Affidavits of members of the Military Security Unit, Military Security Command, Philippine Army, stationed at Camp
EN BANC Eldridge, Los Baos, Laguna, disclosed that Elizabeth Dimaano is the mistress of respondent. That respondent
[G.R. No. 104768. July 21, 2003]
Republic of the Philippines, petitioner, vs. Sandiganbayan, Major General Josephus Q. Ramas and Elizabeth
Dimaano, respondents.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari seeking to set aside the Resolutions of the
Sandiganbayan (First Division)[1] dated 18 November 1991 and 25 March 1992 in Civil Case No. 0037. The first
Resolution dismissed petitioners Amended Complaint and ordered the return of the confiscated items to respondent
Elizabeth Dimaano, while the second Resolution denied petitioners Motion for Reconsideration. Petitioner prays for
the grant of the reliefs sought in its Amended Complaint, or in the alternative, for the remand of this case to the
Sandiganbayan (First Division) for further proceedings allowing petitioner to complete the presentation of its
evidence.
Antecedent Facts
Immediately upon her assumption to office following the successful EDSA Revolution, then President Corazon
C. Aquino issued Executive Order No. 1 (EO No. 1) creating the Presidential Commission on Good Government
(PCGG). EO No. 1 primarily tasked the PCGG to recover all ill-gotten wealth of former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates. EO No. 1 vested the PCGG with the
power (a) to conduct investigation as may be necessary in order to accomplish and carry out the purposes of this
order and the power (h) to promulgate such rules and regulations as may be necessary to carry out the purpose of
this order. Accordingly, the PCGG, through its then Chairman Jovito R. Salonga, created an AFP Anti-Graft Board
(AFP Board) tasked to investigate reports of unexplained wealth and corrupt practices by AFP personnel, whether in
the active service or retired.[2]
Based on its mandate, the AFP Board investigated various reports of alleged unexplained wealth of
respondent Major General Josephus Q. Ramas (Ramas). On 27 July 1987, the AFP Board issued a Resolution on its
findings and recommendation on the reported unexplained wealth of Ramas. The relevant part of the Resolution
reads:
III. FINDINGS and EVALUATION:
Evidence in the record showed that respondent is the owner of a house and lot located at 15-Yakan St., La Vista,
Quezon City. He is also the owner of a house and lot located in Cebu City. The lot has an area of 3,327 square
meters.
The value of the property located in Quezon City may be estimated modestly at P700,000.00.
The equipment/items and communication facilities which were found in the premises of Elizabeth Dimaano and were
confiscated by elements of the PC Command of Batangas were all covered by invoice receipt in the name of CAPT.
EFREN SALIDO, RSO Command Coy, MSC, PA. These items could not have been in the possession of Elizabeth
Dimaano if not given for her use by respondent Commanding General of the Philippine Army.
Aside from the military equipment/items and communications equipment, the raiding team was also able to
confiscate money in the amount of P2,870,000.00 and $50,000 US Dollars in the house of Elizabeth Dimaano on 3
March 1986.
usually goes and stays and sleeps in the alleged house of Elizabeth Dimaano in Barangay Tengga, Itaas, Batangas
City and when he arrives, Elizabeth Dimaano embraces and kisses respondent. That on February 25, 1986, a
person who rode in a car went to the residence of Elizabeth Dimaano with four (4) attache cases filled with money
and owned by MGen Ramas.
Sworn statement in the record disclosed also that Elizabeth Dimaano had no visible means of income and is
supported by respondent for she was formerly a mere secretary.
Taking in toto the evidence, Elizabeth Dimaano could not have used the military equipment/items seized in her
house on March 3, 1986 without the consent of respondent, he being the Commanding General of the Philippine
Army. It is also impossible for Elizabeth Dimaano to claim that she owns the P2,870,000.00 and $50,000 US Dollars
for she had no visible source of income.
This money was never declared in the Statement of Assets and Liabilities of respondent. There was an intention to
cover the existence of these money because these are all ill-gotten and unexplained wealth.Were it not for the
affidavits of the members of the Military Security Unit assigned at Camp Eldridge, Los Baos, Laguna, the existence
and ownership of these money would have never been known.
The Statement of Assets and Liabilities of respondent were also submitted for scrutiny and analysis by the Boards
consultant. Although the amount of P2,870,000.00 and $50,000 US Dollars were not included, still it was disclosed
that respondent has an unexplained wealth of P104,134. 60.
IV. CONCLUSION:
In view of the foregoing, the Board finds that a prima facie case exists against respondent for ill-gotten and
unexplained wealth in the amount of P2,974,134.00 and $50,000 US Dollars.
V. RECOMMENDATION:
Wherefore it is recommended that Maj. Gen. Josephus Q. Ramas (ret.) be prosecuted and tried for violation of RA
3019, as amended, otherwise known as Anti-Graft and Corrupt Practices Act and RA 1379, as amended, otherwise
known as The Act for the Forfeiture of Unlawfully Acquired Property.[3]
Thus, on 1 August 1987, the PCGG filed a petition for forfeiture under Republic Act No. 1379 (RA No.
1379) [4] against Ramas.
Before Ramas could answer the petition, then Solicitor General Francisco I. Chavez filed an Amended
Complaint naming the Republic of the Philippines (petitioner), represented by the PCGG, as plaintiff and Ramas as
defendant. The Amended Complaint also impleaded Elizabeth Dimaano (Dimaano) as co-defendant.
The Amended Complaint alleged that Ramas was the Commanding General of the Philippine Army until 1986.
On the other hand, Dimaano was a confidential agent of the Military Security Unit, Philippine Army, assigned as a
clerk-typist at the office of Ramas from 1 January 1978 to February 1979. The Amended Complaint further alleged
that Ramas acquired funds, assets and properties manifestly out of proportion to his salary as an army officer and his
other income from legitimately acquired property by taking undue advantage of his public office and/or using his
power, authority and influence as such officer of the Armed Forces of the Philippines and as a subordinate and close
associate of the deposed President Ferdinand Marcos.[5]
The Amended Complaint also alleged that the AFP Board, after a previous inquiry, found reasonable ground to
believe that respondents have violated RA No. 1379.[6] The Amended Complaint prayed for, among others, the
forfeiture of respondents properties, funds and equipment in favor of the State.
 Ramas filed an Answer with Special and/or Affirmative Defenses and Compulsory Counterclaim to the SO ORDERED.
Amended Complaint. In his Answer, Ramas contended that his property consisted only of a residential house at La
Vista Subdivision, Quezon City, valued at P700,000, which was not out of proportion to his salary and other
On 4 December 1991, petitioner filed its Motion for Reconsideration.
legitimate income. He denied ownership of any mansion in Cebu City and the cash, communications equipment and
other items confiscated from the house of Dimaano. In answer to the Motion for Reconsideration, private respondents filed a Joint Comment/Opposition to which
petitioner filed its Reply on 10 January 1992.
Dimaano filed her own Answer to the Amended Complaint. Admitting her employment as a clerk-typist in the
office of Ramas from January-November 1978 only, Dimaano claimed ownership of the monies, communications On 25 March 1992, the Sandiganbayan rendered a Resolution denying the Motion for Reconsideration.
equipment, jewelry and land titles taken from her house by the Philippine Constabulary raiding team.

After termination of the pre-trial,[7] the court set the case for trial on the merits on 9-11 November 1988.

On 9 November 1988, petitioner asked for a deferment of the hearing due to its lack of preparation for trial and Ruling of the Sandiganbayan
the absence of witnesses and vital documents to support its case. The court reset the hearing to 17 and 18 April
1989.
The Sandiganbayan dismissed the Amended Complaint on the following grounds:
On 13 April 1989, petitioner filed a motion for leave to amend the complaint in order to charge the delinquent
properties with being subject to forfeiture as having been unlawfully acquired by defendant Dimaano alone x x x.[8]
(1.) The actions taken by the PCGG are not in accordance with the rulings of the Supreme Court in Cruz, Jr. v.
Nevertheless, in an order dated 17 April 1989, the Sandiganbayan proceeded with petitioners presentation of Sandiganbayan[10] and Republic v. Migrino[11] which involve the same issues.
evidence on the ground that the motion for leave to amend complaint did not state when petitioner would file the
amended complaint. The Sandiganbayan further stated that the subject matter of the amended complaint was on its
face vague and not related to the existing complaint. The Sandiganbayan also held that due to the time that the case (2.) No previous inquiry similar to preliminary investigations in criminal cases was conducted against Ramas
had been pending in court, petitioner should proceed to present its evidence. and Dimaano.

After presenting only three witnesses, petitioner asked for a postponement of the trial. (3.) The evidence adduced against Ramas does not constitute a prima facie case against him.
On 28 September 1989, during the continuation of the trial, petitioner manifested its inability to proceed to trial
because of the absence of other witnesses or lack of further evidence to present. Instead, petitioner reiterated its (4.) There was an illegal search and seizure of the items confiscated.
motion to amend the complaint to conform to the evidence already presented or to change the averments to show
that Dimaano alone unlawfully acquired the monies or properties subject of the forfeiture.

The Sandiganbayan noted that petitioner had already delayed the case for over a year mainly because of its
The Issues
many postponements. Moreover, petitioner would want the case to revert to its preliminary stage when in fact the
case had long been ready for trial. The Sandiganbayan ordered petitioner to prepare for presentation of its additional
evidence, if any.
Petitioner raises the following issues:
During the trial on 23 March 1990, petitioner again admitted its inability to present further evidence. Giving
petitioner one more chance to present further evidence or to amend the complaint to conform to its evidence, the A. RESPONDENT COURT SERIOUSLY ERRED IN CONCLUDING THAT PETITIONERS
Sandiganbayan reset the trial to 18 May 1990. The Sandiganbayan, however, hinted that the re-setting was without EVIDENCE CANNOT MAKE A CASE FOR FORFEITURE AND THAT THERE
prejudice to any action that private respondents might take under the circumstances. WAS NO SHOWING OF CONSPIRACY, COLLUSION OR RELATIONSHIP BY
CONSANGUINITY OR AFFINITY BY AND BETWEEN RESPONDENT RAMAS
However, on 18 May 1990, petitioner again expressed its inability to proceed to trial because it had no further AND RESPONDENT DIMAANO NOTWITHSTANDING THE FACT THAT
evidence to present. Again, in the interest of justice, the Sandiganbayan granted petitioner 60 days within which to SUCH CONCLUSIONS WERE CLEARLY UNFOUNDED AND PREMATURE,
file an appropriate pleading. The Sandiganbayan, however, warned petitioner that failure to act would constrain the HAVING BEEN RENDERED PRIOR TO THE COMPLETION OF THE
court to take drastic action. PRESENTATION OF THE EVIDENCE OF THE PETITIONER.
Private respondents then filed their motions to dismiss based on Republic v. Migrino.[9] The Court held B. RESPONDENT COURT SERIOUSLY ERRED IN HOLDING THAT THE ACTIONS
in Migrino that the PCGG does not have jurisdiction to investigate and prosecute military officers by reason of mere TAKEN BY THE PETITIONER, INCLUDING THE FILING OF THE ORIGINAL
position held without a showing that they are subordinates of former President Marcos. COMPLAINT AND THE AMENDED COMPLAINT, SHOULD BE STRUCK OUT
IN LINE WITH THE RULINGS OF THE SUPREME COURT IN CRUZ, JR. v.
On 18 November 1991, the Sandiganbayan rendered a resolution, the dispositive portion of which states: SANDIGANBAYAN, 194 SCRA 474 AND REPUBLIC v. MIGRINO, 189 SCRA
289, NOTWITHSTANDING THE FACT THAT:
WHEREFORE, judgment is hereby rendered dismissing the Amended Complaint, without pronouncement as to
costs. The counterclaims are likewise dismissed for lack of merit, but the confiscated sum of money, communications 1. The cases of Cruz, Jr. v. Sandiganbayan, supra, and Republic v. Migrino, supra,
equipment, jewelry and land titles are ordered returned to Elizabeth Dimaano. are clearly not applicable to this case;
The records of this case are hereby remanded and referred to the Hon. Ombudsman, who has primary jurisdiction
over the forfeiture cases under R.A. No. 1379, for such appropriate action as the evidence warrants. This case is
also referred to the Commissioner of the Bureau of Internal Revenue for a determination of any tax liability of
respondent Elizabeth Dimaano in connection herewith.
 2. Any procedural defect in the institution of the complaint in Civil Case No. 0037 was
cured and/or waived by respondents with the filing of their respective
answers with counterclaim; and
3. The separate motions to dismiss were evidently improper considering that they
were filed after commencement of the presentation of the evidence of the
petitioner and even before the latter was allowed to formally offer its
evidence and rest its case;
C. RESPONDENT COURT SERIOUSLY ERRED IN HOLDING THAT THE ARTICLES AND
THINGS SUCH AS SUMS OF MONEY, COMMUNICATIONS EQUIPMENT,
JEWELRY AND LAND TITLES CONFISCATED FROM THE HOUSE OF
RESPONDENT DIMAANO WERE ILLEGALLY SEIZED AND THEREFORE
EXCLUDED AS EVIDENCE.[12]
The Courts Ruling
First Issue: PCGGs Jurisdiction to Investigate Private Respondents
This case involves a revisiting of an old issue already decided by this Court in Cruz, Jr. v.
Sandiganbayan[13] and Republic v. Migrino.[14]
The primary issue for resolution is whether the PCGG has the jurisdiction to investigate and cause the filing of
a forfeiture petition against Ramas and Dimaano for unexplained wealth under RA No. 1379.
We hold that PCGG has no such jurisdiction.
The PCGG created the AFP Board to investigate the unexplained wealth and corrupt practices of AFP
personnel, whether in the active service or retired.[15] The PCGG tasked the AFP Board to make the necessary
recommendations to appropriate government agencies on the action to be taken based on its findings. [16] The PCGG
gave this task to the AFP Board pursuant to the PCGGs power under Section 3 of EO No. 1 to conduct investigation
as may be necessary in order to accomplish and to carry out the purposes of this order. EO No. 1 gave the PCGG
specific responsibilities, to wit:
SEC. 2. The Commission shall be charged with the task of assisting the President in regard to the following matters:
(a) The recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad, including the takeover and sequestration of all business enterprises
and entities owned or controlled by them, during his administration, directly or through
nominees, by taking undue advantage of their public office and/ or using their powers,
authority, influence, connections or relationship.
(b) The investigation of such cases of graft and corruption as the President may assign to the
Commission from time to time.
x x x.
The PCGG, through the AFP Board, can only investigate the unexplained wealth and corrupt practices of AFP
personnel who fall under either of the two categories mentioned in Section 2 of EO No. 1. These are: (1) AFP
personnel who have accumulated ill-gotten wealth during the administration of former President Marcos by being the
latters immediate family, relative, subordinate or close associate, taking undue advantage of their public office or
using their powers, influence x x x;[17] or (2) AFP personnel involved in other cases of graft and corruption provided
the President assigns their cases to the PCGG.[18]
Petitioner, however, does not claim that the President assigned Ramas case to the PCGG. Therefore, Ramas
case should fall under the first category of AFP personnel before the PCGG could exercise its jurisdiction over
him. Petitioner argues that Ramas was undoubtedly a subordinate of former President Marcos because of his
position as the Commanding General of the Philippine Army. Petitioner claims that Ramas position enabled him to
receive orders directly from his commander-in-chief, undeniably making him a subordinate of former President
Marcos.
We hold that Ramas was not a subordinate of former President Marcos in the sense contemplated under EO
No. 1 and its amendments.
Mere position held by a military officer does not automatically make him a subordinate as this term is used in
EO Nos. 1, 2, 14 and 14-A absent a showing that he enjoyed close association with former President
Marcos. Migrino discussed this issue in this wise:
A close reading of EO No. 1 and related executive orders will readily show what is contemplated within the term
subordinate. The Whereas Clauses of EO No. 1 express the urgent need to recover the ill-gotten wealth amassed by
former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad.
EO No. 2 freezes all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs.
Imelda Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any
interest or participation.
Applying the rule in statutory construction known as ejusdem generis that is-
[W]here general words follow an enumeration of persons or things by words of a particular and specific meaning,
such general words are not to be construed in their widest extent, but are to be held as applying only to persons or
things of the same kind or class as those specifically mentioned [Smith, Bell & Co, Ltd. vs. Register of Deeds of
Davao, 96 Phil. 53, 58, citing Black on Interpretation of Laws, 2ndEd., 203].
[T]he term subordinate as used in EO Nos. 1 & 2 refers to one who enjoys a close association with former President
Marcos and/or his wife, similar to the immediate family member, relative, and close associate in EO No. 1 and
the close relative, business associate, dummy, agent, or nominee in EO No. 2.
xxx
It does not suffice, as in this case, that the respondent is or was a government official or employee during the
administration of former President Marcos. There must be a prima facie showing that the respondent unlawfully
accumulated wealth by virtue of his close association or relation with former Pres. Marcos and/or his wife.
(Emphasis supplied)
Ramas position alone as Commanding General of the Philippine Army with the rank of Major General [19] does
not suffice to make him a subordinate of former President Marcos for purposes of EO No. 1 and its
amendments. The PCGG has to provide a prima facie showing that Ramas was a close associate of former
President Marcos, in the same manner that business associates, dummies, agents or nominees of former President
Marcos were close to him. Such close association is manifested either by Ramas complicity with former President
Marcos in the accumulation of ill-gotten wealth by the deposed President or by former President Marcos
acquiescence in Ramas own accumulation of ill-gotten wealth if any.
This, the PCGG failed to do.
 Petitioners attempt to differentiate the instant case from Migrino does not convince us. Petitioner argues that
unlike in Migrino, the AFP Board Resolution in the instant case states that the AFP Board conducted the
investigation pursuant to EO Nos. 1, 2, 14 and 14-A in relation to RA No. 1379. Petitioner asserts that there is a
presumption that the PCGG was acting within its jurisdiction of investigating crony-related cases of graft and
corruption and that Ramas was truly a subordinate of the former President. However, the same AFP Board
Resolution belies this contention. Although the Resolution begins with such statement, it ends with the following
recommendation:
V. RECOMMENDATION:
Wherefore it is recommended that Maj. Gen. Josephus Q. Ramas (ret.) be prosecuted and tried for violation of RA
3019, as amended, otherwise known as Anti-Graft and Corrupt Practices Act and RA 1379, as amended, otherwise
known as The Act for the Forfeiture of Unlawfully Acquired Property.[20]
Thus, although the PCGG sought to investigate and prosecute private respondents under EO Nos. 1, 2, 14 and 14-
A, the result yielded a finding of violation of Republic Acts Nos. 3019 and 1379 without any relation to EO Nos. 1, 2,
14 and 14-A. This absence of relation to EO No. 1 and its amendments proves fatal to petitioners case. EO No. 1
created the PCGG for a specific and limited purpose, and necessarily its powers must be construed to address such
specific and limited purpose.
Moreover, the resolution of the AFP Board and even the Amended Complaint do not show that the properties
Ramas allegedly owned were accumulated by him in his capacity as a subordinate of his commander-in-
chief. Petitioner merely enumerated the properties Ramas allegedly owned and suggested that these properties
were disproportionate to his salary and other legitimate income without showing that Ramas amassed them because
of his close association with former President Marcos. Petitioner, in fact, admits that the AFP Board resolution does
not contain a finding that Ramas accumulated his wealth because of his close association with former President
Marcos, thus:
10. While it is true that the resolution of the Anti-Graft Board of the New Armed Forces of the Philippines did
not categorically find a prima facie evidence showing that respondent Ramas unlawfully accumulated wealth
by virtue of his close association or relation with former President Marcos and/or his wife, it is submitted
that such omission was not fatal. The resolution of the Anti-Graft Board should be read in the context of the law
creating the same and the objective of the investigation which was, as stated in the above, pursuant to Republic Act
Nos. 3019 and 1379 in relation to Executive Order Nos. 1, 2, 14 and 14-a;[21] (Emphasis supplied)
Such omission is fatal. Petitioner forgets that it is precisely a prima facie showing that the ill-gotten wealth was
accumulated by a subordinate of former President Marcos that vests jurisdiction on PCGG. EO No. 1[22] clearly
premises the creation of the PCGG on the urgent need to recover all ill-gotten wealth amassed by former President
Marcos, his immediate family, relatives, subordinates and close associates. Therefore, to say that such omission was
not fatal is clearly contrary to the intent behind the creation of the PCGG.
In Cruz, Jr. v. Sandiganbayan,[23] the Court outlined the cases that fall under the jurisdiction of the PCGG
pursuant to EO Nos. 1, 2,[24] 14,[25] 14-A:[26]
A careful reading of Sections 2(a) and 3 of Executive Order No. 1 in relation with Sections 1, 2 and 3 of Executive
Order No. 14, shows what the authority of the respondent PCGG to investigate and prosecute covers:
(a) the investigation and prosecution of the civil action for the recovery of ill-gotten wealth under
Republic Act No. 1379, accumulated by former President Marcos, his immediate family,
relatives, subordinates and close associates, whether located in the Philippines or abroad,
including the take-over or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through his nominees, by taking undue
advantage of their public office and/or using their powers, authority and influence,
connections or relationships; and
(b) the investigation and prosecution of such offenses committed in the acquisition of said ill-gotten
wealth as contemplated under Section 2(a) of Executive Order No. 1.
However, other violations of the Anti-Graft and Corrupt Practices Act not otherwise falling under the
foregoing categories, require a previous authority of the President for the respondent PCGG to investigate
and prosecute in accordance with Section 2 (b) of Executive Order No. 1. Otherwise, jurisdiction over such
cases is vested in the Ombudsman and other duly authorized investigating agencies such as the provincial
and city prosecutors, their assistants, the Chief State Prosecutor and his assistants and the state
prosecutors. (Emphasis supplied)
The proper government agencies, and not the PCGG, should investigate and prosecute forfeiture petitions not
falling under EO No. 1 and its amendments. The preliminary investigation of unexplained wealth amassed on or
before 25 February 1986 falls under the jurisdiction of the Ombudsman, while the authority to file the corresponding
forfeiture petition rests with the Solicitor General.[27] The Ombudsman Act or Republic Act No. 6770 (RA No. 6770)
vests in the Ombudsman the power to conduct preliminary investigation and to file forfeiture proceedings involving
unexplained wealth amassed after 25 February 1986.[28]
After the pronouncements of the Court in Cruz, the PCGG still pursued this case despite the absence of
a prima facie finding that Ramas was a subordinate of former President Marcos. The petition for forfeiture filed with
the Sandiganbayan should be dismissed for lack of authority by the PCGG to investigate respondents since there is
no prima facie showing that EO No. 1 and its amendments apply to respondents. The AFP Board Resolution and
even the Amended Complaint state that there are violations of RA Nos. 3019 and 1379. Thus, the PCGG should
have recommended Ramas case to the Ombudsman who has jurisdiction to conduct the preliminary investigation of
ordinary unexplained wealth and graft cases. As stated in Migrino:
[But] in view of the patent lack of authority of the PCGG to investigate and cause the prosecution of private
respondent for violation of Rep. Acts Nos. 3019 and 1379, the PCGG must also be enjoined from proceeding with
the case, without prejudice to any action that may be taken by the proper prosecutory agency. The rule of law
mandates that an agency of government be allowed to exercise only the powers granted to it.
Petitioners argument that private respondents have waived any defect in the filing of the forfeiture petition by
submitting their respective Answers with counterclaim deserves no merit as well.
Petitioner has no jurisdiction over private respondents. Thus, there is no jurisdiction to waive in the first
place. The PCGG cannot exercise investigative or prosecutorial powers never granted to it. PCGGs powers are
specific and limited. Unless given additional assignment by the President, PCGGs sole task is only to recover the ill-
gotten wealth of the Marcoses, their relatives and cronies. [29] Without these elements, the PCGG cannot claim
jurisdiction over a case.
Private respondents questioned the authority and jurisdiction of the PCGG to investigate and prosecute their
cases by filing their Motion to Dismiss as soon as they learned of the pronouncement of the Court in Migrino. This
case was decided on 30 August 1990, which explains why private respondents only filed their Motion to Dismiss on 8
October 1990.Nevertheless, we have held that the parties may raise lack of jurisdiction at any stage of the
proceeding.[30] Thus, we hold that there was no waiver of jurisdiction in this case. Jurisdiction is vested by law and
not by the parties to an action.[31]
Consequently, the petition should be dismissed for lack of jurisdiction by the PCGG to conduct the preliminary
investigation. The Ombudsman may still conduct the proper preliminary investigation for violation of RA No. 1379,
and if warranted, the Solicitor General may file the forfeiture petition with the Sandiganbayan.[32] The right of the
State to forfeit unexplained wealth under RA No. 1379 is not subject to prescription, laches or estoppel. [33]
Second Issue: Propriety of Dismissal of Case
Before Completion of Presentation of Evidence
 Petitioner also contends that the Sandiganbayan erred in dismissing the case before completion of the
presentation of petitioners evidence.
We disagree.
Based on the findings of the Sandiganbayan and the records of this case, we find that petitioner has only itself
to blame for non-completion of the presentation of its evidence. First, this case has been pending for four years
before the Sandiganbayan dismissed it. Petitioner filed its Amended Complaint on 11
August 1987, and only began to present its evidence on 17 April 1989. Petitioner had almost two years to prepare its
evidence. However, despite this sufficient time, petitioner still delayed the presentation of the rest of its evidence by
filing numerous motions for postponements and extensions. Even before the date set for the presentation of its
evidence, petitioner filed, on 13 April 1989, a Motion for Leave to Amend the Complaint.[34]The motion sought to
charge the delinquent properties (which comprise most of petitioners evidence) with being subject to forfeiture as
having been unlawfully acquired by defendant Dimaano alone x x x.
The Sandiganbayan, however, refused to defer the presentation of petitioners evidence since petitioner did not
state when it would file the amended complaint. On 18 April 1989, the Sandiganbayan set the continuation of the
presentation of evidence on 28-29 September and 9-11 October 1989, giving petitioner ample time to prepare its
evidence. Still, on 28 September 1989, petitioner manifested its inability to proceed with the presentation of its
evidence. The Sandiganbayan issued an Order expressing its view on the matter, to wit:
The Court has gone through extended inquiry and a narration of the above events because this case has been ready
for trial for over a year and much of the delay hereon has been due to the inability of the government to produce on
scheduled dates for pre-trial and for trial documents and witnesses, allegedly upon the failure of the military to supply
them for the preparation of the presentation of evidence thereon. Of equal interest is the fact that this Court has been
held to task in public about its alleged failure to move cases such as this one beyond the preliminary stage, when, in
view of the developments such as those of today, this Court is now faced with a situation where a case already in
progress will revert back to the preliminary stage, despite a five-month pause where appropriate action could have
been undertaken by the plaintiff Republic.[35]
On 9 October 1989, the PCGG manifested in court that it was conducting a preliminary investigation on the
unexplained wealth of private respondents as mandated by RA No. 1379. [36]The PCGG prayed for an additional four
months to conduct the preliminary investigation. The Sandiganbayan granted this request and scheduled the
presentation of evidence on 26-29 March 1990. However, on the scheduled date, petitioner failed to inform the court
of the result of the preliminary investigation the PCGG supposedly conducted. Again, the Sandiganbayan gave
petitioner until 18 May 1990 to continue with the presentation of its evidence and to inform the court of what lies
ahead insofar as the status of the case is concerned x x x. [37] Still on the date set, petitioner failed to present its
evidence. Finally, on 11 July 1990, petitioner filed its Re-Amended Complaint.[38] The Sandiganbayan correctly
observed that a case already pending for years would revert to its preliminary stage if the court were to accept the
Re-Amended Complaint.
Based on these circumstances, obviously petitioner has only itself to blame for failure to complete the
presentation of its evidence. The Sandiganbayan gave petitioner more than sufficient time to finish the presentation
of its evidence. The Sandiganbayan overlooked petitioners delays and yet petitioner ended the long-string of delays
with the filing of a Re-Amended Complaint, which would only prolong even more the disposition of the case.
Moreover, the pronouncements of the Court in Migrino and Cruz prompted the Sandiganbayan to dismiss the
case since the PCGG has no jurisdiction to investigate and prosecute the case against private respondents. This
alone would have been sufficient legal basis for the Sandiganbayan to dismiss the forfeiture case against private
respondents.
Thus, we hold that the Sandiganbayan did not err in dismissing the case before completion of the presentation
of petitioners evidence.
Third Issue: Legality of the Search and Seizure
Petitioner claims that the Sandiganbayan erred in declaring the properties confiscated from Dimaanos house
as illegally seized and therefore inadmissible in evidence. This issue bears a significant effect on petitioners case
since these properties comprise most of petitioners evidence against private respondents. Petitioner will not have
much evidence to support its case against private respondents if these properties are inadmissible in evidence.
On 3 March 1986, the Constabulary raiding team served at Dimaanos residence a search warrant captioned
Illegal Possession of Firearms and Ammunition. Dimaano was not present during the raid but Dimaanos cousins
witnessed the raid. The raiding team seized the items detailed in the seizure receipt together with other
items not included in the search warrant. The raiding team seized these items: one baby armalite rifle with
two magazines; 40 rounds of 5.56 ammunition; one pistol, caliber .45; communications equipment, cash consisting
of P2,870,000 and US$50,000, jewelry, and land titles.
Petitioner wants the Court to take judicial notice that the raiding team conducted the search and seizure on
March 3, 1986 or five days after the successful EDSA revolution.[39]Petitioner argues that a revolutionary government
was operative at that time by virtue of Proclamation No. 1 announcing that President Aquino and Vice President
Laurel were taking power in the name and by the will of the Filipino people. [40] Petitioner asserts that the revolutionary
government effectively withheld the operation of the 1973 Constitution which guaranteed private respondents
exclusionary right.
Moreover, petitioner argues that the exclusionary right arising from an illegal search applies only beginning 2
February 1987, the date of ratification of the 1987 Constitution. Petitioner contends that all rights under the Bill of
Rights had already reverted to its embryonic stage at the time of the search. Therefore, the government may
confiscate the monies and items taken from Dimaano and use the same in evidence against her since at the time of
their seizure, private respondents did not enjoy any constitutional right.
Petitioner is partly right in its arguments.
The EDSA Revolution took place on 23-25 February 1986. As succinctly stated in President Aquinos
Proclamation No. 3 dated 25 March 1986, the EDSA Revolution was done in defiance of the provisions of the
1973 Constitution.[41] The resulting government was indisputably a revolutionary government bound by no
constitution or legal limitations except treaty obligations that the revolutionary government, as the de
jure government in the Philippines, assumed under international law.
The correct issues are: (1) whether the revolutionary government was bound by the Bill of Rights of the 1973
Constitution during the interregnum, that is, after the actual and effective take-over of power by the revolutionary
government following the cessation of resistance by loyalist forces up to 24 March 1986 (immediately before the
adoption of the Provisional Constitution); and (2) whether the protection accorded to individuals under the
International Covenant on Civil and Political Rights (Covenant) and the Universal Declaration of Human Rights
(Declaration) remained in effect during the interregnum.
We hold that the Bill of Rights under the 1973 Constitution was not operative during the interregnum. However,
we rule that the protection accorded to individuals under the Covenant and the Declaration remained in effect during
the interregnum.
During the interregnum, the directives and orders of the revolutionary government were the supreme law
because no constitution limited the extent and scope of such directives and orders. With the abrogation of the 1973
Constitution by the successful revolution, there was no municipal law higher than the directives and orders of the
revolutionary government. Thus, during the interregnum, a person could not invoke any exclusionary right under a
Bill of Rights because there was neither a constitution nor a Bill of Rights during the interregnum. As the Court
explained in Letter of Associate Justice Reynato S. Puno:[42]
A revolution has been defined as the complete overthrow of the established government in any country or state by
those who were previously subject to it or as a sudden, radical and fundamental change in the government or
political system, usually effected with violence or at least some acts of violence. In Kelsen's book, General Theory of
Law and State, it is defined as that which occurs whenever the legal order of a community is nullified and replaced
by a new order . . . a way not prescribed by the first order itself.
It was through the February 1986 revolution, a relatively peaceful one, and more popularly known as the people
power revolution that the Filipino people tore themselves away from an existing regime. This revolution also saw the
unprecedented rise to power of the Aquino government.
From the natural law point of view, the right of revolution has been defined as an inherent right of a people to cast
out their rulers, change their policy or effect radical reforms in their system of government or institutions by force or a
general uprising when the legal and constitutional methods of making such change have proved inadequate or are
so obstructed as to be unavailable. It has been said that the locus of positive law-making power lies with the people
of the state and from there is derived the right of the people to abolish, to reform and to alter any existing form of
government without regard to the existing constitution.
xxx
It is widely known that Mrs. Aquinos rise to the presidency was not due to constitutional processes; in fact,
it was achieved in violation of the provisions of the 1973 Constitution as a Batasang Pambansa resolution
had earlier declared Mr. Marcos as the winner in the 1986 presidential election. Thus it can be said that the
organization of Mrs. Aquinos Government which was met by little resistance and her control of the state evidenced
by the appointment of the Cabinet and other key officers of the administration, the departure of the Marcos Cabinet
officials, revamp of the Judiciary and the Military signaled the point where the legal system then in effect, had
ceased to be obeyed by the Filipino. (Emphasis supplied)
To hold that the Bill of Rights under the 1973 Constitution remained operative during the interregnum would
render void all sequestration orders issued by the Philippine Commission on Good Government (PCGG) before the
adoption of the Freedom Constitution. The sequestration orders, which direct the freezing and even the take-over of
private property by mere executive issuance without judicial action, would violate the due process and search and
seizure clauses of the Bill of Rights.
During the interregnum, the government in power was concededly a revolutionary government bound by no
constitution. No one could validly question the sequestration orders as violative of the Bill of Rights because there
was no Bill of Rights during the interregnum. However, upon the adoption of the Freedom Constitution, the
sequestered companies assailed the sequestration orders as contrary to the Bill of Rights of the Freedom
Constitution.
In Bataan Shipyard & Engineering Co. Inc. vs. Presidential Commission on Good
Government,[43] petitioner Baseco, while conceding there was no Bill of Rights during the interregnum, questioned
the continued validity of the sequestration orders upon adoption of the Freedom Constitution in view of the due
process clause in its Bill of Rights. The Court ruled that the Freedom Constitution, and later the 1987
Constitution, expressly recognized the validity of sequestration orders, thus:
If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the
authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned,
the Provisional or Freedom Constitution recognizes the power and duty of the President to enact measures to
achieve the mandate of the people to . . . (r)ecover ill-gotten properties amassed by the leaders and supporters of
the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or
accounts. And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution treats of, and ratifies the
authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986.
The framers of both the Freedom Constitution and the 1987 Constitution were fully aware that the
sequestration orders would clash with the Bill of Rights. Thus, the framers of both constitutions had to include
specific language recognizing the validity of the sequestration orders. The following discourse by Commissioner
Joaquin G. Bernas during the deliberations of the Constitutional Commission is instructive:
FR. BERNAS: Madam President, there is something schizophrenic about the arguments in defense of the present
amendment.
For instance, I have carefully studied Minister Salongas lecture in the Gregorio Araneta University
Foundation, of which all of us have been given a copy. On the one hand, he argues that everything the
Commission is doing is traditionally legal. This is repeated by Commissioner Romulo also. Minister
Salonga spends a major portion of his lecture developing that argument. On the other hand, almost as
an afterthought, he says that in the end what matters are the results and not the legal niceties, thus
suggesting that the PCGG should be allowed to make some legal shortcuts, another word for niceties or
exceptions.
Now, if everything the PCGG is doing is legal, why is it asking the CONCOM for special protection? The
answer is clear. What they are doing will not stand the test of ordinary due process, hence they
are asking for protection, for exceptions. Grandes malos, grandes remedios, fine, as the saying
stands, but let us not say grandes malos, grande y malos remedios. That is not an allowable
extrapolation. Hence, we should not give the exceptions asked for, and let me elaborate and give three
reasons:
First, the whole point of the February Revolution and of the work of the CONCOM is to hasten
constitutional normalization. Very much at the heart of the constitutional normalization is the full
effectivity of the Bill of Rights. We cannot, in one breath, ask for constitutional normalization and at the
same time ask for a temporary halt to the full functioning of what is at the heart of constitutionalism. That
would be hypocritical; that would be a repetition of Marcosian protestation of due process and rule of
law. The New Society word for that is backsliding. It is tragic when we begin to backslide even before we
get there.
Second, this is really a corollary of the first. Habits tend to become ingrained. The committee report asks
for extraordinary exceptions from the Bill of Rights for six months after the convening of Congress, and
Congress may even extend this longer.
Good deeds repeated ripen into virtue; bad deeds repeated become vice. What the committee report is
asking for is that we should allow the new government to acquire the vice of disregarding the Bill of
Rights.
Vices, once they become ingrained, become difficult to shed. The practitioners of the vice begin to think
that they have a vested right to its practice, and they will fight tooth and nail to keep the franchise. That
would be an unhealthy way of consolidating the gains of a democratic revolution.
Third, the argument that what matters are the results and not the legal niceties is an argument that is
very disturbing. When it comes from a staunch Christian like Commissioner Salonga, a Minister, and
repeated verbatim by another staunch Christian like Commissioner Tingson, it becomes doubly
disturbing and even discombobulating. The argument makes the PCGG an auctioneer, placing the Bill of
Rights on the auction block. If the price is right, the search and seizure clause will be sold. Open your
Swiss bank account to us and we will award you the search and seizure clause. You can keep it in your
private safe.
Alternatively, the argument looks on the present government as hostage to the hoarders of hidden
wealth. The hoarders will release the hidden health if the ransom price is paid and the ransom price is
the Bill of Rights, specifically the due process in the search and seizure clauses. So, there is something
positively revolving about either argument. The Bill of Rights is not for sale to the highest bidder nor can
it be used to ransom captive dollars. This nation will survive and grow strong, only if it would become
convinced of the values enshrined in the Constitution of a price that is beyond monetary estimation.
For these reasons, the honorable course for the Constitutional Commission is to delete all of Section 8 of
the committee report and allow the new Constitution to take effect in full vigor. If Section 8 is deleted, the
PCGG has two options. First, it can pursue the Salonga and the Romulo argument that what the PCGG
has been doing has been completely within the pale of the law. If sustained, the PCGG can go on and
should be able to go on, even without the support of Section 8. If not sustained, however, the PCGG has
only one honorable option, it must bow to the majesty of the Bill of Rights.
The PCGG extrapolation of the law is defended by staunch Christians. Let me conclude with what
another Christian replied when asked to toy around with the law. From his prison cell, Thomas More
said, "I'll give the devil benefit of law for my nations safety sake. I ask the Commission to give the devil
benefit of law for our nations sake. And we should delete Section 8.
Thank you, Madam President. (Emphasis supplied)
Despite the impassioned plea by Commissioner Bernas against the amendment
excepting sequestration orders from the Bill of Rights, the Constitutional Commission still adopted the amendment as
Section 26,[44] Article XVIII of the 1987 Constitution. The framers of the Constitution were fully aware that absent
Section 26, sequestration orders would not stand the test of due process under the Bill of Rights.
 Thus, to rule that the Bill of Rights of the 1973 Constitution remained in force during the interregnum, absent a Sony Trinitron, and I think three (3) vaults or steel safes. Believing that the attach cases
constitutional provision excepting sequestration orders from such Bill of Rights, would clearly render all sequestration and the steel safes were containing firearms, they forced open these containers only to
orders void during the interregnum. Nevertheless, even during the interregnum the Filipino people continued to find out that they contained money.
enjoy, under the Covenant and the Declaration, almost the same rights found in the Bill of Rights of the 1973
Constitution.
xxx
The revolutionary government, after installing itself as the de jure government, assumed responsibility for the
States good faith compliance with the Covenant to which the Philippines is a signatory. Article 2(1) of the Covenant Q. You said you found money instead of weapons, do you know the reason why your team seized
requires each signatory State to respect and to ensure to all individuals within its territory and subject to its this money instead of weapons?
jurisdiction the rights[45] recognized in the present Covenant. Under Article 17(1) of the Covenant, the revolutionary A. I think the overall team leader and the other two officers assisting him decided to bring along
government had the duty to insure that [n]o one shall be subjected to arbitrary or unlawful interference with his also the money because at that time it was already dark and they felt most secured if they
privacy, family, home or correspondence. will bring that because they might be suspected also of taking money out of those items,
your Honor.[49]
The Declaration, to which the Philippines is also a signatory, provides in its Article 17(2) that [n]o one shall be
arbitrarily deprived of his property. Although the signatories to the Declaration did not intend it as a legally binding
document, being only a declaration, the Court has interpreted the Declaration as part of the generally accepted Cross-examination
principles of international law and binding on the State.[46] Thus, the revolutionary government was also obligated Atty. Banaag
under international law to observe the rights[47] of individuals under the Declaration.

The revolutionary government did not repudiate the Covenant or the Declaration during the interregnum. Q. Were you present when the search warrant in connection with this case was applied before the
Whether the revolutionary government could have repudiated all its obligations under the Covenant or the Municipal Trial Court of Batangas, Branch 1?
Declaration is another matter and is not the issue here. Suffice it to say that the Court considers the Declaration as A. Yes, sir.
part of customary international law, and that Filipinos as human beings are proper subjects of the rules of
Q. And the search warrant applied for by you was for the search and seizure of five (5) baby
international law laid down in the Covenant. The fact is the revolutionary government did not repudiate the Covenant
armalite rifles M-16 and five (5) boxes of ammunition?
or the Declaration in the same way it repudiated the 1973 Constitution. As the de jure government, the revolutionary
A. Yes, sir.
government could not escape responsibility for the States good faith compliance with its treaty obligations under
international law.
xxx
It was only upon the adoption of the Provisional Constitution on 25 March 1986 that the directives and orders
of the revolutionary government became subject to a higher municipal law that, if contravened, rendered such
directives and orders void. The Provisional Constitution adopted verbatim the Bill of Rights of the 1973 AJ AMORES
Constitution.[48] The Provisional Constitution served as a self-limitation by the revolutionary government to avoid
abuses of the absolute powers entrusted to it by the people. Q. Before you applied for a search warrant, did you conduct surveillance in the house of Miss
Elizabeth Dimaano?
During the interregnum when no constitution or Bill of Rights existed, directives and orders issued by
A. The Intelligence Operatives conducted surveillance together with the MSU elements, your
government officers were valid so long as these officers did not exceed the authority granted them by the
Honor.
revolutionary government. The directives and orders should not have also violated the Covenant or the
Declaration. In this case, the revolutionary government presumptively sanctioned the warrant since the revolutionary Q. And this party believed there were weapons deposited in the house of Miss Elizabeth
government did not repudiate it. The warrant, issued by a judge upon proper application, specified the items to be Dimaano?
searched and seized. The warrant is thus valid with respect to the items specifically described in the warrant. A. Yes, your Honor.
However, the Constabulary raiding team seized items not included in the warrant. As admitted by petitioners Q. And they so swore before the Municipal Trial Judge?
witnesses, the raiding team confiscated items not included in the warrant, thus: A. Yes, your Honor.

Direct Examination of Capt. Rodolfo Sebastian
AJ AMORES
Q. According to the search warrant, you are supposed to seize only for weapons. What else,
aside from the weapons, were seized from the house of Miss Elizabeth Dimaano?
A. The communications equipment, money in Philippine currency and US dollars, some jewelries,
land titles, sir.
Q. Now, the search warrant speaks only of weapons to be seized from the house of Elizabeth
Dimaano. Do you know the reason why your team also seized other properties not
mentioned in said search warrant?
A. During the conversation right after the conduct of said raid, I was informed that the reason why
they also brought the other items not included in the search warrant was because the
money and other jewelries were contained in attach cases and cartons with markings
Q. But they did not mention to you, the applicant for the search warrant, any other properties or
contraband which could be found in the residence of Miss Elizabeth Dimaano?
A. They just gave us still unconfirmed report about some hidden items, for instance, the
communications equipment and money. However, I did not include that in the application
for search warrant considering that we have not established concrete evidence about
that. So when
Q. So that when you applied for search warrant, you had reason to believe that only weapons
were in the house of Miss Elizabeth Dimaano?
A. Yes, your Honor.[50]
xxx
Q. You stated that a .45 caliber pistol was seized along with one armalite rifle M-16 and how
many ammunition?
 A. Forty, sir. Puno and Vitug, JJ., see separate opinion
Panganiban, J., in the result.
Q. And this became the subject of your complaint with the issuing Court, with the fiscals office Quisumbing and Sandoval-Gutierrez, JJ., on official leave.
who charged Elizabeth Dimaano for Illegal Possession of Firearms and Ammunition? Ynares-Santiago, J., in the result. I concur in the separate opinion of J. Reynato Puno.
A. Yes, sir. Tinga, J., separate opinion reserved.
Q. Do you know what happened to that case?
A. I think it was dismissed, sir. Republic of the Philippines
SUPREME COURT
Q. In the fiscals office? Manila
A. Yes, sir.

Q. Because the armalite rifle you seized, as well as the .45 caliber pistol had a Memorandum SECOND DIVISION
Receipt in the name of Felino Melegrito, is that not correct?
A. I think that was the reason, sir. G.R. No. 184698 January 21, 2013
Q. There were other articles seized which were not included in the search warrant, like for
instance, jewelries. Why did you seize the jewelries? SPOUSES ALBERTO AND SUSAN CASTRO, Petitioners,
A. I think it was the decision of the overall team leader and his assistant to bring along also the vs.
jewelries and other items, sir. I do not really know where it was taken but they brought AMPARO PALENZUELA, for herself and as authorized representative of VIRGINIA ABELLO, GERARDO
along also these articles. I do not really know their reason for bringing the same, but I just ANTONIO ABELLO, ALBERTO DEL ROSARIO, INGEBORG REGINA DEL ROSARIO, HANS DEL ROSARIO,
learned that these were taken because they might get lost if they will just leave this MARGARET DEL ROSARIO ISLETA, ENRIQUE ALENZUELA and CARLOS MIGUEL
behind. PALENZUELA,Respondents.

xxx DECISION

Q. How about the money seized by your raiding team, they were not also included in the search DEL CASTILLO, J.:
warrant?
A. Yes sir, but I believe they were also taken considering that the money was discovered to be
contained in attach cases. These attach cases were suspected to be containing pistols or A demand letter presented in evidence by a lessee to prove a lesser liability for unpaid rentals than that awarded by
other high powered firearms, but in the course of the search the contents turned out to be the trial court constitutes an admission of liability to the extent of such lesser amount.
money. So the team leader also decided to take this considering that they believed that if
they will just leave the money behind, it might get lost also. This Petition for Review on Certiorari1 assails the January 29, 2008 Decision2 of the Court of Appeals (CA) which
dismissed the appeal in CA-G.R. CV No. 86925, and its September 15, 2008 Resolution3 denying petitioners' Motion
Q. That holds true also with respect to the other articles that were seized by your raiding team,
for Reconsideration.
like Transfer Certificates of Title of lands?
A. Yes, sir. I think they were contained in one of the vaults that were opened.[51]
Factual Antecedents
It is obvious from the testimony of Captain Sebastian that the warrant did not include the monies,
communications equipment, jewelry and land titles that the raiding team confiscated.The search warrant did not
particularly describe these items and the raiding team confiscated them on its own authority. The raiding team had Respondents Amparo Palenzuela, Virginia Abello, Gerardo Antonio Abello, Alberto Del Rosario, Ingeborg Regina
no legal basis to seize these items without showing that these items could be the subject of warrantless search and Del Rosario, Hans Del Rosario, Margaret Del Rosario Isleta, Enrique Palenzuela and Carlos Miguel Palenzuela own
seizure.[52] Clearly, the raiding team exceeded its authority when it seized these items. several fishponds in Bulacan, Bulacan totaling 72 hectares.4 In March 1994, respondents, through their duly
appointed attorney-in-fact and co-respondent Amparo Palenzuela, leased out these fishponds to petitioners, spouses
The seizure of these items was therefore void, and unless these items are contraband per se,[53] and they are Alberto and Susan Castro. The lease was to be for five years, or from March 1, 1994 up to June 30, 1999. 5The
not, they must be returned to the person from whom the raiding seized them. However, we do not declare that such Contract of Lease6 of the parties provided for the following salient provisions:
person is the lawful owner of these items, merely that the search and seizure warrant could not be used as basis to
seize and withhold these items from the possessor. We thus hold that these items should be returned immediately to 1. For the entire duration of the lease, the Castro spouses shall pay a total consideration of
Dimaano.
₱14,126,600.00,7via postdated checks8 and according to the following schedule:
WHEREFORE, the petition for certiorari is DISMISSED. The questioned Resolutions of the Sandiganbayan
dated 18 November 1991 and 25 March 1992 in Civil Case No. 0037, remanding the records of this case to the a. Upon signing of the lease agreement, petitioners shall pay ₱842,300.00 for the lease period
Ombudsman for such appropriate action as the evidence may warrant, and referring this case to the Commissioner March 1, 1994 to June 30, 1994;9
of the Bureau of Internal Revenue for a determination of any tax liability of respondent Elizabeth Dimaano, are
AFFIRMED.
b. On or before June 1, 1994, petitioners shall pay ₱2,520,000.00 for the one-year lease period
SO ORDERED. July 1, 1994 to June 30, 1995;10

Bellosillo, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr. and Azcuna, JJ., concur.
Davide, Jr., C.J., in the result. I concur with Mr. Justice Vitug in his concurring opinion.
 c. On or before June 1, 1995, petitioners shall pay ₱2,520,000.00 for the one-year lease period
July 1, 1995 to June 30, 1996;11
d. On or before June 1, 1996, petitioners shall pay ₱2,520,000.00 for the one-year lease period
July 1, 1996 to June 30, 1997;12
e. On or before June 1, 1997, petitioners shall pay ₱2,796,000.00 for the one-year lease period
July 1, 1997 to June 30, 1998;13 and
f. On or before June 1, 1998, petitioners shall pay ₱2,928,300.00 for the one-year lease period
July 1, 1998 to June 30, 1999.14
2. Petitioners committed to pay respondents the amount of ₱500,000.00 in five yearly installments from
June 1, 1994. The amount represents arrears of the previous lessee, which petitioners agreed to
assume;15
3. Petitioners shall exercise extraordinary care and diligence in the maintenance of the leased premises,
with the obligation to maintain in good order, repair and condition, among others, two warehouses found
thereon;16
4. Necessary repairs,17 licenses, permits, and other fees18 necessary and incidental to the operation of the
fishpond shall be for petitioners’ account;
5. Petitioners shall not sublease the premises to third parties; 19 and,
6. Should respondents be constrained to file suit against petitioners on account of the lease, the latter
agrees to pay liquidated damages in the amount of ₱1,000,000.00, 25% as attorney’s fees, and costs of
the suit.20
On June 8, 2000,24 respondents instituted Civil Case No. Q-00-41011 for collection of a sum of money with damages
in the Regional Trial Court (RTC) of Quezon City, Branch 215, claiming that petitioners committed violations of their
lease agreement – non-payment of rents as stipulated, subletting the fishponds, failure to maintain the warehouses,
and refusal to vacate the premises on expiration of the lease – which caused respondents to incur actual and
liquidated damages and other expenses in the respective amounts of ₱570,101.00 25 for unpaid rent,
₱275,430.0026 for unpaid additional rent for petitioners’ one-month extended stay beyond the contract date, and
₱2,000,000.0027 for expenses incurred in restoring and repairing their damaged warehouses. In addition,
respondents prayed to be awarded moral and exemplary damages, attorney’s fees, and costs of litigation. 28
For failure to file their Answer, petitioners were declared in default, 29 and on August 16, 2000, during the presentation
of evidence for the plaintiffs, respondent Amparo Palenzuela testified, detailing petitioners’ several violations of the
lease contract; petitioners’ failure to maintain the warehouses in good condition; their unauthorized subleasing of the
premises to one Cynthia Reyes; their failure to pay the license fees, permits and other fees; their extended stay for
41 days, or until August 11, 1999 despite expiration of the lease on June 30, 1999; and petitioners’ unpaid rents in
the aggregate amount of ₱863,796.00, interest included.30
During said proceedings, respondents presented in evidence a statement of account 31 detailing petitioners’
outstanding obligations as of July 31, 1999.
In a subsequent Order,32 the trial court, on petitioners’ motion, lifted its previous Order of default, and the latter were
given the opportunity to cross-examine respondents’ witnesses which they failed to do. Moreover, they also failed to
attend subsequent scheduled hearings. The trial court thus declared the forfeiture, on waiver, of petitioners’ rights to
cross-examine and present their evidence, and considered the case submitted for decision based solely on
respondents’ evidence.33 However, on petitioners’ motion,34 the trial court again reconsidered, and scheduled the
presentation of their evidence on October 5, 2001.35
However, petitioners moved to reset the October 5, 2001 hearing.36 After several postponements, the trial was reset
to April 11, 2002.37 On said date, the testimony of the first witness for the defense, petitioner Alberto Castro, was
taken and completed. Cross-examination was scheduled on May 30, 2002,38 but was rescheduled to be taken on
August 21, 2002.39

The lease expired on June 30, 1999, but petitioners did not vacate and continued to occupy and operate the On August 21, 2002, petitioners once more failed to appear; the trial court, in an Order40 of even date, decreed that
fishponds until August 11, 1999, or an additional 41 days beyond the contract expiration date. petitioner Alberto Castro’s testimony be stricken off the record and declared the case submitted for decision.
Petitioners moved for reconsideration;41 respondents opposed,42 noting that for more than two years and in spite of
several opportunities afforded them, petitioners have been unable to participate in the proceedings and present their
Previously, or on July 22, 1999, respondents sent a letter21 to petitioners declaring the latter as trespassers and evidence. The trial court did not reconsider.43
demanding the settlement of the latter’s outstanding obligations, including rent for petitioners’ continued stay within
the premises, in the amount of ₱378,451.00, broken down as follows:
Petitioners took issue in the CA via Petition for Certiorari, 44 but the appellate court, in a February 18, 2004
Decision,45 sustained the trial court and declared that no grave abuse of discretion was committed when it ordered
Unpaid balance as of May 31, 1999 for ₱111,082.0 the striking out of petitioner Alberto Castro’s testimony and the termination of trial.
the fifth year of the lease 0
Petitioners next filed a Motion to Inhibit46 claiming that they could not obtain justice and a fair trial from the presiding
Accrued interest from May 31, 1999 to judge. In her April 21, 2003 Order,47 Judge Ma. Luisa Quijano-Padilla voluntarily inhibited herself from trying the
July 31, 1999 at 16% 23,344.00 case. She stressed, however, that she was doing so only in order that the probity and objectivity of the court could be
maintained, but not because petitioners’ grounds for seeking inhibition are meritorious.
Trespassing fee for the whole month of
22
July 1999 244,025.00
The case was then re-raffled to Branch 85 of the Quezon City RTC, which required the parties to submit
memoranda.48 While respondents submitted theirs, petitioners did not.
Total owed to the Lessors ₱378,451.00
Ruling of the Regional Trial Court
23
Petitioners are in actual receipt of this letter.
On January 31, 2005, the trial court issued its Decision,49 decreeing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendants, jointly and severally, to pay plaintiffs the
following:
1. Eight Hundred Sixty-three Thousand Seven Hundred Ninety Six Pesos (₱863,796.00), by way of actual
or compensatory damages;
The CA, however, was unconvinced. It held that the preponderance of evidence, 62 which remained uncontroverted
by petitioners, points to the fact that petitioners indeed failed to pay rent in full, considering that their postdated
checks bounced upon presentment,63 and their unauthorized extended stay from July 1 until August 11, 1999.64 It
added that petitioners were undeniably guilty of violating several provisions of the lease agreement, as it has also
been shown that they failed to pay rent on time and illegally subleased the property to one Cynthia Reyes, who even
made direct payments of rentals to respondents on several occasions.65

2. Fifty Thousand Pesos (₱50,000.00), by way of moral damages;

On petitioners’ argument that respondents are not entitled to additional rent for petitioners’ extended stay beyond the
lease expiration date, the CA held that the respondents are in fact authorized to collect whatever damages they may
3. Fifty Thousand Pesos (₱50,000.00), by way of exemplary damages; have incurred by reason of the lease,66 citing Section 16 of the lease agreement which provides as follows:

4. The amount equivalent to twenty-five (25%) percent of the total amount recoverable herein by plaintiffs,
by way of attorney’s fees; and
5. Costs of suit.
50
SO ORDERED.
51 52
The trial court held that petitioners violated the terms of the lease: petitioners failed to pay rent on time, the
warehouses were shown to be in damaged condition,53 and they overstayed beyond the contract period.54 However,
respondents failed to prove the actual amount of their pecuniary losses in regard to the damaged warehouses, which
entitles them merely to nominal damages.55 As to moral damages, the trial court held that because petitioners acted
in gross and wanton disregard of their contractual obligations, respondents are entitled to such damages, as well as
attorneys fees as stipulated at 25% of the total amount recoverable.56
With respect to petitioners, the trial court said that although they claim to have paid all their obligations in full, no
evidence to such effect has been presented,57 for the precise reason that they failed to participate in the proceedings
on their own account.
Both parties moved for reconsideration. Respondents prayed that petitioners be made additionally liable for
liquidated damages and ₱2,000,000.00 as compensation for the restoration of the damaged warehouses. 58
SECTION 16. TERMINATION OR CANCELLATION OF THE LEASE. Any delay in or violation, failure or refusal of
the LESSEE to perform and comply with any of the obligations stipulated hereunder shall automatically give an
absolute right to the LESSORS to cancel, terminate or otherwise rescind this Contract of Lease. x x x.
xxxx
The above provisions shall, however, be without prejudice to any right of claim by the LESSORS against the
LESSEE for whatever damages which may be incurred or assessed under this Contract of Lease. 67 (Emphasis
supplied)
The CA found no error in the award of moral and exemplary damages, noting that petitioners’ violations of the lease
agreement compelled respondents to litigate and endure unreasonable delays, sleepless nights, mental anguish,
and serious anxiety.68 As for attorney’s fees, the CA sustained the trial court’s award of 25%, saying that such
stipulation may be justified under Article 2208 of the Civil Code.69 Since respondents were compelled to incur
expenses to protect their interests as a result of petitioners’ acts and omissions, they should be allowed to collect the
stipulated attorney’s fees.70
Finally, the CA held that the matter of conducting further oral arguments on a party’s Motion for Reconsideration
rests upon the sound discretion of the court. Because petitioners’ Verified Motion for Reconsideration is a mere
reiteration of their defenses which they raised all throughout the proceedings below, conducting a hearing on the
motion would have been a mere superfluity.71

Petitioners, in their Verified Motion for Reconsideration,59 argued that the evidence is not sufficient to warrant a The CA thus dismissed the petitioners’ appeal and sustained in toto the January 31, 2005 decision of the trial
finding of liability on their part, and the award is excessive. They claimed that they should not be made to pay court.72 Their Motion for Reconsideration73 was denied as well, through the questioned September 15, 2008
additional rent for their unauthorized stay beyond the lease expiration date, or from July 1 to August 11, 1999, Resolution.74
because the lease agreement did not provide for such. Likewise, they claimed that, as represented by respondents
themselves in their July 22, 1999 demand letter,60 which they annexed to their Verified Motion for Reconsideration
and was presented to the court for the first time, petitioners’ outstanding obligation, including back rentals, interest, Issues
and the supposed one-month additional rent, was pegged at a mere ₱378,451.00; thus, the judgment award of
₱863,796.00 is excessive and illegal. Petitioners added that there is no factual basis for the award of moral and
The instant Petition thus raises the following issues:
exemplary damages. Thus, they prayed that the Decision be reconsidered and that the Complaint be dismissed.

A
In a January 30, 2006 Omnibus Order,61 the trial court declined to reconsider. Only petitioners went up to the CA on
appeal.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CALLING THE TRIAL COURT
TO TASK FOR REFUSING TO RECEIVE EVIDENCE IN SUPPORT OF THE VERIFIED MOTION FOR
Ruling of the Court of Appeals
RECONSIDERATION OF PETITIONERS ON THE GROUND THAT THE AWARD OF DAMAGES IS
EXCESSIVE.
In the CA, petitioners maintained that the Decision is erroneous and the awards excessive, echoing their previous
argument below that the lease agreement did not authorize respondents to charge additional rents for their extended
B
stay and interest on delayed rental payments. They added that respondents are not entitled to moral and exemplary
damages and attorney’s fees. Finally, they bemoaned the trial court’s act of resolving their Verified Motion for
Reconsideration of the Decision without conducting oral arguments.
 THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT DISCERNING THE INTERNAL
FACTUAL INCONSISTENCIES OF THE FINDINGS OF THE TRIAL COURT AS WELL AS THE LACK OF
LEGAL BASIS THEREOF, VIS-À-VIS THE CLAIM OF UNPAID RENT AND INTEREST, IN CLEAR
DISREGARD OF THE PRONOUNCEMENTS OF THIS HONORABLE COURT IN MARTIN V. COURT OF
APPEALS.
C damages suffered as a result of the petitioners’ neglect to maintain the premises, specifically the warehouses, as
THERE IS SIMILARLY NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES, AND
THE HONORABLE COURT OF APPEALS WAS IN GRIEVOUS ERROR IN SUSTAINING THE TRIAL
COURT IN CLEAR DISREGARD OF THIS HONORABLE COURT’S PRONOUNCEMENTS IN ABS-CBN
BROADCASTING CORPORATION V. COURT OF APPEALS.75
Petitioners’ Arguments
Petitioners pray for the setting aside of the questioned Decision and Resolution of the CA, as well as the dismissal of
respondents’ Complaint, claiming that they have in fact settled all their obligations to respondents.
Petitioners first claim that they should have been given the opportunity to present evidence during proceedings
covering their Verified Motion for Reconsideration of the trial court’s Decision, invoking Section 1, Rule 37 of the
Rules of Court76 which allows them to question the trial court’s Decision on the ground that the damages awarded
are excessive or that the evidence is insufficient to justify the Decision. 77
Petitioners direct the Court’s attention to respondents’ July 22, 1999 demand letter78 indicating that their outstanding
obligation was only ₱378,451.00, which thus renders excessive the award of ₱863,796.00.
Petitioners next insist that the lease agreement did not authorize respondents to charge additional rents for their July
1 to August 11, 1999 extended stay,79 which thus renders without legal or factual basis and excessive the award of
₱863,796.00.80 If at all, the basis for computation thereof should be the immediately preceding monthly rental of
₱244,025.00.81 Nor is the imposition of interest allowed under the agreement. Petitioners concede that in the
absence of stipulation as to interest, respondents are entitled only to 6% annual interest as indemnity for
damages,82 pursuant to Article 2209 of the Civil Code.83
On the issue of petitioners’ contract violations, it is claimed that petitioners are not guilty of subleasing the property to
one Cynthia Reyes (Reyes). They argue that although Reyes paid a portion of the rentals, this may not be taken as
sufficient proof of the existence of a sublease agreement between them; and even assuming that a sublease
agreement indeed existed between them, such arrangement was condoned by respondents when they accepted
payments of rents made directly to them by Reyes.84
Regarding damages and attorney’s fees, petitioners maintain that there could not have been delay in the payment of
rentals as to warrant the award of moral damages, since they have paid the rents in full; their supposed liability was
only for the additional rent incurred for their extended stay. Petitioners proceed to argue that if only respondents had
exercised their option – allowed under the lease agreement – to forcibly evict petitioners from the premises, then
they would not have incurred the damages they claim to be entitled to. As for the award of exemplary damages and
attorney’s fees, petitioners find no factual and legal bases for the grant thereof. Since they did not act with malice or
bad faith in all matters relative to the lease, respondents should not be entitled thereto. 85
Respondents’ Arguments
In their Comment,86 respondents insist that petitioners committed several violations of the lease
agreement,87specifically: for their failure to pay the rents on time,88 for subleasing the property to Reyes,89 for
neglecting to maintain the warehouses which resulted in their damaged condition after the lease,90 for refusing to
vacate the premises upon the expiration of the lease,91 and for their neglect and refusal to pay the required fishpond
license and permit fees imposed by the municipality of Bulacan.92 Respondents add that for these violations, they
incurred actual damages and suffered moral damages, which further entitles them to exemplary damages and
attorney’s fees as stipulated in the lease agreement.93
Respondents insist that far from being excessive, the trial court’s award is instead insufficient, considering the
agreed.
Respondents maintain that in the event of expiration of the lease period and the lessee maintains himself within the
premises, the law authorizes the collection of rentals on a month-to-month or year-to-year basis,94 citing Articles
1670 and 1687 of the Civil Code.95 Thus, even if the lease agreement with petitioners failed to provide for a
stipulation covering lease extension, the obligation to pay rent is not extinguished by the expiration of the lease on
June 30, 1999.96
Respondents further claim that interest should be paid at 12% per annum, and not merely 6%, on the outstanding
obligation.97
Our Ruling
While this Court is not a trier of facts, it appears that both the trial court and the CA have misappreciated the facts
and the evidence; rectification is thus in order, if justice is to be properly served.
But first, on the procedural issue raised, the Court cannot subscribe to petitioners’ argument that they had a right to a
hearing on their motion for reconsideration. The trial court may not be faulted for denying what it could have
perceived was another of petitioners’ delaying tactics, given how they acted throughout the proceedings. It may have
been a baffling situation for the trial court to find itself suddenly confronted with petitioners’ zeal in presenting their
case, at such a late stage, when they have repeatedly waived such right during the trial of the case. Indeed, it
possessed sufficient discretion to grant or deny the hearing sought for their motion for reconsideration; under the
circumstances, the Court finds that such discretion was exercised soundly. Besides, as will be seen, the evidence is
ample and clear enough to warrant judgment outside of a hearing.
Both courts erred in finding that there are outstanding rents owing to the respondents in the amount of ₱863,796.00.
Attention must be called to respondents’ July 22, 1999 demand letter.98 The letter, which appears to have been
handwritten and signed by Amparo Palenzuela herself, makes a demand upon petitioners to pay the total amount of
₱378,451.00 which respondents claim constitutes what is owing to them as of July 31, 1999 by way of unpaid rentals
(₱111,082.00); additional rent for the whole duration of petitioners’ stay on the premises beyond the contract date, or
for the whole of July 1999 (₱244,025.00); and interest from May 31, 1999 up to July 31, 1999 (₱23,344.00). This
letter belies the claim that petitioners owed respondents a greater amount by way of unpaid rents. Even though it is
not newly-discovered evidence, it is material; indeed, petitioners could not have presented it during trial because
they were declared in default.
Of this amount – ₱378,451.00 – petitioners admit to paying nothing. Thus, for petitioners, this is their admitted
liability.
The Court notes further that respondents do not even dispute petitioners’ argument that the amount of ₱863,796.00
actually represented rentals being claimed for their one-month extended stay on the premises, which to them is
excessive. This argument of the petitioners finds support in the direct testimony of respondents’ witness, Amparo
Palenzuela, thus –
Q x x x Madam Witness, you mentioned x x x that the defendants have outstanding obligation to you. Can you tell
the Court how much is the outstanding obligation to you of the defendants with respect to their occupation of your
fishponds?
A Up to July 31, 2000,99 Mr. Castro’s obligation is ₱863,796.00. additional rent for their extended stay in the amount of ₱244,025.00 is included. By adopting the letter as their own
evidence in seeking a reduction in the award of unpaid rent, petitioners are considered to have admitted liability for
additional rent as stated therein, in the amount of ₱244,025.00. Petitioners may not simultaneously accept and reject
Q Can you briefly explain to the Court how you came about this figure?
the demand letter; this would go against the rules of fair play. Besides, respondents are correct in saying that when
the lease expired on June 30, 1999 and petitioners continued enjoying the premises without objection from the
A Actually this is what he owes for back lease that he has not paid including interest. This one is supposedly for respondents, an implied new lease was created pursuant to Article 1670 of the Civil Code, which placed upon
overstaying of one month. We did not charge him 41 days, we are only charging him one month and that is the petitioners the obligation to pay additional rent.
total.100
On the matter of interest, the proper rate is not 6% as petitioners argue, but 12% per annum, collected from the time
Q With respect to this ₱863,796.00 this is the total as of July? of extrajudicial demand on July 22, 1999. Back rentals in this case are equivalent to a loan or forbearance of
money.108
A July 31.
On the issue of moral and exemplary damages, the Court finds no reason to disturb the trial and appellate courts’
101 award in this regard. Petitioners have not been exactly above-board in dealing with respondents. They have been
Q 2000? found guilty of several violations of the agreement, and not just one. They incurred delay in their payments, and their
check payments bounced, for one; for another, they subleased the premises to Reyes, in blatant disregard of the
A That’s right. express prohibition in the lease agreement; thirdly, they refused to honor their obligation, as stipulated under the
lease agreement, to pay the fishpond license and other permit fees and; finally, they refused to vacate the premises
after the expiration of the lease.1âwphi1
Q And this pertains to unpaid rent and interest thereof?

Even though respondents received payments directly from the sublessee Reyes, this could not erase the fact that
A That’s right. petitioners are guilty of subleasing the fishponds to her. Respondents may have been compelled to accept payment
from Reyes only because petitioners have been remiss in honoring their obligation to pay rent.
Q The stipulated interest thereof?
Bad faith "means breach of a known duty through some motive or interest or ill will."109 By refusing to honor their
A That’s right. solemn obligations under the lease, and instead unduly profiting from these violations, petitioners are guilty of bad
faith. Moral damages may be awarded when the breach of contract is attended with bad faith. 110 "Exemplary
damages may [also] be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a
Q And with respect to damages which you expect to incur is not yet included in this? wanton, fraudulent, reckless, oppressive, or malevolent manner x x x. [And] since the award of exemplary damages
is proper in this case, attomey's fees and costs of the suit may also be recovered,111 as stipulated in the lease
A Yes. agreement.

Q And the unpaid municipal fees are also not included in this? WHEREFORE, premises considered, the Petition is DENIED. The January 29, 2008 Decision of the Court of
Appeals in CA-G.R. CV No. 86925 which affirmed in toto the January 31, 2005 Decision of the Regional Trial Court
of Quezon City, Branch 85 in Civil Case No. Q-00-41011 is AFFIRMED with the MODIFICATION that the actual and
A Not included but they have been paid.102 (Emphasis supplied) compensatory damages are reduced to ₱3 78,451.00, the same to earn legal interest at the rate of twelve percent
(12%) per annum from July 22, 1999 until fully paid.
Indeed, respondents do not deny that this amount of ₱863,796.00 is what they are actually charging petitioners for
one month’s extended use of their fishponds. If this is so, then it is truly excessive, considering that for the
immediately preceding month – the whole of June 1999 – it costs only ₱244,025.00103 for the petitioners to rent the
same property. The trial court may have been impelled to accept respondents’ own computation104 of what they SECOND DIVISION
believed was due from petitioners on account of the fact that at that time, petitioners were declared in default and
could not cross-examine the respondents’ witness. But the fact remains that the July 22, 1999 demand letter 105clearly
sets forth in detail what appears to be the true, accurate and reasonable amount of petitioners’ outstanding PRISMA CONSTRUCTION & DEVELOPMENT G.R. No. 160545
obligation. If this document were a forgery, respondents would have vehemently objected to its presentation at the CORPORATION and ROGELIO S. PANTALEON,
very first opportunity. Petitioners,
Present:
Yet they did not. Such document could thus be considered and given weight. "[T]he omission x x x ‘to rebut that
*
which would have naturally invited an immediate, pervasive and stiff opposition x x x create[s] an adverse inference NACHURA, J.,
that either the controverting [evidence] x x x presented x x x will only prejudice its case, or that the uncontroverted - versus - BRION, Acting Chairperson,
evidence indeed speaks of the truth’."106 DEL CASTILLO,
ABAD, and
PEREZ, JJ.
As for petitioners’ submission that respondents were not authorized to charge additional rent for their extended stay,
this issue should be deemed settled by their very reliance on the July 22, 1999 demand letter,107 where a charge for ARTHUR F. MENCHAVEZ ,
Respondent. January 4, 1997 P30,000.00[11]
Promulgated:

March 9, 2010
x------------------------------------------------------------------------------------------x
DECISION
BRION, J.:
[1]
We resolve in this Decision the petition for review on certiorari filed by petitioners Prisma Construction &
Development Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to
reverse and set aside the Decision[2] dated May 5, 2003 and the Resolution[3] 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 P1,000,000.00[4] 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 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00[6]
Total P1,240,000.00
To secure the payment of the loan, Pantaleon issued a promissory note[7] 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 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00
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:
September 8, 1994 P320,000.00
October 8, 1995.P600,000.00
November 8, 1995.....P158,772.00
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 denial[18] 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. Valdehueza[24] and Ching v. Nicdao[25] that collection of interest without any stipulation in
writing is prohibited by law.
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 Appeals[34] 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.
Salazar[35] 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.
FIRST DIVISION
G.R. No. 183804, September 11, 2013
S.C. MEGAWORLD CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner, v. ENGR. LUIS U.
PARADA, REPRESENTED BY ENGR. LEONARDO A. PARADA OF GENLITE INDUSTRIES,Respondent.
DECISION
REYES, J.:
1 2
Before us on appeal by certiorari is the Decision dated April 30, 2008 of the Court of Appeals (CA) in CA-G.R. CV
No. 83811 which upheld the Decision3 dated May 28, 2004 of the Regional Trial Court (RTC) of Quezon City, Branch
100, in Civil Case No. Q-01-45212.
Factual Antecedents
S.C. Megaworld Construction and Development Corporation (petitioner) bought electrical lighting materials from
Genlite Industries, a sole proprietorship owned by Engineer Luis U. Parada (respondent), for its Read-Rite project in
Canlubang, Laguna. The petitioner was unable to pay for the above purchase on due date, but blamed it on its
failure to collect under its sub-contract with the Enviro Kleen Technologies, Inc. (Enviro Kleen). It was however able
to persuade Enviro Kleen to agree to settle its above purchase, but after paying the respondent P250,000.00 on
June 2, 1999,4 Enviro Kleen stopped making further payments, leaving an outstanding balance of P816,627.00. It
also ignored the various demands of the respondent, who then filed a suit in the RTC, docketed as Civil Case No. Q-
01-45212, to collect from the petitioner the said balance, plus damages, costs and expenses, as summarized in the
RTC’s decision, as follows:chanrobles virtua1aw 1ibrary
According to the statement of account prepared by the [respondent], the total obligation due to the [petitioner] is
[P]816,627.00 as of 31 January 2001 (Exh[s]. E & E-1). Despite several demands made by the [respondent] (Exhs. F
& G, inclusive of their submarkings), the [petitioner’s] obligation remain[s] unpaid. [The respondent] was constrained
to file the instant action in which it is claiming the unpaid balance of [P]816,627.00, two (2) percent thereof as
monthly interest, twenty-five (25) percent of the amount due as attorney’s fees (Exhs. C-8 to C-15), [P]100,000.00 as
litigation expenses and [P]100,000.00 as exemplary damages.5
The petitioner in its answer denied liability, claiming that it was released from its indebtedness to the respondent by
reason of the novation of their contract, which, it reasoned, took place when the latter accepted the partial payment
of Enviro Kleen in its behalf, and thereby acquiesced to the substitution of Enviro Kleen as the new debtor in the
petitioner’s place.
After trial, the RTC rendered judgment6 on May 28, 2004 in favor of the respondent, the fallo of which reads, as
follows:chanrobles virtua1aw 1ibrary
WHEREFORE, judgment is hereby rendered for the [respondent].
[The petitioner] is hereby ordered to pay the [respondent] the following:
1. A. the sum of [P]816,627.00 representing the principal obligation due;
2. B. the sum equivalent to twenty percent (20%) per month of the principal obligation due from date of
judicial demand until fully paid as and for interest; and
3. C. the sum equivalent to twenty[-]five [percent] (25%) of the principal sum due as and for attorney’s fees
and other costs of suits.
The compulsory counterclaim interposed by the [petitioner] is hereby ordered dismissed for lack of merit.
SO ORDERED.7 (Emphasis supplied)
On appeal to the CA, the petitioner maintained that the trial court erred in ruling that no novation of the contract took
place through the substitution of Enviro Kleen as the new debtor. But for the first time, it further argued that the trial
court should have dismissed the complaint for failure of the respondent to implead Genlite Industries as “a proper
party in interest”, as provided in Section 2 of Rule 3 of the 1997 Rules of Civil Procedure. The said section
provides:chanrobles virtua1aw 1ibrary
SEC. 2. Parties in interest. — A real party in interest is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules,
every action must be prosecuted or defended in the name of the real party in interest.
In Section 1(g) of Rule 16 of the Rules of Court, it is also provided that the defendant may move to dismiss the suit
on the ground that it was not brought in the name of or against the real party in interest, with the effect that the
complaint is then deemed to state no cause of action.
In dismissing the appeal, the CA noted that the petitioner in its answer below raised only the defense of novation,
and that at no stage in the proceedings did it raise the question of whether the suit was brought in the name of the
real party in interest. Moreover, the appellate court found from the sales invoices and receipts that the respondent is
the sole proprietor of Genlite Industries, and therefore the real party-plaintiff. Said the CA:chanrobles virtua1aw
1ibrary
Settled is the rule that litigants cannot raise an issue for the first time on appeal as this would contravene the basic
rules of fair play and justice.
In any event, there is no question that [respondent] Engr. Luis U. Parada is the proprietor of Genlite Industries, as
shown on the sales invoice and delivery receipts. There is also no question that a special power of attorney was
executed by [respondent] Engr. Luis U. Parada in favor of Engr. Leonardo A. Parada authorizing the latter to file a
complaint against [the petitioner].8 (Citations omitted)
The petitioner also contended that a binding novation of the purchase contract between the parties took place when
the respondent accepted the partial payment of Enviro Kleen of P250,000.00 in its behalf, and thus acquiesced to
the substitution by Enviro Kleen of the petitioner as the new debtor. But the CA noted that there is nothing in the two
(2) letters of the respondent to Enviro Kleen, dated April 14, 1999 and June 16, 1999, which would imply that he
consented to the alleged novation, and, particularly, that he intended to release the petitioner from its primary
obligation to pay him for its purchase of lighting materials. The appellate court cited the RTC’s finding 9 that the
respondent informed Enviro Kleen in his first letter that he had served notice to the petitioner that he would take legal
action against it for its overdue account, and that he retained his option to pull out the lighting materials and charge
the petitioner for any damage they might sustain during the pull-out:chanrobles virtua1aw 1ibrary
[Respondent] x x x has served notice to the [petitioner] that unless the overdue account is paid, the matter will be
referred to its lawyers and there may be a pull-out of the delivered lighting fixtures. It was likewise stated therein that
incidental damages that may result to the structure in the course of the pull-out will be to the account of the
[petitioner].10
The CA concurred with the RTC that by retaining his option to seek satisfaction from the petitioner, any
acquiescence which the respondent had made was limited to merely accepting Enviro Kleen as an additional debtor
from whom he could demand payment, but without releasing the petitioner as the principal debtor from its debt to
him.
On motion for reconsideration,11 the petitioner raised for the first time the issue of the validity of the verification and
certification of non-forum shopping attached to the complaint. On July 18, 2008, the CA denied the said motion for
lack of merit.12cralaw virtualaw library
Petition for Review in the Supreme Court
In this petition, the petitioner insists, firstly, that the complaint should have been dismissed outright by the trial court
for an invalid non-forum shopping certification; and, secondly, that the appellate court erred in not declaring that
there was a novation of the contract between the parties through substitution of the debtor, which resulted in the
release of the petitioner from its obligation to pay the respondent the amount of its purchase.13cralaw virtualaw library
Our Ruling
The petition is devoid of merit.
The verification and certification of non-forum shopping in the complaint is not a jurisdictional but a formal
requirement, and any objection as to non-compliance therewith should be raised in the proceedings below
and not for the first time on appeal.
“It is well-settled that no question will be entertained on appeal unless it has been raised in the proceedings below.
Points of law, theories, issues and arguments not brought to the attention of the lower court, administrative agency
or quasi-judicial body, need not be considered by a reviewing court, as they cannot be raised for the first time at
that late stage. Basic considerations of fairness and due process impel this rule. Any issue raised for the first time on
appeal is barred by estoppel.”14cralaw virtualaw library
Through a Special Power of Attorney (SPA), the respondent authorized Engr. Leonardo A. Parada (Leonardo), the
eldest of his three children, to perform the following acts in his behalf: a) to file a complaint against the petitioner for
sum of money with damages; and b) to testify in the trial thereof and sign all papers and documents related thereto,
with full powers to enter into stipulation and compromise. 15 Incidentally, the respondent, a widower, died of cardio-
pulmonary arrest on January 21, 2009,16 survived by his legitimate children, namely, Leonardo, Luis, Jr., and Lalaine,
all surnamed Parada. They have since substituted him in this petition, per the Resolution of the Supreme Court
dated September 2, 2009.17 Also, on July 23, 2009, Luis, Jr. and Lalaine Parada executed an SPA authorizing their
brother Leonardo to represent them in the instant petition.18cralaw virtualaw library
In the verification and certification of non-forum shopping attached to the complaint in Civil Case No. Q01-45212,
Leonardo as attorney-in-fact of his father acknowledged as follows:chanrobles virtua1aw 1ibrary
xxxx
That I/we am/are the Plaintiff in the above-captioned case;
That I/we have caused the preparation of this Complaint;
That I/we have read the same and that all the allegations therein are true and correct to the best of my/our
knowledge;
x x x x.19
In this petition, the petitioner reiterates its argument before the CA that the above verification is invalid, since the
SPA executed by the respondent did not specifically include an authority for Leonardo to sign the verification and
certification of non-forum shopping, thus rendering the complaint defective for violation of Sections 4 and 5 of Rule 7.
The said sections provide, as follows:chanrobles virtua1aw 1ibrary
Sec. 4. Verification. — A pleading is verified by an affidavit that the affiant has read the pleading and that the
allegations therein are true and correct of his personal knowledge or based on authentic records.
Sec. 5. Certification against forum shopping. –– The plaintiff or principal party shall certify under oath in the complaint
or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously
filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in
any court, [or] tribunal x x x and, to the best of his knowledge, no such other action or claim is pending therein; (b) if
there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should
thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact x x x to
the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other
initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing.
The petitioner’s argument is untenable. The petitioner failed to reckon that any objection as to compliance with the
requirement of verification in the complaint should have been raised in the proceedings below, and not in the
appellate court for the first time.20 In KILUSAN-OLALIA v. CA,21 it was held that verification is a formal, not a
jurisdictional requisite:chanrobles virtua1aw 1ibrary
We have emphasized, time and again, that verification is a formal, not a jurisdictional requisite, as it is mainly
intended to secure an assurance that the allegations therein made are done in good faith or are true and correct and
not mere speculation. The Court may order the correction of the pleading, if not verified, or act on the unverified
pleading if the attending circumstances are such that a strict compliance with the rule may be dispensed with in order
that the ends of justice may be served.
Further, in rendering justice, courts have always been, as they ought to be, conscientiously guided by the norm that
on the balance, technicalities take a backseat vis-à-vissubstantive rights, and not the other way around. x x
x.22 (Citations omitted)
In Young v. John Keng Seng,23 it was also held that the question of forum shopping cannot be raised in the CA and
in the Supreme Court, since such an issue must be raised at the earliest opportunity in a motion to dismiss or a
similar pleading. The high court even warned that “[i]nvoking it in the later stages of the proceedings or on appeal
may result in the dismissal of the action x x x.”24cralaw virtualaw library
Moreover, granting that Leonardo has no personal knowledge of the transaction subject of the complaint below,
Section 4 of Rule 7 provides that the verification need not be based on the verifier’s personal knowledge but even
only on authentic records. Sales invoices, statements of accounts, receipts and collection letters for the balance of
the amount still due to the respondent from the petitioner are such records. There is clearly substantial compliance
by the respondent’s attorney-in-fact with the requirement of verification.
Lastly, it is well-settled that a strict compliance with the rules may be dispensed with in order that the ends of
substantial justice may be served.25 It is clear that the present controversy must be resolved on its merits, lest for a
technical oversight the respondent should be deprived of what is justly due him.
A sole proprietorship has no juridical personality separate and distinct from that of its owner, and need not
be impleaded as a party-plaintiff in a civil case.
On the question of whether Genlite Industries should have been impleaded as a party-plaintiff, Section 1 of Rule 3 of
the Rules of Court provides that only natural or juridical persons or entities authorized by law may be parties in a civil
case. Article 44 of the New Civil Code enumerates who are juridical persons:chanrobles virtua1aw 1ibrary
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins
as soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or member.
Genlite Industries is merely the DTI-registered trade name or style of the respondent by which he conducted his
business. As such, it does not exist as a separate entity apart from its owner, and therefore it has no separate
juridical personality to sue or be sued.26 As the sole proprietor of Genlite Industries, there is no question that the
respondent is the real party in interest who stood to be directly benefited or injured by the judgment in the complaint
below. There is then no necessity for Genlite Industries to be impleaded as a party-plaintiff, since the complaint was
already filed in the name of its proprietor, Engr. Luis U. Parada. To heed the petitioner’s sophistic reasoning is to
permit a dubious technicality to frustrate the ends of substantial justice.
Novation is never presumed but must be clearly and unequivocally shown.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. 27 It is “the substitution
of a new contract, debt, or obligation for an existing one between the same or different parties.” 28 Article 1293 of the
Civil Code defines novation as follows:chanrobles virtua1aw 1ibrary
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him rights mentioned in Articles 1236 and 1237.
Thus, in order to change the person of the debtor, the former debtor must be expressly released from the obligation,
and the third person or new debtor must assume the former’s place in the contractual relation. 29 Article 1293 speaks
of substitution of the debtor, which may either be in the form of expromision or delegacion, as seems to be the case
here. In both cases, the old debtor must be released from the obligation, otherwise, there is no valid novation. As
explained in Garcia30:chanrobles virtua1aw 1ibrary
In general, there are two modes of substituting the person of the debtor: (1) expromisionand (2) delegacion.
In expromision, the initiative for the change does not come from—and may even be made without the knowledge
of—the debtor, since it consists of a third person’s assumption of the obligation. As such, it logically requires the
consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person
who consents to the substitution and assumes the obligation; thus, the consent of these three persons are
necessary. Both modes of substitution by the debtor require the consent of the creditor. 31 (Citations omitted)
From the circumstances obtaining below, we can infer no clear and unequivocal consent by the respondent to the
release of the petitioner from the obligation to pay the cost of the lighting materials. In fact, from the letters of the
respondent to Enviro Kleen, it can be said that he retained his option to go after the petitioner if Enviro Kleen failed to
settle the petitioner’s debt. As the trial court held:chanrobles virtua1aw 1ibrary
The fact that Enviro Kleen Technologies, Inc. made payments to the [respondent] and the latter accepted it does
not ipso facto result in novation. Novation to be given its legal effect requires that the creditor should consent to the
substitution of a new debtor and the old debtor be released from its obligation (Art. 1293, New Civil Code). A reading
of the letters dated 14 April 1999 (Exh. 1) and dated 16 June 1999 (Exh[s]. 4 & 4-a) sent by the [respondent] to
Enviro Kleen Technologies, Inc. clearly shows that there was nothing therein that would evince that the [respondent]
has consented to the exchange of the person of the debtor from the [petitioner] to Enviro Kleen Technologies, Inc.
xxxx
Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the [respondent] expressly stated that it has
served notice to the [petitioner] that unless the overdue account is paid, the matter will be referred to its lawyers and
there may be a pull-out of the delivered lighting fixtures. It was likewise stated therein that incident damages that may
result to the structure in the course of the pull-out will be to the account of the [petitioner].
It is evident from the two (2) aforesaid letters that there is no indication of the [respondent’s] intention to release the
[petitioner] from its obligation to pay and to transfer it to Enviro Kleen Technologies, Inc. The acquiescence of Enviro
Kleen Technologies, Inc. to assume the obligation of the [petitioner] to pay the unpaid balance of [P]816,627.00 to
the [respondent] when there is clearly no agreement to release the [petitioner] will result merely to the addition of
debtors and not novation. Hence, the creditor can still enforce the obligation against the original debtor x x x. A fact
which points strongly to the conclusion that the [respondent] did not assent to the substitution of Enviro Kleen
Technologies, Inc. as the new debtor is the present action instituted by [the respondent] against the [petitioner] for
the fulfilment of its obligation. A mere recital that the [respondent] has agreed or consented to the substitution of the
debtor is not sufficient to establish the fact that there was a novation. x x x. 32
The settled rule is that novation is never presumed,33 but must be clearly and unequivocally shown.34 In order for a
new agreement to supersede the old one, the parties to a contract must expressly agree that they are abrogating
their old contract in favor of a new one.35 Thus, the mere substitution of debtors will not result in novation, 36 and the
fact that the creditor accepts payments from a third person, who has assumed the obligation, will result merely in the
addition of debtors and not novation, and the creditor may enforce the obligation against both debtors.37 If there is no
agreement as to solidarity, the first and new debtors are considered obligated jointly. 38 As explained in Reyes v.
CA39:chanrobles virtua1aw 1ibrary
The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s consent in
conventional subrogation in order that a novation shall legally take place. The mere circumstance of AFP-MBAI
receiving payments from respondent Eleazar who acquiesced to assume the obligation of petitioner under the
contract of sale of securities, when there is clearly no agreement to release petitioner from her responsibility, does
not constitute novation. At most, it only creates a juridical relation of co-debtorship or suretyship on the part of
respondent Eleazar to the contractual obligation of petitioner to AFP-MBAI and the latter can still enforce the
obligation against the petitioner. In Ajax Marketing and Development Corporation vs. Court of Appeals which is
relevant in the instant case, we stated that —
“In the same vein, to effect a subjective novation by a change in the person of the debtor, it is necessary that the old
debtor be released expressly from the obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person who has assumed the debtor’s obligation
becomes merely a co-debtor or surety. xxx. Novation arising from a purported change in the person of the debtor
must be clear and express xxx.”
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law
jurisprudence, the principle – novatio non praesumitur — that novation is never presumed. At bottom, for novation to
be a jural reality, its animus must be ever present, debitum pro debito — basically extinguishing the old obligation for
the new one.40(Citation omitted)
The trial court found that the respondent never agreed to release the petitioner from its obligation, and this
conclusion was upheld by the CA. We generally accord utmost respect and great weight to factual findings of the trial
court and the CA, unless there appears in the record some fact or circumstance of weight and influence which has
been overlooked, or the significance of which has been misinterpreted, that if considered would have affected the
result of the case.41 We find no such oversight in the appreciation of the facts below, nor such a misinterpretation
thereof, as would otherwise provide a clear and unequivocal showing that a novation has occurred in the contract
between the parties resulting in the release of the petitioner.
Pursuant to Article 2209 of the Civil Code, except as provided under Central Bank Circular No. 905, and now
under Bangko Sentral ng Pilipinas Circular No. 799, which took effect on July 1, 2013, the respondent may
be awarded interest of six percent (6%) of the judgment amount by way of actual and compensatory
damages.
It appears from the recital of facts in the trial court’s decision that the respondent demanded interest of two percent
(2%) per month upon the balance of the purchase price of P816,627.00, from judicial demand until full payment.
There is then an obvious clerical error committed in the fallo of the trial court’s decision, for it incorrectly ordered the
defendant therein to pay “the sum equivalent to twenty percent (20%) per month of the principal obligation due
from date of judicial demand until fully paid as and for interest.”42cralaw virtualaw library
A clerical mistake is one which is visible to the eyes or obvious to the understanding; an error made by a clerk or a
transcriber; a mistake in copying or writing.43 The Latin maxims Error placitandi aequitatem non tollit (“A clerical error
does not take away equity”), and Error scribentis nocere non debit (“An error made by a clerk ought not to injure; a
clerical error may be corrected”) are apt in this case. 44 Viewed against the landmark case of Medel v. CA45, an award
of interest of 20% per month on the amount due is clearly excessive and iniquitous. It could not have been the
intention of the trial court, not to mention that it is way beyond what the plaintiff had prayed for below.
It is settled that other than in the case of judgments which are void ab initio for lack of jurisdiction, or which are null
and void per se, and thus may be questioned at any time, when a decision is final, even the court which issued it can
no longer alter or modify it, except to correct clerical errors or mistakes. 46cralaw virtualaw library
The foregoing notwithstanding, of more important consideration in the case before us is the fact that it is nowhere
stated in the trial court’s decision that the parties had in fact stipulated an interest on the amount due to the
respondent. Even granting that there was such an agreement, there is no finding by the trial court that the parties
stipulated that the outstanding debt of the petitioner would be subject to two percent (2%) monthly interest. The most
that the decision discloses is that the respondent demanded a monthly interest of 2% on the amount outstanding.
Article 2209 of the Civil Code provides that “[i]f the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.”
Pursuant to the said provision, then, since there is no finding of a stipulation by the parties as to the imposition of
interest, only the amount of 12% per annum47 may be awarded by the court by way of damages in its discretion, not
two percent (2%) per month, following the guidelines laid down in the landmark case of Eastern Shipping Lines v.
Court of Appeals,48 to wit:chanrobles virtua1aw 1ibrary
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. 49 (Citations
omitted)
As further clarified in the case of Sunga-Chan v. CA,50 a loan or forbearance of money, goods or credit describes a
contractual obligation whereby a lender or creditor has refrained during a given period from requiring the borrower or
debtor to repay the loan or debt then due and payable.51 Thus:chanrobles virtua1aw 1ibrary
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular
No. 416 shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving
payment of indemnities in the concept of damages arising from default in the performance of obligations in general
and/or for money judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is
Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:chanrobles virtua1aw
1ibrary
“Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum.”
The term “forbearance,” within the context of usury law, has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then
due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money,
goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while
the 6% per annum under Art. 2209 of the Civil Code applies “when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in
general,” with the application of both rates reckoned “from the time the complaint was filed until the [adjudged]
amount is fully paid.” In either instance, the reckoning period for the commencement of the running of the legal
interest shall be subject to the condition “that the courts are vested with discretion, depending on the equities of each
case, on the award of interest.”52 (Citations omitted and emphasis ours)
Pursuant, then, to Central Bank Circular No. 416, issued on July 29, 1974, 53 in the absence of a written stipulation,
the interest rate to be imposed in judgments involving a forbearance of credit shall be 12% per annum, up from 6%
under Article 2209 of the Civil Code. This was reiterated in Central Bank Circular No. 905, which suspended the
effectivity of the Usury Law from January 1, 1983.54 But if the judgment refers to payment of interest as damages
arising from a breach or delay in general, the applicable interest rate is 6% per annum, following Article 2209 of the
Civil Code.55 Both interest rates apply from judicial or extrajudicial demand until finality of the judgment. But from the
finality of the judgment awarding a sum of money until it is satisfied, the award shall be considered a forbearance of
credit, regardless of whether the award in fact pertained to one, and therefore during this period, the interest rate of
12% per annum for forbearance of money shall apply.56cralaw virtualaw library
But notice must be taken that in Resolution No. 796 dated May 16, 2013, the Monetary Board of the Bangko Sentral
ng Pilipinas approved the revision of the interest rate to be imposed for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest. Thus,
under BSP Circular No. 799, issued on June 21, 2013 and effective on July 1, 2013, the said rate of interest is now
back at six percent (6%), viz:chanrobles virtua1aw 1ibrary
Bangko Sentral ng Pilipinas
OFFICE OF THE GOVERNOR
CIRCULAR NO. 799
Series of 2013
Subject: Rate of interest in the absence of stipulation
The monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the
rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series
of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.
This Circular shall take effect on 1 July 2013.
FOR THE MONETARY BOARD:
DIWA C. GUINIGUNDO
Officer-In-Charge
The award of attorney’s fees is not proper.
Other than to say that the petitioner “unjustifiably failed and refused to pay the respondent,” the trial court did not
state in the body of its decision the factual or legal basis for its award of attorney’s fees to the respondent, as
required under Article 2208 of the New Civil Code, for which reason we have resolved to delete the same. The rule is
settled that the trial court must state the factual, legal or equitable justification for its award of attorney’s
fees.57 Indeed, the matter of attorney’s fees cannot be stated only in the dispositive portion, but the reasons must be
stated in the body of the court’s decision.58 This failure or oversight of the trial court cannot even be supplied by the
CA. As concisely explained in Frias v. San Diego-Sison59:chanrobles virtua1aw 1ibrary
Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must
be reasonable, just and equitable if the same were to be granted. Attorney’s fees as part of damages are not meant
to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a
suit because of the policy that no premium should be placed on the right to litigate. The award of attorney’s fees is
the exception rather than the general rule. As such, it is necessary for the trial court to make findings of facts and law
that would bring the case within the exception and justify the grant of such award. The matter of attorney’s fees
cannot be mentioned only in the dispositive portion of the decision. They must be clearly explained and justified by
the trial court in the body of its decision. On appeal, the CA is precluded from supplementing the bases for awarding
attorney’s fees when the trial court failed to discuss in its Decision the reasons for awarding the same. Consequently,
the award of attorney’s fees should be deleted.60 (Citations omitted)
WHEREFORE, premises considered, the Decision dated April 30, 2008 of the Court of Appeals in CA-G.R. CV No.
83811 is AFFIRMED with MODIFICATION. Petitioner S.C. Megaworld Construction and Development Corporation is
ordered to pay respondent Engr. Luis A. Parada, represented by Engr. Leonardo A. Parada, the principal amount
due of P816,627.00, plus interest at twelve percent (12%) per annum, reckoned from judicial demand until June 30,
2013, and six percent (6%) per annum from July 1, 2013 until finality hereof, by way of actual and compensatory
damages. Thereafter, the principal amount due as adjusted by interest shall likewise earn interest at six percent
(6%) per annum until fully paid. The award of attorney’s fees is DELETED.chanroblesvirtualawlibrary
SO ORDERED.
Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Villarama, Jr., JJ., concur.
ROLANDO DE LA PAZ VS. L & J DEVELOPMENT COMPANY
G.R. NO. 183360
SEPTEMBER 8, 2014
FACTS: Out of trust and confidence, Rolando dela Paz lent a sum of money worth Php 350,000 to L & J
Development Corporation, a property developer represented by Atty. Esteban Salonga as its president and general
manager.
The loan was executed without any security and no maturity date. It was however agreed between the parties that
the loan will have a 6% monthly interest (amounting to Php 21,000). So far, L&J paid a total of Php 576,000 already
– including interest charges from December 2000 to August 2003.
L&J later failed to make payments due to financial difficulties in the business. Rolando then filed a collection case
with the MTC and alleged as of January 2005, L&J still owes him Php 772,000 inclusive of monthly interests.
L&J (represented by Atty. Salonga) did not deny that they did incurred a debt from Rolando, and admitted that they
failed to pay due to a fortuitous event (financial difficulties). They also contended that the 6% monthly interest is
unconscionable and that their total payment of Php 576,000 should be applied to the principal loan which only
amounts to Php 350,000.
Rolando also contends that Atty. Salonga tricked him to execute the said loan plus interest without reducing the
agreement in writing. He also said that the 6% interest rate was at the suggestion and insistence of L&J.
The MTC rendered judgment in favor of Rolando and upheld the 6% interest rate as valid since L&J complied to it as
evidenced by the payment they made from December 2000 to August 2003. L&J is now estopped to impugn said
interest rate.
The MTC also reduced the legal interest rate to 12% per annum on the remaining loan for reasons of equity. They
did not grant the prayer of moral damages to Rolando since there was no bad faith on the part of L&J.
L&J appealed the decision to the RTC – contending once again that the 6% interest rate is unconscionable, and that
their previous payment which totaled Php 576,000 should be used to set off the principal loan of Php 350,000. RTC
however affirmed the decision of the MTC. L&J appealed to the CA.
CA ruled in favor of L&J, noting that the agreed 6% interest rate was not reduced in a written agreement and hence,
it should not be considered due. CA ruled that the loan was already paid, and that Rolando should return the excess
Php 226,000 with interest of 12% per annum. The case has now reached the Supreme Court.
ISSUE: Whether or not the unwritten 6% interest agreement should be honored.
HELD: No. The Supreme Court held that, as provided under the Civil Code, an agreement regarding loan interests
should be stipulated in writing. Even if the 6% monthly rate was done in writing, it will still be void for being
unconscionable and contrary to morals and public policy – for at this time, an interest rate of 3% and higher is
considered excessive and exorbitant.
Furthermore, the lack of maturity date puts the total interest to a whooping 72% per annum which the Supreme Court
considered to be “definitely outrageous and inordinate.” The Supreme Court affirmed CA’s ruling, but as to Rolando’s
obligation to pay the excess Php 226,000, the interest rate was reduced from 12% to 6% per annum.
Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78
FACTS
Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a
marine policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to one drum, said to be
in bad order and which damage was unknown the Mercantile Insurance Company. Allied Brokerage Corporation
received the shipment from Metro, one drum opened and without seal. Allied delivered the shipment to the
consignee’s warehouse. The latter excepted to one drum which contained spillages while the rest of the contents
was adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so that it became
subrogated to all the rights of action of consignee against the defendants Eastern Shipping, Metro Port and Allied
Brokerage. The insurance company filed before the trial court. The trial court ruled in favor of plaintiff an ordered
defendants to pay the former with present legal interest of 12% per annum from the date of the filing of the
complaint. On appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial
court.
ISSUE
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the time the complaint
is filed from the date the decision appealed from is rendered.
HELD
(1) The Court held that the legal interest is 6% computed from the decision of the court a quo. When
an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damaes
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and executor, the rate of
legal interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.
(2) From the date the judgment is made. Where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or EJ but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shll begin to run only from the date
of judgment of the court is made.
(3) The Court held that it should be computed from the decision rendered by the court a quo.
INTEREST-LOAN
 In Solid Homes, Inc., et al. v. IAC, et al., G.R. No. 74269; Solid Homes, Inc., et al. v. CA, et al., G.R. No.
92137, November 27, 2006, (Tinga, J), there was an action for rescission of a contract due to the failure to reserve
lots intended to be purchased. The trial court ordered the defendant to return the amount of P16, 938.00 with interest
and damages. The CA affirmed and awarded 12% interest per annum, but did not provide an explanation why it
imposed 12% interest.
This precise issue was subsequently addressed by the Court in Eastern Shipping Lines, Inc. v. Court of
Appeals,G.R. No. 97412, July 12, 1994, 234 SCRA 78. Although the filing of petition in G.R. No. 74269
preceded Eastern Shipping, the guidelines laid down therein are applicable to this case as they implemented and
clarified laws that were already in existence even before this petition was filed.
Eastern Shipping teaches that, with respect to an award of interest in the concept of actual and
compensatory damages, interest on the amount of damages awarded may be imposed at the discretion of the Court
at the rate of 6% per annum for a breach of an obligation not constituting a loan or forbearance of money. No
interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially. But when such certainty cannot be
reasonably established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made. (Eastern Shipping Lines, Inc. v. Court of Appeals, supra note 22 at 96, see also
Biesterbos v. Court of Appeals, G.R. no. 152529, 22 September 2003, 411 SCRA 396, 406-407; Heirs of Ignacia
Aguilar-Reyes v. Spouses Mijares, 457 Phil. 120, 140 (2003)).
The ruling of the appellate court imposing the interest rate of 12% is incompatible with the consistently
reiterated doctrine in Eastern Shipping. In this case, an interest of only 6% should be imposed on the obligation of
petitioners as such obligation did not constitute a loan or forbearance of credit. The 6% interest imposed on the
principal obligation of P16, 438.00 shall commence on the date of first demand as determined by the lower court
which is 11 May 1976.
As aforestated, petitioners did not challenged their liability for the principal obligation, damages and
attorney’s fees as found by the trial court. Thus, petitioner’s liability for the judgment amount, save for the interest,
has become final and executory.
In Eastern Shipping, the Court went on to state that when the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest, whether the obligation was in the form of a loan or
forbearance of money or otherwise, shall be 12% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit. (Eastern Shipping Lines, Inc. v. Court of
Appeals, supra note 22. Reiterated in Almeda v. Cariño, 443 Phil. 182, 192 (2003); Biesterbos v. Court of Appeals,
supra.; Vicente v. Planters Development Bank, 444 Phil. 309, 323-324 (2003); Solid Homes, Inc. v. IAC, et al., G.R.
No. 74269; November 27, 2006).
FIRST DIVISION
G.R. No. 147791 September 8, 2006
CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES, petitioner,
vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY & INSURANCE INC.,
BATANGAS LAGUNA TAYABAS BUS CO., and WILFREDO DATINGUINOO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the March 29, 2001 Decision1 of the Court of Appeals in CA-G.R. CV No. 46896,
which affirmed with modification the February 9, 1993 Decision2 of the Regional Trial Court of Manila, Branch 13, in
Civil Case No. R-82-2137, finding Batangas Laguna Tayabas Bus Co. (BLTB) and Construction Development
Corporation of the Philippines (CDCP) liable for damages.
The antecedent facts are as follows:
On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in
San Pablo City, a BLTB bus bound for Pasay City. However, they never reached their destination because their bus
was rammed from behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed forward
their seats and pinned their knees to the seats in front of them. They regained consciousness only when rescuers
created a hole in the bus and extricated their legs from under the seats. They were brought to the Makati Medical
Center where the doctors diagnosed their injuries to be as follows:
Medical Certificate of Rebecca Estrella
Fracture, left tibia mid 3rd
Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right3
Medical Certificate of Rachel Fletcher
Extensive lacerated wounds, right leg posterior aspect popliteal area
and antero-lateral aspect mid lower leg with severance of muscles.
Partial amputation BK left leg with severance of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4
Thereafter, respondents filed a Complaint5 for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo
Datinguinoo before the Regional Trial Court of Manila, Branch 13. They alleged (1) that Payunan, Jr. and
Datinguinoo, who were the drivers of CDCP and BLTB buses, respectively, were negligent and did not obey traffic
laws; (2) that BLTB and CDCP did not exercise the diligence of a good father of a family in the selection and
supervision of their employees; (3) that BLTB allowed its bus to operate knowing that it lacked proper maintenance
thus exposing its passengers to grave danger; (4) that they suffered actual damages amounting to P250,000.00 for
Estrella and P300,000.00 for Fletcher; (5) that they suffered physical discomfort, serious anxiety, fright and mental
anguish, besmirched reputation and wounded feelings, moral shock, and lifelong social humiliation; (6) that
defendants failed to act with justice, give respondents their due, observe honesty and good faith which entitles them
to claim for exemplary damage; and (7) that they are entitled to a reasonable amount of attorney's fees and litigation
expenses.
CDCP filed its Answer6 which was later amended to include a third-party complaint against Philippine Phoenix Surety
and Insurance, Inc. (Phoenix).7
On February 9, 1993, the trial court rendered a decision finding CDCP and BLTB and their employees liable for
damages, the dispositive portion of which, states:
WHEREFORE, judgment is rendered:
 In the Complaint –
1. In favor of the plaintiffs and against the defendants BLTB, Wilfredo Datinguinoo, Construction and
Development Corporation of the Philippines (now PNCC) and Espiridion Payunan, Jr., ordering said
defendants, jointly and severally to pay the plaintiffs the sum of P79,254.43 as actual damages and to pay
the sum of P10,000.00 as attorney's fees or a total of P89,254.43;
2. In addition, defendant Construction and Development Corporation of the Philippines and defendant
Espiridion Payunan, Jr., shall pay the plaintiffs the amount of Fifty Thousand (P50,000.00) Pesos to
plaintiff Rachel Fletcher and Twenty Five Thousand (P25,000.00) Pesos to plaintiff Rebecca Estrella;
3. On the counterclaim of BLTB Co. and Wilfredo Datinguinoo –
Dismissing the counterclaim;
4. On the crossclaim against Construction and Development Corporation of the Philippines (now PNCC)
and Espiridion Payunan, Jr. –
Dismissing the crossclaim;
5. On the counterclaim of Construction and Development Corporation of the Philippines (now PNCC) –
Dismissing the counterclaim;
6. On the crossclaim against BLTB –
Dismissing the crossclaim;
7. On the Third Party Complaint by Construction and Development Corporation of the Philippines against
Philippine Phoenix Surety and Insurance, Incorporated –
Dismissing the Third Party Complaint.
8 UNFOUNDED DAMAGES, ATTORNEY'S FEES AND LEGAL INTEREST TO RESPONDENTS
SO ORDERED.
The trial court held that BLTB, as a common carrier, was bound to observe extraordinary diligence in the vigilance
over the safety of its passengers. It must carry the passengers safely as far as human care and foresight provide,
using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Thus, where a
passenger dies or is injured, the carrier is presumed to have been at fault or has acted negligently. BLTB's inability to
carry respondents to their destination gave rise to an action for breach of contract of carriage while its failure to rebut
the presumption of negligence made it liable to respondents for the breach. 9
Regarding CDCP, the trial court found that the tractor-truck it owned bumped the BLTB bus from behind. Evidence
showed that CDCP's driver was reckless and driving very fast at the time of the incident. The gross negligence of its
driver raised the presumption that CDCP was negligent either in the selection or in the supervision of its employees
which it failed to rebut thus making it and its driver liable to respondents. 10
Unsatisfied with the award of damages and attorney's fees by the trial court, respondents moved that the decision be
reconsidered but was denied. Respondents elevated the case11 to the Court of Appeals which affirmed the decision
of the trial court but modified the amount of damages, the dispositive portion of which provides:
WHEREFORE, the assailed decision dated October 7, 1993 of the Regional Trial Court, Branch 13, Manila
is hereby AFFIRMED with the following MODIFICATION:
1. The interest of six (6) percent per annum on the actual damages of P79,354.43 should commence to
run from the time the judicial demand was made or from the filing of the complaint on February 4, 1980;
2. Thirty (30) percent of the total amount recovered is hereby awarded as attorney's fees;
3. Defendants-appellants Construction and Development Corporation of the Philippines (now PNCC) and
Espiridion Payunan, Jr. are ordered to pay plaintiff-appellants Rebecca Estrella and Rachel Fletcher the
amount of Twenty Thousand (P20,000.00) each as exemplary damages and P80,000.00 by way of moral
damages to Rachel Fletcher.
SO ORDERED.12
The Court of Appeals held that the actual or compensatory damage sought by respondents for the injuries they
sustained in the form of hospital bills were already liquidated and were ascertained. Accordingly, the 6% interest per
annum should commence to run from the time the judicial demand was made or from the filing of the complaint and
not from the date of judgment. The Court of Appeals also awarded attorney's fees equivalent to 30% of the total
amount recovered based on the retainer agreement of the parties. The appellate court also held that respondents
are entitled to exemplary and moral damages. Finally, it affirmed the ruling of the trial court that the claim of CDCP
against Phoenix had already prescribed.
Hence, this petition raising the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENTS
BLTB AND/OR ITS DRIVER WILFREDO DATINGUINOO SOLELY LIABLE FOR THE DAMAGES
SUSTAINED BY HEREIN RESPONDENTS FLETCHER AND ESTRELLA.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN AWARDING EXCESSIVE OR
FLETCHER AND ESTRELLA.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENT
PHOENIX LIABLE UNDER ITS INSURANCE POLICY ON THE GROUND OF PRESCRIPTION.
The issues for resolution are as follows: (1) whether BLTB and its driver Wilfredo Datinguinoo are solely liable for the
damages sustained by respondents; (2) whether the damages, attorney's fees and legal interest awarded by the CA
are excessive and unfounded; (3) whether CDCP can recover under its insurance policy from Phoenix.
Petitioner contends that since it was made solidarily liable with BLTB for actual damages and attorney's fees in
paragraph 1 of the trial court's decision, then it should no longer be held liable to pay the amounts stated in
paragraph 2 of the same decision. Petitioner claims that the liability for actual damages and attorney's fees is based
on culpa contractual, thus, only BLTB should be held liable. As regards paragraph 2 of the trial court's decision,
petitioner claims that it is ambiguous and arbitrary because the dispositive portion did not state the basis and nature
of such award.
Respondents, on the other hand, argue that petitioner is also at fault, hence, it was properly joined as a party. There
may be an action arising out of one incident where questions of fact are common to all. Thus, the cause of action
based on culpa aquiliana in the civil suit they filed against it was valid.
The petition lacks merit.
The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of
the Civil Code.13 In this regard, Article 2180 provides that the obligation imposed by Article 2176 is demandable for
the acts or omissions of those persons for whom one is responsible. Consequently, an action based on quasi-delict
may be instituted against the employer for an employee's act or omission. The liability for the negligent conduct of
the subordinate is direct and primary, but is subject to the defense of due diligence in the selection and supervision
of the employee.14 In the instant case, the trial court found that petitioner failed to prove that it exercised the diligence
of a good father of a family in the selection and supervision of Payunan, Jr.
The trial court and the Court of Appeals found petitioner solidarily liable with BLTB for the actual damages suffered
by respondents because of the injuries they sustained. It was established that Payunan, Jr. was driving recklessly
because of the skid marks as shown in the sketch of the police investigator.
It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the owner of the other vehicle which collided with a common
carrier is solidarily liable to the injured passenger of the same. We held, thus:
The same rule of liability was applied in situations where the negligence of the driver of the bus on which
plaintiff was riding concurred with the negligence of a third party who was the driver of another vehicle,
thus causing an accident. In Anuran v. Buño, Batangas Laguna Tayabas Bus Co. v. Intermediate
Appellate Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company, its driver,
the operator of the other vehicle and the driver of the vehicle were jointly and severally held liable
to the injured passenger or the latter's heirs. The basis of this allocation of liability was explained
in Viluan v. Court of Appeals, thus:
Nor should it make any difference that the liability of petitioner [bus owner] springs from contract
while that of respondents [owner and driver of other vehicle] arises from quasi-delict. As early as
1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to
the negligence of the driver of the bus on which he was riding and of the driver of another vehicle, the
drivers as well as the owners of the two vehicles are jointly and severally liable for damages. x x x
xxxx
As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out their claim
against the carrier and the driver exclusively on one theory, much less on that of breach of contract
alone. After all, it was permitted for them to allege alternative causes of action and join as many
parties as may be liable on such causes of action so long as private respondent and her co-
plaintiffs do not recover twice for the same injury. What is clear from the cases is the intent of the
plaintiff there to recover from both the carrier and the driver, thus justifying the holding that the carrier and
the driver were jointly and severally liable because their separate and distinct acts concurred to produce
the same injury.16 (Emphasis supplied)
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several"
obligation, the relationship between the active and the passive subjects is so close that each of them must comply
with or demand the fulfillment of the whole obligation. In Lafarge Cement v. Continental Cement Corporation,17 we
reiterated that joint tort feasors are jointly and severally liable for the tort which they commit. Citing Worcester v.
Ocampo,18 we held that:
x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the
present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only
individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x
It may be stated as a general rule that joint tort feasors are all the persons who command, instigate,
promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who
approve of it after it is done, if done for their benefit. They are each liable as principals, to the same extent
and in the same manner as if they had performed the wrongful act themselves. x x x
Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may
sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all
together are jointly liable for the whole damage. It is no defense for one sued alone, that the others who
participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his
participation in the tort was insignificant as compared to that of the others. x x x
Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among
themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part.
They are jointly and severally liable for the whole amount. x x x
A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which
might exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by
agreement generally operates to discharge all. x x x
Of course the court during trial may find that some of the alleged tort feasors are liable and that others are
not liable. The courts may release some for lack of evidence while condemning others of the alleged tort
feasors. And this is true even though they are charged jointly and severally. 19
Petitioner's claim that paragraph 2 of the dispositive portion of the trial court's decision is ambiguous and arbitrary
and also entitles respondents to recover twice is without basis. In the body of the trial court's decision, it was clearly
stated that petitioner and its driver Payunan, Jr., are jointly and solidarily liable for moral damages in the amount of
P50,000.00 to respondent Fletcher and P25,000.00 to respondent Estrella.20 Moreover, there could be no double
recovery because the award in paragraph 2 is for moral damages while the award in paragraph 1 is for actual
damages and attorney's fees.
Petitioner next claims that the damages, attorney's fees, and legal interest awarded by the Court of Appeals are
excessive.
Moral damages may be recovered in quasi-delicts causing physical injuries.21 The award of moral damages in favor
of Fletcher and Estrella in the amount of P80,000.00 must be reduced since prevailing jurisprudence fixed the same
at P50,000.00.22 While moral damages are not intended to enrich the plaintiff at the expense of the defendant, the
award should nonetheless be commensurate to the suffering inflicted. 23
The Court of Appeals correctly awarded respondents exemplary damages in the amount of P20,000.00 each.
Exemplary damages may be awarded in addition to moral and compensatory damages.24 Article 2231 of the Civil
Code also states that in quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence.25 In this case, petitioner's driver was driving recklessly at the time its truck rammed the BLTB bus.
Petitioner, who has direct and primary liability for the negligent conduct of its subordinates, was also found negligent
in the selection and supervision of its employees. In Del Rosario v. Court of Appeals,26 we held, thus:
 ART. 2229 of the Civil Code also provides that such damages may be imposed, by way of example or
correction for the public good. While exemplary damages cannot be recovered as a matter of right, they
need not be proved, although plaintiff must show that he is entitled to moral, temperate or compensatory
damages before the court may consider the question of whether or not exemplary damages should be
awarded. Exemplary Damages are imposed not to enrich one party or impoverish another but to serve as
a deterrent against or as a negative incentive to curb socially deleterious actions.
Regarding attorney's fees, we held in Traders Royal Bank Employees Union-Independent v. National Labor
Relations Commission,27 that:
There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In
its ordinary concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the
legal services he has rendered to the latter. The basis of this compensation is the fact of his employment
by and his agreement with the client.
In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to
be paid by the losing party in a litigation. The basis of this is any of the cases provided by law where
such award can be made, such as those authorized in Article 2208, Civil Code, and is payable not to the
lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as
additional compensation or as part thereof.28 (Emphasis supplied)
Accordingly, the legal interest of 6% shall begin to run on February 9, 1993 when the trial court rendered judgment
and not on February 4, 1980 when the complaint was filed. This is because at the time of the filing of the complaint,
the amount of the damages to which plaintiffs may be entitled remains unliquidated and unknown, until it is definitely
ascertained, assessed and determined by the court and only upon presentation of proof thereon. 33 From the time the
judgment becomes final and executory, the interest rate shall be 12% until its satisfaction.
Anent the last issue of whether petitioner can recover under its insurance policy from Phoenix, we affirm the findings
of both the trial court and the Court of Appeals, thus:
As regards the liability of Phoenix, the court a quo correctly ruled that defendant-appellant CDCP's claim
against Phoenix already prescribed pursuant to Section 384 of P.D. 612, as amended, which provides:
Any person having any claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of
claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly
licensed physician. Notice of claim must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss
or injury must be brought in proper cases, with the Commissioner or Courts within one year from
denial of the claim, otherwise, the claimant's right of action shall prescribe. (As amended by PD
1814, BP 874.)34

In the instant case, the Court of Appeals correctly awarded attorney's fees and other expenses of litigation as they
may be recovered as actual or compensatory damages when exemplary damages are awarded; when the defendant
acted in gross and evident bad faith in refusing to satisfy the plaintiff's valid, just and demandable claim; and in any
other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be
recovered.29
Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held
in Eastern Shipping Lines, Inc. v. Court of Appeals,30 that when an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of
interest in the concept of actual and compensatory damages,31 subject to the following rules, to wit –
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
The law is clear and leaves no room for interpretation. A written notice of claim must be filed within six months from
the date of the accident. Since petitioner never made any claim within six months from the date of the accident, its
claim has already prescribed.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46896 dated
March 29, 2001, which modified the Decision of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-
82-2137, is AFFIRMED with the MODIFICATIONS that petitioner is held jointly and severally liable to pay (1) actual
damages in the amount of P79,354.43; (2) moral damages in the amount of P50,000.00 each for Rachel Fletcher
and Rebecca Estrella; (3) exemplary damages in the amount of P20,000.00 each for Rebecca Estrella and Rachel
Fletcher; and (4) thirty percent (30%) of the total amount recovered as attorney's fees. The total amount adjudged
shall earn interest at the rate of 6% per annum from the date of judgment of the trial court until finality of this
judgment. From the time this Decision becomes final and executory and the judgment amount remains unsatisfied,
the same shall earn interest at the rate of 12% per annum until its satisfaction.
SO ORDERED.

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

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.32 (Emphasis supplied)