upon
within the time provided by law or by contract. (Rosales vs. Reyes
certification of a check, it is equivalent to its acceptance (Section 187, Negotiable and Ordoveza,.We have held that in such cases a mere
Instrument Law) and the funds are thereby transferred to the credit of the creditor tender of payment is enough, if made on time, as a basis for action
New Pacific Timber & Supply Co., Inc. case, held that the object of certifying a check is against the vendee to compel him to resell. But that tender does not
to enable the holder thereof to use it as money, citing the ruling in PNB vs. National
City Bank of New York, in itself relieve the vendor from his obligation to pay the price when
"In the New Pacific Timber case, it was also ruled that the exception in Section 63 of the redemption is allowed by the court. In other words,
Central Bank Act that the clearing of a check and the subsequent crediting of the tender of payment is sufficient to compel redemption but is not in
amount thereof to the account of the creditor is equivalent to delivery of cash, is
applicable to a payment through a certified check.
itself a payment that relieves the vendor from his liability to pay the
"Considering that Flores had already paid P101,550.00 under the redemption price." (Paez vs. Magno,).
contract to sell, excluding the monthly rentals paid, certainly it On September 1, 1986, the Court issued the following resolution:
"Considering the allegation in petitioner's reply brief that the Manager's Check
would be the height of inequity to have this amount forfeited in tendered by private respondent on November 17, 1980 was subsequently cancelled and
favor McLaughlin. Under the questioned orders, McLaughlin would converted into cash, the Court RESOLVED to REQUIRE the parties within (10) days
get back the property and still keep P101,550.00." from notice to inform the Court whether or not the amount thereof was deposited
Petitioner contends that the appellate court erred in not observing the in court and whether or not private respondent continued paying the monthly
provisions of Article No. 1306 of the Civil Code of the Philippines and in having rental of P1,000.00 stipulated in the Compromise Agreement."
arbitrarily abused its judicial discretion by disregarding the penal clause stipulated by In compliance with this resolution, both parties submitted their
the parties in the compromise agreement which was the basis of the decision of the respective manifestations which confirm that the Manager's Check
lower court.
in question was subsequently withdrawn and replaced by cash, but
We agree with the appellate court that it would be inequitable to
the cash was not deposited with the court.
cancel the contract of conditional sale and to have the
Article 1256 CC, if the creditor to whom tender of payment has been
amount of P101,550.00 (P148,126.97 according to private
made refuses without just cause to accept it, the debtor shall be
respondent in his brief) already paid by him under said contract,
released from responsibility by the consignation of the thing or sum
excluding the monthly rentals paid, forfeited in favor of petitioner,
due, and that consignation alone shall produce the same effect in
particularly after private respondent had tendered the
the five cases enumerated therein; Article 1257 provides that in
amount of P76,059.71 in full payment of his obligation.
De Guzman vs. Court of Appeals, this Court sustained the order of the respondent
order that the consignation of the thing (or sum) due may release
judge denying the petitioners' motion for execution on the ground that the private the obligor, it must first be announced to the persons interested in
respondent had substantially complied with the terms and conditions of the the fulfillment of the obligation; and Article 1258 provides that
compromise agreement, and directing the petitioners to immediately execute the consignation shall be made by depositing the thing (or sum) due at
necessary documents transferring to the private respondent the title to the properties.
In the case at bar, there was also substantial compliance with the compromise the disposal of the judicial authority and that the interested parties
agreement. shall also be notified thereof.
Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in the Soco vs. Militante, "Tender of payment must be distinguished from consignation.
case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., to the effect that Tender is the antecedent of consignation, that is, an act preparatory to the
Republic Act 6552 (the Maceda Law) "recognizes and reaffirms the vendor's right to consignation, which is the principal, and from which are derived the immediate
cancel the contract to sell upon breach and non-payment of the stipulated installments consequences which the debtor desires or seeks to obtain. Tender of payment may be
but requires a grace period after at least two years of regular installment payments . . extrajudicial, while consignation is necessarily judicial, and the priority of the first is
." ( the attempt to make a private settlement before proceeding to the
On the other hand, private respondent also invokes said law as an expression of public solemnities of consignation. (8 Manresa 325).".
policy to protect buyers of real estate on installments against onerous and oppressive De Guzman vs. Court of Appeals, the vendee was released from responsibility because
conditions (Section 2 of Republic Act No. 6552). he had deposited with the court the balance of the purchase price.
New Pacific Timber & Supply Co., Inc. vs. Seneris, the judgment debtor was released They, however, were unaware that the documents contained
from responsibility by depositing with the court the amount of the judgment obligation.
identical escalation clauses granting Equitable authority to
In the case at bar, although as above stated private respondent had
increase interest rates without their consent.
preserved his rights as a vendee in the contract of conditional
Equitable, in its answer, asserted that respondents knowingly
sale of real property by a timely valid tender of payment of the
accepted all the terms and conditions contained in the promissory
balance of his obligation which was not accepted by petitioner, he
notes. In fact, they continuously availed of and benefited
remains liable for the payment of his obligation because of his
from Equitable's credit facilities for 5 years.
failure to deposit the amount due with the court.
After trial, the RTC upheld the validity of the promissory notes.
In his manifestation dated September 19, 1986, private respondent It found that, in 2001 alone, Equitable restructured respondents' loans amounting to
states that on September 16, 1980, he purchased a Metrobank US$228,200 and P1M.
Cashier's Check No. CC 004233 in favor of petitioner Luisa The trial court invalidated the escalation clause contained therein because it violated
the principle of mutuality of contracts. Nevertheless, it took judicial notice of the steep
F. McLaughlin in the amount of P76,059.71, a photocopy of which depreciation of the peso during the intervening period and declared the existence of
was enclosed and marked as Annex "A-1;" but that he did not extraordinary deflation.
continue paying the monthly rental of P1,000.00 because, pursuant Consequently, the RTC ordered the use of the 1996 dollar exchange rate in computing
to the decision of the appellate court, petitioner herein was ordered respondents' dollar-denominated loans. Lastly, because the business reputation of
respondents was (allegedly) severely damaged when Equitable froze their accounts, the
to accept the aforesaid amount in full payment of herein trial court awarded moral and exemplary damages to them.
respondent's obligation under the contract subject matter thereof. The dispositive portion of the February 5, 2004 RTC decision provided:
However, inasmuch as petitioner did not accept the aforesaid WHEREFORE, premises considered, judgment is hereby rendered:
A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit
amount, it was incumbent on private respondent to deposit the same placed on hold status;
with the court in order to be released from responsibility. Since B) Ordering [Equitable] to pay [respondents] the sum of P12M as moral damages;
private respondent did not deposit said amount with the court, his C) Ordering [Equitable] to pay [respondents] the sum of P10 M as exemplary damages;
obligation was not paid and he is liable in addition for the D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly
and severally, the sum of P2M as moral and exemplary damages;
payment of the monthly rental of P1,000.00 from January 1, 1981 E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay
until said obligation is duly paid, in accordance with paragraph [respondents'] attorney's fees in the sum of P300,000; litigation expenses in the sum of
3 of the Compromise Agreement. Upon full payment of the P50,000 and the cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the
amount of P76,059.71 and the rentals in arrears, private unpaid principal obligation for the peso loan as well as the unpaid obligation for the
respondent shall be entitled to a deed of absolute sale in his dollar denominated loan;
favor of the real property in question. G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest
as follows:
EQUITABLE PCI BANK, AIMEE YU and BEJAN LIONEL 1) 12% per annum for the peso loans;
APAS vs. NG SHEUNG NGOR doing business under "KEN 2) 8% per annum for the dollar loans. The basis for the payment of the dollar obligation
is the conversion rate of P26.50 per dollar availed of at the time of incurring of the
MARKETING," KEN APPLIANCE DIVISION, INC. and obligation in accordance with Article 1250 of the Civil Code of the Philippines;
BENJAMIN E. GO H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid
[G.R. No. 171545. December 19, 2007.] CORONA, J p: principal loan obligations and interest.
HELD: petition is hereby GRANTED. Equitable and respondents filed their respective notices of appeal.
The October 28, 2005 decision and February 3, 2006 resolution of In the March 1, 2004 order of the RTC, both notices were denied due
the Court of Appeals in CA-G.R. SP No. 83112 are hereby course because Equitable and respondents "failed to submit proof
REVERSED and SET ASIDE. that they paid their respective appeal fees."
The March 24, 2004 omnibus order of the RTC of Cebu City in Civil Equitable moved for the reconsideration of the March 1, 2004 order
Case No. CEB-26983 is hereby ANNULLED for being rendered with of the RTC on the ground that it did in fact pay the appeal fees.
grave abuse of discretion amounting to lack or excess of jurisdiction. Respondents, on the other hand, prayed for the issuance of a writ of
All proceedings undertaken pursuant thereto are likewise declared execution.
null and void. On March 24, 2004, the RTC issued an omnibus order
The March 1, 2004 order of the RTC, Branch 16 of Cebu City in Civil denying Equitable's motion for reconsideration for lack of merit and
Case No. CEB-26983 is hereby SET ASIDE. The appeal of ordered the issuance of a writ of execution in favor of
petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas respondents. According to the RTC, because respondents did not
is therefore given due course. move for the reconsideration of the previous order (denying due
The February 5, 2004 decision of the RTC, Branch 16 of Cebu City in Civil Case No. course to the parties' notices of appeal), the February 5, 2004
CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered: decision became final and executory as to both parties and a writ of
1. ordering respondents Ng Sheung Ngor, doing business under the execution against Equitable was in order.
name and style of "Ken Marketing," Ken Appliance Division, Inc. A writ of execution was thereafter issued and three real properties
and Benjamin E. Go to pay petitioner Equitable PCI Bank the of Equitable were levied upon.
principal amount of their dollar- and peso-denominated loans; On March 26, 2004, Equitable filed a petition for relief in the RTC
2. ordering respondents Ng Sheung Ngor, doing business under the from the March 1, 2004 order. It, however, withdrew that petition
name and style of "Ken Marketing," Ken Appliance Division, Inc. on March 30, 2004 and instead filed a petition for certiorari with an
and Benjamin E. Go to pay petitioner Equitable PCI Bank interest application for an injunction in the CA to enjoin the implementation
at: and execution of the March 24, 2004 omnibus order.
a) 12.66% p.a. with respect to their dollar-denominated loans from On June 16, 2004, the CA granted Equitable's application for
1/10/2001 to 7/9/2001; injunction. A writ of preliminary injunction was correspondingly
b) 20% p.a. with respect to their peso-denominated loans from issued.
1/10/2001 to 7/9/2001; Notwithstanding the writ of injunction, the properties
c) pursuant to our ruling in Eastern Shipping Lines v. Court of of Equitable previously levied upon were sold in a public auction
Appeals, the total amount due on July 9, 2001 shall earn legal tion on July 1, 2004. Respondents were the highest bidders and
interest at 12% p.a. from the time certificates of sale were issued to them.
petitioner Equitable PCI Bank demanded payment, whether On August 10, 2004, Equitable moved to annul the July 1, 2004
judicially or extra-judicially; and auction sale and to cite the sheriffs who conducted the sale in
d) after this Decision becomes final and executory, the applicable contempt for proceeding with the auction despite the injunction
rate shall be 12% p.a. until full satisfaction; order of the CA.
3. all other claims and counterclaims are dismissed. On October 28, 2005, the CA dismissed the petition for certiorari. It
the RTC of Cebu City shall compute the exact amounts due on the respective dollar-
denominated and peso-denominated loans, as of July 9, 2001, of found Equitable guilty of forum shopping because the bank filed its
respondents Ng Sheung Ngor, doing business under the name and style of "Ken petition for certiorari in the CA several hours before withdrawing
Marketing," Ken Appliance Division and Benjamin E. Go. its petition for relief in the RTC. Moreover, Equitable failed to
This petition for review on certiorari seeks to set aside the disclose, both in the statement of material dates and certificate of
decision of the (CA) in CA-G.R. SP No. 83112 and its non-forum shopping (attached to its petition for certiorari in the
resolution denying reconsideration. CA), that it had a pending petition for relief in the RTC.
On October 7, 2001, respondents Ng Sheung Ngor, Ken Appliance Equitable moved for reconsideration but it was denied. Thus, this
Division, Inc. and Benjamin E. Go filed an action for annulment petition.
and/or reformation of documents and contracts against Equitable asserts that it was not guilty of forum shopping because
petitioner (Equitable) and its employees, Yu and Apas, in (RTC), of the petition for relief was withdrawn on the same day the petition
Cebu City. They claimed that Equitable induced them to avail of its for certiorari was filed. It likewise avers that its petition
peso and dollar credit facilities by offering low interest rates so they for certiorari was meritorious because the RTC committed grave
accepted Equitable's proposal and signed the bank's pre-printed abuse of discretion in issuing the March 24, 2004 omnibus order
promissory notes on various dates beginning 1996. which was based on an erroneous assumption. The March 1, 2004
order denying its notice of appeal for non payment of appeal fees EQUITABLE RAISED PURE QUESTIONS OF LAW IN ITS
was erroneous because it had in fact paid the required fees. Thus, PETITION FOR REVIEW
the RTC, by issuing its March 24, 2004 omnibus order, effectively The jurisdiction of this Court in Rule 45 petitions is limited to questions of law. There
is a question of law "when the doubt or controversy concerns the correct application of
prevented Equitable from appealing the patently wrong February 5, law or jurisprudence to a certain set of facts; or when the issue does not call for the
2004 decision. probative value of the evidence presented, the truth or falsehood of facts being
This petition is meritorious. admitted."
EQUITABLE WAS NOT GUILTYOF FORUM SHOPPING Equitable does not assail the factual findings of the trial court. Its
Forum shopping exists when two or more actions involving the same transactions, arguments essentially focus on the nullity of the RTC's February 5,
essential facts and circumstances are filed and those actions raise identical issues, 2004 decision. Equitable points out that that decision was patently
subject matter and causes of action. The test is whether, in two or more pending cases,
there is identity of parties, rights or causes of actions and reliefs. erroneous, specially the exorbitant award of damages, as it was
Equitable's petition for relief in the RTC and its petition inconsistent with existing law and jurisprudence.
for certiorari in the CA did not have identical causes of action. The THE PROMISSORY NOTES WERE VALID
petition for relief from the denial of its notice of appeal was based The RTC upheld the validity of the promissory notes despite
on the RTC's judgment or final order preventing it from taking an respondents' assertion that those documents were contracts of
appeal by "fraud, accident, mistake or excusable negligence." On adhesion.
the other hand, its petition for certiorari in the CA, a special civil A contract of adhesion is a contract whereby almost all of its
action, sought to correct the grave abuse of discretion amounting to provisions are drafted by one party. The participation of the other
lack of jurisdiction committed by the RTC. party is limited to affixing his signature or his "adhesion" to the
In a petition for relief, the judgment or final order is rendered by a contract. For this reason, contracts of adhesion are strictly
court with competent jurisdiction. In a petition for certiorari, the construed against the party who drafted it.
order is rendered by a court without or in excess of its jurisdiction. It is erroneous, however, to conclude that contracts of adhesion are
Moreover, Equitable substantially complied with the rule on non- invalid per se. They are, on the contrary, as binding as ordinary
forum shopping when it moved to withdraw its petition for relief in contracts. A party is in reality free to accept or reject it. A contract
the RTC on the same day (in fact just four hours and forty minutes of adhesion becomes void only when the dominant party takes
after) it filed the petition for certiorari in the CA. Even advantage of the weakness of the other party, completely depriving
if Equitable failed to disclose that it had a pending petition for relief the latter of the opportunity to bargain on equal footing.
in the RTC, it rectified what was doubtlessly a careless oversight by That was not the case here. As the trial court noted, if the terms and
withdrawing the petition for relief just a few hours after it filed its conditions offered by Equitable had been truly prejudicial to
petition for certiorari in the CA — a clear indication that it had no respondents, they would have walked out and negotiated with
intention of maintaining the two actions at the same time. another bank at the first available instance. But they did not.
THE TRIAL COURT COMMITTED GRAVE ABUSE OF Instead, they continuously availed of Equitable's credit facilities for
DISCRETION IN ISSUING ITS MARCH 1, 2004 AND MARCH 5 long years.
24, 2004 ORDERS While the RTC categorically found that respondents had
Section 1, Rule 65 of the Rules of Court provides: outstanding dollar- and peso-denominated loans with Equitable, it,
Section 1. Petition for Certiorari. — When any tribunal, board or officer exercising however, failed to ascertain the total amount due (principal, interest
judicial or quasi-judicial function has acted without or in excess of its or his jurisdiction, and penalties, if any) as of July 9, 2001. The trial court did not
or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there
is no appeal, nor any plain, speedy or adequate remedy in the ordinary course of law, a
explain how it arrived at the amounts of US$228,200 and
person aggrieved thereby may file a verified petition in the proper court, alleging the P1,000,000.
facts with certainty and praying that judgment be rendered annulling or modifying the In Metro Manila Transit Corporation v. D.M. Consunji, we reiterated that this Court
proceedings of such tribunal, board or officer, and granting such incidental reliefs as is not a trier of facts and it shall pass upon them only for compelling reasons which
law and justice may require. unfortunately are not present in this case. Hence, we ordered the partial remand of the
The petition shall be accompanied by a certified true copy of the judgment, order or case for the sole purpose of determining the amount of actual damages.
resolution subject thereof, copies of all pleadings and documents relevant and pertinent ESCALATION CLAUSE VIOLATED THE PRINCIPLE OF
thereto, and a sworn certificate of non-forum shopping as provided in the third MUTUALITY OF CONTRACTS
paragraph of Section 3, Rule 46.
Escalation clauses are not void per se. However, one "which grants
There are two substantial requirements in a petition for certiorari.
the creditor an unbridled right to adjust the interest independently
These are:
and upwardly, completely depriving the debtor of the right to assent
1. that the tribunal, board or officer exercising judicial or quasi-
to an important modification in the agreement" is void. Clauses of
judicial functions acted without or in excess of his or its jurisdiction
that nature violate the principle of mutuality of contracts. Article
or with grave abuse of discretion amounting to lack or excess of
1308 of the Civil Code holds that a contract must bind both
jurisdiction; and
contracting parties; its validity or compliance cannot be left to the
2. that there is no appeal or any plain, speedy and adequate remedy
will of one of them.
in the ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner For this reason, we have consistently held that a valid escalation
must show that the public respondent patently and grossly abused his discretion and clause provides:
that abuse amounted to an evasion of positive duty or a virtual refusal to perform a 1. that the rate of interest will only be increased if the applicable
duty enjoined by law or to act at all in contemplation of law, as where the power was
exercised in an arbitrary and despotic manner by reason of passion or hostility.
maximum rate of interest is increased by law or by the Monetary
The March 1, 2004 order denied due course to the notices of appeal Board; and
of both Equitable and respondents. However, it declared that the 2. that the stipulated rate of interest will be reduced if the
February 5, 2004 decision was final and executory only with respect applicable maximum rate of interest is reduced by law or by the
to Equitable. As expected, the March 24, 2004 omnibus order Monetary Board (de-escalation clause).
denied Equitable's motion for reconsideration and granted The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent extensions shall be
respondents' motion for the issuance of a writ of execution. at such rate as shall be determined by the bank.
The March 1, 2004 and March 24, 2004 orders of the RTC were Equitable dictated the interest rates if the term (or period for
obviously intended to prevent Equitable, et al. from appealing the repayment) of the loan was extended. Respondents had no choice
February 5, 2004 decision. Not only that. The execution of the but to accept them. This was a violation of Article 1308 of the Civil
decision was undertaken with indecent haste, effectively obviating Code. Furthermore, the assailed escalation clause did not contain
or defeating Equitable's right to avail of possible legal remedies. No the necessary provisions for validity, that is, it neither provided that
matter how we look at it, the RTC committed grave abuse of the rate of interest would be increased only if allowed by law or the
discretion in rendering those orders. Monetary Board, nor allowed de-escalation. For these reasons, the
With regard to whether Equitable had a plain, speedy and adequate escalation clause was void.
remedy in the ordinary course of law, we hold that there was none. With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine
The RTC denied due course to its notice of appeal in the March 1, National Bank we held that, because the escalation clause was annulled, the principal
2004 order. It affirmed that denial in the March 24, 2004 omnibus amount of the loan was subject to the original or stipulated rate of interest. Upon
maturity, the amount due was subject to legal interest at the rate of 12% per annum.
order. Hence, there was no way Equitable could have possibly Consequently, respondents should pay Equitable the interest rates
appealed the February 5, 2004 decision. of 12.66% p.a. for their dollar-denominated loans and 20% p.a. for
Although Equitable filed a petition for relief from the March 24, their peso-denominated loans from January 10, 2001 to July 9, 2001.
2004 order, that petition was not a plain, speedy and adequate Thereafter, Equitable was entitled to legal interest of 12% p.a. on
remedy in the ordinary course of law. A petition for relief under all amounts due.
Rule 38 is an equitable remedy allowed only in exceptional THERE WAS NO EXTRAORDINARY DEFLATION
circumstances or where there is no other available or adequate Extraordinary inflation exists when there is an unusual decrease in
remedy. the purchasing power of currency (that is, beyond the common
Thus, we grant Equitable's petition for certiorari and consequently fluctuation in the value of currency) and such decrease could not be
give due course to its appeal.
reasonably foreseen or was manifestly beyond the contemplation of
the parties at the time of the obligation. Extraordinary deflation, on
the other hand, involves an inverse situation.
Article 1250 of the Civil Code provides: In case an extraordinary
inflation or deflation of the currency stipulated should intervene,
the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an
agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the
following requisites must be proven:
1. that there was an official declaration of extraordinary inflation or
deflation from the (BSP);
2. that the obligation was contractual in nature; and
3. that the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.
Despite the devaluation of the peso, the BSP never declared a
situation of extraordinary inflation. Moreover, although the
obligation in this instance arose out of a contract, the parties did not
agree to recognize the effects of extraordinary inflation (or
deflation). The RTC never mentioned that there was a such
stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar-denominated loans
at the exchange rate fixed by the BSP on the date of maturity.
THE AWARD OF MORAL AND EXEMPLARY DAMAGES
LACKED BASIS
Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered, not to impose a
penalty to the wrongdoer. To be entitled to moral damages, a
claimant must prove:
1. That he or she suffered besmirched reputation, or physical,
mental or psychological suffering sustained by the claimant;
2. That the defendant committed a wrongful act or omission;
3. That the wrongful act or omission was the proximate cause of the
damages the claimant sustained;
4. The case is predicated on any of the instances expressed or
envisioned by Article 2219 and 2220.
In culpa contractual or breach of contract, moral damages are
recoverable only if the defendant acted fraudulently or in bad faith
or in wanton disregard of his contractual obligations. The breach
must be wanton, reckless, malicious or in bad faith, and oppressive
or abusive.
The RTC found that respondents did not pay Equitable the interest
due on February 9, 2001 (or any month thereafter prior to the
maturity of the loan) or the amount due (principal plus interest) due
on July 9, 2001. Consequently, Equitable applied respondents'
deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor
and debtor. For this reason, a bank has the right to set-off the
deposits in its hands for the payment of a depositor's indebtedness.
Respondents indeed defaulted on their obligation. For this
reason, Equitable had the option to exercise its legal right to set-off
or compensation. However, the RTC mistakenly (or, as it now
appears, deliberately) concluded that Equitable acted "fraudulently
or in bad faith or in wanton disregard" of its contractual obligations
despite the absence of proof. The undeniable fact was that, whatever
damage respondents sustained was purely the consequence of their
failure to pay their loans. There was therefore absolutely no basis
for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since
respondents were not entitled to moral damages, neither should
they be awarded exemplary damages. And if respondents were not
entitled to moral and exemplary damages, neither could they be
awarded attorney's fees and litigation expenses.