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Hence,
this appeal.
Respondents' answer contended that the petition for relief Facts: On April 5, 1970 at around 1:00 A.M., defendant’s
was filed out of time; that petitioners' counsel's failure to security guard on duty at plaintiff’s premises, "without any
attend the hearing of July 23, 1965 does not constitute authority, consent, approval, knowledge or orders of the
excusable negligence; and that the affidavits attached to the plaintiff and/or defendant brought out of the compound of
petition do not show good and substantial defense. the People’s Car a car belonging to its customer, and drove
Petitioners thereafter moved for judgment on the pleadings. said car for a place or places unknown, abandoning his post
No objection thereto was interposed by respondents. The as such security guard on duty inside the plaintiff’s
lower court then rendered the judgment mentioned in the compound, and while so driving said car in one of the City
streets lost control of said car, causing the same to fall into
a ditch along J.P. Laurel St., Davao City by reason of which customer’s car, lost control of it on the highway causing it
the plaintiff’s complaint for qualified theft against said driver, to fall into a ditch, thereby directly causing plaintiff to incur
was blottered in the office of the Davao City Police actual damages in the total amount of P8,489.10.
Department."
Defendant is therefore undoubtedly liable to indemnify
As a result of these wrongful acts of defendant’s security People’s Car for the entire damages thus incurred, since
guard, the car of People’s Car’s customer, Joseph Luy, which under paragraph 5 of their contract it "assumed the
had been left with People’s Car for servicing and maintenance, responsibility for the proper performance by the guards
"suffered extensive damage in the total amount of P7,07910" employed of their duties and (contracted to) be solely
besides the car rental value "chargeable to defendant" in the responsible for the acts done during their watch hours" and
sum of P1,410.00 for a car that plaintiff had to rent and make "specifically released (plaintiff) from any and all liabilities . . .
available to its said customer to enable him to pursue his to the third parties arising from the acts or omissions done
business and occupation for the period of forty-seven (47) by the guards during their tour of duty." As plaintiff had duly
days (from April 25 to June 10, 1970) that it took plaintiff to discharged its liability to the third party, its customer,
repair the damaged car, 7 or total actual damages incurred Joseph Luy, for the undisputed damages of P8,489.10
by plaintiff in the sum of P8,489.10. caused said customer, due to the wanton and unlawful act
of defendant’s guard, defendant in turn was clearly liable
People’s Car claimed that defendant was liable for the entire under the terms of paragraph 5 of their contract to
amount under paragraph 5 of their contract whereunder
indemnify plaintiff in the same amount.
defendant assumed "sole responsibility for the acts done
during their watch hours" by its guards, whereas defendant The trial court’s approach that "had People’s Car understood
contended, without questioning the amount of the actual the liability of the defendant to fall under paragraph 5, it
damages incurred by plaintiff, that its liability "shall not should have told Joseph Luy, owner of the car, that under
exceed (P1,000.00) pesos per guard post" under paragraph the Guard Service Contract, it was not liable for the damage
4 of their contract. The parties thus likewise stipulated on this but the defendant and had Luy insisted on the liability of
sole issue submitted by them for adjudication, as People’s Car, the latter should have challenged him to bring
"Interpretation of the contract, ad to the extent of the liability the matter to court. If Luy accepted the challenge and
of the defendant to the plaintiff by reason of the acts of the instituted an action against People’s Car, it should have filed
employees of the defendant is the only issue to be resolved. a third-party complaint against Commando Security Service
Agency. But if Luy instituted the action against the People’s
"The defendant relies on Par. 4 of the contract to support its
Car and the defendant, People’s Car should have filed a
contention while the People’s Car relies on Par. 5 of the same
crossclaim against Commando," was unduly technical and
contract in support of its claims against the defendant.
unrealistic and untenable.
The Civil Code provisions on the subject of Common Carriers MERCEDES M. TEAGUE, vs. ELENA FERNANDEZ, et al.
are new and were taken from Anglo-American Law.
FACTS: The Realistic Institute owned and operated by
There, the basis of the carrier's liability for assaults on Mercedes M. Teague was a vocational school for hair and
passengers committed by its drivers rests either on beauty culture situated on the second floor of the Gil-Armi
(1) the doctrine of respondeat,which is the minority view: Building, a two-storey, semi-concrete edifice located at the
corner of Quezon Boulevard and Soler Street, Quiapo,
the carrier is liable only when the act of the employee is
within the scope of his authority and duty. It is not sufficient Manila. The said second floor was unpartitioned, had a total
area of about 400 square meters, and although it had only
that the act be within the course of employment only.
one stairway, of about 1.50 meters in width, it had eight
windows, each of which was provided with two fire-escape
ladders and the presence of each of said fire-exits was
(2) second view, upheld by the majority and also by the later
indicated on the wall.
cases : the principle that it is the carrier's implied duty to
transport the passenger safely. It is enough that the assault At about four o'clock in the afternoon of October 24, 1955,
happens within the course of the employee's duty. It is no a fire broke out in a store for surplus materials located about
defense for the carrier that the act was done in excess of ten meters away from the institute. Soler Street lay between
authority or in disobedience of the carrier's orders. The that store and the institute. Upon seeing the fire, some of
carrier's liability here is absolute in the sense that it practically the students in the Realistic Institute shouted 'Fire! Fire!'
secures the passengers from assaults committed by its own and thereafter, a panic ensued. Four instructresses and six
employees. assistant instructress of the Institute were present and they,
together with the registrar, tried to calm down the students,
who numbered about 180 at the time, telling them not to
As can be gleaned from Art. 1759, the Civil Code of the be afraid because the Gil-Armi Building would not get
Philippines evidently follows the rule based on the second burned as it is made of concrete, and that the fire was
view. At least three very cogent reasons underlie this rule. As anyway, across the street. They told the students not to
explained in Texas Midland R.R. v. Monroe, 110 Tex. 97, 216 rush out but just to go down the stairway two by two, or to
S.W. 388, 389-390, and Haver v. Central Railroad Co., 43 LRA use the fire-escapes. Mrs. Justitia Prieto, one of the
84, 85: (1) the special undertaking of the carrier requires that instructresses, took to the microphone so as to convey to
it furnish its passenger that full measure of protection the students the above admonitions more effectively, and
afforded by the exercise of the high degree of care prescribed she even slapped three students in order to quiet them
by the law, inter alia from violence and insults at the hands down. Miss Frino Meliton, the registrar, whose desk was
of strangers and other passengers, but above all, from the near the stairway, stood up and tried with outstretched
acts of the carrier's own servants charged with the arms to stop the students from rushing and pushing their
passenger's safety; (2) said liability of the carrier for the way to the stairs. The panic, however, could not be subdued
servant's violation of duty to passengers, is the result of the and the students, with the exception of the few who made
formers confiding in the servant's hands the performance of use of fire-escapes kept on rushing and pushing their way
his contract to safely transport the passenger, delegating through the stairs, thereby causing stampede therein. No
therewith the duty of protecting the passenger with the part of the Gil-Armi Building caught fire. But, after the panic
utmost care prescribed by law; and (3) as between the carrier was over, four students, including Lourdes Fernandez, a
and the passenger, the former must bear the risk of wrongful sister of plaintiffs-appellants, were found dead and several
acts or negligence of the carrier's employees against others injured on account of the stampede.
passengers, since it, and not the passengers, has power to
The deceased's five brothers and sisters filed an action for
select and remove them.
damages against Mercedes M. Teague as owner and
Accordingly, it is the carrier's strict obligation to select its operator of Realistic Institute. The CFI of Manila found for
drivers and similar employees with due regard not only to the defendant and dismissed the case. The plaintiffs
their technical competence and physical ability, but also, no thereupon appealed to the CA, which by a divided vote of 3
less important, to their total personality, including their to 2 (a special division of five members having been
patterns of behavior, moral fibers, and social attitude. constituted) rendered a judgment of reversal and sentenced
the defendant to pay damages to the plaintiffs in the sum
of P11,000.00, plus interest at the legal rate from the date mentioned in the ordinance — for instance as a school,
the complaint was filed. which the Realistic Institute precisely was — then the
building is within the coverage of the ordinance.
PR filed a complaint against Petitioner with the RTC. The Facts: On March 7, 1978, respondents obtained a loan
latter dismissed the case for lack of merit. Appeal by PR to secured by a Deed of Real Estate Mortgage over Transfer
CA resulted in his favor. Hence the petition for certiorari Certificate of Title (TCT) No. 69836 from petitioner bank.
under Rule 45 of ROC filed by PNB with SC. The loan was used for the construction of a commercial
building in Cebu City. On October 25, 1978, respondents
ISSUE: Despite the removal of the Usury Law ceiling on
obtained an additional loan from the petitioner thus
interest, may the bank validly increase the stipulated interest
increasing their obligation to one million pesos. A
rate on loans contracted with third persons as often as
corresponding Amendment of Real Estate Mortgage was
necessary and against the protest of such persons.
thereafter executed.
HELD: NO
On December 24, 1982, the loan was again re-structured,
increasing the loan obligation to P1,225,000 and the Real
RATIO: Although under Sec. 2 of PD 116, the Monetary
Estate Mortgage was again amended. Respondents
Board is authorized to prescribe the maximum rate of interest
for loans and to change such rates whenever warranted by executed a Promissory Note for the sum of P1,225,000
prevailing economic and social conditions, by express payable in fifteen years, with a stipulated interest of 21%
provision, it may not do so “oftener than once every 12 per annum, and stipulating monthly payments of P22,426.
months”. If the Monetary Board cannot, much less can PNB, The note also stipulated that in case of default in the
effect increases on the interest rates more than once a year. payment of any of the monthly amortization and interest,
Based on the credit agreement and promissory notes respondents shall pay a penalty equivalent to 3% of the
executed between the parties, although PR did agree to amount due each month.
increase on the interest rates allowed by law, no law was
passed warranting Petitioner to effect increase on the interest Respondents’ total payment from 1983 to 1988 amounted
rates on the existing loan of PR for the months of July to to P1,455,385.07. From 1989 onwards, respondents did not
November of 1984. Neither there being any document pay a single centavo. They aver that Banco Filipino had
executed and delivered by PR to effect such increase. ceased operations and/or was not allowed to continue
business, having been placed under liquidation by the
For escalation clauses to be valid and warrant the increase of Central Bank.
the interest rates on loans, there must be: (1) increase was
made by law or by the Monetary Board; (2) stipulation must Issue: Is the rate of interest set at 21% per annum legal?
include a clause for the reduction of the stipulated interest Ruling :
rate in the event that the maximum interest is lowered by law
or by the Monetary board. In this case, PNB merely relied on Petitioner contends that the 21% annual interest was freely
its own Board Resolutions, which are not laws nor resolutions and voluntarily agreed upon by the parties, and that it was
of the Monetary Board. neither excessive nor violative of the Usury Law. On the
other hand, respondents state that the rate of 21% was
Despite the suspension of the Usury Law, imposing a ceiling usurious because the loan was incurred on December 24,
on interest rates, this does not authorize banks to unilaterally 1982, before the de facto repeal of the Usury Law on
and successively increase interest rates in violation of Sec. 2 January 1, 1983.15 Respondents add that the normal rate
PD 116. by which petitioner charges its borrowers at that time was
Increases unilaterally effected by PNB was in violation of the only 17%, or 4% lower than the rate it gave to respondents.
Mutuality of Contracts under Art. 1308. This provides that the It is an elementary rule of contracts that the contracting
validity and compliance of the parties to the contract cannot parties are free to stipulate the terms of their contract for
be left to the will of one of the contracting parties. Increases as long as the terms are not contrary to law, morals, good
made are therefore void. customs, public policy, public order, and national interests.
Laws in force at the time the contract was made generally
govern its interpretation and application. The loan agreement imposed by the Usury Law. Said surcharge of 3% monthly
between petitioner and respondents specifies the obligation must be declared null and void.
of the debtor to pay interest. In principle said stipulation is
binding between the parties.
(1) the interest rate at 21% per annum is hereby declared
We note that at the time the parties entered into the said
loan agreement, the pertinent law, Act No. 2655, already VALID; (2) the 3% monthly surcharge is NULLIFIED for
being violative of the Usury Law at the time; and (3)
provided that the rate of interest for the forbearance of
respondents are ORDERED to pay petitioner the amount of
money when secured by a mortgage upon real estate should
P2,581,294.93 within 30 days from receipt of this Decision.
not be more than 12% per annum or the maximum rate
No pronouncement as to costs.
prescribed by the Monetary Board and in force at the time
the loan was granted. On December 1, 1979, the Monetary
Board of the Central Bank of the Philippines18 had issued CBP
Circular No. 705-79.19 On loan transactions with maturities SPOUSES FLORANTE and LAARNI BAUTISTA, vs.
of more than 730 days, it fixed the effective rate of interest PILAR DEVELOPMENT CORPORATION
at 21% per annum for both secured and unsecured loans.
Facts : In 1978, petitioner spouses Florante and Laarni
Since the loan in question has fixed 15 years for its maturity,
Bautista purchased a house and lot in Pilar Village, Las Pinas,
it fell within the coverage of said CBP Circular. Thus, we agree
Metro Manila. To partially finance the purchase, they
that the 21% interest is not violative of the Usury Law as it
obtained from the Apex Mortgage & Loan Corporation (Apex)
stood at the time of the loan transaction.
a loan in the amount of P100,180.00. They executed a
As to the monthly surcharge, petitioner relies on CBP Circular promissory note on December 22, 1978 obligating
No. 905-82.20 The ceiling on interest rates prescribed by the themselves, jointly and severally, to pay the "principal sum
Usury Law, according to petitioner, were expressly removed. of P100,180.00 with interest rate of 12% and service charge
Petitioner argues that the said circular had retroactive effect of 3%" for a period of 240 months, or twenty years, from
since it is merely procedural in nature. Hence according to date, in monthly installments of P1,378.83.3 Late payments
petitioner, the imposition of 3% monthly surcharge by the were to be charged a penalty of one and one-half per cent
bank against the borrower is legal. (1 1/2%) of the amount due. In the same promissory note,
petitioners authorized Apex to "increase the rate of interest
On this matter, we disagree with petitioner. CBP Circular No. and/or service charges" without notice to them in the event
905-82, which was effective January 1, 1983, did not repeal that a law, Presidential Decree or any Central Bank
nor in any way amend the Usury Law. The Circular simply regulation should be enacted increasing the lawful rate of
suspended the effectivity of the Usury Law. A Central Bank interest and service charges on the loan.4Payment of the
Circular cannot repeal a law. Only a law can repeal another promissory note was secured by a second mortgage on the
law. Thus, the retroactive application of a CBP Circular cannot, house and lot purchased by petitioners.
and should not, be presumed. The loan was entered into on
December 24, 1982, but CBP Circular No. 905-82 was given Petitioner spouses failed to pay several installments. On
force and effect only on January 1, 1983. Thus, CBP Circular September 20, 1982, they executed another promissory
No. 905-82 could not be made applicable to the loan note in favor of Apex. This time there was an increased
agreement in this case, and petitioner could not rely on this interest rate of 21% per annum with penalty of 11/2 for late
Circular for its imposition of 3% monthly surcharge. payment payable for 196 months. Petitioners retained the
authorization to increase/decrease the rate of interest.
Petitioner also argues that the 3% monthly surcharge
partakes of the nature of a penalty clause.22 A penal clause
is an accessory undertaking to assume greater liability in case
In November 1983, petitioners again failed to pay
of breach and is attached to an obligation in order to secure
installments. On June 06, 1984, Apex assigned the second
its performance.23 The penalty shall substitute the indemnity
promissory note to respondent Pilar Development
for damages and the payment of interests in case of non-
Corporation, a successor-in-interest. The latter then
compliance.24 But if such stipulation is found contrary to law
instituted against petitioner spouses before the RTC
for being usurious, it can be nullified by the courts without
collection for the unpaid balance as of November 23, 1983
affecting the principal obligation.25
including the internal rate of 21%. RTC rendered judgment
In the loan agreement between the parties in this case, the ordering petitioners to pay balance with interest of 12%. CA
total interest and other charges exceed the prescribed 21% reversed the trial court by applying 21% per annum
ceiling. Hence, the imposition of the 3% monthly surcharge, amounting to 142,346.42php. However, it was reversed to
as the penal clause to the obligation, violated the limit 140,515.11, initial decision of RTC, after the denial for
motion to reconsider.
P60,560.00, to be paid every 15 days starting January 1984
until fully paid. Private respondents failed to make any
Issue: WON the escalation of the interest rate from 12% to
payment notwithstanding repeated demands by petitioner,
21% per annum is unlawful
causing the latter to file said action. In their answer with
counterclaim, private respondents denied having received
the amount of P60,560.00 from petitioner. The claimed that
Ruling: The escalation of the interest rate from 12% to 21% they had been previously borrowing from petitioner and for
per annum is lawful the purpose of reconciling their outstanding accounts of
P20,000.00 at 10% interest per month, and P7,000.00 at
At the time the parties executed the first promissory note in
12% interest per month, the said deed of sale was executed.
1978, the interest of 12% was the maximum rate fixed by
However, it was understood by the parties that the amount
the Usury Law for loans secured by a mortgage upon
of P60,560.00 represented their outstanding account of
registered real estate. On December 1, 1979, the Monetary
P27,000.00 plus 10% interest per month. Private
Board of the Central Bank of the Philippines issued Circular
respondents further argued that petitioner charged usurious
No. 705 which fixed the effective rate of interest on loan
interest rates of 10% to 12% per month in contravention of
transactions with maturities of more than 730 days to twenty-
the Usury Law. They sought the recovery of P12,490.00
one per cent (21%) per annum for both secured and
representing overpayment of interest, damages and
unsecured loans. On January 28, 1980, The Monetary Board
attorney's fees.
issued Circular No. 712 reiterating the effective interest rate
of 21% on said loan transactions. On January 1, 1983, CB The trial court found that the Deed of Sale with Right to
Circular No. 905, series of 1982, took effect. This Circular Repurchase was the culmination of a series of loan
declared that the rate of interest on any loan or forbearance transactions entered into by the parties. Of the P60,650.00
of any money, goods or credits, regardless of maturity and consideration, the actual amount received by private
whether secured or unsecured, "shall not be subject to any respondents by way of loan was P22,000.00 with the
ceiling prescribed under or pursuant to the Usury Law, as balance of P38,560.00 representing interest. It ruled that
amended. In short, Circular No. 905 removed the ceiling on the usurious interest rates were incorporated to the main
interest rates for secured and unsecured loans, regardless of consideration of P60,650.00 to circumvent the laws against
maturity. usury. Considering that at the time the loans were entered
into, the Usury Law was still in effect and beyond the scope
When the second promissory note was executed on
of Central Bank (CB) Circular No. 905, January 1, 1983,
September 20, 1982, Central Bank Circulars Nos. 705 and 712
which lifted the ceiling on interest rates prescribed under
were already in effect. These Circulars fixed the effective
the Usury Law, it held that the contract of loan was valid as
interest rate for secured loan transactions with maturities of
to the loan but avoid as to the usurious interest
more than 730 days, i.e., two (2) years, at 21% per annum.
The interest rate of 21% provided in the second promissory Issue: Whether or not the Deed of Sale with Right to
note was therefore authorized under these Circulars. Repurchase cannot be enforced against private respondent
Herminia Patinio notwithstanding the effectivity of CB
The question of whether the escalation clauses in the second
Circular No. 905
promissory note are valid is irrelevant. Respondent
corporation has signified that it is collecting petitioners' debt
only at the fixed interest rate of 21% per annum, as expressly
agreed upon in the second promissory note, not at the Ruling: The petition is bereft of merit and merely raises
escalated rates authorized under the escalation clauses. The factual issues, the determination of which is best left to the
Court of Appeals therefore did not err in applying the interest trial court. The Court saw now reason to depart from the
rate of 21% to petitioner's loan under the second promissory findings of the Court of Appeals.
note.
The appellate court explained that the loans were obtained
by private respondents before the promulgation of CB
Circular No. 905, thus:. . . While Deed of Sale with Right to
Repurchase, was executed on November 17, 1983, the
same was a consolidation or carry over of previous loan
transactions in February, 1982 (Exhibit 1), November, 1982
WILFREDO VERDEJO, , v. HONORABLE COURT OF (Exhibit 2), and November-December, 1982 (Exhibit 1),
APPEALS, HERMINIA PATINIO and JOHN DOE, before the "open ceiling policy" of the Central Bank Circular
No. 905 took effect. At the time the transactions took place
Facts: Hermina Patinio, Respondents executed in his favor a per Exhibits 1, 2 and 3, the Usury Law was still in effect,
Deed of Sale with Right to Repurchase for the sum of
and Exhibit A, which was merely a carry over of transactions
in Exhibits 1, 2 and 3 could not legalize previous unlawful
loan transactions. The Court of Appeals denied petitioner's
motion for reconsideration in its Resolution dated June 23,
1992 (Rollo, p. 111).
FACTS: On November 2, 1960, UP and ALUMCO entered into It must be understood that the act of party in treating a
a logging agreement under which the latter was granted contract as cancelled or resolved on account of infractions
exclusive authority, for a period starting from the date of the by the other contracting party must be made known to the
agreement to 31 December 1965, extendible for a further other and is always provisional, being ever subject to
period of five (5) years by mutual agreement, to cut, collect scrutiny and review by the proper court. If the other party
and remove timber from the Land Grant, in consideration of denies that rescission is justified, it is free to resort to
payment to UP of royalties, forest fees, etc.; judicial action in its own behalf, and bring the matter to
court. Then, should the court, after due hearing, decide that
That ALUMCO cut and removed timber therefrom but, as of
the resolution of the contract was not warranted, the
8 December 1964, it had incurred an unpaid account of
responsible party will be sentenced to damages; in the
P219,362.94, which, despite repeated demands, it had failed
contrary case, the resolution will be affirmed, and the
to pay;
consequent indemnity awarded to the party prejudiced.
that after it had received notice that UP would
rescind or terminate the logging agreement, ALUMCO
executed an instrument, entitled "Acknowledgment of Debt
and Proposed Manner of Payments," dated 9 December 1964,
which was approved by the president of UP, which expressly
states that, upon default by the debtor ALUMCO, the creditor
(UP) has “the right and the power to consider the Logging
Agreement as rescinded without the necessity of any judicial
suit.”