Chapter 2: Simple Loan or Mutuum

CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD YAM, petitioners, vs. HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE PEOPLE OF THE PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL. AGOSTO SAJOR respondents. Tomas P. Matic, Jr. for petitioners. Jose E. Fernandez for private respondent. Office of the Solicitor General for respondent the People of the Philippines. ABAD SANTOS, J.: This is a petition for certiorari, prohibition, and mandamus with preliminary injunction. Petitioners alleged that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when: (a) he held in the preliminary investigation of the charges of estafa filed by respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima facie case against the latter; (b) he issued warrants of arrest against petitioners after making the above determination; and (c) he undertook to conduct trial on the merits of the charges which were docketed in his court as Criminal Cases No. M-111, M-183 and M-208. Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion because the facts recited in the complaints did not constitute the crime of estafa, and assuming they did, they were not within the jurisdiction of the respondent judge. In a resolution dated May 23, 1979, we required respondents to comment in the petition and issued a temporary restraining order against the respondent judge from further proceeding with Criminal Cases Nos. M-111, M-183 and M-208 or from enforcing the warrants of arrest he had issued in connection with said cases. Comments by the respondent judge and the private respondents pray for the dismissal of the petition but the Solicitor General has manifested that the People of the Philippines have no objection to the grant of the reliefs prayed for, except the damages. We considered the comments as answers and gave due course to the petition. The position of the Solicitor General is well taken. We have to grant the petition in order to prevent manifest injustice and the exercise of palpable excess of authority. In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam Chee Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of P50,000.00. But the complaint states on its face that said petitioners received the amount from respondent Rosalinda M. Amin "as a loan." Moreover, the complaint in Civil Case No. N-5, an independent action for the collection of the same amount filed by respondent Rosalinda M. Amin with the Court of First Instance of Sulu on September 11, 1975, likewise states that the P50,000.00 was a "simple business loan" which earned interest and was originally demandable six (6) months from July 12, 1973. (Annex E of the petition.) In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee Kiong, Jose Y.C. Yam, Ampang Mah and Anita Yam, alias Yong Tay, with estafa through misappropriation of the amount of P30,000.00. Likewise, the complaint states on its face that the P30,000.00 was "a simple loan." So does the complaint in Civil Case No. N-8 filed by respondent Tan Chu Kao on April 6, 1976 with the Court of First Instance of Sulu for the collection of the same amount. (Annex D of the petition.). In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C. Yam, Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa through misappropriation of the amount of P20,000.00. Unlike the complaints in the other two cases, the complaint in Criminal Case No. M-208 does not state that the amount was received as loan. However, in a sworn statement dated September 29, 1976, submitted to respondent judge to support the complaint, respondent Augusto Sajor states that the amount was a "loan." (Annex G of the petition.). We agree with the petitioners that the facts alleged in the three criminal complaints do not constitute estafa through misappropriation.

Estafa through misappropriation is committed according to Article 315, paragraph 1, subparagraph (b), of the Revised Penal Code as follows: Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means mentioned herein below shall be punished by: xxx xxx xxx 1. With unfaithfulness or abuse of confidence namely: xxx xxx xxx b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property. In order that a person can be convicted under the abovequoted provision, it must be proven that he has the obligation to deliver or return the same money, goods or personal property that he received. Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans. The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code. Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum the bailor retains the ownership of the thing loaned, while in simple loam ownership passes to the borrower. Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum, the borrower acquires ownership of the money, goods or personal property borrowed. Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof. In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to nay his debt or to deny its existence. We are of the opinion and so decide that when the relation is purely that of debtor and creditor, the debtor can not be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the indebtedness. It appears that respondent judge failed to appreciate the distinction between the two types of loan, mutuum and commodatum, when he performed the questioned acts, He mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor to be commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the duty to return the same thing to the lender. Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the Municipal Court of Jolo is, has jurisdiction over criminal cases where the penalty provided by law does not exceed prision correccional or imprisonment for not more than six (6) years, or fine not exceeding P6,000.00 or both, The amounts allegedly misappropriated by petitioners range from P20,000.00 to P50,000.00. The penalty for misappropriation of this magnitude exceeds prision correccional or 6 year imprisonment. (Article 315, Revised Penal Code), Assuming then that the acts recited in the complaints constitute the crime of estafa, the Municipal Court of Jolo has no jurisdiction to try them on the merits. The alleged offenses are under the jurisdiction of the Court of First Instance. Respondents People of the Philippines being the sovereign authority can not be sued for damages. They are immune from such type of suit. With respect to the other respondents, this Court is not the proper forum for the consideration of the claim for damages against them.

WHEREFORE, the petition is hereby granted; the temporary restraining order previously issued is hereby made permanent; the criminal complaints against petitioners are hereby declared null and void; respondent judge is hereby ordered to dismiss said criminal cases and to recall the warrants of arrest he had issued in connection therewith. Moreover, respondent judge is hereby rebuked for manifest ignorance of elementary law. Let a copy of this decision be included in his personal life. Costs against private respondents. SO ORDERED.

G.R. No. 26085

August 12, 1927

SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants, vs. BENITO GONZALEZ SY CHIAM, defendants-appellee. Araneta and Zaragoza for appellants. Eusebio Orense for appelle. JOHNSON, J.: PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL The principal questions presented by this appeal are: (a) Is the contract in question a pacto de retro or a mortgage? (b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a certain amount per month as rent, may such rent render such a contract usurious when the amount paid as rent, computed upon the purchase price, amounts to a higher rate of interest upon said amount than that allowed by law? (c) ANTECEDENT FACTS Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills, Inc., a piece or parcel of land with the camarin located thereon, situated in the municipality of Tarlac of the Province of Tarlac for the price of P25,000, promising to pay therefor in three installments. The first installment of P2,000 was due on or before the 2d day of May, 1921; the second installment of P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable on or about the 30th day of November, 1922. One of the conditions of that contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any of the installments on the date agreed upon, the property bought would revert to the original owner. The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the record shows upon the due dates. The balance of P15,000 due on said contract of purchase was paid on or about the 1st day of December, 1922, in the manner which will be explained below. On the date when the balance of P15,000 with interest was paid, the vendor of said property had issued to the purchasers transfer certificate of title to said property, No. 528. Said transfer certificate of title (No. 528) was transfer certificate of title from No. 40, which shows that said land was originally registered in the name of the vendor on the 7th day of November, 1913. PRESENT FACTS On the 7th day of November, 1922 the representative of the vendor of the property in question wrote a letter to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of said indebtedness was not paid, an action would be brought for the purpose of recovering the property, together with damages for non compliance with the condition of the contract of purchase. The pertinent parts of said letter read as follows: Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos judicialmente contra Vd. para reclamar la devolucion del camarin y los daos y perjuicios ocasionados a la compaia por su incumplimiento al contrato. Somos de Vd. atentos y S. S. SMITH, BELL & CO., LTD. By (Sgd.) F. I. HIGHAM Treasurer. General Managers LUZON RICE MILLS INC. May the contract in the present case may be modified by parol evidence?

According to Exhibits B and D, which represent the account rendered by the vendor, there was due and payable upon said contract of purchase on the 30th day of November, 1922, the sum P16,965.09. Upon receiving the letter of the vendor of said property of November 7, 1922, the purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began to make an effort to borrow money with which to pay the balance due, began to make an effort to borrow money with which to pay the balance of their indebtedness on the purchase price of the property involved. Finally an application was made to the defendant for a loan for the purpose of satisfying their indebtedness to the vendor of said property. After some negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property. In accordance with that agreement the defendant paid to the plaintiffs by means of a check the sum of P16,965.09. The defendant, in addition to said amount paid by check, delivered to the plaintiffs the sum of P354.91 together with the sum of P180 which the plaintiffs paid to the attorneys for drafting said contract of pacto de retro, making a total paid by the defendant to the plaintiffs and for the plaintiffs of P17,500 upon the execution and delivery of said contract. Said contracts was dated the 28th day of November, 1922, and is in the words and figures following: Sepan todos por la presente: Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de edad, residentes en el Municipio de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de Manila, de una parte, y de otra, Benito Gonzalez Sy Chiam, mayor de edad, casado con Maria Santiago, comerciante y vecinos de esta Ciudad de Manila. MANIFESTAMOS Y HACEMOS CONSTAR: Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideracion a la cantidad de diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra entera satisfaccion de Don Benito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de dicho Don Benito Gonzalez Sy Chiam, sus herederos y causahabientes, una finca que, segun el Certificado de Transferencia de Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de Tarlac a favor de "Luzon Rice Mills Company Limited" que al incorporarse se donomino y se denomina "Luzon Rice Mills Inc.," y que esta corporacion nos ha transferido en venta absoluta, se describe como sigue: Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio de Tarlac. Linda por el O. y N. con propiedad de Manuel Urquico; por el E. con propiedad de la Manila Railroad Co.; y por el S. con un camino. Partiendo de un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17' E.859.42 m. del mojon de localizacion No. 2 de la Oficina de Terrenos en Tarlac; y desde dicho punto 1 N. 81 gds. 31' O., 77 m. al punto 2; desde este punto N. 4 gds. 22' E.; 54.70 m. al punto 3; desde este punto S. 86 gds. 17' E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42' E., 61.48 m. al punto de partida; midiendo una extension superficcial de cuatro mil doscientos diez y seis metros cuadrados (4,216) mas o menos. Todos los puntos nombrados se hallan marcados en el plano y sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L. S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.: la orientacion seguida es la verdadera, siendo la declinacion magnetica de 0 gds. 45' E. y la fecha de la medicion, 1. de febrero de 1913. Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez y Chiam a retrovendernos la finca arriba descrita; pero si transcurre dicho plazo de cinco aos sin ejercitar el derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable. Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto a condiciones siguientes: (a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, era de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes. (b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi como tambien la prima del seguro contra incendios, si el conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca. (c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a la terminacion de este arrendamieno y a la perdida del derecho de retracto que nos hemos reservado, como si naturalmente hubiera expirado el termino para ello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam tomar posesion de la finca y desahuciarnos de la misma. Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura en los precisos terminos en que la dejan otorgada los conyuges Severino Tolentino y Potenciana Manio.

En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por cuadruplicado en Manila, hoy a 28 de noviembre de 1922. (Fdo.) SEVERINO TOLENTINO (Fda.) POTENCIANA MANIO (Fdo.) BENITO GONZALEZ SY CHIAM Firmado en presencia de: (Fdos.) MOISES M. BUHAIN B. S. BANAAG An examination of said contract of sale with reference to the first question above, shows clearly that it is a pacto de retro and not a mortgage. There is no pretension on the part of the appellant that said contract, standing alone, is a mortgage. The pertinent language of the contract is: Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don Benito Gonzales Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arriba descrita; pero si transcurre dicho plazo de cinco (5) aos sin ejercitar al derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable. Language cannot be clearer. The purpose of the contract is expressed clearly in said quotation that there can certainly be not doubt as to the purpose of the plaintiff to sell the property in question, reserving the right only to repurchase the same. The intention to sell with the right to repurchase cannot be more clearly expressed. It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing the absolute sale of the property, entered into a contract with the purchaser by virtue of which she became the "tenant" of the purchaser. That contract of rent appears in said quoted document above as follows: Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto a condiciones siguientes: (a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, sera de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes. (b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi como tambien la prima del seguro contra incendios, si le conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca. From the foregoing, we are driven to the following conclusions: First, that the contract of pacto de retro is an absolute sale of the property with the right to repurchase and not a mortgage; and, second, that by virtue of the said contract the vendor became the tenant of the purchaser, under the conditions mentioned in paragraph 3 of said contact quoted above. It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, to declare the same to be a mortgage and not a sale whenever the interpretation of such a contract justifies that conclusion. There must be something, however, in the language of the contract or in the conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a "mortgage" and not a pacto de retro. (International Banking Corporation vs. Martinez, 10 Phil., 252; Padilla vs. Linsangan, 19 Phil., 65; Cumagun vs. Alingay, 19 Phil., 415; Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42 Phil., 925; Velazquez vs. Teodoro, 46 Phil., 757; Villa vs. Santiago, 38 Phil., 157.) We are not unmindful of the fact that sales with pacto de retro are not favored and that the court will not construe an instrument to one of sale with pacto de retro, with the stringent and onerous effect which follows, unless the terms of the document and the surrounding circumstances require it. While it is general rule that parol evidence is not admissible for the purpose of varying the terms of a contract, but when an issue is squarely presented that a contract does not express the intention of the parties, courts will, when a proper foundation is laid therefor, hear evidence for the purpose of ascertaining the true intention of the parties. In the present case the plaintiffs allege in their complaint that the contract in question is a pacto de retro. They admit that they signed it. They admit they sold the property in question with the right to repurchase it. The terms of the contract quoted by the plaintiffs to the defendant was a "sale" with pacto de retro, and the plaintiffs have shown no circumstance whatever which would justify us in construing said contract to be a mere "loan" with guaranty. In every case in which this court has construed a contract to be a mortgage or a loan instead of a sale with pacto de retro, it has done so, either because the terms of such contract were incompatible or

inconsistent with the theory that said contract was one of purchase and sale. (Olino vs. Medina, supra; Padilla vs. Linsangan, supra; Manlagnit vs. Dy Puico, 34 Phil., 325; Rodriguez vs. Pamintuan and De Jesus, 37 Phil., 876.) In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature of the conveyance of the land was "pledged" instead of "sold". In the case of Manlagnit vs. Dy Puico, while the vendor used to the terms "sale and transfer with the right to repurchase," yet in said contract he described himself as a "debtor" the purchaser as a "creditor" and the contract as a "mortgage". In the case of Rodriguez vs. Pamintuan and De Jesus the person who executed the instrument, purporting on its face to be a deed of sale of certain parcels of land, had merely acted under a power of attorney from the owner of said land, "authorizing him to borrow money in such amount and upon such terms and conditions as he might deem proper, and to secure payment of the loan by a mortgage." In the case of Villa vs. Santiago (38 Phil., 157), although a contract purporting to be a deed of sale was executed, the supposed vendor remained in possession of the land and invested the money he had obtained from the supposed vendee in making improvements thereon, which fact justified the court in holding that the transaction was a mere loan and not a sale. In the case of Cuyugan vs. Santos (39 Phil., 970), the purchaser accepted partial payments from the vendor, and such acceptance of partial payments is absolutely incompatible with the idea of irrevocability of the title of ownership of the purchaser at the expiration of the term stipulated in the original contract for the exercise of the right of repurchase." Referring again to the right of the parties to vary the terms of written contract, we quote from the dissenting opinion of Chief Justice Cayetano S. Arellano in the case of Government of the Philippine Islands vs. Philippine Sugar Estates Development Co., which case was appealed to the Supreme Court of the United States and the contention of the Chief Justice in his dissenting opinion was affirmed and the decision of the Supreme Court of the Philippine Islands was reversed. (See decision of the Supreme Court of the United States, June 3, 1918.)1 The Chief Justice said in discussing that question: According to article 1282 of the Civil Code, in order to judge of the intention of the contracting parties, consideration must chiefly be paid to those acts executed by said parties which are contemporary with and subsequent to the contract. And according to article 1283, however general the terms of a contract may be, they must not be held to include things and cases different from those with regard to which the interested parties agreed to contract. "The Supreme Court of the Philippine Islands held the parol evidence was admissible in that case to vary the terms of the contract between the Government of the Philippine Islands and the Philippine Sugar Estates Development Co. In the course of the opinion of the Supreme Court of the United States Mr. Justice Brandeis, speaking for the court, said: It is well settled that courts of equity will reform a written contract where, owing to mutual mistake, the language used therein did not fully or accurately express the agreement and intention of the parties. The fact that interpretation or construction of a contract presents a question of law and that, therefore, the mistake was one of law is not a bar to granting relief. . . . This court is always disposed to accept the construction which the highest court of a territory or possession has placed upon a local statute. But that disposition may not be yielded to where the lower court has clearly erred. Here the construction adopted was rested upon a clearly erroneous assumption as to an established rule of equity. . . . The burden of proof resting upon the appellant cannot be satisfied by mere preponderance of the evidence. It is settled that relief by way of reformation will not be granted unless the proof of mutual mistake be of the clearest and most satisfactory character. The evidence introduced by the appellant in the present case does not meet with that stringent requirement. There is not a word, a phrase, a sentence or a paragraph in the entire record, which justifies this court in holding that the said contract of pacto de retro is a mortgage and not a sale with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of the contracting parties, attention must be paid principally to their conduct at the time of making the contract and subsequently thereto." We cannot thereto conclude this branch of our discussion of the question involved, without quoting from that very well reasoned decision of the late Chief Justice Arellano, one of the greatest jurists of his time. He said, in discussing the question whether or not the contract, in the case of Lichauco vs. Berenguer (20 Phil., 12), was a pacto de retro or a mortgage: The public instrument, Exhibit C, in part reads as follows: "Don Macarion Berenguer declares and states that he is the proprietor in fee simple of two parcels of fallow unappropriated crown land situated within the district of his pueblo. The first has an area of 73 quiones, 8 balitas and 8 loanes, located in the sitio of Batasan, and its boundaries are, etc., etc. The second is in the sitio of Panantaglay, barrio of Calumpang has as area of 73 hectares, 22 ares, and 6 centares, and is bounded on the north, etc., etc." In the executory part of the said instrument, it is stated: 'That under condition of right to repurchase (pacto de retro) he sells the said properties to the aforementioned Doa Cornelia Laochangco for P4,000 and upon the following conditions: First, the sale stipulated shall be for the period of two years, counting from this date, within which time the deponent shall be entitled to repurchase the land sold upon payment of its price; second, the lands sold shall, during the term of the present contract, be held in lease by the undersigned who shall pay, as rental therefor, the sum of 400 pesos per annum, or the equivalent in sugar at the option of the vendor; third, all the fruits of the said lands shall be deposited in the sugar depository of the vendee, situated in the district of Quiapo of this city, and the value of which shall be applied on account of the price of this sale; fourth, the deponent acknowledges that he has received from the vendor the purchase price of P4,000 already paid, and in legal tender currency of this country . . .; fifth, all the taxes which may be assessed against the lands surveyed by competent authority, shall be payable by and constitute a charge against the vendor; sixth, if, through any unusual event, such as flood, tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly

or in part, it shall be incumbent upon the vendor to repair the damage thereto at his own expense and to put them into a good state of cultivation, and should he fail to do so he binds himself to give to the vendee other lands of the same area, quality and value.' xxx xxx xxx

The opponent maintained, and his theory was accepted by the trial court, that Berenguer's contract with Laochangco was not one of sale with right of repurchase, but merely one of loan secured by those properties, and, consequently, that the ownership of the lands in questions could not have been conveyed to Laochangco, inasmuch as it continued to be held by Berenguer, as well as their possession, which he had not ceased to enjoy. Such a theory is, as argued by the appellant, erroneous. The instrument executed by Macario Berenguer, the text of which has been transcribed in this decision, is very clear. Berenguer's heirs may not go counter to the literal tenor of the obligation, the exact expression of the consent of the contracting contained in the instrument, Exhibit C. Not because the lands may have continued in possession of the vendor, not because the latter may have assumed the payment of the taxes on such properties, nor yet because the same party may have bound himself to substitute by another any one of the properties which might be destroyed, does the contract cease to be what it is, as set forth in detail in the public instrument. The vendor continued in the possession of the lands, not as the owner thereof as before their sale, but as the lessee which he became after its consummation, by virtue of a contract executed in his favor by the vendee in the deed itself, Exhibit C. Right of ownership is not implied by the circumstance of the lessee's assuming the responsibility of the payment is of the taxes on the property leased, for their payment is not peculiarly incumbent upon the owner, nor is such right implied by the obligation to substitute the thing sold for another while in his possession under lease, since that obligation came from him and he continues under another character in its possessiona reason why he guarantees its integrity and obligates himself to return the thing even in a case of force majeure. Such liability, as a general rule, is foreign to contracts of lease and, if required, is exorbitant, but possible and lawful, if voluntarily agreed to and such agreement does not on this account involve any sign of ownership, nor other meaning than the will to impose upon oneself scrupulous diligence in the care of a thing belonging to another. The purchase and sale, once consummated, is a contract which by its nature transfers the ownership and other rights in the thing sold. A pacto de retro, or sale with right to repurchase, is nothing but a personal right stipulated between the vendee and the vendor, to the end that the latter may again acquire the ownership of the thing alienated. It is true, very true indeed, that the sale with right of repurchase is employed as a method of loan; it is likewise true that in practice many cases occur where the consummation of a pacto de retro sale means the financial ruin of a person; it is also, unquestionable that in pacto de retro sales very important interests often intervene, in the form of the price of the lease of the thing sold, which is stipulated as an additional covenant. (Manresa, Civil Code, p. 274.) But in the present case, unlike others heard by this court, there is no proof that the sale with right of repurchase, made by Berenguer in favor of Laonchangco is rather a mortgage to secure a loan. We come now to a discussion of the second question presented above, and that is, stating the same in another form: May a tenant charge his landlord with a violation of the Usury Law upon the ground that the amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of interest? When the vendor of property under a pacto de retro rents the property and agrees to pay a rental value for the property during the period of his right to repurchase, he thereby becomes a "tenant" and in all respects stands in the same relation with the purchaser as a tenant under any other contract of lease. The appellant contends that the rental price paid during the period of the existence of the right to repurchase, or the sum of P375 per month, based upon the value of the property, amounted to usury. Usury, generally speaking, may be defined as contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of moneythe taking of more interest for the use of money than the law allows. It seems that the taking of interest for the loan of money, at least the taking of excessive interest has been regarded with abhorrence from the earliest times. (Dunham vs. Gould, 16 Johnson [N. Y.], 367.) During the middle ages the people of England, and especially the English Church, entertained the opinion, then, current in Europe, that the taking of any interest for the loan of money was a detestable vice, hateful to man and contrary to the laws of God. (3 Coke's Institute, 150; Tayler on Usury, 44.) Chancellor Kent, in the case of Dunham vs. Gould, supra, said: "If we look back upon history, we shall find that there is scarcely any people, ancient or modern, that have not had usury laws. . . . The Romans, through the greater part of their history, had the deepest abhorrence of usury. . . . It will be deemed a little singular, that the same voice against usury should have been raised in the laws of China, in the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, we may say, in the laws of all nations that we know of, whether Greek or Barbarian." The collection of a rate of interest higher than that allowed by law is condemned by the Philippine Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner of a property to enter into a contract with the tenant for the payment of a specific amount of rent for the use and occupation of said property, even though the amount paid as "rent," based upon the value of the property, might exceed the rate of interest allowed by law? That question has never been decided in this jurisdiction. It is one of first impression. No cases have been found in this jurisdiction answering that question. Act No. 2655 is "An Act fixing rates of interest upon 'loans' and declaring the effect of receiving or taking usurious rates." It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on "loans." A contract of "loan," is very different contract from that of "rent".

A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to return the same thing. To "loan," in general parlance, is to deliver to another for temporary use, on condition that the thing or its equivalent be returned; or to deliver for temporary use on condition that an equivalent in kind shall be returned with a compensation for its use. The word "loan," however, as used in the statute, has a technical meaning. It never means the return of the same thing. It means the return of an equivalent only, but never the same thing loaned. A "loan" has been properly defined as an advance payment of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the moment the contract is completed the money, goods or chattels given cease to be the property of the former owner and becomes the property of the obligor to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same. At all events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former owner and becomes the absolute property of the obligor. A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply loses control of the same in a limited way during the period of the contract of "rent" or lease. In a contract of "rent" the relation between the contractors is that of landlord and tenant. In a contract of "loan" of money, goods, chattels or credits, the relation between the parties is that of obligor and obligee. "Rent" may be defined as the compensation either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof. It is defined as the return or compensation for the possession of some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land, whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the other some nonconsumable thing, in order that the latter may use it during a certain period and return it to the former; whereas a contract of "loan", as that word is used in the statute, signifies the delivery of money or other consumable things upon condition of returning an equivalent amount of the same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under the civil law, it is called a "commodatum." From the foregoing it will be seen that there is a while distinction between a contract of "loan," as that word is used in the statute, and a contract of "rent" even though those words are used in ordinary parlance as interchangeable terms. The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the use and occupation of the property may depend upon a thousand different conditions; as for example, farm lands of exactly equal productive capacity and of the same physical value may have a different rental value, depending upon location, prices of commodities, proximity to the market, etc. Houses may have a different rental value due to location, conditions of business, general prosperity or depression, adaptability to particular purposes, even though they have exactly the same original cost. A store on the Escolta, in the center of business, constructed exactly like a store located outside of the business center, will have a much higher rental value than the other. Two places of business located in different sections of the city may be constructed exactly on the same architectural plan and yet one, due to particular location or adaptability to a particular business which the lessor desires to conduct, may have a very much higher rental value than one not so located and not so well adapted to the particular business. A very cheap building on the carnival ground may rent for more money, due to the particular circumstances and surroundings, than a much more valuable property located elsewhere. It will thus be seen that the rent to be paid for the use and occupation of property is not necessarily fixed upon the value of the property. The amount of rent is fixed, based upon a thousand different conditions and may or may not have any direct reference to the value of the property rented. To hold that "usury" can be based upon the comparative actual rental value and the actual value of the property, is to subject every landlord to an annoyance not contemplated by the law, and would create a very great disturbance in every business or rural community. We cannot bring ourselves to believe that the Legislature contemplated any such disturbance in the equilibrium of the business of the country. In the present case the property in question was sold. It was an absolute sale with the right only to repurchase. During the period of redemption the purchaser was the absolute owner of the property. During the period of redemption the vendor was not the owner of the property. During the period of redemption the vendor was a tenant of the purchaser. During the period of redemption the relation which existed between the vendor and the vendee was that of landlord and tenant. That relation can only be terminated by a repurchase of the property by the vendor in accordance with the terms of the said contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No. 2655. As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right to make contracts for parties. They made their own contract in the present case. There is not a word, a phrase, a sentence or paragraph, which in the slightest way indicates that the parties to the contract in question did not intend to sell the property in question absolutely, simply with the right to repurchase. People who make their own beds must lie thereon. What has been said above with reference to the right to modify contracts by parol evidence, sufficiently answers the third questions presented above. The language of the contract is explicit, clear, unambiguous and beyond question. It expresses the exact intention of the parties at the time it was made. There is not a word, a phrase, a sentence or paragraph found in said contract which needs explanation. The parties thereto entered into said contract with the full understanding of its terms and should not now be permitted to change or modify it by parol evidence. With reference to the improvements made upon said property by the plaintiffs during the life of the contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separate action the right guaranteed to them under article 361 of the Civil Code. For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relation with the law applicable thereto, that the judgment appealed from should be and is hereby affirmed, with costs. So ordered.

Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ., concur. Separate Opinions MALCOLM, J., dissenting: I regret to have to dissent from the comprehensive majority decision. I stand squarely on the proposition that the contract executed by the parties was merely a clever device to cover up the payment of usurious interest. The fact that the document purports to be a true sale with right of repurchase means nothing. The fact that the instrument includes a contract of lease on the property whereby the lessees as vendors apparently bind themselves to pay rent at the rate of P375 per month and whereby "Default in the payment of the rent agreed for two consecutive months will terminate this lease and will forfeit our right of repurchase, as though the term had expired naturally" does mean something, and taken together with the oral testimony is indicative of a subterfuge hiding a usurious loan. (Usury Law, Act No. 2655, sec. 7, as amended; Padilla vs. Linsangan [1911], 19 Phil., 65; U. S. vs. Tan Quingco Chua [1919], 39 Phil., 552; Russel vs. Southard [1851], 53 U. S., 139 Monagas vs. Albertucci y Alvarez [1914], 235 U. S., 81; 10 Manresa, Codigo Civil Espaol, 3rd ed., p. 318.) The transaction should be considered as in the nature of an equitable mortgage. My vote is for a modification of the judgment of the trial court.

Footnotes
1

62 Law. ed., 1177.

THIRD DIVISION [G.R. No. 114398. October 24, 1997] CARMEN LIWANAG, petitioner, vs. THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, represented by the Solicitor General, respondents. DECISION ROMERO, J.: Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC), Branch 93, Quezon City, in an information which reads as follows: That on or between the month of May 19, 1988 and August, 1988 in Quezon City, Philippines and within the jurisdiction of this Honorable Court, the said accused, with intent of gain, with unfaithfulness, and abuse of confidence, did then and there, willfully, unlawfully and feloniously defraud one ISIDORA ROSALES, in the following manner, to wit: on the date and in the place aforementioned, said accused received in trust from the offended party cash money amounting to P536,650.00, Philippine Currency, with the express obligation involving the duty to act as complainants agent in purchasing local cigarettes (Philip Morris and Marlboro cigarettes), to resell them to several stores, to give her commission corresponding to 40% of the profits; and to return the aforesaid amount of offended party, but said accused, far from complying her aforesaid obligation, and once in possession thereof, misapplied, misappropriated and converted the same to her personal use and benefit, despite repeated demands made upon her, accused failed and refused and still fails and refuses to deliver and/or return the same to the damage and prejudice of the said ISIDORA ROSALES, in the aforementioned amount and in such other amount as may be awarded under the provision of the Civil Code. CONTRARY TO LAW. The antecedent facts are as follows: Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of complainant Isidora Rosales (Rosales) and asked her to join them in the business of buying and selling cigarettes. Convinced of the feasibility of the venture, Rosales readily agreed. Under their agreement, Rosales would give the money needed to buy the cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40% commission to her if the goods are sold; otherwise the money would be returned to Rosales. Consequently, Rosales gave several cash advances to Liwanag and Tabligan amounting to P633,650.00. During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on the progress of the transactions. The visits, however, suddenly stopped, and all efforts by Rosales to obtain information regarding their business proved futile. Alarmed by this development and believing that the amounts she advanced were being misappropriated, Rosales filed a case of estafa against Liwanag. After trial on the merits, the trial court rendered a decision dated January 9, 1991, finding Liwanag guilty as charged. The dispositive portion of the decision reads thus: WHEREFORE, the Court holds, that the prosecution has established the guilt of the accused, beyond reasonable doubt, and therefore, imposes upon the accused, Carmen Liwanag, an Indeterminate Penalty of SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21) DAYS OF PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO PAY THE COSTS. The accused is likewise ordered to reimburse the private complainant the sum of P526,650.00, without subsidiary imprisonment, in case of insolvency. SO ORDERED. Said decision was affirmed with modification by the Court of Appeals in a decision dated November 29, 1993, the decretal portion of which reads: WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed with the correction of the nomenclature of the penalty which should be: SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision mayor, as minimum, to FOURTEEN (14) YEARS and EIGHT (8) MONTHS of reclusion temporal, as maximum. In all other respects, the decision is AFFIRMED. SO ORDERED.

Her motion for reconsideration having been denied in the resolution of March 16, 1994, Liwanag filed the instant petition, submitting the following assignment of errors: 1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA, WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER AND COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF THE MONEY OF THE COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT CRIMINAL. 2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF REASONABLE DOUBT BY APPLYING THE EQUIPOISE RULE. Liwanag advances the theory that the intention of the parties was to enter into a contract of partnership, wherein Rosales would contribute the funds while she would buy and sell the cigarettes, and later divide the profits between them. i[1] She also argues that the transaction can also be interpreted as a simple loan, with Rosales lending to her the amount stated on an installment basis.ii[2] The Court of Appeals correctly rejected these pretenses. While factual findings of the Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court, and carry more weight when these affirm the factual findings of the trial court,iii[3] we deem it more expedient to resolve the instant petition on its merits. Estafa is a crime committed by a person who defrauds another causing him to suffer damages, by means of unfaithfulness or abuse of confidence, or of false pretenses of fraudulent acts.iv[4] From the foregoing, the elements of estafa are present, as follows: (1) that the accused defrauded another by abuse of confidence or deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the offended party or third party,v[5] and it is essential that there be a fiduciary relation between them either in the form of a trust, commission or administration.vi[6] The receipt signed by Liwanag states thus: May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine Currency, to purchase cigarrets (sic) (Philip & Marlboro) to be sold to customers. In the event the said cigarrets (sic) are not sold, the proceeds of the sale or the said products (shall) be returned to said Mrs. Isidora P. Rosales the said amount of P526,650.00 or the said items on or before August 30, 1988. (SGD & Thumbedmarked) (sic) CARMEN LIWANAG 26 H. Kaliraya St. Quezon City Signed in the presence of: (Sgd) Illegible (Sgd) Doming Z. Baligad

The language of the receipt could not be any clearer. It indicates that the money delivered to Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event the cigarettes cannot be sold, the money must be returned to Rosales. Thus, even assuming that a contract of partnership was indeed entered into by and between the parties, we have ruled that when money or property have been received by a partner for a specific purpose (such as that obtaining in the instant case) and he later misappropriated it, such partner is guilty of estafa.vii[7] Neither can the transaction be considered a loan, since in a contract of loan once the money is received by the debtor, ownership over the same is transferred.viii[8] Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales. Since in this case there was no transfer of ownership of the money delivered, Liwanag is liable for conversion under Art. 315, par. 1(b) of the Revised Penal Code. WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated November 29, 1993, is AFFIRMED. Costs against petitioner. SO ORDERED.

Melo, Francisco, and Panganiban, JJ., concur. Narvasa, C.J., (Chairman), on leave.

G.R. No. L-24968 April 27, 1972 SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant. Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee. Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant. MAKALINTAL, J.:p In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment. In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital. Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank. On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following: 1. That the proceeds of the loan shall be utilized exclusively for the following purposes: For construction of factory building P250,000.00 For payment of the balance of purchase price of machinery and equipment 240,900.00 For working capital 9,100.00 T O T A L P500,000.00 4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation; 5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;" Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc. In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board." On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with

the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145. On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17. It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows: RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect." On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn. In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned." On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.". On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso: That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following: 1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and 2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory." The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..." This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows: a) For the payment of the receipt for jute mill machineries with the Prudential Bank & Trust Company P250,000.00

(For immediate release) b) For the purchase of materials and equipment per attached list to enable the jute mill to operate 182,413.91 c) For raw materials and labor 67,586.09 1) P25,000.00 to be released on the opening of the letter of credit for raw jute for $25,000.00. 2) P25,000.00 to be released upon arrival of raw jute. 3) P17,586.09 to be released as soon as the mill is ready to operate. On January 25, 1955 RFC sent to Saura, Inc. the following reply: Dear Sirs: This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan. With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan. With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc. It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955. On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project. The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof. We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides: ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract. There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon. When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. 2 The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself. With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties. WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee. Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur. Makasiar, J., took no part.

G.R. No. L-1328

September 9, 1949

MARIANO NEPOMUCENO and AGUEDA G. DE NEPOMUCENO, plaintiffs-appellants, vs. EDILBERTO A. NARCISO and MAURA SUAREZ, defendants-appellees. Higinio Gopez for appellants. Fausto, Solima and Gotiangco for appellees. OZAETA, J.: On November 14, 1938, appellant Mariano Nepomuceno executed a mortgage in favor of the appellees on a parcel of land situated in the municipality of Angeles, Province of Pampanga, to secure the payment within the period of seven years from the date of the mortgage of the sum of P24,000 together with interest thereon at the rate of 8 per cent per annum. On September 30, 1943, that is to say, more than two years before the maturity of said mortgage, the parties executed a notarial document entitled "Partial Novation of Contract" whereby they modified the terms of said mortgage as follows: (1) From December 8, 1941, to January 1, 1944, the interest on the mortgage shall be at 6 per cent per annum, unpaid interest also paying interest also paying interest at the same rate. (2) From January 1, 1944, up to the end of the war, the mortgage debt shall likewise bear interest at 6 per cent. Unpaid interest during this period shall however not bear any interest. (3) At the end of the war the interest shall again become 8 per cent in accordance with the original contract of mortgage. (4) While the war goes on, the mortgagor, his administrators or assigns, cannot redeem the property mortgaged. (5) When the mortgage lapses on November 14, 1945, the mortgage may continue for another ten years if the mortgagor so chooses, but during this period he may pay only one half of the capital. On July 21, 1944, the mortgagor Mariano Nepomuceno and his wife Agueda G. de Nepomuceno filed their complaint in this case against the mortgagees, which compplaint, as amended on September 7, 1944, alleged the execution of the contract of mortgage and its principal novation as above indicated, and 7. That as per Annex B, No. 4, it is provided that the mortgagor cannot redeem the property mortgaged while the war goes on; and that notwithstanding the said provision the herein plaintiffs-mortgagors are now willing to pay the amount of the indebtedness together with the corresponding interest due thereon; 8. That on July 19, 1944, the mortgagors-plaintiffs went to the house of the mortgagees-defendants to tender payment of the balance of the mortgage debt with their corresponding interest, but said spouses defendants refuse and still refuse to accept payment; 9. That because of this refusal of the defendants to accept tender of payment on the mortgage consideration, the plaintiffs suffered and still suffer damages in the amount of P5,000; 10. That the plaintiffs are now and have deposited with the Clerk of Court of First Instance of Pampanga the amount of P22,356 for the payment of the mortgage debt and the interest due thereon; Wherefore, it is more respectfully prayed that this Honorable Court will issue an order in the following tenor: (a) Ordering the defendants to accept tender of payment from the plaintiffs; (b) Ordering defendants to execute the corresponding deed of release of mortgage; (c) Ordering defendants to pay damages in the amount of P5,000; and (d) Ordering defendants to pay the amount of P3,000 as attorney's fee and the costs of suit and any other remedy just and equitable in the premises. After the trial the court sustained the defense that the complaint had been prematurely presented and dismissed it with costs.

Appellants contend that the stipulation in the contract of September 30, 1943, that "while the war goes on the mortgagor, his administrators or assigns cannot redeem the property mortgaged," is against public policy and therefore null and void. They cite and rely on article 1255 of the Civil Code, which provides: ART. 1255. The contracting parties may establish any pacts, clauses, and conditions they may deem advisable, provided they are not contrary to law, morals, or public order. They argue that "it would certainly be against public policy and a restraint on the freedom of commerce to compel a debtor not to release his property from a lien even if he wanted to by the payment of the indebtedness while the war goes on, which was undoubtedly of a very uncertain duration." The first two paragraphs of article 1125 of the Civil Code provide: ART. 1125. Obligation for the performance of which a day certain has been fixed shall be demandable only when the day arrives. A day certain is understood to be one which must necessarily arrive, even though its date be unknown. Article 1127 says: ART. 1127. Whenever a term for the performance of an obligation is fixed, it is presumed to have been established for the benefit of the creditor and that of the debtor, unless from its tenor or from other circumstances it should appear that the term was established for the benefit of one or the other. It will be noted that the original contract of mortgage provided for interest at 8 per cent per annum and that the principal together with the interest was payable within the period of seven years from November 14, 1938. But by mutual agreement of the parties that term was modified on September 30, 1943, by reducing the interest to 6 per cent per annum from December 8, 1941, until the end of the war and by stipulating that the mortgagor shall not pay off the mortgage while the war went on. We find nothing immoral or violative of public order in that stipulation. The mortgagees apparently did not want to have their prewar credit paid with Japanese military notes, and the mortgagor voluntarily agreed not to do so in consideration of the reduction of the rate of interest. It was a perfectly equitable and valid transaction, in conformity with the provision of the Civil Code hereinabove quoted. Appellants were bound by said contract and appellees were not obligated to receive the payment before it was due. Hence the latter had reason not to accept the tender of payment made to them by the former. The judgment is affirmed, with costs against the appellants. Moran, C.J., Paras, Feria, Bengzon, Padilla, Tuason, Montemayor, Reyes and Torres, JJ., concur.

FIRST DIVISION EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL APAS, Petitioners, Present: PUNO, C.J., Chairperson, - v e r s u s - SANDOVAL-GUTIERREZ, CORONA, AZCUNA and LEONARDO-DE CASTRO, JJ. NG SHEUNG NGOR** doing business under the name and style KEN MARKETING, Promulgated: KEN APPLIANCE DIVISION, INC. and BENJAMIN E. GO, Respondents. December 19, 2007 G.R. No. 171545

x - - - - - - - - - - - -- - - - - - - - - - - -- - - - - - - x DECISION CORONA, J.: This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 83112 and its resolution[3] denying reconsideration. On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc. and Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts[5] against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of Cebu City.[6] They claimed that Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates[7] so they accepted Equitable's proposal and signed the bank's pre-printed promissory notes on various dates beginning 1996. They, however, were unaware that the documents contained identical escalation clauses granting Equitable authority to increase interest rates without their consent.[8] Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in the promissory notes. [9] In fact, they continuously availed of and benefited from Equitable's credit facilities for five years.[10] After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured respondents' loans amounting to US$228,200 and P1,000,000.[11] The trial court, however, invalidated the escalation clause contained therein because it violated the principle of mutuality of contracts.[12] Nevertheless, it took judicial notice of the steep depreciation of the peso during the intervening period[13] and declared the existence of extraordinary deflation.[14] Consequently, the RTC ordered the use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans.[15] Lastly, because the business reputation of respondents was (allegedly) severely damaged when Equitable froze their accounts,[16] the trial court awarded moral and exemplary damages to them.[17] The dispositive portion of the February 5, 2004 RTC decision[18] provided: WHEREFORE, premises considered, judgment is hereby rendered: A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit placed on hold status;

B) C)

Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as moral damages; Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as exemplary damages;

D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly and severally, the sum of [t]wo [m]illion [p]esos as moral and exemplary damages; E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay [respondents'] attorney's fees in the sum of P300,000; litigation expenses in the sum of P50,000 and the cost of suit; F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid principal obligation for the peso loan as well as the unpaid obligation for the dollar denominated loan; G) 1) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as follows: 12% per annum for the peso loans;

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 obligation in accordance with Article 1250 of the Civil Code of the Philippines; H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid principal loan obligations and interest.

SO ORDERED.[19] Equitable and respondents filed their respective notices of appeal.[20] In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and respondents failed to submit proof that they paid their respective appeal fees.[21] WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in the above-entitled case is DENIED due course. As of February 27, 2004, the Decision dated February 5, 2004, is considered final and executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are concerned.[22] (emphasis supplied) Equitable moved for the reconsideration of the March 1, 2004 order of the RTC[23] on the ground that it did in fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance of a writ of execution.[24] On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack of merit[25] and ordered the issuance of a writ of execution in favor of respondents.[26] According to the RTC, because respondents did not move for the reconsideration of the previous order (denying due course to the parties notices of appeal),[27] the February 5, 2004 decision became final and executory as to both parties and a writ of execution against Equitable was in order.[28] A writ of execution was thereafter issued[29] and three real properties of Equitable were levied upon.[30] On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order.[31] It, however, withdrew that petition on March 30, 2004[32] and instead filed a petition for certiorari with an application for an injunction in the CA to enjoin the implementation and execution of the March 24, 2004 omnibus order.[33] On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was correspondingly issued. [34] Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public auction on July 1, 2004. Respondents were the highest bidders and certificates of sale were issued to them.[35] On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who conducted the sale in contempt for proceeding with the auction despite the injunction order of the CA.[36] On October 28, 2005, the CA dismissed the petition for certiorari.[37] It found Equitable guilty of forum shopping because the bank filed its petition for certiorari in the CA several hours before withdrawing its petition for relief in the RTC.[38] Moreover, Equitable failed to disclose, both in the statement of material dates and certificate of non-forum shopping (attached to its petition for certiorari in the CA), that it had a pending petition for relief in the RTC.[39] Equitable moved for reconsideration[40] but it was denied.[41] Thus, this petition. Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn on the same day the petition for certiorari was filed.[42] It likewise avers that its petition for certiorari was meritorious because the RTC committed grave abuse of discretion in issuing the March 24, 2004 omnibus order which was based on an erroneous assumption. The March 1, 2004 order

denying its notice of appeal for non payment of appeal fees was erroneous because it had in fact paid the required fees.[43] Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable from appealing the patently wrong February 5, 2004 decision.[44] This petition is meritorious. Equitable Was Not Guilty Of Forum shopping Forum shopping exists when two or more actions involving the same transactions, essential facts and circumstances are filed and those actions raise identical issues, subject matter and causes of action.[45][46] The test is whether, in two or more pending cases, there is identity of parties, rights or causes of actions and reliefs. Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of action. The petition for relief from the denial of its notice of appeal was based on the RTCs judgment or final order preventing it from taking an appeal by fraud, accident, mistake or excusable negligence.[47][48] On the other hand, its petition for certiorari in the CA, a special civil action, sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC. In a petition for relief, the judgment or final order is rendered by a court with competent jurisdiction. In a petition for certiorari, the order is rendered by a court without or in excess of its jurisdiction. Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to withdraw its petition for relief in the RTC on the same day (in fact just four hours and forty minutes after) it filed the petition for certiorari in the CA. Even if Equitable failed to disclose that it had a pending petition for relief in the RTC, it rectified what was doubtlessly a careless oversight by withdrawing the petition for relief just a few hours after it filed its petition for certiorari in the CA ? a clear indication that it had no intention of maintaining the two actions at the same time. The Trial Court Committed Grave Abuse of Discretion In Issuing Its March 1, 2004 and March 24, Section 1, Rule 65 of the Rules of Court provides: Section 1. Petition for Certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial function has acted without or in excess of its or his jurisdiction, 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 person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certificate of non-forum shopping as provided in the third paragraph of Section 3, Rule 46. There are two substantial requirements in a petition for certiorari. These are: 1. that the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in excess of his or its jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and 2. that there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law. 2004 Orders

For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show that the public respondent patently and grossly abused his discretion and that abuse amounted to an evasion of positive duty or a virtual refusal to perform a 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.[49] The March 1, 2004 order denied due course to the notices of appeal of both Equitable and respondents. However, it declared that the February 5, 2004 decision was final and executory only with respect to Equitable.[50] As expected, the March 24, 2004 omnibus order denied Equitable's motion for reconsideration and granted respondents' motion for the issuance of a writ of execution.[51] The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of the decision was undertaken with indecent haste, effectively obviating or defeating Equitable's right to avail of possible legal remedies. No matter how we look at it, the RTC committed grave abuse of discretion in rendering those orders. With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course of law, we hold that there was none. The RTC denied due course to its notice of appeal in the March 1, 2004 order. It affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no way Equitable could have possibly appealed the February 5, 2004 decision.[52]

Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a plain, speedy and adequate remedy in the ordinary course of law.[53] A petition for relief under Rule 38 is an equitable remedy allowed only in exceptional circumstances or where there is no other available or adequate remedy.[54] Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal. Equitable Raised Pure Questions of Law in Its Petition For Review

The jurisdiction of this Court in Rule 45 petitions is limited to questions of law.[55] There is a question of law when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts; or when the issue does not call for the probative value of the evidence presented, the truth or falsehood of facts being admitted.[56] Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on the nullity of the RTCs February 5, 2004 decision. Equitable points out that that decision was patently erroneous, specially the exorbitant award of damages, as it was inconsistent with existing law and jurisprudence.[57] The Promissory Notes Were Valid The RTC upheld the validity of the promissory notes despite respondents assertion that those documents were contracts of adhesion. A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party.[58] The participation of the other party is limited to affixing his signature or his adhesion to the contract.[59] For this reason, contracts of adhesion are strictly construed against the party who drafted it.[60] It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes void only when the dominant party takes advantage of the weakness of the other party, completely depriving the latter of the opportunity to bargain on equal footing.[61] That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had been truly prejudicial to respondents, they would have walked out and negotiated with another bank at the first available instance. But they did not. Instead, they continuously availed of Equitable's credit facilities for five long years. While the RTC categorically found that respondents had outstanding dollar- and peso-denominated loans with Equitable, it, however, failed to ascertain the total amount due (principal, interest and penalties, if any) as of July 9, 2001. The trial court did not explain how it arrived at the amounts of US$228,200 and P1,000,000.[62] In Metro Manila Transit Corporation v. D.M. Consunji,[63] we reiterated that this Court is not a trier of facts and it shall pass upon them only for compelling reasons which unfortunately are not present in this case.[64] Hence, we ordered the partial remand of the case for the sole purpose of determining the amount of actual damages.[65] Escalation Clause Violated The Principle Of Mutuality Of Contracts

Escalation clauses are not void per se. However, one which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement is void. Clauses of that nature violate the principle of mutuality of contracts.[66] Article 1308[67] of the Civil Code holds that a contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.[68] For this reason, we have consistently held that a valid escalation clause provides: 1. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by the Monetary Board; and 2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or by the Monetary Board (de-escalation clause).[69] The RTC found that Equitable's promissory notes uniformly stated: If subject promissory note is extended, the interest for subsequent extensions shall be at such rate as shall be determined by the bank. [70] Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents had no choice but to accept them. This was a violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation clause did not contain the necessary provisions for validity, that is, it neither provided that the rate of interest would be increased only if allowed by law or the Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void. With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank[71] we held that, because the escalation clause was annulled, the principal 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.[72]

Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-denominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts due. There Was No Extraordinary Deflation

Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is, beyond the common fluctuation in the value of currency) and such decrease could not be 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.[73] Article 1250 of the Civil Code provides: Article 1250. 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. 2. 3. that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP);[74] that the obligation was contractual in nature;[75] and that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation.[76]

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).[77] 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.[78] 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.[79] To be entitled to moral damages, a claimant must prove: 1. 2. 3. 4. That he or she suffered besmirched reputation, or physical, mental or psychological suffering sustained by the claimant; That the defendant committed a wrongful act or omission; That the wrongful act or omission was the proximate cause of the damages the claimant sustained; The case is predicated on any of the instances expressed or envisioned by Article 2219[80] and 2220[81]. [82]

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.[83] The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.[84] 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)[85] or the amount due (principal plus interest) due on July 9, 2001.[86] Consequently, Equitable applied respondents' deposits to their loans upon maturity. The relationship between a bank and its depositor is that of creditor and debtor.[87] For this reason, a bank has the right to set-off the deposits in its hands for the payment of a depositor's indebtedness.[88] 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.[89] And if respondents were not entitled to moral and exemplary damages, neither could they be awarded attorney's fees and litigation expenses.[90] ACCORDINGLY, the petition is hereby GRANTED. The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting to lack or excess of jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null and void. The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due course. The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered: 1. ordering respondents Ng Sheung Ngor, doing business under the name and style of Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank the principal amount of their dollar- and peso-denominated loans; 2. ordering respondents Ng Sheung Ngor, doing business under the name and style of Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank interest at: a) b) 12.66% p.a. with respect to their dollar-denominated loans from January 10, 2001 to July 9, 2001; 20% p.a. with respect to their peso-denominated loans from January 10, 2001 to July 9, 2001;[91]

c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,[92] the total amount due on July 9, 2001 shall earn legal interest at 12% p.a. from the time petitioner Equitable PCI Bank demanded payment, whether judicially or extra-judicially; and d) 3. after this Decision becomes final and executory, the applicable rate shall be 12% p.a. until full satisfaction; all other claims and counterclaims are dismissed.

As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact amounts due on the respective dollardenominated and peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor, doing business under the name and style of Ken Marketing, Ken Appliance Division and Benjamin E. Go. SO ORDERED.

SECOND DIVISION G.R. No. 169975 March 18, 2010 Petitioners,

PAN PACIFIC SERVICE CONTRACTORS, INC. and RICARDO F. DEL ROSARIO, vs. EQUITABLE PCI BANK (formerly THE PHILIPPINE COMMERCIAL INTERNATIONAL BANK), Respondent. DECISION CARPIO, J.: The Case

Pan Pacific Service Contractors, Inc. and Ricardo F. Del Rosario (petitioners) filed this Petition for Review1 assailing the Court of Appeals (CA) Decision2 dated 30 June 2005 in CA-G.R. CV No. 63966 as well as the Resolution3 dated 5 October 2005 denying the Motion for Reconsideration. In the assailed decision, the CA modified the 12 April 1999 Decision4 of the Regional Trial Court of Makati City, Branch 59 (RTC) by ordering Equitable PCI Bank5 (respondent) to pay petitioners P1,516,015.07 with interest at the legal rate of 12% per annum starting 6 May 1994 until the amount is fully paid. The Facts Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical works on airconditioning system. On 24 November 1989, Pan Pacific, through its President, Ricardo F. Del Rosario (Del Rosario), entered into a contract of mechanical works (Contract) with respondent for P20,688,800. Pan Pacific and respondent also agreed on nine change orders for P2,622,610.30. Thus, the total consideration for the whole project was P23,311,410.30.6 The Contract stipulated, among others, that Pan Pacific shall be entitled to a price adjustment in case of increase in labor costs and prices of materials under paragraphs 70.1 7 and 70.28 of the "General Conditions for the Construction of PCIB Tower II Extension" (the escalation clause).9 Pursuant to the contract, Pan Pacific commenced the mechanical works in the project site, the PCIB Tower II extension building in Makati City. The project was completed in June 1992. Respondent accepted the project on 9 July 1992.10 In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance with the escalation clause, Pan Pacific claimed a price adjustment of P5,165,945.52. Respondents appointed project engineer, TCGI Engineers, asked for a reduction in the price adjustment. To show goodwill, Pan Pacific reduced the price adjustment to P4,858,548.67.11 On 28 April 1992, TCGI Engineers recommended to respondent that the price adjustment should be pegged at P3,730,957.07. TCGI Engineers based their evaluation of the price adjustment on the following factors: 1. Labor Indices of the Department of Labor and Employment. 2. Price Index of the National Statistics Office. PD 1594 and its Implementing Rules and Regulations as amended, 15 March 1991. Shipping Documents submitted by PPSCI. Sub-clause 70.1 of the General Conditions of the Contract Documents.12 Pan Pacific contended that with this recommendation, respondent was already estopped from disclaiming liability of at least P3,730,957.07 in accordance with the escalation clause.13 Due to the extraordinary increases in the costs of labor and materials, Pan Pacifics operational capital was becoming inadequate for the project. However, respondent withheld the payment of the price adjustment under the escalation clause despite Pan Pacifics repeated demands.14 Instead, respondent offered Pan Pacific a loan of P1.8 million. Against its will and on the strength of respondents promise that the price adjustment would be released soon, Pan Pacific, through Del Rosario, was constrained to execute a promissory note in the amount of P1.8 million as a requirement for the loan. Pan Pacific also posted a surety bond. The P1.8 million was released directly to laborers and suppliers and not a single centavo was given to Pan Pacific.15 Pan Pacific made several demands for payment on the price adjustment but respondent merely kept on promising to release the same. Meanwhile, the P1.8 million loan matured and respondent demanded payment plus interest and penalty. Pan Pacific refused to pay the loan. Pan Pacific insisted that it would not have incurred the loan if respondent released the price adjustment on time. Pan Pacific

alleged that the promissory note did not express the true agreement of the parties. Pan Pacific maintained that the P1.8 million was to be considered as an advance payment on the price adjustment. Therefore, there was really no consideration for the promissory note; hence, it is null and void from the beginning.16 Respondent stood firm that it would not release any amount of the price adjustment to Pan Pacific but it would offset the price adjustment with Pan Pacifics outstanding balance of P3,226,186.01, representing the loan, interests, penalties and collection charges.17 Pan Pacific refused the offsetting but agreed to receive the reduced amount of P3,730,957.07 as recommended by the TCGI Engineers for the purpose of extrajudicial settlement, less P1.8 million and P414,942 as advance payments.18 On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the promissory note, sum of money, and damages against the respondent with the RTC of Makati City, Branch 59. On 12 April 1999, the RTC rendered its decision, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendant as follows: 1. Declaring the promissory note (Exhibit "B") null and void; Ordering the defendant to pay the plaintiffs the following amounts: a. P1,389,111.10 representing unpaid balance of the adjustment price, with interest thereon at the legal rate of twelve (12%) percent per annum starting May 6, 1994, the date when the complaint was filed, until the amount is fully paid; P100,000.00 representing moral damages; P50,000.00 representing exemplary damages; and P50,000.00 as and for attorneys fees. 2. Dismissing defendants counterclaim, for lack of merit; and With costs against the defendant. SO ORDERED.19 On 23 May 1999, petitioners partially appealed the RTC Decision to the CA. On 26 May 1999, respondent appealed the entire RTC Decision for being contrary to law and evidence. In sum, the appeals of the parties with the CA are as follows: 1. With respect to the petitioners, whether the RTC erred in deducting the amount of P126,903.97 from the balance of the adjusted price and in awarding only 12% annual interest on the amount due, instead of the bank loan rate of 18% compounded annually beginning September 1992. 2. With respect to respondent, whether the RTC erred in declaring the promissory note void and in awarding moral and exemplary damages and attorneys fees in favor of petitioners and in dismissing its counterclaim. In its decision dated 30 June 2005, the CA modified the RTC decision, with respect to the principal amount due to petitioners. The CA removed the deduction of P126,903.97 because it represented the final payment on the basic contract price. Hence, the CA ordered respondent to pay P1,516,015.07 to petitioners, with interest at the legal rate of 12% per annum starting 6 May 1994.20 On 26 July 2005, petitioners filed a Motion for Partial Reconsideration seeking a reconsideration of the CAs Decision imposing the legal rate of 12%. Petitioners claimed that the interest rate applicable should be the 18% bank lending rate. Respondent likewise filed a Motion for Reconsideration of the CAs decision. In a Resolution dated 5 October 2005, the CA denied both motions. Aggrieved by the CAs Decision, petitioners elevated the case before this Court. The Issue Petitioners submit this sole issue for our consideration: Whether the CA, in awarding the unpaid balance of the price adjustment, erred in fixing the interest rate at 12% instead of the 18% bank lending rate. Ruling of the Court

We grant the petition. This Court notes that respondent did not appeal the decision of the CA. Hence, there is no longer any issue as to the principal amount of the unpaid balance on the price adjustment, which the CA correctly computed at P1,516,015.07. The only remaining issue is the interest rate applicable for respondents delay in the payment of the balance of the price adjustment. The CA denied petitioners claim for the application of the bank lending rate of 18% compounded annually reasoning, to wit: Anent the 18% interest rate compounded annually, while it is true that the contract provides for an interest at the current bank lending rate in case of delay in payment by the Owner, and the promissory note charged an interest of 18%, the said proviso does not authorize plaintiffs to unilaterally raise the interest rate without the other partys consent. Unlike their request for price adjustment on the basic contract price, plaintiffs never informed nor sought the approval of defendant for the imposition of 18% interest on the adjusted price. To unilaterally increase the interest rate of the adjusted price would be violative of the principle of mutuality of contracts. Thus, the Court maintains the legal rate of twelve percent per annum starting from the date of judicial demand. Although the contract provides for the period when the recommendation of the TCGI Engineers as to the price adjustment would be binding on the parties, it was established, however, that part of the adjusted price demanded by plaintiffs was already disbursed as early as 28 February 1992 by defendant bank to their suppliers and laborers for their account.21 In this appeal, petitioners allege that the contract between the parties consists of two parts, the Agreement22 and the General Conditions,23 both of which provide for interest at the bank lending rate on any unpaid amount due under the contract. Petitioners further claim that there is nothing in the contract which requires the consent of the respondent to be given in order that petitioners can charge the bank lending rate.24 Specifically, petitioners invoke Section 2.5 of the Agreement and Section 60.10 of the General Conditions as follows: Agreement 2.5 If any payment is delayed, the CONTRACTOR may charge interest thereon at the current bank lending rates, without prejudice to OWNERS recourse to any other remedy available under existing law.25 General Conditions 60.10 Time for payment The amount due to the Contractor under any interim certificate issued by the Engineer pursuant to this Clause, or to any term of the Contract, shall, subject to clause 47, be paid by the Owner to the Contractor within 28 days after such interim certificate has been delivered to the Owner, or, in the case of the Final Certificate referred to in Sub-Clause 60.8, within 56 days, after such Final Certificate has been delivered to the Owner. In the event of the failure of the Owner to make payment within the times stated, the Owner shall pay to the Contractor interest at the rate based on banking loan rates prevailing at the time of the signing of the contract upon all sums unpaid from the date by which the same should have been paid. The provisions of this Sub-Clause are without prejudice to the Contractors entitlement under Clause 69.26 (Emphasis supplied) Petitioners thus submit that it is automatically entitled to the bank lending rate of interest from the time an amount is determined to be due thereto, which respondent should have paid. Therefore, as petitioners have already proven their entitlement to the price adjustment, it necessarily follows that the bank lending interest rate of 18% shall be applied.27 On the other hand, respondent insists that under the provisions of 70.1 and 70.2 of the General Conditions, it is stipulated that any additional cost shall be determined by the Engineer and shall be added to the contract price after due consultation with the Owner, herein respondent. Hence, there being no prior consultation with the respondent regarding the additional cost to the basic contract price, it naturally follows that respondent was never consulted or informed of the imposition of 18% interest rate compounded annually on the adjusted price.28 A perusal of the assailed decision shows that the CA made a distinction between the consent given by the owner of the project for the liability for the price adjustments, and the consent for the imposition of the bank lending rate. Thus, while the CA held that petitioners consulted respondent for price adjustment on the basic contract price, petitioners, nonetheless, are not entitled to the imposition of 18% interest on the adjusted price, as petitioners never informed or sought the approval of respondent for such imposition.29 We disagree. It is settled that the agreement or the contract between the parties is the formal expression of the parties rights, duties, and obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.30 The escalation clause of the contract provides: CHANGES IN COST AND LEGISLATION

70.1 Increase or Decrease of Cost There shall be added to or deducted from the Contract Price such sums in respect of rise or fall in the cost of labor and/or materials or any other matters affecting the cost of the execution of the Works as may be determined. 70.2 Subsequent Legislation If, after the date 28 days prior to the latest date of submission of tenders for the Contract there occur in the country in which the Works are being or are to be executed changes to any National or State Statute, Ordinance, Decree or other Law or any regulation or bye-law (sic) of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or bye-law (sic) which causes additional or reduced cost to the contractor, other than under Sub-Clause 70.1, in the execution of the Contract, such additional or reduced cost shall, after due consultation with the Owner and Contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the Contractor accordingly, with a copy to the Owner.31 In this case, the CA already settled that petitioners consulted respondent on the imposition of the price adjustment, and held respondent liable for the balance of P1,516,015.07. Respondent did not appeal from the decision of the CA; hence, respondent is estopped from contesting such fact. However, the CA went beyond the intent of the parties by requiring respondent to give its consent to the imposition of interest before petitioners can hold respondent liable for interest at the current bank lending rate. This is erroneous. A review of Section 2.6 of the Agreement and Section 60.10 of the General Conditions shows that the consent of the respondent is not needed for the imposition of interest at the current bank lending rate, which occurs upon any delay in payment. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. In these cases, courts have no authority to alter a contract by construction or to make a new contract for the parties. The Courts duty is confined to the interpretation of the contract which the parties have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to construction of its terms and determine the intention of the parties.32 The escalation clause must be read in conjunction with Section 2.5 of the Agreement and Section 60.10 of the General Conditions which pertain to the time of payment. Once the parties agree on the price adjustment after due consultation in compliance with the provisions of the escalation clause, the agreement is in effect an amendment to the original contract, and gives rise to the liability of respondent to pay the adjusted costs. Under Section 60.10 of the General Conditions, the respondent shall pay such liability to the petitioner within 28 days from issuance of the interim certificate. Upon respondents failure to pay within the time provided (28 days), then it shall be liable to pay the stipulated interest.1avvphi1 This is the logical interpretation of the agreement of the parties on the imposition of interest. To provide a contrary interpretation, as one requiring a separate consent for the imposition of the stipulated interest, would render the intentions of the parties nugatory. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. Therefore, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest.33 We agree with petitioners interpretation that in case of default, the consent of the respondent is not needed in order to impose interest at the current bank lending rate. Applicable Interest Rate Under Article 2209 of the Civil Code, the appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in the contract of the parties. In the absence of a stipulation of a particular rate of penalty interest, payment of additional interest at a rate equal to the regular monetary interest becomes due and payable. Finally, if no regular interest had been agreed upon by the contracting parties, then the damages payable will consist of payment of legal interest which is 6%, or in the case of loans or forbearances of money, 12% per annum.34 It is only when the parties to a contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will apply the 12% interest per annum on a loan or forbearance of money.35 The written agreement entered into between petitioners and respondent provides for an interest at the current bank lending rate in case of delay in payment and the promissory note charged an interest of 18%.

To prove petitioners entitlement to the 18% bank lending rate of interest, petitioners presented the promissory note36 prepared by respondent bank itself. This promissory note, although declared void by the lower courts because it did not express the real intention of the parties, is substantial proof that the bank lending rate at the time of default was 18% per annum. Absent any evidence of fraud, undue influence or any vice of consent exercised by petitioners against the respondent, the interest rate agreed upon is binding on them.37 WHEREFORE, we GRANT the petition. We SET ASIDE the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 63966. We ORDER respondent to pay petitioners P1,516,015.07 with interest at the bank lending rate of 18% per annum starting 6 May 1994 until the amount is fully paid. SO ORDERED.

G.R. No. 169617

April 4, 2007

HEIRS OF ZOILO ESPIRITU AND PRIMITIVA ESPIRITU, Petitioners, vs. SPOUSES MAXIMO LANDRITO AND PAZ LANDRITO, Represented by ZOILO LANDRITO, as their Attorney-in-Fact, Respondents. DECISION CHICO-NAZARIO, J.: This is a petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals,1 dated 31 August 2005, reversing the Decision rendered by the trial court on 13 December 1995. The Court of Appeals, in its assailed Decision, fixed the interest rate of the loan between the parties at 12% per annum, and ordered the Spouses Zoilo and Primitiva Espiritu (Spouses Espiritu) to reconvey the subject property to the Spouses Landrito conditioned upon the payment of the loan. Petitioners DULCE, BENLINDA, EDWIN, CYNTHIA, AND MIRIAM ANDREA, all surnamed ESPIRITU, are the only children and legal heirs of the Spouses Zoilo and Primitiva Espiritu, who both died during the pendency of the case before the Honorable Court of Appeals.2 Respondents Spouses Maximo and Paz Landrito (Spouses Landrito) are herein represented by their son and attorney-in-fact, Zoilo Landrito.3 On 5 September 1986, Spouses Landrito loaned from the Spouses Espiritu the amount of P350,000.00 payable in three months. To secure the loan, the Spouses Landrito executed a real estate mortgage over a five hundred forty (540) square meter lot located in Alabang, Muntinlupa, covered by Transfer Certificate of Title No. S-48948, in favor of the Spouses Espiritu. From the P350,000.00 that the Landritos were supposed to receive, P17,500.00 was deducted as interest for the first month which was equivalent to five percent of the principal debt, and P7,500.00 was further deducted as service fee. Thus, they actually received a net amount of P325,000.00. The agreement, however, provided that the principal indebtedness earns "interest at the legal rate."4 After three months, when the debt became due and demandable, the Spouses Landrito were unable to pay the principal, and had not been able to make any interest payments other than the amount initially deducted from the proceeds of the loan. On 29 December 1986, the loan agreement was extended to 4 January 1987 through an Amendment of Real Estate Mortgage. The loan was restructured in such a way that the unpaid interest became part of the principal, thus increasing the principal to P385,000. The new loan agreement adopted all other terms and conditions contained in first agreement.5 Due to the continued inability of the Spouses Landritos to settle their obligations with the Spouses Espiritu, the loan agreement was renewed three more times. In all these subsequent renewals, the same terms and conditions found in the first agreement were retained. On 29 July 1987, the principal was increased to P507,000.00 inclusive of running interest. On 11 March 1988, it was increased to P647,000.00. And on 21 October 1988, the principal was increased to P874,125.00.6 At the hearing before the trial court, Zoilo Espiritu testified that the increase in the principal in each amendment of the loan agreement did not correspond to the amount delivered to the Spouses Landrito. Rather, the increase in the principal had been due to unpaid interest and other charges.7 The debt remained unpaid. As a consequence, the Spouses Espiritu foreclosed the mortgaged property on 31 October 1990. During the auction sale, the property was sold to the Spouses Espiritu as the lone bidder. On 9 January 1991, the Sheriffs Certificate of Sale was annotated on the title of the mortgaged property, giving the Spouses Landrito until 8 January 1992 to redeem the property. 8 The Spouses Landrito failed to redeem the subject property although they alleged that they negotiated for the redemption of the property as early as 30 October 1991. While the negotiated price for the land started at P1,595,392.79, it was allegedly increased by the Spouses Espiritu from time to time. Spouses Landrito allegedly tendered two managers checks and some cash, totaling P1,800,000.00 to the Spouses Espiritu on 13 January 1992, but the latter refused to accept the same. They also alleged that the Spouses Espiritu increased the amount demanded to P2.5 Million and gave them until July 1992 to pay the said amount. However, upon inquiry, they found out that on 24 June 1992, the Spouses Espiritu had already executed an Affidavit of Consolidation of Ownership and registered the mortgaged property in their name, and that the Register of Deeds of Makati had already issued Transfer Certificate of Title No. 179802 in the name of the Spouses Espiritu. On 9 October 1992, the Spouses Landrito, represented by their son Zoilo Landrito, filed an action for annulment or reconveyance of title, with damages against the Spouses Espiritu before Branch 146 of the Regional Trial Court of Makati.9 Among the allegations in their Complaint, they stated that the Spouses Espiritu, as creditors and mortgagees, "imposed interest rates that are shocking to ones moral senses."10 The trial court dismissed the complaint and upheld the validity of the foreclosure sale. The trial court ordered in its Decision, dated 13 December 1995:11 WHEREFORE, all the foregoing premises considered, the herein complaint is hereby dismissed forthwith. Without pronouncements to costs.

The Spouses Landrito appealed to the Court of Appeals pursuant to Rule 41 of the 1997 Rules of Court. In its Decision dated 31 August 2005, the Court of Appeals reversed the trial courts decision, decreeing that the five percent (5%) interest imposed by the Spouses Espiritu on the first month and the varying interest rates imposed for the succeeding months contravened the provisions of the Real Estate Mortgage contract which provided that interest at the legal rate, i.e., 12% per annum, would be imposed. It also ruled that although the Usury Law had been rendered ineffective by Central Bank Circular No. 905, which, in effect, removed the ceiling rates prescribed for interests, thus, allowing parties to freely stipulate thereon, the courts may render void any stipulation of interest rates which are found iniquitous or unconscionable. As a result, the Court of Appeals set the interest rate of the loan at the legal rate, or 12% per annum.12 Furthermore, the Court of Appeals held that the action for reconveyance, filed by the Spouses Landrito, is still a proper remedy. Even if the Spouses Landrito failed to redeem the property within the one-year redemption period provided by law, the action for reconveyance remained as a remedy available to a landowner whose property was wrongfully registered in anothers name since the subject property has not yet passed to an innocent purchaser for value.13 In the decretal portion of its Decision, the Court of Appeals ruled14: WHEREFORE, the instant appeal is hereby GRANTED. The assailed Decision dated December 13, 1995 of the Regional Trial Court of Makati, Branch 146 in Civil Case No. 92-2920 is hereby REVERSED and SET ASIDE, and a new one is hereby entered as follows: (1) The legal rate of 12% per annum is hereby FIXED to be applied as the interest of the loan; and (2) Conditioned upon the payment of the loan, defendants-appellees spouses Zoilo and Primitiva Espiritu are hereby ordered to reconvey Transfer Certificate of Title No. S-48948 to appellant spouses Maximo and Paz Landrito. The case is REMANDED to the Trial Court for the above determination. Hence, the present petition. The following issues were raised:15 I THE HONORABLE COURT OF APPEALS ERRED IN REVERSING AND SETTING ASIDE THE DECISION OF THE TRIAL COURT AND ORDERING HEREIN PETITIONERS TO RECONVEY TRANSFER CERTIFICATE OF TITLE NO. 18918 TO HEREIN RESPONDENTS, WITHOUT ANY FACTUAL OR LEGAL BASIS THEREFOR. II THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT HEREIN PETITIONERS UNILATERALLY IMPOSED ON HEREIN RESPONDENTS THE ALLEGEDLY UNREASONABLE INTERESTS ON THE MORTGAGE LOANS. III THE HONORABLE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT HEREIN RESPONDENTS ATTORNEY-IN-FACT IS NOT ARMED WITH AUTHORITY TO FILE AND PROSECUTE THIS CASE. The petition is without merit. The Real Estate Mortgage executed between the parties specified that "the principal indebtedness shall earn interest at the legal rate." The agreement contained no other provision on interest or any fees or charges incident to the debt. In at least three contracts, all designated as Amendment of Real Estate Mortgage, the interest rate imposed was, likewise, unspecified. During his testimony, Zoilo Espiritu admitted that the increase in the principal in each of the Amendments of the Real Estate Mortgage consists of interest and charges. The Spouses Espiritu alleged that the parties had agreed on the interest and charges imposed in connection with the loan, hereunder enumerated: 1. P17,500.00 was the interest charged for the first month and P7,500.00 was imposed as service fee. 2. P35,000.00 interest and charges, or the difference between the P350,000.00 principal in the Real Estate Mortgage dated 5 September 1986 and the P385,000.00 principal in the Amendment of the Real Estate Mortgage dated 29 December 1986. 3. P132,000.00 interest and charges, or the difference between the P385,000.00 principal in the Amendment of the Real Estate Mortgage dated 29 December 1986 and the P507,000.00 principal in the Amendment of the Real Estate Mortgage dated 29 July 1987. 4. P140,000.00 interest and charges, or the difference between the P507,000.00 principal in the Amendment of the Real Estate Mortgage dated 29 July 1987 and the P647,000.00 principal in the Amendment of the Real Estate Mortgage dated 11 March 1988. 5. P227,125.00 interest and charges, or the difference between the P647,000.00 principal in the Amendment of the Real Estate Mortgage dated 11 March 1988 and the P874,125 principal in the Amendment of the Real Estate Mortgage dated 21 October 1988.

The total interest and charges amounting to P559,125.00 on the original principal of P350,000 was accumulated over only two years and one month. These charges are not found in any written agreement between the parties. The records fail to show any computation on how much interest was charged and what other fees were imposed. Not only did lack of transparency characterize the aforementioned agreements, the interest rates and the service charge imposed, at an average of 6.39% per month, are excessive. In enacting Republic Act No. 3765, known as the "Truth in Lending Act," the State seeks to protect its citizens from a lack of awareness of the true cost of credit by assuring the full disclosure of such costs. Section 4, in connection with Section 3(3)16 of the said law, gives a detailed enumeration of the specific information required to be disclosed, among which are the interest and other charges incident to the extension of credit. Section 617 of the same law imposes on anyone who willfully violates these provisions, sanctions which include civil liability, and a fine and/or imprisonment. Although any action seeking to impose either civil or criminal liability had already prescribed, this Court frowns upon the underhanded manner in which the Spouses Espiritu imposed interest and charges, in connection with the loan. This is aggravated by the fact that one of the creditors, Zoilo Espiritu, a lawyer, is hardly in a position to plead ignorance of the requirements of the law in connection with the transparency of credit transactions. In addition, the Civil Code clearly provides that: Article 1956. No interest shall be due unless it has been stipulated in writing. The omission of the Spouses Espiritu in specifying in the contract the interest rate which was actually imposed, in contravention of the law, manifested bad faith. In several cases, this Court has been known to declare null and void stipulations on interest and charges that were found excessive, iniquitous, and unconscionable. In the case of Medel v. Court of Appeals,18 the Court declared an interest rate of 5.5% per month on a P500,000.00 loan to be excessive, iniquitous, unconscionable and exorbitant. Even if the parties themselves agreed on the interest rate and stipulated the same in a written agreement, it nevertheless declared such stipulation as void and ordered the imposition of a 12% yearly interest rate. In Spouses Solangon v. Salazar,19 6% monthly interest on a P60,000.00 loan was likewise equitably reduced to a 1% monthly interest or 12% per annum. In Ruiz v. Court of Appeals,20 the Court found a 3% monthly interest imposed on four separate loans with a total of P1,050,000.00 to be excessive and reduced the interest to a 1% monthly interest or 12% per annum. In declaring void the stipulations authorizing excessive interest and charges, the Court declared that although the Usury Law was suspended by Central Bank Circular No. 905, s. 1982, effective on 1 January 1983, and consequently parties are given a wide latitude to agree on any interest rate, nothing in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.21 Stipulation authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law. Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived.22 The nullity of the stipulation on the usurious interest does not, however, affect the lenders right to recover the principal of the loan.23 Nor would it affect the terms of the real estate mortgage. The right to foreclose the mortgage remains with the creditors, and said right can be exercised upon the failure of the debtors to pay the debt due. The debt due is to be considered without the stipulation of the excessive interest. A legal interest of 12% per annum will be added in place of the excessive interest formerly imposed. While the terms of the Real Estate Mortgage remain effective, the foreclosure proceedings held on 31 Ocotber 1990 cannot be given effect. In the Notice of Sheriffs Sale24 dated 5 October 1990, and in the Certificate of Sale25 dated 31 October 1990, the amount designated as mortgage indebtedness amounted to P874,125.00. Likewise, in the demand letter26 dated 12 December 1989, Zoilo Espiritu demanded from the Spouses Landrito the amount of P874,125.00 for the unpaid loan. Since the debt due is limited to the principal of P350,000.00 with 12% per annum as legal interest, the previous demand for payment of the amount of P874,125.00 cannot be considered as a valid demand for payment. For an obligation to become due, there must be a valid demand.27 Nor can the foreclosure proceedings be considered valid since the total amount of the indebtedness during the foreclosure proceedings was pegged at P874,125.00 which included interest and which this Court now nullifies for being excessive, iniquitous and exorbitant. If the foreclosure proceedings were considered valid, this would result in an inequitable situation wherein the Spouses Landrito will have their land foreclosed for failure to pay an over-inflated loan only a small part of which they were obligated to pay. Moreover, it is evident from the facts of the case that despite considerable effort on their part, the Spouses Landrito failed to redeem the mortgaged property because they were unable to raise the total amount, which was grossly inflated by the excessive interest imposed. Their attempt to redeem the mortgaged property at the inflated amount of P1,595,392.79, as early as 30 October 1991, is reflected in a letter, which creditor-mortgagee Zoilo Landrito acknowledged to have received by affixing his signature herein.28 They also attached in their Complaint copies of two checks in the amounts of P770,000.00 and P995,087.00, both dated 13 January 1992, which were allegedly refused by the Spouses Espiritu.29 Lastly, the Spouses Espiritu even attached in their exhibits a copy of a handwritten letter, dated 27 January 1994, written by Paz Landrito, addressed to the Spouses Espiritu, wherein the former offered to pay the latter the sum of P2,000,000.00.30 In all these instances, the Spouses Landrito had tried, but failed, to pay an amount way over the indebtedness they were supposed to pay i.e., P350,000.00 and 12% interest per annum. Thus, it is only proper that the Spouses Landrito be given the opportunity to repay the real amount of their indebtedness. Since the Spouses Landrito, the debtors in this case, were not given an opportunity to settle their debt, at the correct amount and without the iniquitous interest imposed, no foreclosure proceedings may be instituted. A judgment ordering a foreclosure sale is conditioned upon a finding on the correct amount of the unpaid obligation and the failure of the debtor to pay the said amount.31 In this case, it has not yet been shown that the Spouses Landrito had already failed to pay the correct amount of the debt and, therefore, a foreclosure sale cannot be conducted in order to answer for the unpaid debt. The foreclosure sale conducted upon their failure to pay

P874,125 in 1990 should be nullified since the amount demanded as the outstanding loan was overstated; consequently it has not been shown that the mortgagors the Spouses Landrito, have failed to pay their outstanding obligation. Moreover, if the proceeds of the sale together with its reasonable rates of interest were applied to the obligation, only a small part of its original loans would actually remain outstanding, but because of the unconscionable interest rates, the larger part corresponded to said excessive and iniquitous interest. As a result, the subsequent registration of the foreclosure sale cannot transfer any rights over the mortgaged property to the Spouses Espiritu. The registration of the foreclosure sale, herein declared invalid, cannot vest title over the mortgaged property. The Torrens system does not create or vest title where one does not have a rightful claim over a real property. It only confirms and records title already existing and vested. It does not permit one to enrich oneself at the expense of another.32 Thus, the decree of registration, even after the lapse of one (1) year, cannot attain the status of indefeasibility. Significantly, the records show that the property mortgaged was purchased by the Spouses Espiritu and had not been transferred to an innocent purchaser for value. This means that an action for reconveyance may still be availed of in this case.33 Registration of property by one person in his or her name, whether by mistake or fraud, the real owner being another person, impresses upon the title so acquired the character of a constructive trust for the real owner, which would justify an action for reconveyance.34 This is based on Article 1465 of the Civil Code which states that: Art. 1465. If property acquired through mistakes or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for benefit of the person from whom the property comes. The action for reconveyance does not prescribe until after a period of ten years from the date of the registration of the certificate of sale since the action would be based on implied trust.35 Thus, the action for reconveyance filed on 31 October 1992, more than one year after the Sheriffs Certificate of Sale was registered on 9 January 1991, was filed within the prescription period. It should, however, be reiterated that the provisions of the Real Estate Mortgage are not annulled and the principal obligation stands. In addition, the interest is not completely removed; rather, it is set by this Court at 12% per annum. Should the Spouses Landrito fail to pay the principal, with its recomputed interest which runs from the time the loan agreement was entered into on 5 September 1986 until the present, there is nothing in this Decision which prevents the Spouses Espiritu from foreclosing the mortgaged property. The last issue raised by the petitioners is whether or not Zoilo Landrito was authorized to file the action for reconveyance filed before the trial court or even to file the appeal from the judgment of the trial court, by virtue of the Special Power of Attorney dated 30 September 1992. They further noted that the trial court and the Court of Appeals failed to rule on this issue.36 The Special Power of Attorney37 dated 30 September 1992 was executed by Maximo Landrito, Jr., with the conformity of Paz Landrito, in connection with the mortgaged property. It authorized Zoilo Landrito: 2. To make, sign, execute and deliver corresponding pertinent contracts, documents, agreements and other writings of whatever nature or kind and to sue or file legal action in any court of the Philippines, to collect, ask demands, encash checks, and recover any and all sum of monies, proceeds, interest and other due accruing, owning, payable or belonging to me as such owner of the afore-mentioned property. (Emphasis provided.) Zoilo Landritos authority to file the case is clearly set forth in the Special Power of Attorney. Furthermore, the records of the case unequivocally show that Zoilo Landrito filed the reconveyance case with the full authority of his mother, Paz Landrito, who attended the hearings of the case, filed in her behalf, without making any protest.38 She even testified in the same case on 30 August 1995. From the acts of Paz Landrito, there is no doubt that she had authorized her son to file the action for reconveyance, in her behalf, before the trial court. IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated on 31 August 2005, fixing the interest rate of the loan between the parties at 12% per annum, and ordering the Spouses Espiritu to reconvey the subject property to the Spouses Landrito conditioned upon the payment of the loan together with herein fixed rate of interest. Costs against the petitioners. SO ORDERED.

G.R. No. L-47878

July 24, 1942

GIL JARDENIL, plaintiff-appellant, vs. HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee. Eleuterio J. Gustilo for appellant. Jose C. Robles for appellee. MORAN, J.: This is an action for foreclosure of mortgage. The only question raised in this appeal is: Is defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected? This question is, in our opinion controlled by the express stipulation of the parties. Paragraph 4 of the mortgage deed recites: Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS (P2,4000.00), moneda filipina, que el Sr. Hepti Solas se compromete a pagar al Sr. Jardenil en o antes del dia treintaiuno (31) de marzo de mil novecientos treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por ciento (12%) anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de marzo de mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti Solas cede y traspasa, por via de primera hipoteca, a favor del Sr. Jardenil, sus herederos y causahabientes, la parcela de terreno descrita en el parrafo primero (1.) de esta escritura. Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until March 31, 1934. As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated." (Emphasis supplied.) A writing must be interpreted according to the legal meaning of its language (section 286, Act No. 190, now section 58, Rule 123), and only when the wording of the written instrument appears to be contrary to the evident intention of the parties that such intention must prevail. (Article 1281, Civil Code.) There is nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the mortgagor should pay during the additional period (see Exhibit B attached to the complaint), indicates that the true intention of the parties was that no interest should be paid during the period of grace. What reason the parties may have therefor, we need not here seek to explore. Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their agreement, for if such mistake existed, plaintiff would have undoubtedly adduced evidence to establish it and asked that the deed be reformed accordingly, under the parcel-evidence rule. We hold therefore, that as the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, same should be given its full force and effect. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay any claim more than what its clear stipulations accord. His omission, to which the law attaches a definite warning as an in the instant case, cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate. Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400 from November 8, 1932 to March 31, 1934. And it being a fact that extra judicial demands have been made which we may assume to have been so made on the expiration of the year of grace, he shall be entitled to legal interest upon the principal and the accrued interest from April 1, 1935, until full payment. Thus modified judgment is affirmed, with costs against appellant. Yulo, C.J., Ozaeta and Bocobo, JJ., concur.

Separate Opinions PARAS, J., dissenting:

Under the facts stated in the decision of the majority, I come to the conclusion that interest at the rate of 12 per cent per annum should be paid up to the date of payment of the whole indebtedness is made. Payment of such interest is expressly stipulated. True, it is stated in the mortgage contract that interest was to be paid up to March 31, 1934, but this date was inserted merely because it was the date of maturity. The extension note is silent as regards interest, but its payment is clearly implied from the nature of the transaction which is only a renewal of the obligation. In my opinion, the ruling of the majority is anomalous and at war with common practice and everyday business usage.

G.R. No. 160545

March 9, 2010 CORPORATION and ROGELIO S. PANTALEON, Petitioners,

PRISMA CONSTRUCTION & DEVELOPMENT vs. ARTHUR F. MENCHAVEZ, Respondent. DECISION BRION, J.:

We resolve in this Decision the petition for review on certiorari1 filed by petitioners Prisma Construction & Development Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside the Decision2 dated May 5, 2003 and the Resolution3 dated October 22, 2003 of the Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No. 97-4552 that held the petitioners liable for payment of P3,526,117.00 to respondent Arthur F. Menchavez (respondent), but modified the interest rate from 4% per month to 12% per annum, computed from the filing of the complaint to full payment. The assailed CA Resolution denied the petitioners Motion for Reconsideration. FACTUAL BACKGROUND The facts of the case, gathered from the records, are briefly summarized below. On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.004 loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6) months,5 under the following schedule of payments: January 8, 1994 . February 8, 1994 ... March 8, 1994 ... April 8, 1994 . May 8, 1994 .. June 8, 1994 Total P40,000.00 P40,000.00 P40,000.00 P40,000.00 P40,000.00 P1,040,000.0 06 P1,240,000.0 0

To secure the payment of the loan, Pantaleon issued a promissory note7 that states: I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-month loan payable according to the following schedule: January 8, 1994 . February 8, 1994 ... March 8, 1994 ... April 8, 1994 . May 8, 1994 .. June 8, 1994 P40,000.00 P40,000.00 P40,000.00 P40,000.00 P40,000.00 P1,040,000.0 0

The checks corresponding to the above amounts are hereby acknowledged.8 and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal capacity,9 and as duly authorized by the Board of Directors of PRISMA.10 The petitioners failed to completely pay the loan within the stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent: P320,000.0 0 P600,000.0 0 P158,772.0 0 P30,000.001
1

September 8, 1994 October 8, 1995. November 8, 1995. January 4, 1997 .

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest. 12 Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court appearance and costs of suit.13 In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan would be repaid within six (6) months.14 THE RTC RULING The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for P1,000,000.00 in favor of the petitioners for a loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period. It noted that the petitioners made several payments amounting to P1,228,772.00, but they were still indebted to the respondent for P3,526,117.00 as of February 11,15 1999 after considering the 4% monthly interest. The RTC observed that PRISMA was a one-man corporation of Pantaleon and used this circumstance to justify the piercing of the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the respondent the amount of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.16 The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there was no express stipulation on the 4% monthly interest. THE CA RULING The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally based on the board resolution that authorized Pantaleon to transact a loan with an approved interest of not more than 4% per month. The appellate court, however, noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per annum. The CA affirmed the RTCs finding that PRISMA was a mere instrumentality of Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum interest, computed from the filing of the complaint until finality of judgment, and thereafter, 12% from finality until fully paid.17 After the CA's denial18 of their motion for reconsideration,19 the petitioners filed the present petition for review on certiorari under Rule 45 of the Rules of Court. THE PETITION The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4% monthly interest because the board resolution was not an evidence of a loan or forbearance of money, but merely an authorization for Pantaleon to perform certain acts, including the power to enter into a contract of loan. The expressed mandate of Article 1956 of the Civil Code is that interest due should be stipulated in writing, and no such stipulation exists. Even assuming that the loan is subject to 4% monthly interest, the interest covers the six (6)-month period only and cannot be interpreted to apply beyond it. The petitioners also point out the glaring inconsistency in the CA Decision, which reduced the interest from 4% per month or 48% per annum to 12% per annum, but failed to consider that the amount of P3,526,117.00 that the RTC ordered them to pay includes the compounded 4% monthly interest. THE CASE FOR THE RESPONDENT The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board resolution is attached to, and an integral part of, the promissory note based on which the petitioners obtained the loan. The respondent further contends that the petitioners are estopped from assailing the 4% monthly interest, since they agreed to pay the 4% monthly interest on the principal amount under the promissory note and the board resolution. THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or until full payment of the loan? OUR RULING We find the petition meritorious. Interest due should be stipulated in writing; otherwise, 12% per annum Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.20 When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.21 In such cases, courts have no authority to alter the contract by construction or to make a new contract for the parties; a court's duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain.22 It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties intent. In the present case, the respondent issued a check for P1,000,000.00.23 In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon. Article 1956 of the Civil Code specifically mandates that "no interest shall be due unless it has been expressly stipulated in writing." Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza24 and Ching v. Nicdao25 that collection of interest without any stipulation in writing is prohibited by law.1avvphi1 Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:26 When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code." (Emphasis supplied) We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,27 Sulit v. Court of Appeals,28 Crismina Garments, Inc. v. Court of Appeals, 29 Eastern Assurance and Surety Corporation v. Court of Appeals, 30 Sps. Catungal v. Hao, 31 Yong v. Tiu,32 and Sps. Barrera v. Sps. Lorenzo.33 Thus, the RTC and the CA misappreciated the facts of the case; they erred in finding that the parties agreed to a 4% interest, compounded by the application of this interest beyond the promissory notes six (6)-month period. The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period. Medel v. Court of Appeals not applicable The CA misapplied Medel v. Court of Appeals34 in finding that a 4% interest per month was unconscionable. In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% per month, plus attorneys fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and void. Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar35 of 6% per month or 72% per annum interest on a P60,000.00 loan; in Ruiz v. Court of Appeals,36 of 3% per month or 36% per annum interest on a P3,000,000.00 loan; in Imperial v. Jaucian,37 of 16% per month or 192% per annum interest on a P320,000.00 loan; in Arrofo v. Quio,38 of 7% interest per month or 84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per annum interest on a P2,500,000.00 loan; and in Chua v. Timan,40 of 7% and 5% per month for loans totalling P964,000.00. We note that in all these cases, the terms of the loans were open-ended; the stipulated interest rates were applied for an indefinite period. Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners;41 they only assailed the application of a 4% interest rate, since it was not agreed upon. It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not

contrary to law, morals, public order or public policy.42 The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with the respondent. Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6) months, or from December 8, 1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting to P1,228,772.00 as of February 12, 1999,43 should be deducted from the total amount due, computed as indicated above. We remand the case to the trial court for the actual computation of the total amount due. Doctrine of Estoppel not applicable The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month stipulated period, since they agreed to pay this interest on the principal amount under the promissory note and the board resolution. We disagree with the respondents contention. We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record, negate its application. Under the promissory note,44 what the petitioners agreed to was the payment of a specific sum of P40,000.00 per month for six months not a 4% rate of interest per month for six (6) months on a loan whose principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in estoppel, barring them from raising their present defenses against a 4% per month interest after the six-month period of the agreement. The board resolution,45 on the other hand, simply authorizes Pantaleon to contract for a loan with a monthly interest of not more than 4%. This resolution merely embodies the extent of Pantaleons authority to contract and does not create any right or obligation except as between Pantaleon and the board. Again, no cause exists to place the petitioners in estoppel. Piercing the corporate veil unfounded We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA. The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.46 In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.47 In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its corporate veil. While Pantaleon denied personal liability in his Answer, he made himself accountable in the promissory note "in his personal capacity and as authorized by the Board Resolution" of PRISMA.48 With this statement of personal liability and in the absence of any representation on the part of PRISMA that the obligation is all its own because of its separate corporate identity, we see no occasion to consider piercing the corporate veil as material to the case. WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R. CV No. 69627. The petitioners loan of P1,000,000.00 shall bear interest of P40,000.00 per month for six (6) months from December 8, 1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the end of the six-month payment period, shall thereafter bear interest at 12% per annum. The total amount due and unpaid, including accrued interests, shall bear interest at 12% per annum from the finality of this Decision. Let this case be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the proper computation of the amount due as herein directed, with due regard to the payments the petitioners have already remitted. Costs against the respondent. SO ORDERED.

G.R. No. 173227

January 20, 2009

SEBASTIAN SIGA-AN, Petitioner, vs. ALICIA VILLANUEVA, Respondent. DECISION CHICO-NAZARIO, J.: Before Us is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision,2 dated 16 December 2005, and Resolution,3 dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the Decision,4 dated 26 January 2001, of the Las Pinas City Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068. The facts gathered from the records are as follows: On 30 March 1998, respondent Alicia Villanueva filed a complaint5 for sum of money against petitioner Sebastian Siga-an before the Las Pinas City Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged that she was a businesswoman engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military officer and comptroller of the PNO from 1991 to 1996. Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to loan her the amount of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted petitioners proposal. The loan agreement was not reduced in writing. Also, there was no stipulation as to the payment of interest for the loan.6 On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. On 31 October 1993, she issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance of the loan. Petitioner told her that since she paid a total amount of P700,000.00 for the P540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay additional interest. Petitioner threatened to block or disapprove her transactions with the PNO if she would not comply with his demand. As all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for the payments but petitioner told her that it was not necessary as there was mutual trust and confidence between them. According to her computation, the total amount she paid to petitioner for the loan and interest accumulated to P1,200,000.00.7 Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite absence of agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on the loan because there was no agreement between her and petitioner regarding payment of interest. Since she paid petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer that she made overpayment to petitioner, she sent a demand letter to petitioner asking for the return of the excess amount of P660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement.8 Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1) P660,000.00 plus legal interest from the time of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an amount equivalent to 25% of P660,000.00 as attorneys fees.9 In his answer10 to the complaint, petitioner denied that he offered a loan to respondent. He averred that in 1992, respondent approached and asked him if he could grant her a loan, as she needed money to finance her business venture with the PNO. At first, he was reluctant to deal with respondent, because the latter had a spotty record as a supplier of the PNO. However, since respondent was an acquaintance of his officemate, he agreed to grant her a loan. Respondent paid the loan in full.11 Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the previous loan in full, he agreed to grant her another loan. Later, respondent requested him to restructure the payment of the loan because she could not give full payment on the due date. He acceded to her request. Thereafter, respondent pleaded for another restructuring of the payment of the loan. This time he rejected her plea. Thus, respondent proposed to execute a promissory note wherein she would acknowledge her obligation to him, inclusive of interest, and that she would issue several postdated checks to guarantee the payment of her obligation. Upon his approval of respondents request for restructuring of the loan, respondent executed a promissory note dated 12 September 1994 wherein she admitted having borrowed an amount of P1,240,000.00, inclusive of interest, from petitioner and that she would pay said amount in March 1995. Respondent also issued to him six postdated checks amounting to P1,240,000.00 as guarantee of compliance with her obligation. Subsequently, he presented the six checks for encashment but only one check was honored. He demanded that respondent settle her obligation, but the latter failed to do so. Hence, he filed criminal cases for Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The cases were assigned to the Metropolitan Trial Court of Makati City, Branch 65 (MeTC).12

Petitioner insisted that there was no overpayment because respondent admitted in the latters promissory note that her monetary obligation as of 12 September 1994 amounted to P1,240,000.00 inclusive of interests. He argued that respondent was already estopped from complaining that she should not have paid any interest, because she was given several times to settle her obligation but failed to do so. He maintained that to rule in favor of respondent is tantamount to concluding that the loan was given interest-free. Based on the foregoing averments, he asked the RTC to dismiss respondents complaint. After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an overpayment of her loan obligation to petitioner and that the latter should refund the excess amount to the former. It ratiocinated that respondents obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests due should not be included in the computation of respondents total monetary debt because there was no agreement between them regarding payment of interest. It concluded that since respondent made an excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to the principle of solutio indebiti.13 The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded feelings experienced by respondent. Further, petitioner should pay exemplary damages by way of example or correction for the public good, plus attorneys fees and costs of suit. The dispositive portion of the RTC Decision reads: WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law and jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows: (1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal interest of 12% per annum computed from 3 March 1998 until the amount is paid in full; (2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages; (3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary damages; (4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as attorneys fees; and (5) Ordering defendant to pay the costs of suit.14 Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its Decision affirming in toto the RTC Decision, thus: WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the assailed decision [is] AFFIRMED in toto.15 Petitioner filed a motion for reconsideration of the appellate courts decision but this was denied.16 Hence, petitioner lodged the instant petition before us assigning the following errors: I. THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER; II. THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.17 Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. 18 The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.19 Article 1956 of the Civil Code, which refers to monetary interest,20 specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law.21 It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there convincing proof of written agreement between the two regarding the payment of interest. Respondent testified that although she accepted petitioners offer of loan amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the loan.22

Petitioner presented a handwritten promissory note dated 12 September 199423 wherein respondent purportedly admitted owing petitioner "capital and interest." Respondent, however, explained that it was petitioner who made a promissory note and she was told to copy it in her own handwriting; that all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO; that petitioner threatened to disapprove her transactions with the PNO if she would not pay interest; that being unaware of the law on interest and fearing that petitioner would make good of his threats if she would not obey his instruction to copy the promissory note, she copied the promissory note in her own handwriting; and that such was the same promissory note presented by petitioner as alleged proof of their written agreement on interest.24 Petitioner did not rebut the foregoing testimony. It is evident that respondent did not really consent to the payment of interest for the loan and that she was merely tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully said that such promissory note pertains to an express stipulation of interest or written agreement of interest on the loan between petitioner and respondent. Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and respondent agreed on the payment of 7% rate of interest on the loan; that the agreed 7% rate of interest was duly admitted by respondent in her testimony in the Batas Pambansa Blg. 22 cases he filed against respondent; that despite such judicial admission by respondent, the RTC and the Court of Appeals, citing Article 1956 of the Civil Code, still held that no interest was due him since the agreement on interest was not reduced in writing; that the application of Article 1956 of the Civil Code should not be absolute, and an exception to the application of such provision should be made when the borrower admits that a specific rate of interest was agreed upon as in the present case; and that it would be unfair to allow respondent to pay only the loan when the latter very well knew and even admitted in the Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of interest on the loan.25 We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that petitioner and respondent agreed on the payment of interest at the rate of 7% for the loan. The RTC clearly stated that although petitioner and respondent entered into a valid oral contract of loan amounting to P540,000.00, they, nonetheless, never intended the payment of interest thereon.26 While the Court of Appeals mentioned in its Decision that it concurred in the RTCs ruling that petitioner and respondent agreed on a certain rate of interest as regards the loan, we consider this as merely an inadvertence because, as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner is not entitled to the payment of interest on the loan. The rule is that factual findings of the trial court deserve great weight and respect especially when affirmed by the appellate court.27 We found no compelling reason to disturb the ruling of both courts. Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22 cases that they had agreed on the payment of interest at the rate of 7% deserves scant consideration. In the said case, respondent merely testified that after paying the total amount of loan, petitioner ordered her to pay interest.28 Respondent did not categorically declare in the same case that she and respondent made an express stipulation in writing as regards payment of interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was an express stipulation in writing for the payment of interest. There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest.29 The case at bar involves petitioners claim for monetary interest. Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no written agreement as regards payment of interest. Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply to the instant case. Thus, he cannot be compelled to return the alleged excess amount paid by respondent as interest.30 Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another.31 The principle of solutio indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause.32 We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest.33 It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such payment because there was no express stipulation in writing to that effect. There was no binding relation between petitioner and respondent as regards the payment of interest. The payment was clearly a mistake. Since petitioner received something when there was no right to demand it, he has an obligation to return it. We shall now determine the propriety of the monetary award and damages imposed by the RTC and the Court of Appeals.

Records show that respondent received a loan amounting to P540,000.00 from petitioner.34 Respondent issued two checks with a total worth of P700,000.00 in favor of petitioner as payment of the loan.35 These checks were subsequently encashed by petitioner.36 Obviously, there was an excess of P160,000.00 in the payment for the loan. Petitioner claims that the excess of P160,000.00 serves as interest on the loan to which he was entitled. Aside from issuing the said two checks, respondent also paid cash in the total amount of P175,000.00 to petitioner as interest.37 Although no receipts reflecting the same were presented because petitioner refused to issue such to respondent, petitioner, nonetheless, admitted in his Reply-Affidavit38 in the Batas Pambansa Blg. 22 cases that respondent paid him a total amount of P175,000.00 cash in addition to the two checks. Section 26 Rule 130 of the Rules of Evidence provides that the declaration of a party as to a relevant fact may be given in evidence against him. Aside from the amounts of P160,000.00 and P175,000.00 paid as interest, no other proof of additional payment as interest was presented by respondent. Since we have previously found that petitioner is not entitled to payment of interest and that the principle of solutio indebiti applies to the instant case, petitioner should return to respondent the excess amount of P160,000.00 and P175,000.00 or the total amount of P335,000.00. Accordingly, the reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be reduced from P660,000.00 to P335,000.00. As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against respondent. In the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored checks to petitioner. Nonetheless, respondents conviction therein does not affect our ruling in the instant case. The two checks, subject matter of this case, totaling P700,000.00 which respondent claimed as payment of the P540,000.00 worth of loan, were not among the five checks found to be dishonored or bounced in the five criminal cases. Further, the MeTC found that respondent made an overpayment of the loan by reason of the interest which the latter paid to petitioner.39 Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Respondent testified that she experienced sleepless nights and wounded feelings when petitioner refused to return the amount paid as interest despite her repeated demands. Hence, the award of moral damages is justified. However, its corresponding amount of P300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant and should be equitably reduced. Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion of the court according to the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court.40 To our mind, the amount of P150,000.00 as moral damages is fair, reasonable, and proportionate to the injury suffered by respondent. Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he pestered respondent to pay interest and threatened to block her transactions with the PNO if she would not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the award of exemplary damages is appropriate. The amount of P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so as to deter petitioner and other lenders from committing similar and other serious wrongdoings.41 Jurisprudence instructs that in awarding attorneys fees, the trial court must state the factual, legal or equitable justification for awarding the same.42 In the case under consideration, the RTC stated in its Decision that the award of attorneys fees equivalent to 25% of the amount paid as interest by respondent to petitioner is reasonable and moderate considering the extent of work rendered by respondents lawyer in the instant case and the fact that it dragged on for several years.43 Further, respondent testified that she agreed to compensate her lawyer handling the instant case such amount.44 The award, therefore, of attorneys fees and its amount equivalent to 25% of the amount paid as interest by respondent to petitioner is proper. Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount refundable to respondent computed from 3 March 1998 until its full payment. This is erroneous. We held in Eastern Shipping Lines, Inc. v. Court of Appeals,45 that when an obligation, not constituting a loan or forbearance of money is breached, an interest on the amount of damages awarded may be imposed at the rate of 6% per annum. We further declared that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed equivalent to a forbearance of credit. In the present case, petitioners obligation arose from a quasi-contract of solutio indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the attorneys fees, to be computed from the time of the extra-judicial demand on 3 March 1998, 46 up to the finality of this Decision. In addition, the interest shall become 12% per annum from the finality of this Decision up to its satisfaction. WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December 2005, is hereby AFFIRMED with the following MODIFICATIONS: (1) the amount of P660,000.00 as refundable amount of interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the amount of P300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00); (3) an interest of 6% per annum is imposed on the P335,000.00, on the damages awarded and on the attorneys fees to be computed from the time of the extra-judicial demand on 3 March 1998 up to the finality of this Decision; and (4) an interest of 12% per annum is also imposed from the finality of this Decision up to its satisfaction. Costs against petitioner. SO ORDERED.

SPOUSES DAVID B. CARPO and RECHILDA S. CARPO, Petitioners, - versus -

G.R. Nos. 150773 & 153599 Present: PUNO, J., Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ. Promulgated: September 30, 2005

ELEANOR CHUA and ELMA DY NG, Respondents.

x-------------------------------------------------------------------x DECISION TINGA, J.: Before this Court are two consolidated petitions for review. The first, docketed as G.R. No. 150773, assails the Decision[1] of the Regional Trial Court (RTC), Branch 26 of Naga City dated 26 October 2001 in Civil Case No. 99-4376. RTC Judge Filemon B. Montenegro dismissed the complaint[2] for annulment of real estate mortgage and consequent foreclosure proceedings filed by the spouses David B. Carpo and Rechilda S. Carpo (petitioners). The second, docketed as G.R. No. 153599, seeks to annul the Court of Appeals Decision[3] dated 30 April 2002 in CA-G.R. SP No. 57297. The Court of Appeals Third Division annulled and set aside the orders of Judge Corazon A. Tordilla to suspend the sheriffs enforcement of the writ of possession. The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they borrowed from Eleanor Chua and Elma Dy Ng (respondents) the amount of One Hundred Seventy-Five Thousand Pesos (P175,000.00), payable within six (6) months with an interest rate of six percent (6%) per month. To secure the payment of the loan, petitioners mortgaged their residential house and lot situated at San Francisco, Magarao, Camarines Sur, which lot is covered by Transfer Certificate of Title (TCT) No. 23180. Petitioners failed to pay the loan upon demand. Consequently, the real estate mortgage was extrajudicially foreclosed and the mortgaged property sold at a public auction on 8 July 1996. The house and lot was awarded to respondents, who were the only bidders, for the amount of Three Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty Centavos (P367,457.80). Upon failure of petitioners to exercise their right of redemption, a certificate of sale was issued on 5 September 1997 by Sheriff Rolando A. Borja. TCT No. 23180 was cancelled and in its stead, TCT No. 29338 was issued in the name of respondents. Despite the issuance of the TCT, petitioners continued to occupy the said house and lot, prompting respondents to file a petition for writ of possession with the RTC docketed as Special Proceedings (SP) No. 98-1665. On 23 March 1999, RTC Judge Ernesto A. Miguel issued an Order[4] for the issuance of a writ of possession. On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage and the consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC. Petitioners consigned the amount of Two Hundred Fifty-Seven Thousand One Hundred Ninety-Seven Pesos and Twenty-Six Centavos (P257,197.26) with the RTC. Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon motion on 3 August 1999, enjoining the enforcement of the writ of possession. In an Order[5] dated 6 January 2000, the RTC suspended the enforcement of the writ of possession pending the final disposition of Civil Case No. 99-4376. Against this Order, respondents filed a petition for certiorari and mandamus before the Court of Appeals, docketed as CA-G.R. SP No. 57297. During the pendency of the case before the Court of Appeals, RTC Judge Filemon B. Montenegro dismissed the complaint in Civil Case No. 99-4376 on the ground that it was filed out of time and barred by laches. The RTC proceeded from the premise that the complaint was one for annulment of a voidable contract and thus barred by the four-year prescriptive period. Hence, the first petition for review now under consideration was filed with this Court, assailing the dismissal of the complaint. The second petition for review was filed with the Court after the Court of Appeals on 30 April 2002 annulled and set aside the RTC orders in SP No. 98-1665 on the ground that it was the ministerial duty of the lower court to issue the writ of possession when title over the mortgaged property had been consolidated in the mortgagee. This Court ordered the consolidation of the two cases, on motion of petitioners. In G.R. No. 150773, petitioners claim that following the Courts ruling in Medel v. Court of Appeals[6] the rate of interest stipulated in the principal loan agreement is clearly null and void. Consequently, they also argue that the nullity of the agreed interest rate affects the validity of the real estate mortgage. Notably, while petitioners were silent in their petition on the issues of prescription

and laches on which the RTC grounded the dismissal of the complaint, they belatedly raised the matters in their Memorandum. Nonetheless, these points warrant brief comment. On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not commit any grave abuse of discretion when it issued the orders dated 3 August 1999 and 6 January 2000, and that these orders could not have been the proper subjects of a petition for certiorari and mandamus. More accurately, the justiciable issues before us are whether the Court of Appeals could properly entertain the petition for certiorari from the timeliness aspect, and whether the appellate court correctly concluded that the writ of possession could no longer be stayed. We first resolve the petition in G.R. No. 150773. Petitioners contend that the agreed rate of interest of 6% per month or 72% per annum is so excessive, iniquitous, unconscionable and exorbitant that it should have been declared null and void. Instead of dismissing their complaint, they aver that the lower court should have declared them liable to respondents for the original amount of the loan plus 12% interest per annum and 1% monthly penalty charge as liquidated damages,[7] in view of the ruling in Medel v. Court of Appeals.[8] In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum was so iniquitous or unconscionable as to render the stipulation void. Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals (contra bonos mores), if not against the law. The stipulation is void. The Court shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.[9] In a long line of cases, this Court has invalidated similar stipulations on interest rates for being excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,[10] we annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In Imperial v. Jaucian,[11] we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of Appeals,[12] we equitably reduced the agreed 3% per month or 36% per annum interest to 1% per month or 12% per annum interest. The 10% and 8% interest rates per month on a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v. Salud.[13] Recently, this Court, in Arrofo v. Quino,[14] reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum. There is no need to unsettle the principle affirmed in Medel and like cases. From that perspective, it is apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest. In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in the above-cited cases, this stipulation is similarly invalid. However, the RTC refused to apply the principle cited and employed in Medel on the ground that Medel did not pertain to the annulment of a real estate mortgage,[15] as it was a case for annulment of the loan contract itself. The question thus sensibly arises whether the invalidity of the stipulation on interest carries with it the invalidity of the principal obligation. The question is crucial to the present petition even if the subject thereof is not the annulment of the loan contract but that of the mortgage contract. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life, and without which it cannot exist as an independent contract. Being a mere accessory contract, the validity of the mortgage contract would depend on the validity of the loan secured by it.[16] Notably in Medel, the Court did not invalidate the entire loan obligation despite the inequitability of the stipulated interest, but instead reduced the rate of interest to the more reasonable rate of 12% per annum. The same remedial approach to the wrongful interest rates involved was employed or affirmed by the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo. The Courts ultimate affirmation in the cases cited of the validity of the principal loan obligation side by side with the invalidation of the interest rates thereupon is congruent with the rule that a usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest. We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious loan is wholly null and void both as to the loan and as to the usurious interest.[17] However, this Court adopted the contrary rule, as comprehensively discussed in Briones v. Cammayo:[18] In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him, citing in support of this ruling its previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739. .... Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the standing jurisprudence of this Court on the question under consideration was clearly to the effect that the Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower the money actually loaned to and enjoyed by the latter. This

Court went further to say that the Usury Law did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and that while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of usury, the legal question involved should not be resolved on the basis of convenience. Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract is found to be tainted with usury "the only right of the respondent (creditor) . . . was merely to collect the amount of the loan, plus interest due thereon." The view has been expressed, however, that the ruling thus consistently adhered to should now be abandoned because Article 1957 of the new Civil Code a subsequent law provides that contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury, shall be void, and that in such cases "the borrower may recover in accordance with the laws on usury." From this the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no right to recover not even his capital. The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor in a usurious contract may or may not recover the principal of the loan, and, in the affirmative, whether or not he may also recover interest thereon at the legal rate, We said the following: . . . . Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may the creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?" Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . . Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover on the contract. So they continue the New Civil Code provisions must be upheld as against the Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code." We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to the interest. . . . [a]ppellants fail to consider that a contract of loan with usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon. And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force." The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced." In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal. .... The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint."[19] The Courts wholehearted affirmation of the rule that the principal obligation subsists despite the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all of which the main obligation was upheld and the offending interest rate merely

corrected. Hence, it is clear and settled that the principal loan obligation still stands and remains valid. By the same token, since the mortgage contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract. It should be noted that had the Court declared the loan and mortgage agreements void for being contrary to public policy, no prescriptive period could have run.[20] Such benefit is obviously not available to petitioners. Yet the RTC pronounced that the complaint was barred by the four-year prescriptive period provided in Article 1391 of the Civil Code, which governs voidable contracts. This conclusion was derived from the allegation in the complaint that the consent of petitioners was vitiated through undue influence. While the RTC correctly acknowledged the rule of prescription for voidable contracts, it erred in applying the rule in this case. We are hard put to conclude in this case that there was any undue influence in the first place. There is ultimately no showing that petitioners consent to the loan and mortgage agreements was vitiated by undue influence. The financial condition of petitioners may have motivated them to contract with respondents, but undue influence cannot be attributed to respondents simply because they had lent money. Article 1391, in relation to Article 1390 of the Civil Code, grants the aggrieved party the right to obtain the annulment of contract on account of factors which vitiate consent. Article 1337 defines the concept of undue influence, as follows: There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. While petitioners were allegedly financially distressed, it must be proven that there is deprivation of their free agency. In other words, for undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own.[21] The alleged lingering financial woes of petitioners per se cannot be equated with the presence of undue influence. The RTC had likewise concluded that petitioners were barred by laches from assailing the validity of the real estate mortgage. We wholeheartedly agree. If indeed petitioners unwillingly gave their consent to the agreement, they should have raised this issue as early as in the foreclosure proceedings. It was only when the writ of possession was issued did petitioners challenge the stipulations in the loan contract in their action for annulment of mortgage. Evidently, petitioners slept on their rights. The Court of Appeals succinctly made the following observations: In all these proceedings starting from the foreclosure, followed by the issuance of a provisional certificate of sale; then the definite certificate of sale; then the issuance of TCT No. 29338 in favor of the defendants and finally the petition for the issuance of the writ of possession in favor of the defendants, there is no showing that plaintiffs questioned the validity of these proceedings. It was only after the issuance of the writ of possession in favor of the defendants, that plaintiffs allegedly tendered to the defendants the amount of P260,000.00 which the defendants refused. In all these proceedings, why did plaintiffs sleep on their rights?[22] Clearly then, with the absence of undue influence, petitioners have no cause of action. Even assuming undue influence vitiated their consent to the loan contract, their action would already be barred by prescription when they filed it. Moreover, petitioners had clearly slept on their rights as they failed to timely assail the validity of the mortgage agreement. The denial of the petition in G.R. No. 150773 is warranted. We now resolve the petition in G.R. No. 153599. Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January 2000 could no longer be questioned in a special civil action for certiorari and mandamus as the reglementary period for such action had already elapsed. It must be noted that the Order dated 3 August 1999 suspending the enforcement of the writ of possession had a period of effectivity of only twenty (20) days from 3 August 1999, or until 23 August 1999. Thus, upon the expiration of the twenty (20)-day period, the said Order became functus officio. Thus, there is really no sense in assailing the validity of this Order, mooted as it was. For the same reason, the validity of the order need not have been assailed by respondents in their special civil action before the Court of Appeals. On the other hand, the Order dated 6 January 2000 is in the nature of a writ of injunction whose period of efficacy is indefinite. It may be properly assailed by way of the special civil action for certiorari, as it is interlocutory in nature. As a rule, the special civil action for certiorari under Rule 65 must be filed not later than sixty (60) days from notice of the judgment or order.[23] Petitioners argue that the 3 August 1999 Order could no longer be assailed by respondents in a special civil action for certiorari before the Court of Appeals, as the petition was filed beyond sixty (60) days following respondents receipt of the Order. Considering that the 3 August 1999 Order had become functus officio in the first place, this argument deserves scant consideration. Petitioners further claim that the 6 January 2000 Order could not have likewise been the subject of a special civil action for certiorari, as it is according to them a final order, as opposed to an interlocutory order. That the 6 January 2000 Order is interlocutory in nature should be beyond doubt. An order is interlocutory if its effects would only be provisional in character and would still leave substantial proceedings to be further had by the issuing court in order to put the controversy to rest.[24] The injunctive relief granted by the order is definitely final, but merely provisional, its effectivity hinging on the ultimate outcome of the then pending action for annulment of real estate mortgage. Indeed, an interlocutory order hardly puts to a close, or disposes of, a case or a disputed issue leaving nothing else to be done by the court in respect thereto, as is characteristic of a final order.

Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we cannot agree with petitioners who insist that it may be assailed only through an appeal perfected within fifteen (15) days from receipt thereof by respondents. It is axiomatic that an interlocutory order cannot be challenged by an appeal,

but is susceptible to review only through the special civil action of certiorari.[25] The sixty (60)-day reglementary period for special civil actions under Rule 65 applies, and respondents petition was filed with the Court of Appeals well within the period. Accordingly, no error can be attributed to the Court of Appeals in granting the petition for certiorari and mandamus. As pointed out by respondents, the remedy of mandamus lies to compel the performance of a ministerial duty. The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is merely a ministerial function.[26] Thus, we also affirm the Court of Appeals ruling to set aside the RTC orders enjoining the enforcement of the writ of possession.[27] The purchaser in a foreclosure sale is entitled as a matter of right to a writ of possession, regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure proceedings. An injunction to prohibit the issuance or enforcement of the writ is entirely out of place.[28] One final note. The issue on the validity of the stipulated interest rates, regrettably for petitioners, was not raised at the earliest possible opportunity. It should be pointed out though that since an excessive stipulated interest rate may be void for being contrary to public policy, an action to annul said interest rate does not prescribe. Such indeed is the remedy; it is not the action for annulment of the ancillary real estate mortgage. Despite the nullity of the stipulated interest rate, the principal loan obligation subsists, and along with it the mortgage that serves as collateral security for it. WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against petitioners. SO ORDERED.

G.R. No. L-52482 February 23, 1990 SENTINEL INSURANCE CO., INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, HON. FLORELIANA CASTRO-BARTOLOME, Presiding Judge, Court of First Instance of Rizal, Seventh Judicial District, Branch XV, THE PROVINCIAL SHERIFF OF RIZAL, and ROSE INDUSTRIES, INC., respondents. Jesus I. Santos Law Office for petitioner. Quasha, Asperilla, Ancheta, Valmonte, Pea & Marcos for private respondent.

REGALADO, J.: Before us is a petition seeking the amendment and modification of the dispositive portion of respondent court's decision in CA-G.R. No. SP-09331, 1 allegedly to make it conform with the findings, arguments and observations embodied in said decision which relief was denied by respondent court in its resolution, dated January 15, 1980, 2 rejecting petitioner's ex parte motion filed for that purpose. 3 While not involving the main issues in the case threshed out in the court a quo, the judgment in which had already become final and executory, the factual backdrop of the present petition is summarized by respondent court as follows: Petitioner Sentinel Insurance Co., Inc., was the surety in a contract of suretyship entered into on November 15, 1974 with Nemesio Azcueta, Sr., who is doing business under the name and style of 'Malayan Trading as reflected in SICO Bond No. G(16)00278 where both of them bound themselves, 'jointly and severally, to fully and religiously guarantee the compliance with the terms and stipulations of the credit line granted by private respondent Rose Industries, Inc., in favor of Nemesio Azcueta, Sr., in the amount of P180,00.00.' Between November 23 to December 23, 1974, Azcueta made various purchases of tires, batteries and tire tubes from the private respondent but failed to pay therefor, prompting the latter to demand payment but because Azcueta failed to settle his accounts, the case was referred to the Insurance Commissioner who invited the attention of the petitioner on the matter and the latter cancelled the Suretyship Agreement on May 13, 1975 with due notice to the private respondent. Meanwhile, private respondent filed with the respondent court of Makati a complaint for collection of sum of money against herein petitioner and Azcueta, docketed as Civil Case No. 21248 alleging the foregoing antecedents and praying that said defendants be ordered to pay jointly and severally unto the plaintiff. a) The amount of P198,602.41 as its principal obligation, including interest and damage dues as of April 29, 1975; b) To pay interest at 14% per annum and damage dues at the rate of 2% every 45 days commencing from April 30, 1975 up to the time the full amount is fully paid: xxx xxx xxx After petitioner filed its answer with counterclaim, the case, upon agreement of the parties, was submitted for summary judgment and on December 29, 1975, respondent court rendered its decision with the following dispositive portion: xxx xxx xxx a) To pay interest on the principal obligation at the rate of 14% per annum at the rate of 2% every 45 days commencing from April 30, 1975 until the amount is fully paid. The decision having become final and executory, the prevailing party moved for its execution which respondent judge granted and pursuant thereto, a notice of attachment and levy was served by respondent Provincial Sheriff upon the petitioner. On the same day, however, the latter filed a motion for 'clarification of the judgment as to its real and true import because on its face, it would appear that aside from the 14% interest imposed on the principal obligation, an additional 2% every 45 days corresponding to the additional penalty has been imposed against the petitioner which imposition would be usurious and could not have been the intention of respondent Judge.' But the move did nor prosper because oil May 22, 1971, the judge denied the motion on the theory that the judgment, having become final and executory, it can no longer be amended or corrected. 4 Contending that the order was issued with grave abuse of discretion, petitioner went to respondent court on a petition for certiorari and mandamus to compel the court below to clarify its decision, particularly Paragraph l(a) of the dispositive portion thereof.

Respondent court granted tile petition in its decision dated December 3, 1979, the disquisition and dispositive portion whereof read: While it is an elementary rule of procedure that after a decision, order or ruling has become final, the court loses its jurisdiction orderover the same and can no longer be subjected to any modification or alteration, it is likewise wellsettled that courts are empowered even after such finality, to correct clerical errors or mistakes in the decisions (Potenciano vs. CA, L-11569, 55 O.G. 2895). A clerical error is one that is visible to the eyes or obvious to the understanding (Black vs. Republic, 104 Phil. 849). That there was a mistake in the dispositive portion of the decision cannot be denied considering that in the complaint filed against the petitioner, the prayer as specifically stated in paragraph (b) was to 'order the latter, to pay interest at 14% per annum and damage dues at the rate of 2% every 45 days commencing from April 30, 1975 up to the time the amount is fully paid.' But this notwithstanding the respondent court in its questioned decision decreed the petitioner to pay the interest on the principal obligation at the rate of 14% per annum and 2% every 45 days commencing from April 30, 1975 until the amount is fully paid,' so that, as petitioner correctly observes, it would appear that on top of the 14% per annum on the principal obligation, another 2% interest every 45 days commencing from April 30, 1975 until the amount is fully paid has been imposed against him (petitioner). In other words, 365 days in one year divided by 45 days equals 8-1/9 which, multiplied by 2% as ordered by respondent-judge would amount to a little more than 16%. Adding 16% per annum to the 14% interest imposed on the principal obligation would be 30% which is veritably usurious and this cannot be countenanced, much less sanctioned by any court of justice. We agree with this observation and what is more, it is likewise a settled rule that although a court may grant any relief allowed by law, such prerogative is delimited by the cardinal principle that it cannot grant anything more than what is prayed for, for certainly, the relief to be dispensed cannot rise above its source. (Potenciano vs. CA, supra.) WHEREFORE, the writ of certiorari is hereby granted and the respondent judge is ordered to clarify its judgment complained of in the following manner: xxx xxx xxx a) to pay interest at 14% per annum on the principal obligation and damage dues at the rate of 2% every 45 days commencing from April 30, 1975 up to the time the full amount is fully paid; 5 xxx xxx xxx As earlier stated, petitioner filed an ex parte motion seeking to amend the above-quoted decretal portion which respondent court denied, hence the petition at bar. The amendment sought, ostensibly in order that the dispositive portion of said decision would conform with the body thereof, is the sole issue for resolution by the Court. Petitioner itself cites authorities in support of its contention that it is entitled to a correct and clear expression of a judgment to avoid substantial injustice. 6 In amplification of its plaint, petitioner further asseverates that respondent court should not have made an award for "damage dues" at such late stage of the proceeding since said dues were not the subject of the award made by the trial court. 7 We disagree with petitioner. To clarify an ambiguity or correct a clerical error in the judgment, the court may resort to the pleadings filed by the parties, the findings of fact and the conclusions of law expressed in the text or body of the decision. 8 Indeed, this was what respondent court did in resolving the original petition. It examined the complaint filed against the petitioner and noted that the prayer as stated in Paragraph (b) thereof was to "order defendant to pay interest at 14 per centum and damage dues at the rate of 2% every 45 days commencing from April 30, 1975 up to the time the full amount is fully paid." 9 Insofar as the findings and the dispositive portion set forth in respondent court's decision are concerned, there is really no inconsistency as wittingly or unwittingly asserted by petitioner. The findings made by respondent court did not actually nullify the judgment of the trial court. More specifically, the statement that the imposition of 2% interest every 45 days commencing from April 30, 1975 on top of the 14% per annum (as would be the impression from a superficial reading of the dispositive portion of the trial court's decision) would be usurious is a sound observation. It should, however, be stressed that such observation was on the theoretical assumption that the rate of 2% is being imposed as interest, not as damage dues which was the intendment of the trial court. Certainly, the damage dues in this case do not include and are not included in the computation of interest as the two are of different categories and are distinct claims which may be demanded separately, in the same manner that commissions, fines and penalties are excluded in the computation of interest where the loan or forbearance is not secured in whole or in part by real estate or an interest therein. 10

While interest forms part of the consideration of the contract itself, damage dues (penalties, and so forth) are usually made payable only in case of default or non-performance of the contract. 11 Also, although interest is subject to the provisions of the Usury Law, 12 there is no policy or provision in such law preventing the enforcement of damage dues although the effect may be to increase the sum payable beyond the prescribed ceiling rates. Petitioner's assertion that respondent court acted without authority in appending the award of damage dues to the judgment of the trial court should be rejected. As correctly pointed out by private respondent, the opening sentence of Paragraph l(a) of the dispositive portion of the lower court's decision explicitly ordered petitioner to pay private respondent the amount of P198,602.41 as principal obligation including interest and damage dues, which is a clear and unequivocal indication of the lower court's intent to award both interest and damage dues. 13 Significantly, it bears mention that on several occasions before petitioner moved for a clarificatory judgment, it offered to settle its account with private respondent without assailing the imposition of the aforementioned damage dues. 14 As ramified by private respondent: 2. ... the then counsel of record for the petitioner, Atty. Porfirio Bautista, and Atty. Teodulfo L. Reyes, petitioner's Assistant Vice- President for Operations, had a conference with the undersigned attorneys as to how petitioner will settle its account to avoid execution. During the conference, both parties arrived at almost the same computation and the amount due from petitioner, which includes 2% damage dues every 45 days from 30 April 1975 until the amount is fully paid, under the judgment. No question was ever raised as regards same. xxx xxx xxx 5. The very face of Annex 'D' shows that the '2%' damage dues being questioned by the present counsel of petitioner had been mentioned no less than TEN (10) TIMES and was clearly and distinctly defined by petitioner and included in the computation of its obligation to herein petitioner as '2% penalty for every 45 days.' xxx xxx xxx Petitioner's pretense that it was not the intent of the court to award the damage dues of 2% every 45 days commencing 30 April 1975 is belied by the fact (and this is admitted by petitioner) that upon agreement of the parties, the case before the lower court was submitted for summary judgment; in other words, the case was submitted upon the facts as appear in the pleadings with no other evidence presented and a fact that appears clearly in the pleadings is that the defendants in the case before the lower court were under contract to pay private respondent, among others, the damage dues of 2% every 45 days commencing on 30 April 1975 until the obligation is fully paid; .... 15 Respondent court demonstrably did not err in ordering the clarification of the decision of the trial court by amending the questioned part of its dispositive portion to include therein the phrase damage dues to modify the stated rate of 2%, and thereby obviate any misconception that it is being imposed as interest. ACCORDINGLY, certiorari is hereby DENIED and the decision of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED.

G.R. Nos. L-43697 and L-442200

March 31, 1938

In re Liquidation of the Mercantile Bank of China, GOPOCO GROCERY (GOPOCO), ET AL., claimants-appellants, vs. PACIFIC COAST BISCUIT CO., ET AL., oppositors-appellees. A.M. Zarate for appellants Gopoco Grocery et al. Laurel, Del Rosario and Sabido for appellant Tiong-Chui Gion. Ross, Lawrence and Selph for appellees Pacific Coast Biscuit Co. et al. Eusebio Orense and Carmelino G. Alvendia for appellees Chinese Grocers Asso. et al. Marcelo Nubla for appellees Ang Cheng Lian et al. DIAZ, J.: On petition of the Bank Commissioner who alleged to have found, after an investigation, that the Mercantile Bank of China could not continue operating as such without running the risk of suffering losses and prejudice its depositors and customers; and that with the requisite approval of the corresponding authorities, he had taken charge of all the assets thereof; the Court of First Instance of Manila declared the said bank in liquidation; approved all the acts theretofore executed by the commissioner; prohibited the officers and agents of the bank from interfering with said commissioner in the possession of the assets thereof, its documents, deed, vouchers, books of account, papers, memorandum, notes, bond, bonds and accounts, obligations or securities and its real and personal properties; required its creditors and all those who had any claim against it, to present the same in writing before the commissioner within ninety days; and ordered the publication, as was in fact done, of the order containing all these provisions, for the two consecutive weeks in two news-papers of general circulation in the City of Manila, at the expenses of the aforesaid bank. After these publications, and within the period of ninety days, the following creditors, among others, presented their presented their claims: Tiong Chui Gion, Gopoco Grocery, Tan Locko, Woo & Lo & Co., Sy Guan Huat and La Bella Tondea. I. The claim of Tiong Chui Gion is for the sum of P10,285.27. He alleged that he deposited said sum in the bank under liquidation on current account. II. The claim of Gopoco Grocery (Gopoco) is for the sum of P4,932.48 plus P460. It described its claim as follows: Balance due on open account subject to check Interest on c/a P4,927.9 5 4,53 4,932.48 Surety deposit 460.00

III. The claim of Tan Locko is for the sum of P7,624.20, and he describes it in turn as follows: Balance due on open account subject to check L-759 P7,610.4 4

Savings account No. 156 (foreign) with Mercantile Bank of China L-1611 Amoy $15,000,00 Interest on said Savings Account No. 156 8.22 Interest on checking a/c 10.54 7,624.20 IV. The claim of Woo & Lo & Co. is for the sum of P6,972.88 and is set out in its written claim appearing in the record on appeal as follows: Balance due on open subject to check L-845 Interest on checking a/c P6,961.0 1 11.37 6,972.83 V. The claim of Sy Guan Huat is for the sum of P6,232.88 and the described it as follows: Balance due on open account subject to check L-718 Interest on checking a/c P6,224.3 4 8.54

6,232.88 VI. The claim of La Bella Tondea is for the sum of P1,912.79, also described as follows: Balance due on open account subject to check Interest on account P1910.59 2.20 1,912.79 To better resolve not only these claims but also the many others which were presented against the bank, the lower court, on July 15, 1932, appointed Fulgencio Borromeo as commissioner and referee to receive the evidence which the interested parties may desire to present; and the commissioner and referee thus named, after qualifying for the office and receiving the evidence presented to him, resolved the aforesaid six claims by recommending that the same be considered as an ordinary credit only, and not as a preferred credit as the interested parties wanted, because they were at the same time debtors of the bank. The evidence adduced and the very admissions of the said interested parties in fact show that (a) the claimant Tiong Chui Gion, while he was a creditor of the Mercantile Bank of China in the sum of P10,285.27 which he deposited on current account, was also a debtor not only in the sum of P633.76 but also in the sum of P664.77, the amount of a draft which he accepted, plus interest thereon and the protest fees paid therefor; (b) the claimant Gopoco Grocery (Gopoco) had a current account in the bank in the sum of P5,392.48, but it is indebted to it, in Turn, in the sum of $2,334.80, the amount of certain drafts which it had accepted; (c) the claimant Tan Locko had a deposit of P7,624.20, but he owed $1,378.90, the amount of a draft which he also accepted; (d) the claimant Woo & Lo & Co. had a deposit of P6,972.88, but it was indebted in the sum of $3,464.84, the amount also of certain drafts accepted by it; (e) the claimants Sy Guan Huat and Sy Kia had a deposit of P6,232.88, but they owed the sum of $3,107.37, for two drafts accepted by them and already due; and (f) the claimant La Bella Tondea had, in turn, a deposit of P1,912.79, but it was, in turn, indebted in the sum of $565.40 including interest and other expenses, the amount of two drafts drawn upon and accepted by it. The lower court approved all the recommendations of The commissioner and referee as to claims of the six appellants as follows; (1) To approve the claim of Tiong Chui Gion (P10,285.27) but only as an ordinary credit, minus the amount of the draft for P664.77; (2) to approve the claim of Gopoco Grocery (Gopoco) but also as an ordinary credit only (P5,387.95 according to the referee), minus its obligation amounting to $2,334.80 or P4,669.60; (3) to approve the claim of Tan Locko but as an ordinary credit only (P7,610.44 according to the referee), deducting therefrom his obligation amounting to $1,378.90 or P2,757.80; to approve the claim of Woo & Lo & Co. but only as an ordinary credit (P6,961.01 according to the referee). after deducting its obligation to the bank, amounting to $3,464.84 or P6,929.68; (5) to approve the claim of Sy Guan Huat but only as an ordinary credit (P6,224.34 according to the referee), after deducting his obligation amounting to $3,107.37) or P6,214.74; and, finally, (6) to approve the claim of la Bella Tondea but also as an ordinary credit only (1,917.50 according to the referee), after deducting it obligation amounting to $565.40 or P1,130.80; but he expressly refused to authorize the payment of the interest by reason of impossibility upon the ground set out in the decision. Not agreeable to the decision of the lower court, each of the interested parties appealed therefrom and thereafter filed their respective briefs. Tiong Chui Gion argues in his brief filed in case in G. R. No. 442200, that the lower court erred: 1. In holding that his deposit of P10,285.27 in the Mercantile Bank of China, constitutes an ordinary credit only and not a preferred credit. 2. In holding as preferred credits the drafts and checks issued by the bank under liquidation in payment of the drafts remitted to it for collection from merchants residing in the country, by foreign entities or banks; and in not holding that the deposits on current account in said bank should enjoy preference over said drafts and checks; and 3. In holding that the amount of P633.76 (which should be understood as P664.77), which the claimant owes to the bank under liquidation, be deducted from his current account deposit therein, amounting to P10,285.27, upon the distribution of the assets of the bank among its various creditors, instead of holding that, after deducting the aforesaid sum of P633.76 (should be P664.77) from his aforesaid deposit, there be turned over to him the balance together with the dividends or shares then corresponding to him, on the basis of said amount. The other five claimants, that is, Gopoco Grocery Tan Locko, Woo & Lo & Co., Sy Guan Huat and La Bella Tondea, in turn argue in the brief they jointly filed in case G. R. No. 43697, that the lower court erred: 1. In not first deducting from their respective deposits in the bank under liquidation, whose payment they claim, their respective obligation thereto. 2. In not holding that their claims constitute a preferred credit. 3. In holding that the drafts and checks issued by the bank under liquidation in payment of the drafts remitted to it by foreign entitles and banks for collection from the certain merchant residing in the country, are preferred credits; and in not holding that the deposits made by each of them enjoy preference over said drafts and checks, and

4. In denying their motion for a new trial base on the proposition that the appealed decision is not in accordance with law and is contrary to the evidence adduced at the trial. The questions raised by the appellant in case G. R. No. 44200 and by appellants in case G.R. 43697 being identical in nature, we believe it practical and proper to resolve said questions jointly in one decision. Before proceeding, however, it is convenient to note that the commissioner and referee, classifying the various claims presented against the bank, placed under one group those partaking of the same nature, the classification having resulted in six groups. In the first group he included all the claims for current account, savings and fixed deposits. In the second group he included the claims for checks or drafts sold by the bank under liquidation and not paid by the agents or banks in whose favor they had been issued. In the third group he included the claims checks or drafts issued by the bank under liquidation in payment or reimbursement of the drafts or goods remitted to it for collection, from resident merchants and entitles, by foreign banks and entities. In the fourth group he included the claims for drafts or securities to be collected from resident merchants and entities to be collected from resident merchants and entities which were pending collection on the date payments were suspended. In the fifth group he included the claims of certain depositors or creditors of the bank who were at the same time debtors thereof; and he considered of this class the claims of the appellants in these two cases, and In the sixth group he included the other claims different in nature from the of the aforesaid five claims. I. Now, then, should the appellants' deposits on current account in the bank now under liquidation be considered preferred credits, and not otherwise, or should they be considered ordinary credits only? The appellants contend that they are preferred credits only? The appellants contend that they are preferred credits because they are deposits in contemplation of law, and as such should be returned with the corresponding interest thereon. In support thereof they cite Manresa (11 Manresa, Civil Code, page 663), and what has been insinuated in the case of Rogers vs. Smith, Bell & Co. (10 Phil., 319), citing the said commentator who maintains that, notwithstanding the provisions of articles 1767 and 1768 and others of the aforesaid Code, from which it is inferred that the so-called irregular deposits no longer exist, the fact is that said deposits still exist. And they contend and argue that what they had in the bank should be considered as of this character. But it happens that they themselves admit that the bank owes them interest which should have been paid to them before it was declared in a state of liquidation. This fact undoubtedly destroys the character which they nullifies their contention that the same be considered as irregular deposits, because the payment of interest only takes place in the case of loans. On the other hand, as we stated with respect to the claim of Tan Tiong Tick (In re Liquidation of Mercantile Bank of China, G.R. No. 43682), the provisions of the Code of Commerce, and not those of the Civil Code, are applicable to cases of the nature of those at bar, which have to do with parties who are both merchants. (Articles 303 and 309, Code of Commerce.) We there said, and it is not amiss to repeat now, that the so-called current account and savings deposits have lost their character of deposits, properly so-called and are convertible into simple commercial loans because, in cases of such deposits, the bank has made use thereof in the ordinary course of its transactions as an institution engaged in the banking business, not because it so wishes, but precisely because of the authority deemed to have been granted to it by the appellants to enable them to collect the interest which they had been and they are now collecting, and by virtue further of the authority granted to it by section 125 of the Corporation Law (Act No. 1459), as amended by Acts Nos. 2003 and 3610 and section 9 of the Banking Law (Act No. 3154), without considering of course the provisions of article 1768 of the Civil Code. Wherefore, it is held that the deposits on current account of the appellants in the bank under liquidation, with the right on their right on their part to collect interest, have not created and could not create a juridical relation between them except that of creditors and debtor, they being the creditors and the bank the debtor. What has so far been said resolves adversely the contention of the appellants, the question raised in the first and second assigned errors Tiong Chui Gion in case G. R. No. 44200, and the appellants' second and third assigned errors in case G. R. No. 43697. II. As to the third and first errors attributed to lower court by Tiong Chui Gion in his case, and by the other appellants in theirs, respectively, it should be stated that the question of set-off raised by them cannot be resolved a like question in the said case, G. R. No. 43682, entitled "In re Liquidation of Mercantile Bank of China. Tan Tiong Tick, claimant." It is proper that set-offs be made, inasmuch as the appellants and the bank being reciprocally debtors and creditors, the same is only just and according to law (art. 1195, Civil Code), particularly as none of the appellants falls within the exceptions mentioned in section 58 of the Insolvency Law (Act No. 1956), reading: SEC. 58. In all cases of mutual debts and mutual credits between the parties, the account between them shall be stated, and one debt set off against the other, and the balance only shall be allowed and paid. But no set-off or counterclaim shall be allowed of a claim in its nature not provable against the estate: Provided, That no set-off on counterclaim shall be allowed in favor of any debtor to the insolvent of a claim purchased by or transferred to such debtor within thirty days immediately preceding the filing, or after the filing of the petition by or against the insolvent. It has been said with much basis by Morse, in his work on Bank and Banking (6th ed., vol. 1, pages 776 and 784) that: The rules of law as to the right of set-off between the bank and its depositors are not different from those applicable to other parties. (Page 776.)

Where the bank itself stops payment and becomes insolvent, the customer may avail himself in set-off against his indebtedness to the bank of any indebtedness of the bank to himself, as, for example, the balance due him on his deposit account. (Page 784.) But if set-offs are proper in these cases, when and how should they be made, considering that the appellants ask for the payment of interest? Are they by any chance entitled to interest? If they are, when and until what time should they be paid the same? The question of whether they are entitled to interest should be resolved in the same way that we resolved the case of the claimant Tan Tiong Tick in the said case, G. R. No. 43682. The circumstances in these two cases are certainly the same as those in the said case with reference to the said question. The Mercantile Bank of China owes to each of the appellants the interest claimed by them, corresponding to the year ending December 4, 1931, the date it was declared in a state of liquidation, but not which the appellants claim should be earned by their deposits after said date and until the full amounts thereof are paid to them. And with respect to the question of set-off, this should be deemed made, of course, as of the date when the Mercantile Bank of China was declared in a state of liquidation, that is, on December 4, 1931, for then there was already a reciprocal concurrence of debts, with respect to said bank and the appellants. (Arts. 1195 and 1196 of the Civil Code; 8 Manresa, 4th ed., p. 361.) III. With respect to the fourth assigned error of the appellants in case G. R. No. 43697, we hold, in view of the considerations set out in resolving the other assignments of errors, that the lower court properly denied the motion for new trial of said appellants. In view of the foregoing, we modify the appealed judgments by holding that the deposits claimed by the appellants, and declared by the lower court to be ordinary credits are for the following amounts: P10,285.27 of Tiong Chui Gion; P5,387.95 of Gopoco Grocery (Gopoco); P7,610.44 of Tan Locko; P6961.01 of Woo & Lo & Co.; P6,224.34 of Sy Guan Huat; and P1,917.50 of La Bella Tondea, plus their corresponding interest up to December 4, 1931; that their obligations to the bank under liquidation which should be set off against said deposits, are respectively for the following amounts: P664.77 of Tiong Chui Gion; P4,669.60 of Gopoco Grocery (Gopoco); P2,757.80 of Tan Locko; P6,929.68 of Woo & Lo & Co.; P6,214.74 of Sy Huat; and P1,130.80 of La Bella Todea; and we order that the set-offs in question be made in the manner stated in this decision, that is, as of the date already indicated, December 4, 1931. In all other respects, we affirm the aforesaid judgments, without special pronouncement as to costs. So ordered.

G.R. No. L-20119

June 30, 1967

CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. THE HONORABLE JUDGE JESUS P. MORFE and FIRST MUTUAL SAVING AND LOAN ORGANIZATION, INC., respondents. Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner. Halili, Bolinao, Bolinao and Associates for respondents. CONCEPCION, C.J.: This is an original action for certiorari, prohibition and injunction, with preliminary injunction, against an order of the Court of First Instance of Manila, the dispositive part of which reads: WHEREFORE, upon the petitioner filing an injunction bond in the amount of P3,000.00, let a writ of preliminary preventive and/or mandatory injunction issue, restraining the respondents, their agents or representatives, from further searching the premises and properties and from taking custody of the various documents and papers of the petitioner corporation, whether in its main office or in any of its branches; and ordering the respondent Central Bank and/or its co-respondents to return to the petitioner within five (5) days from service on respondents of the writ of preventive and/or mandatory injunction, all the books, documents, and papers so far seized from the petitioner pursuant to the aforesaid search warrant.1wph1.t Upon the filing of the petition herein and of the requisite bond, we issued, on August 14, 1962, a writ of preliminary injunction restraining and prohibiting respondents herein from enforcing the order above quoted. The main respondent in this case, the First Mutual Savings and Loan Organization, Inc. hereinafter referred to as the Organization is a registered non-stock corporation, the main purpose of which, according to its Articles of Incorporation, dated February 14, 1961, is "to encourage . . . and implement savings and thrift among its members, and to extend financial assistance in the form of loans," to them. The Organization has three (3) classes of "members,"1 namely: (a) founder members who originally joined the organization and have signed the pre-incorporation papers with the exclusive right to vote and be voted for ; (b) participating members with "no right to vote or be voted for" to which category all other members belong; except (c) honorary members, so made by the board of trustees, "at the exclusive discretion" thereof due to "assistance, honor, prestige or help extended in the propagation" of the objectives of the Organization without any pecuniary expenses on the part of said honorary members. On February 14, 1962, the legal department of the Central Bank of the Philippines hereinafter referred to as the Bank rendered an opinion to the effect that the Organization and others of similar nature are banking institutions, falling within the purview of the Central Bank Act.2 Hence, on April 1 and 3, 1963, the Bank caused to be published in the newspapers the following: ANNOUNCEMENT To correct any wrong impression which recent newspaper reports on "savings and loan associations" may have created in the minds of the public and other interested parties, as well as to answer numerous inquiries from the public, the Central Bank of the Philippines wishes to announce that all "savings and loan associations" now in operation and other organizations using different corporate names, but engaged in operations similar in nature to said "associations" HAVE NEVER BEEN AUTHORIZED BY THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE PHILIPPINES. Such institutions violate Section. 2 of the General Banking Act, Republic Act No. 337, should they engage in the "lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities or obligations of any kind" without authority from the Monetary Board. Their activities and operations are not supervised by the Superintendent of Banks and persons dealing with such institutions do so at their risk. CENTRAL BANK OF THE PHILIPPINES Moreover, on April 23, 1962, the Governor of the Bank directed the coordination of "the investigation and gathering of evidence on the activities of the savings and loan associations which are operating contrary to law." Soon thereafter, or on May 18, 1962, a member of the intelligence division of the Bank filed with the Municipal Court of Manila a verified application for a search warrant against the Organization, alleging that "after close observation and personal investigation, the premises at No. 2745 Rizal Avenue, Manila" in which the offices of the Organization were housed "are being used unlawfully," because said Organization is illegally engaged in banking activities, "by receiving deposits of money for deposit, disbursement, safekeeping or otherwise or transacts the business of a savings and mortgage bank and/or building and loan association . . . without having first complied with the provisions of Republic Act No. 337" and that the articles, papers, or effects enumerated in a list attached to said application, as Annex A thereof.3 are kept in said premises, and "being used or intended to be used in the commission of a felony, to wit: violation of Sections 2 and 6 of Republic Act No. 337."4 Said articles, papers or effects are described in the aforementioned Annex A, as follows: I. BOOKS OF ORIGINAL ENTRY

(1) General Journal (2) Columnar Journal or Cash Book (a) Cash Receipts Journal or Cash Receipt Book (b) Cash Disbursements Journal or Cash Disbursement Book II. BOOKS OF FINAL ENTRY (1) General Ledger (2) Individual Deposits and Loans Ledgers (3) Other Subsidiary Ledgers III. OTHER ACCOUNTING RECORDS (1) Application for Membership (2) Signature Card (3) Deposit Slip (4) Passbook Slip (5) Withdrawal Slip (6) Tellers Daily Deposit Report (7) Application for Loan Credit Statement (8) Credit Report (9) Solicitor's Report (10) Promissory Note (11) I n d o r s e m e n t (12) Co-makers' Statements (13) Chattel Mortgage Contracts (14) Real Estate Mortgage Contracts (15) Trial Balance (16) Minutes Book Board of Directors IV. FINANCIAL STATEMENTS (1) Income and Expenses Statements (2) Balance Sheet or Statement of Assets and Liabilities V. OTHERS (1) Articles of Incorporation

(2) By-Laws (3) Prospectus, Brochures Etc. (4) And other documents and articles which are being used or intended to be used in unauthorized banking activities and operations contrary to law. Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as Judge of the said municipal court, issued the warrant above referred to,5 commanding the search of the aforesaid premises at No. 2745 Rizal Avenue, Manila, and the seizure of the foregoing articles, there being "good and sufficient reasons to believe" upon examination, under oath, of a detective of the Manila Police Department and said intelligence officer of the Bank that the Organization has under its control, in the address given, the aforementioned articles, which are the subject of the offense adverted to above or intended to be used as means for the commission of said off offense. Forthwith, or on the same date, the Organization commenced Civil Case No. 50409 of the Court of First Instance of Manila, an original action for "certiorari, prohibition, with writ of preliminary injunction and/or writ of preliminary mandatory injunction," against said municipal court, the Sheriff of Manila, the Manila Police Department, and the Bank, to annul the aforementioned search warrant, upon the ground that, in issuing the same, the municipal court had acted "with grave abuse of discretion, without jurisdiction and/or in excess of jurisdiction" because: (a) "said search warrant is a roving commission general in its terms . . .;" (b) "the use of the word 'and others' in the search warrant . . . permits the unreasonable search and seizure of documents which have no relation whatsoever to any specific criminal act . . .;" and (c) "no court in the Philippines has any jurisdiction to try a criminal case against a corporation . . ." The Organization, likewise, prayed that, pending hearing of the case on the merits, a writ of preliminary injunction be issued ex parte restraining the aforementioned search and seizure, or, in the alternative, if the acts complained of have been partially performed, that a writ of preliminary mandatory injunction be forthwith issued ex parte, ordering the preservation of the status quo of the parties, as well as the immediate return to the Organization of the documents and papers so far seized under, the search warrant in question. After due hearing, on the petition for said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over the branch of the Court of First Instance of Manila to which said Case No. 50409 had been assigned, issued, on July 2, 1962, the order complained of. Within the period stated in said order, the Bank moved for a reconsideration thereof, which was denied on August 7, 1962. Accordingly, the Bank commenced, in the Supreme Court, the present action, against Judge Morfe and the Organization, alleging that respondent Judge had acted with grave abuse of discretion and in excess of his jurisdiction in issuing the order in question. At the outset, it should be noted that the action taken by the Bank, in causing the aforementioned search to be made and the articles above listed to be seized, was predicated upon the theory that the Organization was illegally engaged in banking by receiving money for deposit, disbursement, safekeeping or otherwise, or transacting the business of a savings and mortgage bank and/or building and loan association, without first complying with the provisions of R.A. No. 337, and that the order complained of assumes that the Organization had violated sections 2 and 6 of said Act.6 Yet respondent Judge found the searches and, seizures in question to be unreasonable, through the following process of reasoning: the deposition given in support of the application for a search warrant states that the deponent personally knows that the premises of the Organization, at No. 2745 Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes. Respondent judge deduce, from this premise, that the deponent " knows specific banking transactions of the petitioner with specific persons," and, then concluded that said deponent ". . . could have, if he really knew of actual violation of the law, applied for a warrant to search and seize only books" or records: covering the specific purportedly illegal banking transactions of the petitioner with specific persons who are the supposed victims of said illegal banking transactions according to his knowledge. To authorize and seize all the records listed in Annex A to said application for search warrant, without reference to specific alleged victims of the purported illegal banking transactions, would be to harass the petitioner, and its officers with a roving commission or fishing expedition for evidence which could be discovered by normal intelligence operations or inspections (not seizure) of books and records pursuant to Section 4 of Republic Act No 337 . . ." The concern thus shown by respondent judge for the civil liberty involved is, certainly, in line with the function of courts, as ramparts of justice and liberty and deserves the greatest encouragement and warmest commendation. It lives up to the highest traditions of the Philippine Bench, which underlies the people's faith in and adherence to the Rule of Law and the democratic principle in this part of the World. At the same time, it cannot be gainsaid the Constitutional injunction against unreasonable searches and seizures seeks to forestall, not purely abstract or imaginary evils, but specific and concrete ones. Indeed, unreasonableness is, in the very nature of things, a condition dependent upon the circumstances surrounding each case, in much the same way as the question whether or not "probable cause" exists is one which must be decided in the light of the conditions obtaining in given situations. Referring particularly to the one at bar, it is not clear from the order complained of whether respondent Judge opined that the above mentioned statement of the deponent to the effect that the Organization was engaged in the transactions mentioned in his deposition deserved of credence or not. Obviously, however, a mere disagreement with Judge Cancino, who issued the warrant, on the credibility of said statement, would not justify the conclusion that said municipal Judge had committed a grave abuse of discretion, amounting to lack of jurisdiction or excess of jurisdiction. Upon the other hand, the failure of the witness to mention particular individuals does not necessarily prove that he had no personal knowledge of specific illegal transactions of the Organization, for the witness might be acquainted with specific transactions, even if the names of the individuals concerned were unknown to him.

Again, the aforementioned order would seem to assume that an illegal banking transaction, of the kind contemplated in the contested action of the officers of the Bank, must always connote the existence of a "victim." If this term is used to denote a party whose interests have been actually injured, then the assumption is not necessarily justified. The law requiring compliance with certain requirements before anybody can engage in banking obviously seeks to protect the public against actual, as well as potential, injury. Similarly, we are not aware of any rule limiting the use of warrants to papers or effects which cannot be secured otherwise. The line of reasoning of respondent Judge might, perhaps, be justified if the acts imputed to the Organization consisted of isolated transactions, distinct and different from the type of business in which it is generally engaged. In such case, it may be necessary to specify or identify the parties involved in said isolated transactions, so that the search and seizure be limited to the records pertinent thereto. Such, however, is not the situation confronting us. The records suggest clearly that the transactions objected to by the Bank constitute the general pattern of the business of the Organization. Indeed, the main purpose thereof, according to its By-laws, is "to extend financial assistance, in the form of loans, to its members," with funds deposited by them. It is true, that such funds are referred to in the Articles of Incorporation and the By-laws as their "savings." and that the depositors thereof are designated as "members," but, even a cursory examination of said documents will readily show that anybody can be a depositor and thus be a "participating member." In other words, the Organization is, in effect, open to the "public" for deposit accounts, and the funds so raised may be lent by the Organization. Moreover, the power to so dispose of said funds is placed under the exclusive authority of the "founder members," and "participating members" are expressly denied the right to vote or be voted for, their "privileges and benefits," if any, being limited to those which the board of trustees may, in its discretion, determine from time to time. As a consequence, the "membership" of the "participating members" is purely nominal in nature. This situation is fraught, precisely, with the very dangers or evils which Republic Act No. 337 seeks to forestall, by exacting compliance with the requirements of said Act, before the transactions in question could be undertaken. It is interesting to note, also, that the Organization does not seriously contest the main facts, upon which the action of the Bank is based. The principal issue raised by the Organization is predicated upon the theory that the aforementioned transactions of the Organization do not amount to " banking," as the term is used in Republic Act No. 337. We are satisfied, however, in the light of the circumstance obtaining in this case, that the Municipal Judge did not commit a grave abuse of discretion in finding that there was probable cause that the Organization had violated Sections 2 and 6 of the aforesaid law and in issuing the warrant in question, and that, accordingly, and in line with Alverez vs. Court of First Instance (64 Phil. 33), the search and seizure complained of have not been proven to be unreasonable. Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of preliminary mandatory injunction issued in compliance therewith are hereby annulled, and the writ of preliminary injunction issued by this Court on August 14, 1962, accordingly, made permanent, with costs against respondent First Mutual Savings and Loan Organization, Inc. It is so ordered.

G.R. No. L-30511 February 14, 1980 MANUEL M. SERRANO, petitioner, vs. CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents. Rene Diokno for petitioner. F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines. Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila. Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.: Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the general public. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352. 2 A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court. Undisputed pertinent facts are: On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila. 4 On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5 Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6 Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of Manila continued up to 1968. 7 Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks as such action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8 Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that

time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central Bank.
9

Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired through the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10 In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of said motion to intervene are substantially the same as those of the present petition. 11 This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit: WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement, and to desist from taking action in violation therefor. Costs against respondent Central Bank of the Philippines. 12 Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors. 13 By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank, had been accomplished a long time ago. Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of depositors' money. Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. 14 Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner. SO ORDERED. Antonio, Abad Santos, JJ., concur. Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino. Separate Opinions

AQUINO, J., concurring: The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust properties for the benefit of the petitioner and other depositors. The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is not the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of action for prohibition, a remedy usually available against any tribunal, board, corporation or person exercising judicial or ministerial functions. Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in the liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).

Separate Opinions AQUINO, J., concurring: The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust properties for the benefit of the petitioner and other depositors. The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is not the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of action for prohibition, a remedy usually available against any tribunal, board, corporation or person exercising judicial or ministerial functions. Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in the liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).

G.R. No. L-60033 April 4, 1984 TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners, vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents. MAKASIAR, Actg. C.J.:+.wph!1 This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining order and/or writ of preliminary injunction filed by petitioners on March 26, 1982. On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary restraining order was duly issued ordering the respondents, their officers, agents, representatives and/or person or persons acting upon their (respondents') orders or in their place or stead to refrain from proceeding with the preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed a motion to lift restraining order which was denied in the resolution of this Court dated May 18, 1983. As can be gleaned from the above, the instant petition seeks to prohibit public respondents from proceeding with the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and related regulations regarding foreign exchange transactions principally, on the ground of lack of jurisdiction in that the allegations of the charged, as well as the testimony of private respondent's principal witness and the evidence through said witness, showed that petitioners' obligation is civil in nature. For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its Comment dated June 28,1982, as follows:t.hqw On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of the City Fiscal of Manila, which case was assigned to respondent Lota for preliminary investigation (Petition, p. 8). In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and the following directors of the Nation Savings and Loan Association, Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of Central Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions, allegedly committed as follows (Petition, Annex "A"):t.hqw "From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association, (hereinafter called NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits (jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of payment and US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that David was induced into making the aforestated investments by Robert Marshall an Australian national who was allegedly a close associate of petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive Vice-President of NSLA and petitioner Santos, then NSLA General Manager; that on March 21, 1981 N LA was placed under receivership by the Central Bank, so that David filed claims therewith for his investments and those of his sister; that on July 22, 1981 David received a report from the Central Bank that only P305,821.92 of those investments were entered in the records of NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated the balance of the investments, at the same time violating Central Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions; that after demands, petitioner Guingona Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 and US$75,000.00." Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which they stated the following.t.hqw "That Martin became President of NSLA in March 1978 (after the resignation of Guingona, Jr.) and served as such until October 30, 1980, while Santos was General Manager up to November 1980; that because NSLA was urgently in need of funds and at David's insistence, his investments were treated as special- accounts with interest above the legal rate, an recorded in separate confidential documents only a portion of which were to be reported because he did not want the Australian government to tax his total earnings (nor) to know his total investments; that all transactions with David were recorded except the sum of US$15,000.00 which was a personal loan of Santos; that David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar account because NSLA did not have one, that a draft of US$30,000.00 was placed in the name of one Paz Roces because of a pending transaction with her; that the Philippine Deposit Insurance Corporation had already reimbursed David within the legal limits; that majority of the stockholders of NSLA had filed Special

Proceedings No. 82-1695 in the Court of First Instance to contest its (NSLA's) closure; that after NSLA was placed under receivership, Martin executed a promissory note in David's favor and caused the transfer to him of a nine and on behalf (9 1/2) carat diamond ring with a net value of P510,000.00; and, that the liabilities of NSLA to David were civil in nature." Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the following:t.hqw "That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr.) had resigned as NSLA president in March 1978, or prior to those transactions; that he assumed a portion o; the liabilities of NSLA to David because of the latter's insistence that he placed his investments with NSLA because of his faith in Guingona, Jr.; that in a Promissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona, Jr.) bound himself to pay David the sums of P668.307.01 and US$37,500.00 in stated installments; that he (Guingona, Jr.) secured payment of those amounts with second mortgages over two (2) parcels of land under a deed of Second Real Estate Mortgage (Petition, Annex "E") in which it was provided that the mortgage over one (1) parcel shall be cancelled upon payment of one-half of the obligation to David; that he (Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00 which David refused to accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of First Instance of Rizal at Quezon City, to effect the release of the mortgage over one (1) of the two parcels of land conveyed to David under second mortgages." At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss the charges against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation which was itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8). But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil obligations on the part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and (b) David's principal witness allegedly testified that the duplicate originals of the aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's claim that some of his investments were not record (Petition, pp. 8-9). Petitioners alleged that they did not exhaust available administrative remedies because to do so would be futile (Petition, p. 9) [pp. 153-157, rec.]. As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public respondents acted without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. 364 and related regulations regarding foreign exchange transactions) subject matter of I.S. No. 81-31938. There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public respondents have no jurisdiction over the charge of estafa. A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of Manila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savings and Loan Association, will show that from March 20, 1979 to March, 1981, private respondent David, together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association the sum of P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent David, together with his sister, made investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.). Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21, 1981, petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of the bank to private respondent David by executing on June 17, 1981 a joint promissory note in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This promissory note was based on the statement of account as of June 30, 1981 prepared by the private respondent (p. 81, rec.). The amount of indebtedness assumed appears to be bigger than the original claim because of the added interest and the inclusion of other deposits of private respondent's sister in the amount of P116,613.20. Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, and petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he personally acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were executed as a result of deposits made by Clement David and Denise Kuhne with the Nation Savings and Loan Association. Furthermore, the various pleadings and documents filed by private respondent David, before this Court indisputably show that he has indeed invested his money on time and savings deposits with the Nation Savings and Loan Association. It must be pointed out that when private respondent David invested his money on nine. and savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:t.hqw

Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan. In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:t.hqw It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are hat true deposits. are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil Code; In re Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)." This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980]) that:t.hqw Bank deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests will respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to return the subject matter of the deposit (Emphasis supplied). Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction. WE have already laid down the rule that:t.hqw In order that a person can be convicted under the above-quoted provision, it must be proven that he has the obligation to deliver or return the some money, goods or personal property that he received Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly as stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans. The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.t.hqw "Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time- and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall he paid in which case the contract is simply called a loan or mutuum. "Commodatum is essentially gratuitous. "Simple loan may be gratuitous or with a stipulation to pay interest. "In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership passes to the borrower. "Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum the borrower acquires ownership of the money, goods or personal property borrowed Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied). But even granting that the failure of the bank to pay the time and savings deposits of private respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to private respondent David, thereby resulting in the novation of the original contractual obligation arising from

deposit into a contract of loan and converting the original trust relation between the bank and private respondent David into an ordinary debtor-creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust but would merely be a failure to pay the obligation as a debtor. Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court. Thus, in Gonzales vs. Serrano ( 25 SCRA 64, 69 [1968]) We held that:t.hqw As pointed out in People vs. Nery, novation prior to the filing of the criminal information as in the case at bar may convert the relation between the parties into an ordinary creditor-debtor relation, and place the complainant in estoppel to insist on the original transaction or "cast doubt on the true nature" thereof. Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ), this Court reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring that:t.hqw The novation theory may perhaps apply prior to the filling of the criminal information in court by the state prosecutors because up to that time the original trust relation may be converted by the parties into an ordinary creditor-debtor situation, thereby placing the complainant in estoppel to insist on the original trust. But after the justice authorities have taken cognizance of the crime and instituted action in court, the offended party may no longer divest the prosecution of its power to exact the criminal liability, as distinguished from the civil. The crime being an offense against the state, only the latter can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620). It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal habihty or to cast doubt on the true nature of the original basic transaction, whether or not it was such that its breach would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481). In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal. Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation. Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and other related regulations regarding foreign exchange transactions by accepting foreign currency deposit in the amount of US$75,000.00 without authority from the Central Bank. They contend however, that the US dollars intended by respondent David for deposit were all converted into Philippine currency before acceptance and deposit into Nation Savings and Loan Association. Petitioners' contention is worthy of behelf for the following reasons: 1. It appears from the records that when respondent David was about to make a deposit of bank draft issued in his name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the same had to be cleared first and converted into Philippine currency. Accordingly, the bank draft was endorsed by respondent David to petitioner Guingona, who in turn deposited it to his dollar account with the Security Bank and Trust Company. Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association in order to clear the bank draft through his dollar account because the bank did not have a dollar account. Immediately after the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan Association to withdraw the same in order to be utilized by the bank for its operations. 2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were accepted and deposited in Nation Savings and Loan Association, because the bank is presumed to have followed the ordinary course of the business which is to accept deposits in Philippine currency only, and that the transaction was regular and fair, in the absence of a clear and convincing evidence to the contrary (see paragraphs p and q, Sec. 5, Rule 131, Rules of Court). 3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it was raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27, 1982 reply to public respondents' comment and reiterated in petitioners' memorandum filed on October 30, 1982, thereby adding more support to the conclusion that the US$75,000.00 were really converted into Philippine currency before they were accepted and deposited into Nation Savings and Loan Association. Considering that this might adversely affect his case, respondent David should have promptly denied petitioners' allegation. In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without jurisdiction when they investigated the charges against the petitioners. Consequently, public respondents should be restrained from further proceeding with the criminal case

for to allow the case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work great injustice to petitioners and would render meaningless the proper administration of justice. While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction, this court has recognized the resort to the extraordinary writs of prohibition and injunction in extreme cases, thus:t.hqw On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No. 3140, the general rule is that "ordinarily, criminal prosecution may not be blocked by court prohibition or injunction." Exceptions, however, are allowed in the following instances:t.hqw "1. for the orderly administration of justice; "2. to prevent the use of the strong arm of the law in an oppressive and vindictive manner; "3. to avoid multiplicity of actions; "4. to afford adequate protection to constitutional rights; "5. in proper cases, because the statute relied upon is unconstitutional or was held invalid" ( Primicias vs. Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557 [1968]; and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]). Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:t.hqw The writs of certiorari and prohibition, as extraordinary legal remedies, are in the ultimate analysis, intended to annul void proceedings; to prevent the unlawful and oppressive exercise of legal authority and to provide for a fair and orderly administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took cognizance of a petition for certiorari and prohibition although the accused in the case could have appealed in due time from the order complained of, our action in the premises being based on the public welfare policy the advancement of public policy. In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted a petition to restrain the prosecution of certain chiropractors although, if convicted, they could have appealed. We gave due course to their petition for the orderly administration of justice and to avoid possible oppression by the strong arm of the law. And in Arevalo vs. Nepomuceno, 63 Phil. 627, the petition for certiorari challenging the trial court's action admitting an amended information was sustained despite the availability of appeal at the proper time. WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS AGAINST THE PRIVATE RESPONDENT. SO ORDERED.1wph1.t

THIRD DIVISION [G.R. No. 173654-765, August 28, 2008] PEOPLE OF THE PHILIPPINES, PETITIONERS, VS. TERESITA PUIG AND ROMEO PORRAS, RESPONDENT. DECISION CHICO-NAZARIO, J.: This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioner's Motion for Reconsideration, in Criminal Cases No. 05-3054 to 05-3165. The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutor's Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165. The allegations in the Informations[1] filed before the RTC were uniform and pro-forma, except for the amounts, date and time of commission, to wit: INFORMATION That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank and with intent of gain, did then and there willfully, unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and prejudice of the said bank in the aforesaid amount. After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would have necessitated the issuance of a warrant of arrest based on the following grounds: (1) the element of `taking without the consent of the owners' was missing on the ground that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by respondents and hence, are the real parties-in-interest; and (2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the respondents and the offended party that would have created a high degree of confidence between them which the respondents could have abused." It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of arrest against Puig and Porras. A Motion for Reconsideration[2] was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order[3] denying petitioner's Motion for Reconsideration was issued by the RTC, finding as follows: Accordingly, the prosecution's Motion for Reconsideration should be, as it hereby, DENIED. The Order dated January 30, 2006 STANDS in all respects. Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of: WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE. Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June 2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165. Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto, Article 1953 of the same Code provides that "a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits that the depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of the money deposited by its clients, making the money taken by respondents as belonging to the bank. Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that a perusal of the Informations will show that they specifically allege that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave abuse of confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank. Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance of a warrant of arrest presupposes

evaluation

of

facts

and

circumstances,

which

is

not

proper

under

said

Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party to file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ. We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore, because of this defect, there is no basis for the existence of probable cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent to gain and without the consent of the owner, which is the Bank. In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the Information inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of grave abuse of confidence and the element of taking without the consent of the owner, since the owner of the money is not the Bank, but the depositors therein. He also cites People v. Koc Song,[4] in which this Court held: There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which the respondents abused. At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of discussion. Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz: ART. 310. Qualified Theft. - The crime of theft shall be punished by the penalties next higher by two degrees than those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.) Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another's property without violence or intimidation against persons or force upon things. The elements of the crime under this Article are: 1. 2. 3. 4. Intent to gain; Unlawful taking; Personal property belonging to another; Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur: 1. 2. 3. 4. 5. 6. Taking of personal property; That the said property belongs to another; That the said taking be done with intent to gain; That it be done without the owner's consent; That it be accomplished without the use of violence or intimidation against persons, nor of force upon things; That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information must state the acts or omissions complained of as constitutive of the offense. On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening: Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying and aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language used in the statute but in terms sufficient to enable a person of common understanding to know what offense is being charged as well as its qualifying and aggravating circumstances and for the court to pronounce judgment. It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions complained of as constituting the offense. The test is whether it enables a person of common understanding to know the charge against him, and the court to render judgment properly.[5] The portion of the Information relevant to this discussion reads: [A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows: Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning loan. In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of the money deposits therein, and the duties being performed by its employees who have custody of the money or have come into possession of it. The Court has consistently considered the allegations in the Information that such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we cite Roque v. People,[6] where the accused teller was convicted for Qualified Theft based on this Information: That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG ROQUE, being then employed as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such was authorized and reposed with the responsibility to receive and collect capital contributions from its member/contributors of said corporation, and having collected and received in her capacity as teller of the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with grave abuse of confidence and without the knowledge and consent of said corporation, did then and there willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine currency, by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine currency. In convicting the therein appellant, the Court held that: [S]ince the teller occupies a position of confidence, and the bank places money in the teller's possession due to the confidence reposed on the teller, the felony of qualified theft would be committed.[7] Also in People v. Sison,[8] the Branch Operations Officer was convicted of the crime of Qualified Theft based on the Information as herein cited: That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously, with intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the following, to wit: Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine Currency. That in the commission of the said offense, herein accused acted with grave abuse of confidence and unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free access to the place where the said amount of money was kept. The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the crime had he not been holding the position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault xxx. The management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the damage and prejudice of PCIB x x x.[9] From another end, People v. Locson,[10] in addition to People v. Sison, described the nature of possession by the Bank. The money in this case was in the possession of the defendant as receiving teller of the bank, and the possession of the defendant was the possession of the Bank. The Court held therein that when the defendant, with grave abuse of confidence, removed the money and appropriated it to his own use without the consent of the Bank, there was taking as contemplated in the crime of Qualified Theft. [11] Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a relation by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which respondents abused,"[12] and without employing the word "owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations. As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft. In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the crime of Qualified Theft. On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa[13] is instructive. The Court thus enunciated:

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

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