[ GR No. L-17474, Oct 25, 1962 ] On the same day, 6 February, the Court denied her motion.
On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the
REPUBLIC v. JOSE V. BAGTAS +
DECISION
116 Phil. 570
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari,
of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May
1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book
value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a
renewal for another period of one year. However, the Secretary of Agriculture and Natural
Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7
May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote
to the Director of Animal Industry that he would pay the value of the three bulls. On 17 October
1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to
be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry
advised him that the book value of the three bulls could not be reduced and that they either be
returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay
the book value of the three bulls or to return them. So, on 20 December 1950 in the Court of
First Instance of Manila the Republic of the Philippines commenced an action against him
praying that he be ordered to return the three bulls loaned to him or to pay their book value in
the total sum of P3,241.45 and the unpaid breeding fee in the sum of P499.62, both with
interests, and costs; and that other just and equitable relief be granted it (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of
Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural
Resources and the President of the Philippines from the refusal by the Director of Animal
Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8%
from the date of acquisition, to which depreciation the Auditor General did not object, he could
not return the animals nor pay their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court rendered judgment
* * * sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three
bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal
rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted
on 18 October and issued on 11 November 1958. On 2 December 1958 it granted an ex-
parte motion filed by the plaintiff on 28 November 1958 for the appointment of a special sheriff
to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December 1958
Felicidad M. Bagtas, the surviving spouse of the defendant Jose V. Bagtas who died on 23
October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she filed a
motion alleging that on 26 June 1952 the two bulls, Sindhi and Bhagnari, were returned to the
Bureau of Animal Industry and that sometime in November. 1953 the third bull, the Sahiniwal,
died from gunshot wounds inflicted during a Huks raid on Hacienda Felicidad Intal, and praying
that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31
January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto.
Court of Appeals to this Court, as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant,
returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station,
Bureau of Animal Industry, Bayombong, Nueva Viscaya, as evidenced by a memorandum
receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the
appellant's motion to quash the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of defendant deceased Jose V.
Bagtas." She cannot be held liable for the two bulls which already had been returned to and
received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huks
in November 1953 upon the surrounding barrios of Hacienda Felicidad intal, Baggao, Cagayan,
where the animal was kept, and that as such death was due to force majeure she is relieved from
the duty of the returning the bull or paying its value to the appellee. The contention is without
merit.
The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding
purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another
year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of
the book value of the bulls. The appellant contends that the contract was commodatum and that,
for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due
to force majeure. A contract of commodatum is essentially gratuitous.[1]If the breeding fee be
considered a compensation, then the contract would be a lease of the bull. Under article 1671 of
the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of the contract. And even if
the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum
* * * is liable for loss of the thing, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated. * * *
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event:
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was
renewed for another period of one year to end on 8 May 1950. But the appellant kept and used
the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore,
when lent and delivered to the deceased husband of the appellant the bulls had each an appraised
book value, to wit: the Sindhi, at P1,176.46; the Bhagnari, at P1,320.56 and the Sahiniwal; at
P744.46. It was not stipulated that in case of lass of the bull due to fortuitous event the late
husband of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or
the payment of its value being a money claim should be presented or filed in the intestate
proceedings of the defendant who died on 23 October 1951, is not altogether without merit.
However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction
over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court
provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the deceased,
within a period of thirty (30) days, or within such time as may be granted,
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16
of Rule 3 which provides that
Whenever a party to a pending case dies * * * it shall be the duty of his attorney to inform the
court promptly of such death * * * and to give the name and residence of the executor or
administrator, guardian, or other legal representative of the deceased * * *.
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas
had been issued letters of administration of the estate of the late Jose V. Bagtas and that "all
persons having claims for money against the deceased Jose V. Bagtas, arising from contract,
express or implied, whether the same be due, not due, or contingent, for funeral expenses and
expenses of the last sickness of the said decedent, and judgment for money against him, to file
said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within
six (6) months from the date of the first Publication of this order, serving a copy thereof upon
the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said
deceased," is not a notice to the court and the appellee who were to be notified of the defendant's
death in accordance with the above-quoted rule, and there was no reason for such failure to
notify, because the attorney who appeared for the defendant was the same who represented the
administratrix in the special proceedings instituted for the administration and settlement of his
estate. The appellee or its attorney or representative could not be expected to know of the death
of the defendant or of the administration proceedings of his estate instituted in another court, if
the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death
as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late
defendant is only liable for the sum of P859.63, the value of the bull which has not been returned
to the appellee, because it was killed while in the custody of the administratrix of his estate. This
is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed
on 7 January 1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V.
Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money
judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution
but must be presented to the probate court for payment by the appellant, the administratrix
appointed by the court.
Accordingly, the writ of execution appealed from is set aside, without pronouncement as to
costs.
Bengzon, C. J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon,
Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which
she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila
which ordered that the defendant return to her the three has heaters and the four electric lamps
found in the possession of the Sheriff of said city, that she call for the other furniture from the
said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for
the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the
costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del
Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between
the plaintiff and the defendant, the former gratuitously granted to the latter the use of the
furniture described in the third paragraph of the stipulation of facts, subject to the condition that
the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the
property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the
defendant of the conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease. There after the plaintiff required the defendant to return all the
furniture transferred to him for them in the house where they were found. On November
5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may
call for the furniture in the ground floor of the house. On the 7th of the same month, the
defendant wrote another letter to the plaintiff informing her that he could not give up the three
gas heaters and the four electric lamps because he would use them until the 15th of the same
month when the lease in due to expire. The plaintiff refused to get the furniture in view of the
fact that the defendant had declined to make delivery of all of them. On November 15th,
before vacating the house, the defendant deposited with the Sheriff all the furniture belonging
to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue,
in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the
law: in holding that they violated the contract by not calling for all the furniture on November
5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay
them the value of the furniture in case they are not delivered; in holding that they should get all
the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses
claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their
respective legal expenses or the costs; and in denying pay their respective legal expenses or the
costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is
only necessary to decide whether the defendant complied with his obligation to return the
furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof,
and whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself to return the furniture to the
plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph
1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return
the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff
at the latter's residence or house. The defendant did not comply with this obligation when he
merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters
and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for
the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply with her obligation to get the furniture when they
were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the
latter's demand, the Court could not legally compel her to bear the expenses occasioned by the
deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place
the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the three gas heaters and the four electric
lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment
thereof by the defendant in case of his inability to return some of the furniture because under
paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the
correctness of the said value. Should the defendant fail to deliver some of the furniture, the value
thereof should be latter determined by the trial Court through evidence which the parties may
desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who
breached the contract of commodatum, and without any reason he refused to return and deliver
all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that
he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise
defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the
plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the
latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The
expenses which may be occasioned by the delivery to and deposit of the furniture with the
Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both
instances. So ordered.
Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.
SECOND DIVISION
G.R. No. 174269 May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son
Adrian Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of
Europe, Ltd., in October of 1991. The tour group arrived in Amsterdam in the afternoon of 25
October 1991, the second to the last day of the tour. As the group had arrived late in the city,
they failed to engage in any sight-seeing. Instead, it was agreed upon that they would start early
the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The
group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of
diamond polishing that lasted for around ten minutes.1 Afterwards, the group was led to the
store’s showroom to allow them to select items for purchase. Mrs. Pantaleon had already
planned to purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found
a diamond close enough in approximation that she decided to buy.2 Mrs. Pantaleon also selected
for purchase a pendant and a chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with
his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before
the tour group was slated to depart from the store. The sales clerk took the card’s imprint, and
asked Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondent’s Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been
approved. His son, who had already boarded the tour bus, soon returned to Coster and informed
the other members of the Pantaleon family that the entire tour group was waiting for them. As
it was already 9:40 a.m., and he was already worried about further inconveniencing the tour
group, Pantaleon asked the store clerk to cancel the sale. The store manager though asked
plaintiff to wait a few more minutes. After 15 minutes, the store manager informed Pantaleon
that respondent had demanded bank references. Pantaleon supplied the names of his depositary
banks, then instructed his daughter to return to the bus and apologize to the tour group for the
delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and
30 minutes after the tour group was supposed to have left the store, Coster decided to release
the items even without respondent’s approval of the purchase. The spouses Pantaleon returned
to the bus. It is alleged that their offers of apology were met by their tourmates with stony
silence.4 The tour group’s visible irritation was aggravated when the tour guide announced that
the city tour of Amsterdam was to be canceled due to lack of remaining time, as they had to
catch a 3:00 p.m. ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while
her husband had to take a tranquilizer to calm his nerves.
It later emerged that Pantaleon’s purchase was first transmitted for approval to respondent’s
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondent’s Manila office at
9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time. 6 The Approval Code was
transmitted to respondent’s Amsterdam office at 10:38 a.m., several minutes after petitioner had
already left Coster, and 78 minutes from the time the purchases were electronically transmitted
by the jewelry store to respondent’s Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to
use his AmEx card, several times without hassle or delay, but with two other incidents similar
to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment
amounting to US $1,475.00 using his AmEx card, but he cancelled his credit card purchase and
borrowed money instead from a friend, after more than 30 minutes had transpired without the
purchase having been approved. On 3 November 1991, Pantaleon used the card to purchase
children’s shoes worth $87.00 at a store in Boston, and it took 20 minutes before this transaction
was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he
and his family thereby suffered" for respondent’s refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating
among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase
pattern established."10 Since respondent refused to accede to Pantaleon’s demand for an
apology, the aggrieved cardholder instituted an action for damages with the Regional Trial Court
(RTC) of Makati City, Branch 145.11 Pantaleon prayed that he be awarded ₱2,000,000.00, as
moral damages; ₱500,000.00, as exemplary damages; ₱100,000.00, as attorney’s fees; and
₱50,000.00 as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision 13 in favor of Pantaleon, awarding
him ₱500,000.00 as moral damages, ₱300,000.00 as exemplary damages, ₱100,000.00 as
attorney’s fees, and ₱85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal,
while Pantaleon moved for partial reconsideration, praying that the trial court award the
increased amount of moral and exemplary damages he had prayed for.14 The RTC denied
Pantaleon’s motion for partial reconsideration, and thereafter gave due course to respondent’s
Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages
in favor of Pantaleon, holding that respondent had not breached its obligations to petitioner.
Hence, this petition.
The key question is whether respondent, in connection with the aforementioned transactions,
had committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it still remained liable for
damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and respondent’s
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter
of seconds." Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on
the part of respondent in approving the purchases. However, it made two critical conclusions in
favor of respondent. First, the appellate court ruled that the delay was not attended by bad faith,
malice, or gross negligence. Second, it ruled that respondent "had exercised diligent efforts to
effect the approval" of the purchases, which were "not in accordance with the charge pattern"
petitioner had established for himself, as exemplified by the fact that at Coster, he was "making
his very first single charge purchase of US$13,826," and "the record of [petitioner]’s past
spending with [respondent] at the time does not favorably support his ability to pay for such
purchase."17
On the premise that there was an obligation on the part of respondent "to approve or disapprove
with dispatch the charge purchase," petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part of respondent in the performance
of its obligation. For its part, respondent characterizes the depiction by petitioner of its
obligation to him as "to approve purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default
are that the obligation is demandable and liquidated; the debtor delays performance; and the
creditor judicially or extrajudicially requires the debtor’s performance.18 Petitioner asserts that
the Court of Appeals had wrongly applied the principle of mora accipiendi, which relates to
delay on the part of the obligee in accepting the performance of the obligation by the obligor.
The requisites of mora accipiendi are: an offer of performance by the debtor who has the
required capacity; the offer must be to comply with the prestation as it should be performed;
and the creditor refuses the performance without just cause.19 The error of the appellate court,
argues petitioner, is in relying on the invocation by respondent of "just cause" for the delay,
since while just cause is determinative of mora accipiendi, it is not so with the case of mora
solvendi.
We can see the possible source of confusion as to which type of mora to appreciate. Generally,
the relationship between a credit card provider and its card holders is that of creditor-
debtor,20 with the card company as the creditor extending loans and credit to the card holder,
who as debtor is obliged to repay the creditor. This relationship already takes exception to the
general rule that as between a bank and its depositors, the bank is deemed as the debtor while
the depositor is considered as the creditor.21 Petitioner is asking us, not baselessly, to again shift
perspectives and again see the credit card company as the debtor/obligor, insofar as it has the
obligation to the customer as creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we were to still regard
respondent as the creditor in the context of this cause of action. If there was delay on the part of
respondent in its normal role as creditor to the cardholder, such delay would not have been in
the acceptance of the performance of the debtor’s obligation (i.e., the repayment of the debt),
but it would be delay in the extension of the credit in the first place. Such delay would not fall
under mora accipiendi, which contemplates that the obligation of the debtor, such as the actual
purchases on credit, has already been constituted. Herein, the establishment of the debt itself
(purchases on credit of the jewelry) had not yet been perfected, as it remained pending the
approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioner’s
purchases with "timely dispatch," or for the purposes of this case, within a period significantly
less than the one hour it apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioner’s purchase at Coster did constitute culpable delay on its part
in complying with its obligation to act promptly on its customer’s purchase request, whether
such action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was a
matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the
three charge purchases subject of this case, approvals of his charge purchases were always
obtained in a matter of seconds.
Defendant’s credit authorizer Edgardo Jaurique likewise testified:
Q. – You also testified that on normal occasions, the normal approval time for charges
would be 3 to 4 seconds?
A. – Yes, Ma’am.
Both parties likewise presented evidence that the processing and approval of plaintiff’s charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter
of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and
by the time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact,
the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that
defendant’s Amsterdam office received the request to approve plaintiff’s charge purchase at
9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval
to Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour
and [18] minutes. And even then, the approval was conditional as it directed in computerese
[sic] "Positive Identification of Card holder necessary further charges require bank information
due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic successive queries
of Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise
how long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all
times Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge
purchase referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows
how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in
Phoenix time from 01:20 when the charge purchased was referred for authorization, defendants
own record shows:
01:22 – the authorization is referred to Manila Amexco
01:32 – Netherlands gives information that the identification of the cardmember has
been presented and he is buying jewelries worth US $13,826.
01:33 – Netherlands asks "How long will this take?"
02:08 – Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation
to act on his use of the card abroad "with special handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within seconds,"
there really is no strict, legally determinative point of demarcation on how long must it take for
a credit card company to approve or disapprove a customer’s purchase, much less one
specifically contracted upon by the parties. Yet this is one of those instances when "you’d know
it when you’d see it," and one hour appears to be an awfully long, patently unreasonable length
of time to approve or disapprove a credit card purchase. It is long enough time for the customer
to walk to a bank a kilometer away, withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the
purchase "in timely dispatch," and not "to approve the purchase instantaneously or within
seconds." Certainly, had respondent disapproved petitioner’s purchase "within seconds" or
within a timely manner, this particular action would have never seen the light of day. Petitioner
and his family would have returned to the bus without delay – internally humiliated perhaps
over the rejection of his card – yet spared the shame of being held accountable by newly-made
friends for making them miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify whether
the credit it is extending upon on a particular purchase was indeed contracted by the cardholder,
and that the cardholder is within his means to make such transaction. The culpable failure of
respondent herein is not the failure to timely approve petitioner’s purchase, but the more
elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming
that respondent’s credit authorizers did not have sufficient basis on hand to make a judgment,
we see no reason why respondent could not have promptly informed petitioner the reason for
the delay, and duly advised him that resolving the same could take some time. In that way,
petitioner would have had informed basis on whether or not to pursue the transaction at Coster,
given the attending circumstances. Instead, petitioner was left uncomfortably dangling in the
chilly autumn winds in a foreign land and soon forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in
bad faith, and the court should find that under the circumstances, such damages are due. The
findings of the trial court are ample in establishing the bad faith and unjustified neglect of
respondent, attributable in particular to the "dilly-dallying" of respondent’s Manila credit
authorizer, Edgardo Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to
the amount of time it should take defendant to grant authorization for a charge purchase,
defendant acknowledged that the normal time for approval should only be three to four seconds.
Specially so with cards used abroad which requires "special handling", meaning with priority.
Otherwise, the object of credit or charge cards would be lost; it would be so inconvenient to use
that buyers and consumers would be better off carrying bundles of currency or traveller’s
checks, which can be delivered and accepted quickly. Such right was not accorded to plaintiff
in the instances complained off for reasons known only to defendant at that time. This, to the
Court’s mind, amounts to a wanton and deliberate refusal to comply with its contractual
obligations, or at least abuse of its rights, under the contract. 24
xxx
impatient, so this decision should not be cause for relief for those who time the length of their
credit card transactions with a stopwatch. The somewhat unusual attending circumstances to the
purchase at Coster – that there was a deadline for the completion of that purchase by petitioner
before any delay would redound to the injury of his several traveling companions – gave rise to
the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation
sustained by the petitioner, as concluded by the RTC.27 Those circumstances are fairly unusual,
and should not give rise to a general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-
and-fast rule in determining what would be a fair and reasonable amount of moral damages,
since each case must be governed by its own peculiar facts, however, it must be commensurate
to the loss or injury suffered.28 Petitioner’s original prayer for ₱5,000,000.00 for moral damages
is excessive under the circumstances, and the amount awarded by the trial court of ₱500,000.00
in moral damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and the amount of
₱300,000.00 appropriate. There is similarly no cause though to disturb the determined award of
₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145
in Civil Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
SO ORDERED.

The delay committed by defendant was clearly attended by unjustified neglect and bad faith,
since it alleges to have consumed more than one hour to simply go over plaintiff’s past credit Republic of the Philippines
history with defendant, his payment record and his credit and bank references, when all such
data are already stored and readily available from its computer. This Court also takes note of Supreme Court
the fact that there is nothing in plaintiff’s billing history that would warrant the imprudent
suspension of action by defendant in processing the purchase. Defendant’s witness Jaurique Manila
admits:

Q. – But did you discover that he did not have any outstanding account?
SPECIAL SECOND DIVISION
A. – Nothing in arrears at that time.

Q. – You were well aware of this fact on this very date?

A. – Yes, sir.

Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s account.25

It should be emphasized that the reason why petitioner is entitled to damages is not simply
because respondent incurred delay, but because the delay, for which culpability lies under
Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which moral
damages are remunerative.26 Moral damages do not avail to soothe the plaints of the simply
 of Amsterdam before their departure scheduled on that day, the tour group planned to leave
POLO S. PANTALEON, G.R. No. 174269 Coster by 9:30 a.m. at the latest.
Petitioner,
While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a
Present: total of US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk
to pay for this purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card
and asked Pantaleon to sign the charge slip, which was then electronically referred to
AMEXs Amsterdam office at 9:20 a.m.[5]
- versus - CARPIO MORALES, J.,
At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so
Acting Chairperson,
Pantaleon asked the store clerk to cancel the sale. The store manager, however, convinced
VELASCO, JR., Pantaleon to wait a few more minutes. Subsequently, the store manager informed Pantaleon that
AMEX was asking for bank references; Pantaleon responded by giving the names of his
AMERICAN EXPRESS INTERNATIONAL, INC., LEONARDO-DE CASTRO, Philippine depository banks.

Respondent. BRION, and At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not
*BERSAMIN,
approved the purchase. Since the city tour could not begin until the Pantaleons were onboard
JJ. the tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon
Promulgated: even without AMEXs approval.

August 25, 2010
x----------------------------------------------------------------------------------------x
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration filed by respondent American Express International,
Inc. (AMEX) dated June 8, 2009,[1] seeking to reverse our Decision dated May 8, 2009 where
we ruled that AMEX was guilty of culpable delay in fulfilling its obligation to its
cardholder petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral
and exemplary damages, as well as attorneys fees and costs of litigation.[2]
FACTUAL ANTECEDENTS
The established antecedents of the case are narrated below.
AMEX is a resident foreign corporation engaged in the business of providing credit services
through the operation of a charge card system. Pantaleon has been an AMEX cardholder since
1980.[3]
In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina),
and son (Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group
arrived in Amsterdam. Due to their late arrival, they postponed the tour of the city for the
following day.[4]
The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the
Coster Diamond House (Coster). To have enough time for take a guided city tour
When the Pantaleons finally returned to the tour bus, they found their travel
companions visibly irritated. This irritation intensified when the tour guide announced that they
would have to cancel the tour because of lack of time as they all had to be
in Calais, Belgium by 3 p.m. to catch the ferry to London.[6]
From the records, it appears that after Pantaleons purchase was transmitted for approval to
AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXs Manila office at 9:33 a.m.; and
was approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finally
transmitted the Approval Code to AMEXs Amsterdam office. In all, it took AMEX a total of
78 minutes to approve Pantaleons purchase and to transmit the approval to the jewelry
store.[7]
After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon
experienced delay in securing approval for purchases using his American Express credit card
on two separate occasions. He experienced the first delay when he wanted to purchase golf
equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New
York on October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes
worth US$87.00 at the Quiency Market in Boston on November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation
and inconvenience he and his family experienced due to the delays in obtaining approval for his
credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to
the amount involved the charged purchase of US$13,826.00 deviated from Pantaleons
established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an
action for damages against the credit card company with the Makati City Regional Trial Court
(RTC).
On August 5, 1996, the RTC found AMEX guilty of delay, and awarded
Pantaleon P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as
attorneys fees, and P85,233.01 as litigation expenses.
On appeal, the CA reversed the awards.[8] While the CA recognized that delay in the
nature of mora accipiendi or creditors default attended AMEXs approval of Pantaleons
purchases, it disagreed with the RTCs finding that AMEX had breached its contract, noting that
the delay was not attended by bad faith, malice or gross negligence.The appellate court found
that AMEX exercised diligent efforts to effect the approval of Pantaleons purchases; the
purchase at Coster posed particularly a problem because it was at variance with Pantaleons
established charge pattern. As there was no proof that AMEX breached its contract, or that it
acted in a wanton, fraudulent or malevolent manner, the appellate court ruled that AMEX could
not be held liable for any form of damages.
Pantaleon questioned this decision via a petition for review on certiorari with this
Court.
In our May 8, 2009 decision, we reversed the appellate courts decision and held that
AMEX was guilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as
the credit provider to act on Pantaleons purchase requests, whether to approve or disapprove
them, with timely dispatch. Based on the evidence on record, we found that AMEX failed to
timely act on Pantaleons purchases.
Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval
time for credit card charges would be three to four seconds under regular circumstances. In
Pantaleons case, it took AMEX 78 minutes to approve the Amsterdam purchase. We attributed
this delay to AMEXs Manila credit authorizer, Edgardo Jaurique, who had to go over Pantaleons
past credit history, his payment record and his credit and bank references before he approved
the purchase. Finding this delay unwarranted, we reinstated the RTC decision and awarded
Pantaleon moral and exemplary damages, as well as attorneys fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX
guilty of culpable delay in complying with its obligation to act with timely dispatch on
Pantaleons purchases. While AMEX admits that it normally takes seconds to approve charge
purchases, it emphasizes that Pantaleon experienced delay in Amsterdam because his
transaction was not a normal one. To recall, Pantaleon sought to charge in a single
transaction jewelry items purchased from Coster in the total amount of US$13,826.00
or P383,746.16. While the total amount of Pantaleons previous purchases using his AMEX
credit card did exceed US$13,826.00, AMEX points out that these purchases were made in a
span of more than 10 years, not in a single transaction.
Because this was the biggest single transaction that Pantaleon ever made using his
AMEX credit card, AMEX argues that the transaction necessarily required the credit authorizer
to carefully review Pantaleons credit history and bank references. AMEX maintains that it did
this not only to ensure Pantaleons protection (to minimize the possibility that a third party was
fraudulently using his credit card), but also to protect itself from the risk that Pantaleon might
not be able to pay for his purchases on credit. This careful review, according to AMEX, is also
in keeping with the extraordinary degree of diligence required of banks in handling its
transactions. AMEX concluded that in these lights, the thorough review of Pantaleons credit
record was motivated by legitimate concerns and could not be evidence of any ill will, fraud, or
negligence by AMEX.
AMEX further points out that the proximate cause of Pantaleons humiliation and
embarrassment was his own decision to proceed with the purchase despite his awareness that
the tour group was waiting for him and his wife. Pantaleon could have prevented the humiliation
had he cancelled the sale when he noticed that the credit approval for the Coster purchase was
unusually delayed.
In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty
of mora solvendi, or delay on the part of the debtor, in complying with its obligation to him.
Based on jurisprudence, a just cause for delay does not relieve the debtor in delay from the
consequences of delay; thus, even if AMEX had a justifiable reason for the delay, this reason
would not relieve it from the liability arising from its failure to timely act on Pantaleons
purchase.
In response to AMEXs assertion that the delay was in keeping with its duty to perform
its obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely
or prompt performance of its obligation.
As to AMEXs contention that moral or exemplary damages cannot be awarded absent
a finding of malice, Pantaleon argues that evil motive or design is not always necessary to
support a finding of bad faith; gross negligence or wanton disregard of contractual obligations
is sufficient basis for the award of moral and exemplary damages.
OUR RULING
We GRANT the motion for reconsideration.
Brief historical background
A credit card is defined as any card, plate, coupon book, or other credit device existing
for the purpose of obtaining money, goods, property, labor or services or anything of value on
credit.[9] It traces its roots to the charge card first introduced by the Diners Club in New York
City in 1950.[10] American Express followed suit by introducing its own charge card to the
American market in 1958.[11]
In the Philippines, the now defunct Pacific Bank was responsible for bringing the first
credit card into the country in the 1970s.[12] However, it was only in the early 2000s that credit
card use gained wide acceptance in the country, as evidenced by the surge in the number of
credit card holders then.[13]
Nature of Credit Card Transactions
To better understand the dynamics involved in credit card transactions, we turn to
the United States case of Harris Trust & Savings Bank v. McCray[14] which explains:
The bank credit card system involves a tripartite relationship
between the issuer bank, the cardholder, and merchants participating in the
system. The issuer bank establishes an account on behalf of the person to
whom the card is issued, and the two parties enter into an agreement which
governs their relationship. This agreement provides that the bank will pay
for cardholders account the amount of merchandise or services purchased
through the use of the credit card and will also make cash loans available to
the cardholder. It also states that the cardholder shall be liable to the bank
for advances and payments made by the bank and that the cardholders
obligation to pay the bank shall not be affected or impaired by any dispute,
claim, or demand by the cardholder with respect to any merchandise or
service purchased.
 The merchants participating in the system agree to honor the
banks credit cards. The bank irrevocably agrees to honor and pay the sales
slips presented by the merchant if the merchant performs his undertakings
such as checking the list of revoked cards before accepting the card. x x x.
These slips are forwarded to the member bank which originally
issued the card. The cardholder receives a statement from the bank
periodically and may then decide whether to make payment to the bank in
full within a specified period, free of interest, or to defer payment and
ultimately incur an interest charge.
We adopted a similar view in CIR v. American Express International, Inc. (Philippine
branch),[15] where we also recognized that credit card issuers are not limited to banks. We said:
Under RA 8484, the credit card that is issued by banks in general,
or by non-banks in particular, refers to any card x x x or other credit device
existing for the purpose of obtaining x x x goods x x x or services x x x on
credit; and is being used usually on a revolving basis. This means that the
consumer-credit arrangement that exists between the issuer and the holder
of the credit card enables the latter to procure goods or services on a
continuing basis as long as the outstanding balance does not exceed a
specified limit. The card holder is, therefore, given the power to obtain
present control of goods or service on a promise to pay for them in the
future.
Business establishments may extend credit sales through the use of the
credit card facilities of a non-bank credit card company to avoid the risk of
uncollectible accounts from their customers. Under this system, the
establishments do not deposit in their bank accounts the credit card drafts
that arise from the credit sales. Instead, they merely record their receivables
from the credit card company and periodically send the drafts evidencing
those receivables to the latter.
The credit card company, in turn, sends checks as payment to these
business establishments, but it does not redeem the drafts at full price. The
agreement between them usually provides for discounts to be taken by the
company upon its redemption of the drafts. At the end of each month, it then
bills its credit card holders for their respective drafts redeemed during the
previous month. If the holders fail to pay the amounts owed, the company
sustains the loss.
Simply put, every credit card transaction involves three contracts, namely: (a)
the sales contract between the credit card holder and the merchant or the business establishment
which accepted the credit card; (b) the loan agreement between the credit card issuer and the
credit card holder; and lastly, (c) the promise to pay between the credit card issuer and the
merchant or business establishment.[16]
Credit card issuer cardholder
relationship
When a credit card company gives the holder the privilege of charging items at
establishments associated with the issuer,[17] a necessary question in a legal analysis is when
does this relationship begin? There are two diverging views on the matter. In City Stores Co. v.
Henderson,[18] another U.S. decision, held that:
The issuance of a credit card is but an offer to extend a line of
open account credit. It is unilateral and supported by no consideration. The
offer may be withdrawn at any time, without prior notice, for any reason or,
indeed, for no reason at all, and its withdrawal breaches no duty for there is
no duty to continue it and violates no rights.
Thus, under this view, each credit card transaction is considered a separate offer and acceptance.
Novack v. Cities Service Oil Co.[19] echoed this view, with the court ruling that the
mere issuance of a credit card did not create a contractual relationship with the cardholder.
On the other end of the spectrum is Gray v. American Express Company[20] which recognized
the card membership agreement itself as a binding contract between the credit card issuer and
the card holder. Unlike in the Novack and the City Stores cases, however, the cardholder
in Gray paid an annual fee for the privilege of being an American Express cardholder.
In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between
the credit card issuer and the credit card holder as a contractual one that is governed by the terms
and conditions found in the card membership agreement. [21] This contract provides the rights
and liabilities of a credit card company to its cardholders and vice versa.
We note that a card membership agreement is a contract of adhesion as its terms are
prepared solely by the credit card issuer, with the cardholder merely affixing his signature
signifying his adhesion to these terms.[22] This circumstance, however, does not render the
agreement void; we have uniformly held that contracts of adhesion are as binding as ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it
entirely.[23] The only effect is that the terms of the contract are construed strictly against the
party who drafted it.[24]
On AMEXs obligations to Pantaleon
We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the
issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon
presumes that since his credit card has no pre-set spending limit, AMEX has the obligation to
approve all his charge requests. Conversely, even if AMEX has no such obligation, at the very
least it is obliged to act on his charge requests within a specific period of time.
i. Use of credit card a mere offer to enter into loan agreements
Although we recognize the existence of a relationship between the credit card issuer
and the credit card holder upon the acceptance by the cardholder of the terms of the card
membership agreement (customarily signified by the act of the cardholder in signing the back
of the credit card), we have to distinguish this contractual relationship from the creditor-
debtor relationship which only arises after the credit card issuer has approved the
cardholders purchase request. The first relates merely to an agreement providing for credit
facility to the cardholder. The latter involves the actual credit on loan agreement involving three
contracts, namely: the sales contract between the credit card holder and the merchant or the
business establishment which accepted the credit card; the loan agreement between the credit
card issuer and the credit card holder; and the promise to pay between the credit card issuer
and the merchant or business establishment.
From the loan agreement perspective, the contractual relationship begins to exist only
upon the meeting of the offer[25] and acceptance of the parties involved. In more concrete terms,
when cardholders use their credit cards to pay for their purchases, they merely offer to enter into
loan agreements with the credit card company. Only after the latter approves the purchase
requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the
Civil Code, which provides:
Article 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearly states that AMEX reserve[s] the right to deny
authorization for any requested Charge. By so providing, AMEX made its position clear that
it has no obligation to approve any and all charge requests made by its card holders.
ii. AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the purchase requests of its credit
cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the
Civil Code, which provides the requisites to hold a debtor guilty of culpable delay, states:
Article 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation. x xx.
The three requisites for a finding of default are: (a) that the obligation is demandable
and liquidated; (b) the debtor delays performance; and (c) the creditor judicially or
extrajudicially requires the debtors performance.[26]
Based on the above, the first requisite is no longer met because AMEX, by the express
terms of the credit card agreement, is not obligated to approve Pantaleons purchase request.
Without a demandable obligation, there can be no finding of default.
Apart from the lack of any demandable obligation, we also find that Pantaleon failed
to make the demand required by Article 1169 of the Civil Code.
As previously established, the use of a credit card to pay for a purchase is only an offer
to the credit card company to enter a loan agreement with the credit card holder. Before the
credit card issuer accepts this offer, no obligation relating to the loan agreement exists
between them. On the other hand, a demand is defined as the assertion of a legal right; xxx an
asking with authority, claiming or challenging as due.[27] A demand presupposes the existence
of an obligation between the parties.
Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases,
what the stores transmitted to AMEX were his offers to execute loan contracts. These obviously
could not be classified as the demand required by law to make the debtor in default, given that
no obligation could arise on the part of AMEX until after AMEX transmitted its acceptance of
Pantaleons offers. Pantaleons act of insisting on and waiting for the charge purchases to be
approved by AMEX[28] is not the demand contemplated by Article 1169 of the Civil Code.
For failing to comply with the requisites of Article 1169, Pantaleons charge that
AMEX is guilty of culpable delay in approving his purchase requests must fail.
iii. On AMEXs obligation to act on the offer within a specific period of time
Even assuming that AMEX had the right to review his credit card history before it
approved his purchase requests, Pantaleon insists that AMEX had an obligation to act on his
purchase requests, either to approve or deny, in a matter of seconds or in timely dispatch.
Pantaleon impresses upon us the existence of this obligation by emphasizing two points: (a) his
card has no pre-set spending limit; and (b) in his twelve years of using his AMEX card, AMEX
had always approved his charges in a matter of seconds.
Pantaleons assertions fail to convince us.
We originally held that AMEX was in culpable delay when it acted on the Coster
transaction, as well as the two other transactions in the United States which took AMEX
approximately 15 to 20 minutes to approve. This conclusion appears valid and reasonable at
first glance, comparing the time it took to finally get the Coster purchase approved (a total of 78
minutes), to AMEXs normal approval time of three to four seconds (based on the testimony of
Edgardo Jaurigue, as well as Pantaleons previous experience). We come to a different result,
however, after a closer look at the factual and legal circumstances of the case.
AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set
spending limit in a credit card simply means that the charges made by the cardholder are
approved based on his ability to pay, as demonstrated by his past spending, payment patterns,
and personal resources.[29] Nevertheless, every time Pantaleon charges a purchase on his
credit card, the credit card company still has to determine whether it will allow this charge,
based on his past credit history. This right to review a card holders credit history, although
not specifically set out in the card membership agreement, is a necessary implication of AMEXs
right to deny authorization for any requested charge.
As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years,
AMEX has always approved his charge requests in three or four seconds), this record does not
establish that Pantaleon had a legally enforceable obligation to expect AMEX to act on his
charge requests within a matter of seconds. For one, Pantaleon failed to present any evidence to
support his assertion that AMEX acted on purchase requests in a matter of three or four seconds
as an established practice. More importantly, even if Pantaleon did prove that AMEX, as a
matter of practice or custom, acted on its customers purchase requests in a matter of seconds,
this would still not be enough to establish a legally demandable right; as a general rule, a practice
or custom is not a source of a legally demandable or enforceable right.[30]
We next examine the credit card membership agreement, the contract that primarily
governs the relationship between AMEX and Pantaleon. Significantly, there is no provision in
this agreement that obligates AMEX to act on all cardholder purchase requests within a
specifically defined period of time. Thus, regardless of whether the obligation is worded was
to act in a matter of seconds or to act in timely dispatch, the fact remains that no obligation
exists on the part of AMEX to act within a specific period of time. Even Pantaleon admits in his
testimony that he could not recall any provision in the Agreement that guaranteed AMEXs
approval of his charge requests within a matter of minutes.[31]
Nor can Pantaleon look to the law or government issuances as the source of AMEXs
alleged obligation to act upon his credit card purchases within a matter of seconds. As the
following survey of Philippine law on credit card transactions demonstrates, the State does not
require credit card companies to act upon its cardholders purchase requests within a specific
period of time.
Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998,
approved on February 11, 1998, is the controlling legislation
that regulates the issuance and use of access devices,[32] including credit cards. The more salient
portions of this law include the imposition of the obligation on a credit card company to disclose
certain important financial information[33] to credit card applicants, as well as a definition of the
acts that constitute access device fraud.
As financial institutions engaged in the business of providing credit, credit card
companies fall under the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).[34]BSP
Circular No. 398 dated August 21, 2003 embodies the BSPs policy when it comes to credit cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the
development of consumer credit through innovative products such as credit
cards under conditions of fair and sound consumer credit practices. The
BSP likewise encourages competition and transparency to ensure more
efficient delivery of services and fair dealings with customers. (Emphasis
supplied)
Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their
subsidiary credit card companies must exercise proper diligence by ascertaining that applicants
possess good credit standing and are financially capable of fulfilling their credit
commitments.[35] As the above-quoted policy expressly states, the general intent is to foster fair
and sound consumer credit practices.
Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued
on September 24, 2004, but this circular merely enumerates the unfair collection practices of
credit card companies a matter not relevant to the issue at hand.
In light of the foregoing, we find and so hold that AMEX is neither contractually
bound nor legally obligated to act on its cardholders purchase requests within any specific period
of time, much less a period of a matter of seconds that Pantaleon uses as his standard. The
standard therefore is implicit and, as in all contracts, must be based on fairness and
reasonableness, read in relation to the Civil Code provisions on human relations, as will be
discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a) AMEX had neither a contractual nor a
legal obligation to act upon Pantaleons purchases within a specific period of time; and (b)
AMEX has a right to review a cardholders credit card history. Our recognition of these
entitlements, however, does not give AMEX an unlimited right to put off action on
cardholders purchase requests for indefinite periods of time. In acting on cardholders
purchase requests, AMEX must take care not to abuse its rights and cause injury to its clients
and/or third persons. We cite in this regard Article 19, in conjunction with Article 21, of the
Civil Code, which provide:
Article 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due and
observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
Article 19 pervades the entire legal system and ensures that a person suffering damage
in the course of anothers exercise of right or performance of duty, should find himself without
relief.[36] It sets the standard for the conduct of all persons, whether artificial or natural, and
requires that everyone, in the exercise of rights and the performance of obligations, must: (a)
act with justice, (b) give everyone his due, and (c) observe honesty and good faith. It is not
because a person invokes his rights that he can do anything, even to the prejudice and
disadvantage of another.[37]
While Article 19 enumerates the standards of conduct, Article 21 provides the remedy
for the person injured by the willful act, an action for damages. We explained how these two
provisions correlate with each other in GF Equity, Inc. v. Valenzona:[38]
[Article 19], known to contain what is commonly referred to as
the principle of abuse of rights, sets certain standards which must be
observed not only in the exercise of one's rights but also in the performance
of one's duties. These standards are the following: to act with justice; to give
everyone his due; and to observe honesty and good faith. The law, therefore,
recognizes a primordial limitation on all rights; that in their exercise, the
norms of human conduct set forth in Article 19 must be observed. A right,
though by itself legal because recognized or granted by law as such,
may nevertheless become the source of some illegality. When a right is
exercised in a manner which does not conform with the norms
enshrined in Article 19 and results in damage to another, a legal wrong
is thereby committed for which the wrongdoer must be held
responsible. But while Article 19 lays down a rule of conduct for the
government of human relations and for the maintenance of social order, it
does not provide a remedy for its violation. Generally, an action for
damages under either Article 20 or Article 21 would be proper.
In the context of a credit card relationship, although there is neither a contractual stipulation nor
a specific law requiring the credit card issuer to act on the credit card holders offer within a
definite period of time, these principles provide the standard by which to judge AMEXs actions.
According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused
this right when it unreasonably delayed the processing of the Coster charge purchase, as well as
his purchase requests at the Richard Metz Golf Studio and Kids Unlimited Store; AMEX should
have known that its failure to act immediately on charge referrals would entail inconvenience
and result in humiliation, embarrassment, anxiety and distress to its cardholders who would be
required to wait before closing their transactions.[39]
 It is an elementary rule in our jurisdiction that good faith is presumed and that the
burden of proving bad faith rests upon the party alleging it. [40] Although it took AMEX some
time before it approved Pantaleons three charge requests, we find no evidence to suggest that it
acted with deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was
contrary to morals, good customs or public policy. We give credence to AMEXs claim that its
review procedure was done to ensure Pantaleons own protection as a cardholder and to prevent
the possibility that the credit card was being fraudulently used by a third person.
Pantaleon countered that this review procedure is primarily intended to protect
AMEXs interests, to make sure that the cardholder making the purchase has enough means to
pay for the credit extended. Even if this were the case, however, we do not find any taint of bad
faith in such motive. It is but natural for AMEX to want to ensure that it will extend credit only
to people who will have sufficient means to pay for their purchases. AMEX, after all, is running
a business, not a charity, and it would simply be ludicrous to suggest that it would not want to
earn profit for its services. Thus, so long as AMEX exercises its rights, performs its obligations,
and generally acts with good faith, with no intent to cause harm, even if it may occasionally
inconvenience others, it cannot be held liable for damages.
We also cannot turn a blind eye to the circumstances surrounding the Coster
transaction which, in our opinion, justified the wait. In Edgardo Jaurigues own words:
Q 21: With reference to the transaction at the Coster Diamond House
covered by Exhibit H, also Exhibit 4 for the defendant, the approval came
at 2:19 a.m. after the request was relayed at 1:33 a.m., can you explain why
the approval came after about 46 minutes, more or less?
A21: Because we have to make certain considerations and evaluations of
[Pantaleons] past spending pattern with [AMEX] at that time before
approving plaintiffs request because [Pantaleon] was at that time
making his very first single charge purchase of US$13,826 [this is below
the US$16,112.58 actually billed and paid for by the plaintiff because the
difference was already automatically approved by [AMEX] office in
Netherland[s] and the record of [Pantaleons] past spending with
[AMEX] at that time does not favorably support his ability to pay for
such purchase. In fact, if the foregoing internal policy of [AMEX] had been
strictly followed, the transaction would not have been approved at all
considering that the past spending pattern of the plaintiff with [AMEX] at
that time does not support his ability to pay for such purchase. [41]
xxxx
Q: Why did it take so long?
A: It took time to review the account on credit, so, if there is any
delinquencies [sic] of the cardmember. There are factors on deciding the
charge itself which are standard measures in approving the authorization.
Now in the case of Mr. Pantaleon although his account is single charge
purchase of US$13,826. [sic] this is below the US$16,000. plus actually
billed x x x we would have already declined the charge outright and asked
him his bank account to support his charge. But due to the length of his
membership as cardholder we had to make a decision on hand.[42]
As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs
approval was because he had to go over Pantaleons credit card history for the past twelve
months.[43] It would certainly be unjust for us to penalize AMEX for merely exercising its right
to review Pantaleons credit history meticulously.
Finally, we said in Garciano v. Court of Appeals that the right to recover [moral
damages] under Article 21 is based on equity, and he who comes to court to demand equity,
must come with clean hands. Article 21 should be construed as granting the right to recover
damages to injured persons who are not themselves at fault.[44] As will be discussed below,
Pantaleon is not a blameless party in all this.
Pantaleons action was the
proximate cause for his injury
Pantaleon mainly anchors his claim for moral and exemplary damages on the
embarrassment and humiliation that he felt when the European tour group had to wait for him
and his wife for approximately 35 minutes, and eventually had to cancel the Amsterdam city
tour. After thoroughly reviewing the records of this case, we have come to the conclusion that
Pantaleon is the proximate cause for this embarrassment and humiliation.
As borne by the records, Pantaleon knew even before entering Coster that the tour
group would have to leave the store by 9:30 a.m. to have enough time to take the city tour
of Amsterdam before they left the country. After 9:30 a.m., Pantaleons son, who had boarded
the bus ahead of his family, returned to the store to inform his family that they were the only
ones not on the bus and that the entire tour group was waiting for them. Significantly, Pantaleon
tried to cancel the sale at 9:40 a.m. because he did not want to cause any inconvenience to
the tour group. However, when Costers sale manager asked him to wait a few more minutes
for the credit card approval, he agreed, despite the knowledge that he had already caused a 10-
minute delay and that the city tour could not start without him.
In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who knowingly and
voluntarily exposes himself to danger cannot claim damages for the resulting injury:
The doctrine of volenti non fit injuria (to which a person assents is not
esteemed in law as injury) refers to self-inflicted injury or to the consent to
injury which precludes the recovery of damages by one who has knowingly
and voluntarily exposed himself to danger, even if he is not negligent in
doing so.
This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified
that the most basic rule when travelling in a tour group is that you must never be a cause of any
delay because the schedule is very strict.[46] When Pantaleon made up his mind to push through
with his purchase, he must have known that the group would become annoyed and irritated with
him. This was the natural, foreseeable consequence of his decision to make them all wait.
We do not discount the fact that Pantaleon and his family did feel humiliated and
embarrassed when they had to wait for AMEX to approve the Coster purchase in Amsterdam.
We have to acknowledge, however, that Pantaleon was not a helpless victim in this scenario at
any time, he could have cancelled the sale so that the group could go on with the city tour. But
he did not.
 Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this
More importantly, AMEX did not violate any legal duty to Pantaleon under the Resolution and not for those found in the CA decision.
circumstances under the principle of damnum absque injuria, or damages without legal wrong,
loss without injury.[47] As we held in BPI Express Card v. CA:[48] WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision
and GRANT the present motion for reconsideration. The Court of Appeals Decision
We do not dispute the findings of the lower court that private dated August 18, 2006 is hereby AFFIRMED. No costs.
respondent suffered damages as a result of the cancellation of his credit
card. However, there is a material distinction between damages and SO ORDERED
injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt,
or harm which results from the injury; and damages are the recompense or
compensation awarded for the damage suffered. Thus, there can be
damage without injury in those instances in which the loss or harm was SECOND DIVISION
not the result of a violation of a legal duty. In such cases, the March 1, 2017
consequences must be borne by the injured person alone, the law affords G.R. No. 205578
no remedy for damages resulting from an act which does not amount to a GEORGIA OSMEÑA-JALANDONI, Petitioner
legal injury or wrong. These situations are often called damnum absque vs
injuria. CARMEN A. ENCOMIENDA, Respondent
In other words, in order that a plaintiff may maintain an action for DECISION
the injuries of which he complains, he must establish that such injuries PERALTA, J.:
resulted from a breach of duty which the defendant owed to the plaintiff - a
concurrence of injury to the plaintiff and legal responsibility by the person This is an appeal from the Decision1 of the Court of Appeals, Cebu City (CA) dated March 29,
causing it. The underlying basis for the award of tort damages is the 2012 and its Resolution2 dated December 19, 2012 in CA-G.R. CV No. 01339 which set aside
premise that an individual was injured in contemplation of law. Thus, the Decision3 of the Cebu Regional Trial Court (RTC), Branch 57, dated January 9, 2006,
there must first be a breach of some duty and the imposition of liability for dismissing respondent Carmen Encomienda's claim for sum of money.
that breach before damages may be awarded; and the breach of such duty
should be the proximate cause of the injury. The facts, as shown by the records of the case, are as follows:
Pantaleon is not entitled to damages
Encomienda narrated that she met petitioner Georgia Osmeña-Jalandoni in Cebu on October 24,
Because AMEX neither breached its contract with Pantaleon, nor acted with culpable 1995, when the former was purchasing a condominium unit and the latter was the real estate
delay or the willful intent to cause harm, we find the award of moral damages to Pantaleon broker. Thereafter, Encomienda and Jalandoni became close friends. On March 2, 1997,
unwarranted. Jalandoni called Encomienda to ask if she could borrow money for the search and rescue
operation of her children in Manila, who were allegedly taken by their father, Luis Jalandoni.
Similarly, we find no basis to award exemplary damages. In contracts, exemplary Encomienda then went to Jalandoni's house and handed ₱l00,000.00 in a sealed envelope to the
damages can only be awarded if a defendant acted in a wanton, fraudulent, reckless, oppressive latter's security guard. While in Manila, Jalandoni again borrowed money for the following
or malevolent manner.[49] The plaintiff must also show that he is entitled to moral, temperate, or errands:4
compensatory damages before the court may consider the question of whether or not exemplary
damages should be awarded.[50] 1âwphi1
1. Publication in SunStar Daily of Georgia's missing children ₱l1,000
As previously discussed, it took AMEX some time to approve Pantaleons purchase
requests because it had legitimate concerns on the amount being charged; no malicious intent
2. Reproduction of the pictures of Georgia's children 720.00
was ever established here. In the absence of any other damages, the award of exemplary
damages clearly lacks legal basis. 3. Additional reproduction of pictures 1,350.0
4. Plane fare for Georgia's secretary to Manila 3,196.0
Neither do we find any basis for the award of attorneys fees and costs of litigation. No
premium should be placed on the right to litigate and not every winning party is entitled to5.an Allowance of Germana Berning in going to Manila 4,080.0
automatic grant of attorney's fees.[51] To be entitled to attorneys fees and litigation costs, a party
must show that he falls under one of the instances enumerated in Article 2208 of the Civil 6. Cash airbill of Kabayan Forwarders 49.50
Code.[52] This, Pantaleon failed to do. Since we eliminated the award of moral and exemplary
damages, so must we delete the award for attorney's fees and litigation expenses. 7. Cash airbill of Kabayan Forwarders 49.50
alary of Georgia's household helper Reynilda Atillo for March 16-31, 1997 38. Prayers
750.00
for Georgia's missing children 5,500.0
alary of Georgia's driver Billy Tano for March 16-31, 1997 39. Amount
2,000.00
given to priest who performed a blessing of the house of Georgia 500.00
Petty cash for Germana Berning 40. Globe
250.00
cellular phone bill of Georgia as of 5/10/97 7,957.2
Consultancy fee of Germana Berning 41. Salary
7,000.00
of Germana Berning for May 1997 6,000.0
Filing fee of case filed by Georgia against CIS 42. Amount
100,500.00
given to priest for mass and blessing 2,500.0
Cebu cable bill per receipt No. 197743 43. Cash
380.00
given to G. Berning for payment of Georgia's phone bill 3,000.0
Cebu cable bill per receipt No. 197742 44. Gasoline
380.00for Georgia's car paid on 6/10/97 per cash slip #221088 150.00
Bankard bill of Georgia 45. Gasoline
840.00for Georgia's car paid on 6/10/97 per cash slip #220997 379.44
Services of 2 security guards for 2/1-15/97 and 3/1-31/97 46. Bill14,715.00
for Georgia's Easycall pager 1,605.0
One sack of rice and gasoline 47. Security
1,270.00
guard services for May 16-31 4,905.0
Food allowance for Georgia's household and payment for food ordered 48. Globe
2,900.00
bill for cellular phone from April 18, 1997 to May 17, 1997 5,543.9
Shipping charge of immigration papers sent to Georgia in Manila 49. Bill145.45
of cellular phone registered in the name of Paz Encomienda but used by Georgia paid on June 18, 1997 14,169.
Shipping charge of cellphone and easy call pager sent to Georgia 50. Charge
145 .45
for changing the cap of Easycall pager on June 21, 1997 275.00
Salary of Georgia's helper Renilda Atillo from April 1-15, 1997 51. Monthly
750.00bill for Georgia's Easycall pager from 7 /15/97 to 10/14/97 1,551.0
Purchase of cellphone registered in the name of Encomienda's sister, Paz 52. Water
10,260.00
bill for April-May 1997 paid on June 25, 1997 1,728.3
Pager acquired on April 10, 1997 upon Georgia's request 53. Cebu
6,351.00
Cable bill paid on 6125197 380.00
Wanted ad in Panay News and expenses of Georgia's secretary 54. PLDT
8,500.00
bill for the telephone in Georgia's residence 2,097.9
Salary of Billy Tano from April 1-15, 1997 55. Electric
2,000.00
bill paid on 6/25/97 1,964.4
Water consumption of Georgia's house in Paradise Village 56. Purchase
1,120.00
of steel cabinet on 6/25/97 2,750.0
Services of security guard from April 1-15, 1997 57. Airbill
4,905.00
of JRS in sending the cap of Easycall pager 20.00
Telephone bill for Georgia's residential phone from March 25 to April 24, 1997 58. Bill3,609.77
for the cellphone in the name of Paz Encomienda but used by Georgia, June to July 8, 1997 8,630.1
Telephone bill for Georgia's other telephone line 59. Penalty
440.20for downgrading of executive line of cellphone 1,045.0
Plane ticket for Georgia's psychic friends 60. Globe
$1,570.00
cellphone bill paid on 9/10/97 1,903.0
Petty cash for GRO Co. owned by Georgia 61. Charge
3,150.00
for downgrading of cellphone plan from Advantage to Basic 660.00
Bill of cellphone under the name of Paz Encomienda 62. Penalty
5,468.70
for Easycall 11/17/97 1,248.5
Another bill of cellphone used by Georgia 3,923.87
On April 1, 1997, Jalandoni borrowed ₱l Million from Encomienda and promised that she would
Cost of reproduction of pictures 2,500.00
pay the same when her money in the bank matured. Thereafter, Encomienda went to Manila to
attend the hearing of Jalandoni's habeas corpus case before the CA where ₱100,000.00 more
Salary of driver and house help of Georgia from May 15-31, 1997 3,250.00
was requested. On May 26, 1997, now crying, Jalandoni asked if Encomienda could lend her an
Service charge of Georgia's cellphone number 550.00 additional ₱900,000.00. Encomienda still acceded, albeit already feeling annoyed. All in all,
Encomienda spent around ₱3,245,836.02 and $6,638.20 for Jalandoni.
Ritual performed in Georgia's house to drive away evil spirits 17,500.00
When Jalandoni came back to Cebu on July 14, 1997, she never informed Encomienda.
Encomienda then later gave Jalandoni six (6) weeks to settle her debts. Despite several demands,
no payment was made. Jalandoni insisted that the amounts given were not in the form of loans.
When they had to appear before the Barangay for conciliation, no settlement was reached. But
a member of the Lupong Tagapamayapa of Barangay Kasambagan, Laureano Rogero, attested
that J alandoni admitted having borrowed money from Encomienda and that she was willing to
return it. Jalandoni said she would talk to her lawyer first, but she never came back. Hence,
Encomienda filed a complaint. She impleaded Luis as a necessary party, being Georgia's
husband.
For her defense, Jalandoni claimed that there was never a discussion or even just an allusion
about a loan. She confirmed that Encomienda would indeed deposit money in her bank account
and pay her bills in Cebu. But when asked, Encomienda would tell her that she just wanted to
extend some help and that it was not a loan. When Jalandoni returned to Cebu, Encomienda
wanted to fetch her at the airport but the former refused. This allegedly made Encomienda upset,
causing her to eventually demand payment for the amounts originally intended to be gratuitous.
On January 9, 2006, the RTC of Cebu City dismissed Encomienda's complaint, the dispositive
portion of which states:
WHEREFORE, in view of the foregoing, this case is hereby dismissed.
SO ORDERED.5
Therefore, Encomienda brought the case to the CA. On March 29, 2012, the appellate court
granted the appeal and reversed the RTC Decision, to wit:
WHEREFORE, the defendant-appellant's appeal is GRANTED. The decision of the trial court
dated January 9, 2006 is hereby REVERSED and SET ASIDE and in its stead render judgment
against defendant-appellee Georgia Osmefia-Jalandoni ordering the latter to pay plaintiff-
appellant Carmen A. Encomienda the following:
1. The sum of Three Million Two Hundred Forty-Five Thousand Eight Hundred Thirty-Six
(₱3,245,836.02) Pesos and 02/100 and Six Thousand Six Hundred Thirty-Eight (US$6,638.20)
US Dollars and 20/100;
2. Legal interest of Twelve (12%) Percent from August 14, 1997 the date of extrajudicial
demand.
3. Attorney's fees and expenses of litigation in the amount of One Hundred Thousand (₱l
00,000.00) Pesos.
Let a copy of this Decision be served upon defendants-appellees through their respective
counsels. The Division Clerk of Court is directed to furnish a copy of this Decision to plaintiff-
appellant who, to date, has yet to submit the name of her new counsel following the death of
appellant's original counsel ofrecord, Atty. Richard W. Sison.
SO ORDERED.6
Jalandoni filed a motion for reconsideration, but the same was denied. 7 Hence, the instant
petition.
The sole issue in this case is whether or not Encomienda is entitled to be reimbursed for the
amounts she defrayed for Jalandoni.
Jalandoni insists that she never borrowed any amount of money from Encomienda. During the
entire time that Encomienda was sending hermoney and paying her bills, there was not one
reference to a loan. In other words, Jalandoni would have the Court believe that Encomienda
volunteeredto spend about ₱3,245,836.02 and $6,638.20 of her hard-earned money in a span of
eight (8) months for her and her family simply out of pure generosity and the kindness of her
heart, without expecting anything in return. Suchpresupposition is incredible, highly unusual,
and contrary to common experience, unless the benefactor is a billionaire philanthropist who
usuallyspends his days distributing his fortune to the needy. It is a notable fact that Jalandoni
was married to one of the richest hacienderos of Iloilo and belongto the privileged and affluent
Osmeña family, being the daughter of the late Senator Sergio Osmeña, Jr. Clearly then,
Jalandoni is not one to be aconvincing object of anyone's charitable acts, especially not from
someone like Encomienda who has not been endowed with such wealth and powerful pedigree.
The appellate court aptly pointed out that when Encomienda gave a Barbie doll to Jalandoni's
daughter, she was quick to send a letter acknowledging receipt and thanking Encomienda for
the simple gift. However, not once did Jalandoni ever send a simple note or letter, let alone a
card, expressing her gratitude towards Encomienda for the countless instances she received
various amounts of money supposedly given to her as gifts.
Jalandoni also contends that the amounts she received from Encomienda were mostly provided
and paid without her prior knowledge and thus she could not have consented to any loan
agreement. She relies on the trial court's finding that Encomienda's claims were not supported
by any documentary evidence. It must be stressed, however, that the trial court merely found
that no documentary evidence was offered showing Jalandoni's authorization or undertaking to
pay the expenses. But the second paragraph of Article 1236 of the Civil Code provides:
xxxx
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.8
Clearly, Jalandoni greatly benefited from the purportedly unauthorized payments. Thus, even if
she asseverates that Encomienda's payment of her household bills was without her knowledge
or against her will, she cannot deny the fact that the same still inured to her benefit and
Encomienda must therefore be consequently reimbursed for it. Also, when Jalandoni learned
about the payments, she did nothing to express her objection to or repudiation of the same,
within a reasonable time. Even when she claimed that she was prepared with her own
money,9 she still accepted the financial assistance and actually made use of it. While she asserts
to have been upset because of Encomienda's supposedly intrusive actions, she failed to protest
and, in fact, repeatedly accepted money from her and further allowed her to pay her driver,
security guard, househelp, and bills for her cellular phone, cable television, pager, gasoline,
food, and other utilities. She cannot, therefore, deny the benefits she reaped from said acts now
that the time for restitution has come. The debtor who knows that another has paid his obligation
for him and who does not repudiate it at any time, must corollarily pay the amount advanced by
such third person.10
The RTC likewise harped on the fact that if Encomienda really intended the amounts to be a
loan, nonnal human behavior would have prompted at least a handwritten acknowledgment or
a promissory note the moment she parted with her money for the purpose of granting a loan.
This would be particularly true if the loan obtained was part of a business dealing and not one
extended to a close friend who suddenly needed monetary aid. In fact, in case of loans between
friends and relatives, the absence of acknowledgment receipts or promissory notes is more
natural and real. In a similar case,11 the Court upheld the CA' s pronouncement that the existence
of a contract of loan cannot be denied merely because it was not reduced in writing. Surely,
there can be a verbal loan. Contracts are binding between the parties, whether oral or written.
The law is explicit that contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. A simple loan
or mutuum exists when a person receives a loan of money or any other fungible thing and
acquires its ownership. He is bound to pay to the creditor the equal amount of the same kind and
quality. Jalandoni posits that the more logical reason behind the disbursements would be what
Encomiendacandidly told the trial court, that her acts were plainly an "unselfish display of
Christian help" and done out of "genuine concern for Georgia's children." However, the "display
of Christian help" is not inconsistent with theexistence of a loan. Encomienda immediately
offered a helping hand when a friend asked for it. But this does not mean that she had already
waived herright to collect in the future. Indeed, when Encomienda felt that Jalandoni was
beginning to avoid her, that was when she realized that she had to protect her right to demand
payment. The fact that Encomienda kept the receipts even for the smallest amounts she had
advanced, repeatedly sent demand letters, and immediately filed the instant case when Jalandoni
stubbornly refused to heed her demands sufficiently disproves the latter’s belief that all the sums
of money she received were merely given out of charity.
Truly, Jalandoni herself admitted that she received the aforementioned amounts from
Encomienda and is merely using her lack of authorization over the payments as her defence. In
fact, Lupong Tagapamayapa member Rogero, a disinterested third party, confirmed this, saying
that during the barangay conciliation, Jalandoni indeed admitted having borrowed money from
Encomienda and that she would return it. Jalandoni, however, reneged on said promise.
The principle of unjust enrichment finds application in this case. Unjust enrichment exists when
a person unfairly retains a benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity, and good conscience.
There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to another. The
principle of unjust enrichment essentially contemplates payment when there is no duty to pay,
and the person who receives the payment has no right to receive it. 12 The CA is then correct
when it ruled that allowing Jalandoni to keep the amounts received from Encomienda will
certainly cause an unjust enrichment on Jalandoni' s part and to Encomienda's damage and
prejudice.
WHEREFORE, PREMISES CONSIDERED, the Court DISMISSES the petition for lack of
merit and AFFIRMS the Decision of the Court of Appeals, Cebu City dated March 29, 2012
and its Resolution dated December 19, 2012 in CA-G.R. CV No. 01339, with
MODIFICATION as to the interest which must be twelve percent (12%) per annum of the
amount awarded from the time of demand on August 14, 1997 to June 30, 2013, and six percent
(6%)13 per annum from July 1, 2013 until its full satisfaction.
SO ORDERED.
FIRST DIVISION
[G.R. No. 144712. July 4, 2002]
SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V.
RAMOS, respondent.
DECISION
DAVIDE, JR., C.J.:
Before us is a petition for review on certiorari assailing the 5 November 1999
Decision[1] and the 18 August 2000 Resolution[2] of the Court of Appeals in CA G.R. CV No.
52848. The former affirmed the 5 June 1995 and 7 September 1995 Orders of the Regional Trial
Court, Malolos, Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latter
denied petitioners motion for reconsideration.
The case at bar stemmed from the petition[3] for consolidation of title or ownership filed
on 5 July 1993 with the trial court by herein respondent Rodrigo V. Ramos (hereafter RAMOS)
against herein petitioners, Spouses Silvestre and Celia Pascual (hereafter the PASCUALs). In
his petition, RAMOS alleged that on 3 June 1987, for and in consideration of P150,000, the
PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repurchase over two
parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan, covered
by Transfer Certificate of Title (TCT) No. 305626 of the Registry of Deeds of Bulacan. This
document was annotated at the back of the title. The PASCUALs did not exercise their right to
repurchase the property within the stipulated one-year period; hence, RAMOS prayed that the
title or ownership over the subject parcels of land and improvements thereon be consolidated in
his favor.
In their Answer,[4] the PASCUALs admitted having signed the Deed of Absolute Sale
with Right to Repurchase for a consideration of P150,000 but averred that what the parties had
actually agreed upon and entered into was a real estate mortgage. They further alleged that there
was no agreement limiting the period within which to exercise the right to repurchase and that
they had even overpaid RAMOS. Furthermore, they interposed the following defenses: (a) the
trial court had no jurisdiction over the subject or nature of the petition; (b) RAMOS had no legal
capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the
petition stated no cause of action; (e) the claim or demand set forth in RAMOSs pleading had
been paid, waived, abandoned, or otherwise extinguished; and (f) RAMOS has not complied
with the required confrontation and conciliation before the barangay.
 By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a
Deed of Cancellation, Release or Discharge of the Deed of Absolute Sale with Right to
Repurchase or a Deed of Real Estate Mortgage; deliver to them the owners duplicate of TCT No.
T-305626; return the amount they had overpaid; and pay each of them moral damages and
exemplary damages in the amounts of P200,000 and P50,000, respectively, plus attorneys fees
of P100,000; appearance fee of P1,500 per hearing; litigation expenses; and costs of suit.
order[5]
After the pre-trial, the trial court issued an wherein it identified the following
issues: (1) whether the Deed of Absolute Sale with Right to Repurchase is an absolute sale or a
mere mortgage; (2) whether the PASCUALs have paid or overpaid the principal obligation; (3)
whether the ownership over the parcel of land may be consolidated in favor of RAMOS; and (4)
whether damages may be awarded.
Among the documents offered in evidence by RAMOS during the trial on the merits was
a document denominated as Sinumpaang Salaysay[6] signed by RAMOS and Silvestre Pascual,
but not notarized. The contents of the document read:
Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at
kasalukuyang naninirahan sa Bambang, Bulacan, Bulacan, ay nagsasabing buong katotohanan
at sumusumpasa aking mga salaysay sa kasulatang ito:
1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan
ng puhunan ay lumapit ako at nakiusap kay Rodrigo Ramos ng Taal,
Pulilan, Bulacan na pautangin ako ng halagang P150,000.00.
2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng
tubo ng seven percent (7%) o P10,500.00 isang buwan (7% per month).
3. Na bilang sangla (collateral security) sa aking utang, kami ay
nagkasundo na mag-execute ng Deed of Sale with Right to Repurchase
para sa aking bahay at lupa (TCT No. 305626) sa Bo. Taliptip, Bambang,
Bulacan, Bulacan ngayong June 3, 1987 at binigyan ako ni Mr.
Ramos ng isang taon hanggang June 3, 1988 upang mabiling muli ang
aking isinanla sa kaniya sa kasunduang babayaran kong lahat ang
capital na P150,000.00 pati na ang P10,500.00 na tubo buwan buwan.
4. Na bilang karagdagang condition, si RODRIGO RAMOS ay pumayag sa
aking kahilingan na kung sakali na hindi ko mabayaran ng buo ang aking
pagkakautang (Principal plus interest) sa loob ng isang taon mula
ngayon, ang nakasanglang bahay at lupa ay hindi muna niya iilitin
(foreclose) o ipalilipat sa pangalan niya at hindi muna kamipaaalisin sa
tinitirhan naming bahay hanggat ang tubo (interest) na P10,500.00 ay
nababayaran ko buwan buwan.
5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos
na pagkatapos ng isang taon mula ngayon hanggang June 3, 1988 at
puro interest lamang ang aking naibabayadbuwan-buwan, kung
sakaling hindi ako makabayad ng tubo for six (6) consecutive months
(1/2 year after June 3, 1988 (6 na buwang hindi bayad ang interest ang
utang ko) si Rodrigo Ramos ay binibigyan ko ng karapatan at
kapangyarihan na mag-mayari ng aming bahay at lupa at kami ng aking
pamilya ay kusang loob na aalis sa nasabing bahay at lupa na lumalabas
na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga
pinagkasunduang usapan.
6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi
maghahabol ng ano mang sukli sa pagkakailit ng aming bahay at
lupa kung sakali mang dumating sa ganuong pagkakataon o sitwasyon o
di kayay magsasampa ng reklamo kanino man.
Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng
aming mga pangalan ngayong ika-3 ng Hunyo, 1987.
(Sgd.)Rodrigo Ramos Sgd.) Silvestre Pascual
Nagpautang Umutang
For their part, the PASCUALs presented documentary evidence consisting of
acknowledgment receipts[7] to prove the payments they had made.
The trial court found that the transaction between the parties was actually a loan in the
amount of P150,000, the payment of which was secured by a mortgage of the property covered
by TCT No. 305626. It also found that the PASCUALs had made payments in the total sum
of P344,000, and that with interest at 7% per annum, the PASCUALs had overpaid the loan
by P141,500. Accordingly, in its Decision[8] of 15 March 1995 the trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff
in the following manner:
1. Dismissing the plaintiffs petition;
2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale
with Right to Repurchase on the dorsal side of TCT No. 305626;
3. Awarding the defendants the sum of P141,500.00 as overpayment on the
loan and interests;
4. Granting the defendants attorneys fee in the sum
of P15,000.00 and P3,000.00 for litigation expenses.
With costs against the plaintiff.
RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in
using an interest rate of 7% per annum in the computation of the total amount of obligation
because what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. The total
interest due from 3 June 1987 to 3 April 1995 was P987,000. Deducting therefrom the interest
payments made in the sum of P344,000, the amount of P643,000 was still due as
interest. Adding the latter to the principal sum of P150,000, the total amount due from the
PASCUALs as of 3 April 1995 was P793,000.
Finding merit in the motion for reconsideration, which was not opposed by the
PASCUALs, the trial court issued on 5 June 1995 an Order[9] modifying its decision by deleting
the award of P141,500 to the PASCUALs as overpayment of the loan and interest and ordering
them to pay RAMOS P511,000 representing the principal loan plus interest. The trial court
acknowledged that it had inadvertently declared the interest rate to be 7% per annum when, in
fact, the Sinumpaang Salaysay stipulated 7% per month. It noted that during trial, the
PASCUALs never disputed the stipulated interest rate. However, the court declared that the 7%
per month interest is too burdensome and onerous. Invoking the protective mantle of Article 24
of the Civil Code, which mandates the courts to be vigilant for the protection of a party at a
disadvantage due to his moral dependence, ignorance, indigence, mental weakness, tender age
or other handicap, the trial court unilaterally reduced the interest rate from 7% per month to 5%
per month. Thus, the interest due from 3 June 1987 to 3 April 1995 was P705,000.Deducting
therefrom the payments made by the PASCUALs in the amount of P344,000, the net interest
due was P361,000. Adding thereto the loan principal of P150,000, the total amount due from
the PASCUALs was P511,000.
Aggrieved by the modification of the decision, the PASCUALs filed a motion to
reconsider the Order of 5 June 1995. They alleged that the motion for reconsideration filed by
RAMOS was a mere scrap of paper because they received a copy of said motion only a day
before the hearing, in violation of the 3-day-notice rule. Moreover, they had already paid the
interests and had in fact overpaid the principal sum of P150,000. Besides, RAMOS, being an
individual, could not charge more than 1% interest per month or 12% per annum; and, the
interest of either 5% or 7% a month is exorbitant, unconscionable, unreasonable, usurious and
inequitable.
RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance
with the 3-day-notice rule was cured when the trial court gave them an opportunity to file their
opposition, but despite the lapse of the period given them, no opposition was filed. It is not
correct to say that he was not allowed to collect more than 1% per month interest considering
that with the moratorium on the Usury Law, the allowable interest is that agreed upon by the
parties. In the absence of any evidence that there was fraud, force or undue influence exerted
upon the PASCUALs when they entered into the transaction in question, their agreement
embodied in the Sinumpaang Salaysay should be respected. Furthermore, the trial court had
already reduced the interest rate to 5% per month, a rate which is not exorbitant, unconscionable,
unreasonable and inequitable.
Their motion for reconsideration having been denied in the Order[10] of 7 September 1995,
the PASCUALs seasonably appealed to the Court of Appeals. They pointed out that since the
only prayer of RAMOS in his petition was to have the title or ownership over the subject land
and the improvements thereon consolidated in his favor and he did not have any prayer for
general relief, the trial court had no basis in ordering them to pay him the sum of P511,000.
In its Decision[11] of 5 November 1999, the Court of Appeals affirmed in toto the trial
courts Orders of 5 June 1995 and 7 September 1995. It ruled that while RAMOSs petition for
consolidation of title or ownership did not include a prayer for the payment of the balance of
the petitioners obligation and a prayer for general relief, the issue of whether there was still a
balance from the amount loaned was deemed to have been raised in the pleadings by virtue of
Section 5, Rule 10 of the Rules of Court, which provides that [w]hen issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. In the course of the trial, receipts were
presented by the PASCUALs evidencing the payments they had made. Taken in conjunction
with the Sinumpaang Salaysay which specified the interest rate at 7% per month, a mathematical
computation readily leads to the conclusion that there is still a balance due from the PASCUALs,
even at a reduced interest rate of 5% interest per month.
With the denial of their motion for reconsideration of the decision by the Court of Appeals,
the PASCUALs filed before us the instant petition raising the sole issue of whether they are
liable for 5% interest per month from 3 June 1987 to 3 April 1995. Invoking this Courts ruling
in Medel v. Court of Appeals,[12] they argue that the 5% per month interest is excessive,
iniquitous, unconscionable and exorbitant. Moreover, respondent should not be allowed to
collect interest of more than 1% per month because he tried to hide the real transaction between
the parties by imposing upon them to sign a Deed of Absolute Sale with Right to Repurchase.
For his part, RAMOS contends that the issue raised by petitioners cannot be entertained
anymore because it was neither raised in the complaint nor ventilated during the trial. In any
case, there was nothing illegal on the rate of interest agreed upon by the parties, since the ceilings
on interest rates prescribed under the Usury Law had expressly been removed, and hence parties
are left freely at their discretion to agree on any rate of interest. Moreover, there was no scheme
to hide a usurious transaction. RAMOS then prays that the challenged decision and resolution
be affirmed and that petitioners be further ordered to pay legal interest on the interest due from
the time it was demanded.
We see at once the proclivity of the PASCUALs to change theory almost every step of the
case.
By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually
raising as issue the validity of the stipulated interest rate. It must be stressed that they never
raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While
overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the
overpayment was alleged. In their pre-trial brief, the PASCUALs made a long list of issues, but
not one of them touched on the validity of the stipulated interest rate. Their own evidence clearly
shows that they have agreed on, and have in fact paid interest at, the rate of 7% per
month. Exhibits 1 to 8 specifically mentioned that the payments made were for the interest due
on the P150,000 loan of the PASCUALs. In the course of the trial, the PASCUALs never put in
issue the validity of the stipulated interest rate.
After the trial court sustained petitioners claim that their agreement with RAMOS was
actually a loan with real estate mortgage, the PASCUALs should not be allowed to turn their
back on the stipulation in that agreement to pay interest at the rate of 7% per month. The
PASCUALs should accept not only the favorable aspect of the courts declaration that the
document is actually an equitable mortgage but also the necessary consequence of such
declaration, that is, that interest on the loan as stipulated by the parties in that same document
should be paid.Besides, when RAMOS moved for a reconsideration of the 15 March 1995
Decision of the trial court pointing out that the interest rate to be used should be 7% per month,
the PASCUALs never lifted a finger to oppose the claim. Admittedly, in their Motion for
Reconsideration of the Order of 5 June 1995, the PASCUALs argued that the interest rate,
whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and
inequitable. However, in their Appellants Brief, the only argument raised by the PASCUALs
was that RAMOSs petition did not contain a prayer for general relief and, hence, the trial court
had no basis for ordering them to pay RAMOS P511,000 representing the principal and unpaid
interest. It was only in their motion for the reconsideration of the decision of the Court of
Appeals that the PASCUALs made an issue of the interest rate and prayed for its reduction to
12% per annum.
 In Manila Bay Club Corp. v. Court of Appeals,[13] this Court ruled that if an issue is raised
only in the motion for reconsideration of the decision of the Court of Appeals, the effect is that
it is as if it was never duly raised in that court at all.
Our ruling in Medel v. Court of Appeals[14] is not applicable to the present case. In that
case, the excessiveness of the stipulated interest at the rate of 5.5 % per month was put in issue
by the defendants in the Answer. Moreover, in addition to the interest, the debtors were also
required, as per stipulation in the promissory note, to pay service charge of 2% per annum and
a penalty charge of 1% per month plus attorneys fee of equivalent to 25% of the amount due. In
the case at bar, there is no other stipulation for the payment of an extra amount except interest
on the principal loan. Thus, taken in conjunction with the stipulated service charge and penalty,
the interest rate of 5.5% in the Medel case was found to be excessive, iniquitous,
unconscionable, exorbitant and hence, contrary to morals, thereby making such stipulation null
and void.
Considering the variance in the factual circumstances of the Medel case and the instant
case, we are not prepared to apply the former lest it be construed that we can strike down anytime
interest rates agreed upon by parties in a loan transaction.
It is a basic principle in civil law that parties are bound by the stipulations in the contracts
voluntarily entered into by them. Parties are free to stipulate terms and conditions which they
deem convenient provided they are not contrary to law, morals, good customs, public order, or
public policy.[15]
The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the
PASCUALs. 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 RAMOS. Neither
is there a showing that in their contractual relations with RAMOS, the PASCUALs were at a
disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or
other handicap, which would entitle them to the vigilant protection of the courts as mandated by
Article 24 of the Civil Code. Apropos in our ruling in Vales vs. Villa:
All men are presumed to be sane and normal and subject to be moved by substantially the same
motives. When of age and sane, they must take care of themselves. In their relations with others
in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash
and contest, sometimes with gain and advantage to all, sometimes to a few only, with loss and
injury to others. In these contests men must depend upon themselves upon their own abilities,
talents, training, sense, acumen, judgment. The fact that one may be worsted by another, of
itself, furnishes no cause of complaint. One man cannot complain because another is more able,
or better trained, or has better sense or judgment than he has; and when the two meet on a fair
field the inferior cannot murmur if the battle goes against him. The law furnishes no protection
to the inferior simply because he is inferior, any more than it protects the strong because he is
strong. The law furnishes protection to both alike to one no more or less than to the other. It
makes no distinction between the wise and the foolish, the great and the small, the strong and
the weak. The foolish may lose all they have to the wise; but that does not mean that the law
will give it back to them again. Courts cannot follow one every step of his life and extricate him
from bad bargains, protect him from unwise investments, relieve him from one-sided
contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of
persons who are not legally incompetent. Courts operate not because one person has been
defeated or overcome by another, but because he has been defeated or overcome illegally. Men
may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by
then indeed, all they have in the world; but not for that alone can the law intervene and
restore. There must be, in addition, a violation of law, the commission of what the law knows
as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy
it.[16]
With the suspension of the Usury Law and the removal of interest ceiling, the parties are
free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue
influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed
upon is binding upon them. This Court is not in a position to impose upon parties contractual
stipulations different from what they have agreed upon. As declared in the decision of Cuizon
v. Court of Appeals,[17]
It is not the province of the court to alter a contract by construction or to make a new contract
for the parties; its duty is confined to the interpretation of the one which they have made for
themselves without regard to its wisdom or folly as the court cannot supply material stipulations
or read into the contract words which it does not contain.
Thus, we cannot supplant the interest rate, which was reduced to 5% per month without
opposition on the part of RAMOS.
We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide
the real transaction by imposing upon them the execution of a Deed of Absolute Sale with Right
to Repurchase, he should not be allowed to collect more than 1% per month interest. It is
undisputed that simultaneous with the execution of the said deed was the execution of
the Sinumpaang Salaysay, which set forth the true agreement of the parties. The PASCUALs
cannot then claim that they did not know the real transaction.
RAMOSs claim that the interest due should earn legal interest cannot be acted upon
favorably because he did not appeal from the Order of the trial court of 5 June 1995, which
simply ordered the payment by the PASCUALs of the amount of P511,000 without interest
thereon. No relief can be granted a party who does not appeal.[18] Therefore, the order of the
trial court should stand.
Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v.
Valle was reproduced by his counsel without the proper citation. Such act constitutes plagiarism.
Atty. Felimon B. Mangahas is hereby warned that a repetition of such act shall be dealt with
accordingly.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed
decision of the Court of Appeals in CA-G.R. CV No. 52848 is AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.
Vitug, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.
FIRST DIVISION
HERMOJINA ESTORES, G.R. No. 175139
Petitioner,
Present:
 CORONA, C.J., Chairperson, g) Deed of Absolute Sale
- versus - LEONARDO-DE CASTRO,
xxxx
BERSAMIN,
4. Vendee shall be informed as to the status of DAR clearance within 10 days upon
DEL CASTILLO, and signing of the documents.
VILLARAMA, JR., JJ.
xxxx
SPOUSES ARTURO and
LAURA SUPANGAN, Promulgated: 6. Regarding the house located within the perimeter of the subject [lot] owned by
spouses [Magbago], said house shall be moved outside the perimeter of this
Respondents. April 18, 2012 subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts
the responsibility of seeing to it that such agreement is carried out before full
x-------------------------------------------------------------------x
payment of the sale is made by vendee.
DECISION
7. If and after the vendor has completed all necessary documents for registration of
the title and the vendee fails to complete payment as per agreement, a forfeiture
DEL CASTILLO, J.:
fee of 25% or downpayment, shall be applied.However, if the vendor fails to
complete necessary documents within thirty days without any sufficient reason,
The only issue posed before us is the propriety of the imposition of interest and attorneys fees.
or without informing the vendee of its status, vendee has the right to demand
return of full amount of down payment.
Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is the May 12, 2006
Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads:
xxxx
WHEREFORE, the appealed decision is MODIFIED. The rate of interest
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee
shall be six percent (6%) per annum, computed from September 27, 2000 until its
shall be informed immediately of its approval by the LRC.
full payment before finality of the judgment.If the adjudged principal and the interest
(or any part thereof) remain unpaid thereafter, the interest rate shall be adjusted to
10. The vendor assures the vendee of a peaceful transfer of ownership.
twelve percent (12%) per annum, computed from the time the judgment becomes
final and executory until it is fully satisfied. The award of attorneys fees is hereby
x x x x [6]
reduced to P100,000.00. Costs against the defendants-appellants.

SO ORDERED.[3]
After almost seven years from the time of the execution of the contract and notwithstanding
Also assailed is the August 31, 2006 Resolution[4] denying the motion for reconsideration.
payment of P3.5 million on the part of respondent-spouses, petitioner still failed to comply with her
obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter[7] dated
Factual Antecedents
September 27, 2000, respondent-spouses demanded the return of the amount of P3.5 million within 15 days
from receipt of the letter. In reply,[8] petitioner acknowledged receipt of the P3.5 million and promised to
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan
return the same within 120 days. Respondent-spouses were amenable to the proposal provided an interest
entered into a Conditional Deed of Sale[5] whereby petitioner offered to sell, and respondent-spouses offered
of 12% compounded annually shall be imposed on the P3.5 million.[9] When petitioner still failed to return
to buy, a parcel of land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite
the amount despite demand, respondent-spouses were constrained to file a Complaint[10] for sum of money
for the sum of P4.7 million. The parties likewise stipulated, among others, to wit:
before the Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias
(Arias) who allegedly acted as petitioners agent. The case was docketed as Civil Case No. 3201-MN and
xxxx
raffled off to Branch 170. In their complaint, respondent-spouses prayed that petitioner and Arias be ordered
to:
1. Vendor will secure approved clearance from DAR requirements of which are (sic):
a) Letter request
1. Pay the principal amount of P3,500,000.00 plus interest of 12%
b) Title
compounded annually starting October 1, 1993 or an estimated
c) Tax Declaration
amount of P8,558,591.65;
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings of
2. Pay the following items of damages:
Vendor/Vendee
f) Affidavit of Non-Tenancy
a) Moral damages in the amount of P100,000.00;
 b) Actual damages in the amount of P100,000.00;
c) Exemplary damages in the amount of P100,000.00;
d) [Attorneys] fee in the amount of P50,000.00 plus 20% of
recoverable amount from the [petitioner].
e) [C]ost of suit.[11]
In their Answer with Counterclaim,[12] petitioner and Arias averred that they are willing to return
the principal amount of P3.5 million but without any interest as the same was not agreed upon. In their Pre-
Trial Brief,[13] they reiterated that the only remaining issue between the parties is the imposition of
interest. They argued that since the Conditional Deed of Sale provided only for the return of the
downpayment in case of breach, they cannot be held liable to pay legal interest as well.[14]
In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties agreed that the
principal amount of 3.5 million pesos should be returned to the [respondent-spouses] by the [petitioner] and
the issue remaining [is] whether x x x [respondent-spouses] are entitled to legal interest thereon, damages
and attorneys fees.[16]
Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial court
set the presentation of Arias and petitioners evidence on September 3, 2003.[17]However, despite several
postponements, petitioner and Arias failed to appear hence they were deemed to have waived the
presentation of their evidence. Consequently, the case was deemed submitted for decision.[18]
Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision[19] finding respondent-spouses entitled to interest but only
at the rate of 6% per annum and not 12% as prayed by them.[20] It also found respondent-spouses entitled to
attorneys fees as they were compelled to litigate to protect their interest.[21]
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the [respondent-spouses] and ordering the [petitioner and Roberto Arias] to
jointly and severally:
1. Pay [respondent-spouses] the principal amount of Three
Million Five Hundred Thousand pesos (P3,500,000.00) with an interest of 6%
compounded annually starting October 1, 1993 and attorneys fee in the amount of
Fifty Thousand pesos (P50,000.00) plus 20% of the recoverable amount from the
defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of factual
evidence.
SO ORDERED.[22]
Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of appeal.[23] The CA noted that the only issue submitted
for its resolution is whether it is proper to impose interest for an obligation that does not involve a loan or
forbearance of money in the absence of stipulation of the parties.[24]
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding
the imposition of 6% interest proper.[25] However, the same shall start to run only from September 27, 2000
when respondent-spouses formally demanded the return of their money and not from October 1993 when
the contract was executed as held by the RTC. The CA also modified the RTCs ruling as regards the liability
of Arias. It held that Arias could not be held solidarily liable with petitioner because he merely acted as agent
of the latter. Moreover, there was no showing that he expressly bound himself to be personally liable or that
he exceeded the limits of his authority. More importantly, there was even no showing that Arias was
authorized to act as agent of petitioner.[26] Anent the award of attorneys fees, the CA found the award by the
trial court (P50,000.00 plus 20% of the recoverable amount) excessive[27] and thus reduced the same
to P100,000.00.[28]
The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be
six percent (6%) per annum, computed from September 27, 2000 until its full
payment before finality of the judgment. If the adjudged principal and the interest (or
any part thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted to
twelve percent (12%) per annum, computed from the time the judgment becomes
final and executory until it is fully satisfied. The award of attorneys fees is hereby
reduced to P100,000.00. Costs against the [petitioner].
SO ORDERED.[29]
Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA.
Hence, this petition raising the sole issue of whether the imposition of interest and attorneys fees is proper.
Petitioners Arguments
Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of
Sale only provided for the return of the downpayment in case of failure to comply with her
obligations. Petitioner also argues that the award of attorneys fees in favor of the respondent-spouses is
unwarranted because it cannot be said that the latter won over the former since the CA even sustained her
contention that the imposition of 12% interest compounded annually is totally uncalled for.
Respondent-spouses Arguments
Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering
that petitioner failed to return the amount upon demand and had been using the P3.5 million for her benefit.
Moreover, it is undisputed that petitioner failed to perform her obligations to relocate the house outside the
perimeter of the subject property and to complete the necessary documents. As regards the attorneys fees,
they claim that they are entitled to the same because they were forced to litigate when petitioner unjustly
withheld the amount. Besides, the amount awarded by the CA is even smaller compared to the filing fees
they paid.
Our Ruling
The petition lacks merit.
 fulfillment of the conditions and when those conditions were breached, they are entitled not only to the
Interest may be imposed return of the principal amount paid, but also to compensation for the use of their money. And the
even in the absence of compensation for the use of their money, absent any stipulation, should be the same rate of legal interest
stipulation in the contract. applicable to a loan since the use or deprivation of funds is similar to a loan.

Petitioners unwarranted withholding of the money which rightfully pertains to respondent-

We sustain the ruling of both the RTC and the CA that it is proper to impose interest
notwithstanding the absence of stipulation in the contract. Article 2210 of the Civil Code expressly provides
that [i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of
contract. In this case, there is no question that petitioner is legally obligated to return the P3.5 million because
of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She has in fact
admitted that the conditions were not fulfilled and that she was willing to return the full amount of P3.5
million but has not actually done so. Petitioner enjoyed the use of the money from the time it was given to
her[30] until now. Thus, she is already in default of her obligation from the date of demand, i.e., on September
27, 2000.
spouses amounts to forbearance of money which can be considered as an involuntary loan.Thus, the
applicable rate of interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of Appeals,[35]cited
in Crismina Garments, Inc. v. Court of Appeals,[36] the Court suggested the following guidelines:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
Damages of the Civil Code govern in determining the measure of
recoverable damages.

The interest at the rate of II. With regard particularly to an award of interest in the
12% is applicable in the concept of actual and compensatory damages, the rate of
instant case. interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the

Anent the interest rate, the general rule is that the applicable rate of interest shall be computed in payment of a sum of money, i.e., a loan or forbearance of
accordance with the stipulation of the parties.[31] Absent any stipulation, the applicable rate of interest shall money, the interest due should be that which may have
be 12% per annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In been stipulated in writing. Furthermore, the interest due
other cases, it shall be six percent (6%).[32] In this case, the parties did not stipulate as to the applicable rate shall itself earn legal interest from the time it is judicially
of interest. The only question remaining therefore is whether the 6% as provided under Article 2209 of the demanded. In the absence of stipulation, the rate of
Civil Code, or 12% under Central Bank Circular No. 416, is due. interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under
The contract involved in this case is admittedly not a loan but a Conditional Deed of and subject to the provisions of Article 1169 of the Civil
Sale. However, the contract provides that the seller (petitioner) must return the payment made by the buyer Code.
(respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been
fulfilled as the seller (petitioner) has admitted this. Notwithstanding demand by the buyer (respondent- 2. When an obligation, not constituting a loan or forbearance
spouses), the seller (petitioner) has failed to return the money and of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
should be considered in default from the time that demand was made on September 27, 2000. rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the
Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the demand can be established with reasonable
return of the money be considered as a forbearance of money which required payment of interest at the rate certainty. Accordingly, where the demand is established with
of 12%? We believe so. reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169,
In Crismina Garments, Inc. v. Court of Appeals,[33] forbearance was defined as a contractual Civil Code) but when such certainty cannot be so reasonably
obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or established at the time the demand is made, the interest shall
debtor to repay a loan or debt then due and payable. This definition describes a loan where a debtor is given begin to run only from the date the judgment of the court is
a period within which to pay a loan or debt. In such case, forbearance of money, goods or credits will have made (at which time the quantification of damages may be
no distinct definition from a loan. We believe however, that the phrase forbearance of money, goods or deemed to have been reasonably ascertained). The actual base
credits is meant to have a separate meaning from a loan, otherwise there would have been no need to add for the computation of legal interest shall, in any case, be on
that phrase as a loan is already sufficiently defined in the Civil Code.[34] Forbearance of money, goods or the amount finally adjudged.
credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the
temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain 3. When the judgment of the court awarding a sum of
conditions. In this case, the respondent-spouses parted with their money even before the conditions were money becomes final and executory, the rate of legal interest,
fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money whether the case falls under paragraph 1 or paragraph 2,
pending fulfillment of the conditions. They were deprived of the use of their money for the period pending 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.[37]
Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor case, Reformina v.
Tongol[39] both involved torts cases and hence, there was no forbearance of money, goods, or
credits. Further, the amount claimed (i.e., damages) could not be established with reasonable certainty at the
time the claim was made. Hence, we arrived at a different ruling in those cases.
Since the date of demand which is September 27, 2000 was satisfactorily established during trial,
then the interest rate of 12% should be reckoned from said date of demand until the principal amount and
the interest thereon is fully satisfied.
The award of attorneys fees
is warranted.
Under Article 2208 of the Civil Code, attorneys fees may be recovered:
xxxx
(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
xxxx
(11) In any other case where the court deems it just and equitable that attorneys
fees and expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses entitled to recover
attorneys fees. There is no doubt that they were forced to litigate to protect their interest, i.e., to recover their
money. However, we find the amount of P50,000.00 more appropriate in line with the policy enunciated in
Article 2208 of the Civil Code that the award of attorneys fees must always be reasonable.
WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court
of Appeals in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of interest
shall be twelve percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The
award of attorneys fees is further reduced to P50,000.00.
SO ORDERED.
THIRD DIVISION
[G.R. No. 130994. September 18, 2002]
SPOUSES FELIMON and MARIA BARRERA, petitioners, vs. SPOUSES EMILIANO
and MARIA CONCEPCION LORENZO, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
On December 4, 1990, spouses Felimon and Maria Barrera, petitioners, borrowed
P230,000.00 from spouses Miguel and Mary Lazaro. The loan was secured by a real estate
mortgage[1] over petitioners residential lot consisting of 432 square meters located at Bunlo,
Bocaue, Bulacan and registered in their names under Transfer Certificate of Title (TCT) T-
42.373 (M)[2] of the Registry of Deeds of Bulacan.
A month and a half later, the Lazaro spouses needed money and informed petitioners that
they would transfer the loan to spouses Emiliano and Maria Concepcion Lorenzo,
respondents. Consequently, on May 14, 1991, petitioners executed another real estate
mortgage[3] over their lot, this time in favor of the respondents to secure the loan of P325,000.00,
which the latter claimed as the amount they paid spouses Lazaro. The mortgage contract
provides, among others, that the new loan shall be payable within three (3) months, or until
August 14, 1991; that it shall earn interest at 5% per month; and that should petitioners fail to
pay their loan within the said period, the mortgage shall be foreclosed.
When petitioners failed to pay their loan in full on August 14, 1991, respondents allowed
them to complete their payment until December 23, 1993. On this date, they made a total
payment of P687,000.00.
On January 17, 1994, respondents wrote petitioners demanding payment of P325,000.00,
plus interest, otherwise they would foreclose the mortgage.[4] In turn, petitioners responded,
claiming that they have overpaid their obligation and demanding the return of their land title
and refund of their excess payment.[5] This prompted respondents to file a petition[6] for
extrajudicial foreclosure of mortgage with the Office of the Ex-Officio Sheriff, Malolos,
Bulacan, docketed therein as EJF 19-94.
For their part, petitioners filed with the Regional Trial Court (RTC), Branch 17, Malolos,
Bulacan, a complaint for the return of their TCT No. T-42.373 (M), sum of money and damages,
with application for a temporary restraining order and preliminary injunction, docketed as Civil
Case No. 156-M-94.[7]
In their opposition[8] to the application for a preliminary injunction, respondents alleged
that petitioners loan has been restructured three times and that their unpaid balance as of March
14, 1994 was P543,622.00.
After hearing petitioners application for a preliminary injunction, the RTC issued an
order,[9] enjoining the sheriff from proceeding with the foreclosure of mortgage, upon their
posting of a bond in the amount of P543,622.00.
Thereafter, trial on the merits ensued.
On July 31, 1995, the RTC rendered judgment,[10] the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs
(now petitioners) and against the defendants (now respondents), ordering the latter:
1. to return to the plaintiffs the amount of P215,750.00 representing the overpaid amount;
2. to return to the plaintiffs the owners copy of TCT No. T-42.373 (M) offered as security;
3. to pay P20,000.000 as attorneys fees;
4. to pay the costs of the suit.
The writ of preliminary injunction issued on March 21, 1994 is hereby made permanent.
SO ORDERED."[11]
The trial court held that the stipulated 5% monthly interest to be paid by
petitioners corresponds only to the period from May 14, 1991 up to August 14, 1991, the term
of the loan.Thereafter, the monthly interest should be 12% per annum. The trial court concluded
that petitioners made an overpayment of P214,750.00.
Upon appeal, docketed as CA GR-CV No. 51095, the Court of Appeals, in a
Decision[12] dated June 18, 1997, held:
We reverse.
The law and jurisprudence clearly provide that if the debt produces interest, payment of the
principal shall not be deemed to have been made until the interests have been covered. (Article
1253, New Civil Code; Gobonseng, Jr. vs. Court of Appeals, 246 SCRA 472). Once it is
admitted that an obligation bears interest, partial payments are to be applied first on account of
the interest and then to reduce the principal. (San Jose vs. Ortega, 11 Phil. 442; Sunico vs.
Ramirez, 14 Phil. 500). We thus find no support, whether in law or in jurisprudence, for the
Decision of the court a quo to apply the bigger amounts of P40,000.00, P37,000.00, P50,000.00
among others, given several times by the Barrera spouses x x x for the payment of the principal
loan when the interests due on the loan that have accumulated through the years have not been
fully satisfied.
We also do not agree that the stipulated monthly interest of 5% was to apply only to the 3-month
effectivity period of the loan. This is a flawed and a grossly unfair interpretation of the terms
and conditions of the agreement of the parties. To rule in this wise is to sanction the irregular
performance of ones obligation. The Barrera spouses will be emboldened not to pay their loan
within the agreed period of 3-months since on the fourth month and thereafter, they do not have
to pay anymore the 5% monthly interest, but only the 12% legal interest per annum, or a measly
1% interest per month. Such an interpretation is totally unfair and unjust to the creditors who
could have used their money in some other ways. Until such time that the Barreras have fully
paid their total indebtedness, the 5% monthly interest subsists, there being no stipulation to the
contrary.
While we commiserate with the plight of the Barrera spouses, we cannot change the terms of
the loan agreement between them and the Lorenzos as the courts have no right to make contracts
for (the) parties.(Tolentino and Manio vs. Gonzales Sy Chian, 5 Phil. 577). A contract is the law
between the parties which not even this Court can interfere with. The only requirement is that
the same be not contrary to law, morals and good customs x x x (Article 1306, New Civil
Code). We find the agreement to pay a 5% monthly interest until the loan is fully paid to be
reasonable and sanctioned by regular usage and practice.
The Barreras should, therefore, be required to pay the balance of their indebtedness, including
the interests thereof. Failure to pay the same should warrant the foreclosure of their mortgaged
property to satisfy their obligation to the Lorenzo spouses.[13]
Petitioners filed a motion for reconsideration but was denied.[14]
Hence this petition.
The sole issue for our resolution is whether the 5% monthly interest on the loan was only
for three (3) months, or from May 14, 1991 up to August 14, 1991, as maintained by petitioners,
or until the loan was fully paid, as claimed by respondents.
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.[15] In such cases, courts have
no authority to alter a contract by construction or to make a new contract for the parties; its duty
is confined to the interpretation of the one which they have made for themselves without regard
to its wisdom or folly as the court cannot supply material stipulations or read into the contract
words which it does not contain.[16] It is only when the contract is vague and ambiguous that
courts are permitted to resort to construction of its terms and determine the intention of the
parties therein.
The salient provisions of the mortgage contract read:
a) Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan, o hanggang sa
Agosto 14, 1991.
b) Ang tubo na aming napagkasunduan ay 5%, o cinco por ciento isang buwan.
c) Na sakaling mabayaran ko ang aming pagkakautang sa mag-asawa na
P325,000.00 ang kasulatang ito ay wala ng lakas at kabuluhan, subalit kung
hindi ko mabayaran ang aming pinagkakautangan sa takdang panahong 3
buwan sila ay binibigyan ko nang laya at kapangyarihan na masubasta nila ang
lupang aming ipinanagot sa labas ng hukuman sa bisa ng Batas Blg. 3135 at
susog nito at akong may utang ang siyang sagot sa lahat ng gastos at pati bayad
sa abogado sa nasabing subasta sa labas ng hukuman. [17] (emphasis supplied)
It is clear from the above stipulations that the loan shall be payable within three (3)
months, or from May 14, 1991 up to August 14, 1991. During such period, the loan shall earn
an interest of 5% per month. Furthermore, the contract shall have no force and effect once the
loan shall have been fully paid within the three-month period, otherwise, the mortgage shall be
foreclosed extrajudicially under Act No. 3135.
Records show that upon maturity of the loan on August 14, 1991, petitioners failed to pay
their entire obligation. Instead of exercising their right to have the mortgage foreclosed,
respondents allowed petitioners to pay the loan on a monthly installment basis until December,
1993. It bears emphasis that there is no written agreement between the parties that the loan will
continue to bear 5% monthly interest beyond the agreed three-month period. Respondent Ma.
Concepcion Lorenzo testified as follows:
Atty. Marcos:
Q Now, based on this document which was marked as Exh. 1, there is no dispute that the
monthly interest for the three month period that is from May 14, 1991 to August 14,
1991 is 5% monthly interest, there is no dispute about that. Now, Miss Witness, my
question is, could you go over the entire document that Exh. 1 and please tell this Hon.
Court whether there is a provision in clear and unequivocal terms providing for that
monthly interest after August 14, 1991?
A No, sir, there is none.
Q Are you sure of that?
A Yes, sir.
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)
The above ruling was reiterated in Sulit vs. Court of Appeals,[20] Crismina Garments vs.
Court of Appeals,[21] Eastern Assurance and Surety Corporation vs. Court of
Appeals,[22]Catungal vs. Hao,[23] and Yong et al. vs. Tiu et al..[24] Thus, the Court of Appeals
erred in reversing the RTC Decision and holding that the 5% monthly interest should be paid
by petitioners even beyond August 14, 1991.
WHEREFORE, the assailed Decision of the Court of Appeals dated June 18, 1997 and
its Resolution dated October 17, 1997 are REVERSED and SET ASIDE. The Decision of the
Regional Trial Court, Branch 17, Malolos, Bulacan dated July 31, 1995 is REINSTATED.
SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ., concur.

Q You mean to say there is no stipulation in that document providing for the 5% monthly
interest to the loan after August 14, 1991? EN BANC

A Yes, sir, they are supposed to return my money.

Court:
G.R. No. 97412 July 12, 1994
Q After they failed to comply with that provision, was there any subsequent agreement
between you and the plaintiffs?
EASTERN SHIPPING LINES, INC., petitioner,
xxx vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
Q Was there an agreement? INC., respondents.
A There was, your Honor.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Q What was that agreement about?
A Verbal agreement, your Honor? Zapa Law Office for private respondent.

Q Why was that agreement not reduced into writing?

A It was not reduced into writing, your Honor.
Q Why?
A I am in good faith, your Honor.[18]
Article 1956 of the Civil Code mandates that (n)o interest shall be due unless it has been
expressly stipulated in writing. Applying this provision, the trial court correctly held that the
monthly interest of 5% corresponds only to the three-month period of the loan, or from May 14,
1991 to August 14, 1991, as agreed upon by the parties in writing. Thereafter, the interest rate
for the loan is 12% per annum. In Eastern Shipping Lines, Inc. vs. Court of Appeals,[19] this
Court laid down the following doctrine:
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
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on
a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the
arrastre operator and the customs broker; (b) whether the payment of legal interest on an award
for loss or damage is to be computed from the time the complaint is filed or from the date the
decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator
and broker-forwarder for damages sustained by a shipment while in
 defendants' custody, filed by the insurer-subrogee who paid the consignee
the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown
to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of 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 (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum,
the consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that
it became subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
said:
Defendants filed their respective answers, traversing the material
allegations of the complaint contending that: As for defendant Eastern
Shipping it alleged that the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over
to the latter, is no longer its liability (p. 17, Record); Metroport averred that
although subject shipment was discharged unto its custody, portion of the
same was already in bad order (p. 11, Record); Allied Brokerage alleged
that plaintiff has no cause of action against it, not having negligent or at
fault for the shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary care and
diligence in the handling/delivery of the cargo to consignee in the same
condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained
losses/damages;
2. Whether or not these losses/damages were sustained
while in the custody of defendants (in whose respective
custody, if determinable);
3. Whether or not defendant(s) should be held liable for
the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting
plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the
shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly
shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was
shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro
Port Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that
the losses/damages were sustained while in the
respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro
Port) and broker (Allied Brokerage). This becomes
evident when the Marine Cargo Survey Report (Exh.
G), with its "Additional Survey Notes", are considered.
In the latter notes, it is stated that when the shipment
was "landed on vessel" to dock of Pier # 15, South
Harbor, Manila on December 12, 1981, it was observed
that "one (1) fiber drum (was) in damaged condition,
covered by the vessel's Agent's Bad Order Tally Sheet
No. 86427." The report further states that when
defendant Allied Brokerage withdrew the shipment
from defendant arrastre operator's custody on January
7, 1982, one drum was found opened without seal, cello
bag partly torn but contents intact. Net unrecovered
spillages was
15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that
 these losses/damages occurred before the shipment
reached the consignee while under the successive
custodies of defendants. Under Art. 1737 of the New
Civil Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods
remains in full force and effect even if the goods are
temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until
the consignee has been advised and has had reasonable
opportunity to remove or dispose of the goods (Art.
1738, NCC). Defendant Eastern Shipping's own
exhibit, the "Turn-Over Survey of Bad Order Cargoes"
(Exhs. 3-Eastern) states that on December 12, 1981 one
drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED,
judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal
interest of 12% per annum from October 1, 1982, the
date of filing of this complaints, until fully paid (the
liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss,
whichever is lesser, while the liability of defendant
Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant
to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims
and crossclaim of defendant/cross-
claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the
conclusion drawn therefrom is correct. As there is sufficient evidence that
the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the
amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave
abuse of discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY
LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS
BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE
OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF
SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM
BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not
all that novel. Indeed, we do have a fairly good number of previous decisions this Court can
merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from
the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable
time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil.
863). When the goods shipped either are lost or arrive in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence, and there need not be an express
finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs.
Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365).
There are, of course, exceptional cases when such presumption of fault is not observed but these
cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be
applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's
Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the
carrier and the arrastre operator liable in solidum, thus:
 The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad
Co., 19 SCRA 5 [1967]. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it
is the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and
the CARRIER are therefore charged with the obligation to deliver the goods
in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-
versa, nor that attendant facts in a given case may not vary the rule. The instant petition has
been brought solely by Eastern Shipping Lines, which, being the carrier and not having been
able to rebut the presumption of fault, is, in any event, to be held liable in this particular case.
A factual finding of both the court a quo and the appellate court, we take note, is that "there is
sufficient evidence that the shipment sustained damage while in the successive possession of
appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are
others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just
a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short
deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the
lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established in
its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties,
in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment
ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the
complaint was filed on 28 December 1962 until full payment thereof. The appellants then
assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the
date of demand, judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest
"cannot be recovered upon unliquidated claims or damages, except when
the demand can be established with reasonable certainty." And as was held
by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit
were for damages, "unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof (Montilla c. Corporacion
de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision."
(Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages
for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
third party defendants and against the defendants and third party plaintiffs
as follows:
Ordering defendants and third party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the
value of the insurance recovered and the amount of P10,000.00 a month as
the estimated monthly loss suffered by them as a result of the fire of May 6,
1969 up to the time they are actually paid or already the total sum of
P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs
against defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded
but sustained the trial court in adjudging legal interest from the filing of the complaint
until fully paid. When the appellate court's decision became final, the case was
remanded to the lower court for execution, and this was when the trial court issued its
assailed resolution which applied the 6% interest per annum prescribed in Article
2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as
amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974,
has prescribed that 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 express contract as to such rate of interest, shall be twelve (12%)
percent per annum. This Circular shall take effect immediately. (Emphasis
found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations
involving loans or forbearance of any money, goods or credits. Any other
kind of monetary judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does not fall within the
 coverage of the said law for it is not within the ambit of the authority granted
to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property
and does not involve any loan, much less forbearances of any money, goods
or credits. As correctly argued by the private respondents, the law applicable
to the said case is Article 2209 of the New Civil Code which reads —
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 interest agreed upon,
and in the absence of stipulation, the legal interest
which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28
July 1986. The case was for damages occasioned by an injury to person and loss of property.
The trial court awarded private respondent Pedro Manabat actual and compensatory damages in
the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully
paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest award from 12%
to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the
complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from
the modification of the amount granted by the lower court, the Court of Appeals sustained the
trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was
decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages (with the exception
to attorney's fees) occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable
upon the finality of this decision. Upon failure to pay on such finality,
twelve (12%) per cent interest per annum shall be imposed upon
aforementioned amounts from finality until paid. Solidary costs against the
defendant and third-party defendants (Except Roman Ozaeta). (Emphasis
supplied)
A motion for reconsideration was filed by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court10 ruled out the applicability
of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15
April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 . . . is applicable only in the following: (1)
loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there
is neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final judgment, that will
cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in
other words, as part of the judgment for damages. Clearly, they are not
applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court11 was a petition for review on certiorari from the decision, dated 27 February 1985, of
the then Intermediate Appellate Court reducing the amount of moral and exemplary damages
awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution,
dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon
at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November
1988, this Court, while recognizing the right of the private respondent to recover damages, held
the award, however, for moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court12 thus set aside the decision of the appellate court and rendered
a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand
(P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid.
(Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose
from a breach of employment contract. For having been illegally dismissed, the petitioner was
awarded by the trial court moral and exemplary damages without, however, providing any legal
interest thereon. When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of
Negros Oriental dated October 31, 1972 is affirmed in all respects, with the
modification that defendants-appellants, except defendant-appellant
Merton Munn, are ordered to pay, jointly and severally, the amounts stated
in the dispositive portion of the decision, including the sum of P1,400.00 in
concept of compensatory damages, with interest at the legal rate from the
date of the filing of the complaint until fully paid(Emphasis supplied.)
 The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing
grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed
the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of
interest "at the legal rate" from the time of the filing of the complaint. . . Said
circular [Central Bank Circular No. 416] does not apply to actions based on
a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power
Corporation vs. Angas,14decided on 08 May 1992, involved the expropriation of certain parcels
of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered
the petitioner to pay the private respondents certain sums of money as just compensation for
their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying
the 6% legal interest per annum under the Civil Code, the Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of
money, goods or credits but expropriation of certain parcels of land for a
public purpose, the payment of which is without stipulation regarding
interest, and the interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be paid on the amount
of just compensation for the properties expropriated is manifestly in the
form of indemnity for damages for the delay in the payment thereof.
Therefore, since the kind of interest involved in the joint judgment of the
lower court sought to be enforced in this case is interest by way of damages,
and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall
apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps
be classified into two groups according to the similarity of the issues involved and the
corresponding rulings rendered by the court. The "first group" would consist of the cases
of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in
these cases that there has been a consistent holding that the Central Bank Circular imposing the
12% interest per annum applies only to loans or forbearance16 of money, goods or credits, as
well as to judgments involving such loan or forbearance of money, goods or credits, and that
the 6% interest under the Civil Code governs 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. Observe, too, that in these cases, a common time frame in the
computation of the 6% interest per annum has been applied, i.e., from the time the complaint is
filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum,17depending on whether or not the amount involved is a loan or forbearance,
on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the running of the legal interest should be
from the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision
of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known
until definitely ascertained, assessed and determined by the courts after proof,' then, interest
'should be from the date of the decision.'" American Express International v. IAC, introduced a
different time frame for reckoning the 6% interest by ordering it to be "computed from the
finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per
annum should be imposed from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending
on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way
of clarification and reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts18 is breached, the contravenor can be held liable for damages.19 The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.20
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.21 Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded.22 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 116923 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 court24 at the rate
of 6% per annum.25 No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. 26 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.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with
the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount
due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero,
Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.
Mendoza, J., took no part.
#Footnotes
1 Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
2 28 SCRA 65.
3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L.
Reyes, Arsenio Dizon, Querube Makalintal, Calixto Zaldivar, Enrique
Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo,
Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on
official leave.
4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-
6998,
29 February 1956," 98 Phil. 516.
5 139 SCRA 260, 265.
6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes
Concepcion, Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera,
Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la
Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred
in the result. Justice Efren Plana filed a concurring and dissenting opinion,
concurred in by Justice Claudio Teehankee while Chief Justice Felix
Makasiar concurred with the separate opinion of Justice Plana.
7 143 SCRA 158.
8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in
by Justices Pedro Yap, Ameurfina Melencio-Herrera, Isagani A. Cruz and
Edgardo Paras.
9 160 SCRA 334.
10 Penned by Justice Edgardo Paras, with the concurrence of Justices
Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes.
Justice Hugo Gutierrez, Jr., took no part because he was the ponente in the
Court of Appeals.
11 167 SCRA 209.
12 Rendered per curiam with the concurrence of then Chief Justice Marcelo
Fernan, Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco,
Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes,
Carolina Griño-Aquino, Leo Medialdea and Florenz Regalado. Justices
Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no part because
they did not participate in the deliberations. Justices Edgardo Paras and
Florentino Feliciano also took no part.
13 170 SCRA 461.
14 208 SCRA 542.
15 Penned by Justice Edgardo Paras with the concurrence of Justices
Ameurfina Melencio-Herrera, Teodoro Padilla, Florenz Regalado and
Rodolfo Nocon.
16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v.
Spaeth,
22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within
the context of usury law, as a contractual obligation of lender or creditor to
refrain, during given period of time, from requiring borrower or debtor to
repay loan or debt then due and payable.
17 In the case of Malayan Insurance, the application of the 6% and 12%
interest per annum has no bearing considering that this case was decided
upon before the issuance of Circular No. 416 by the Central Bank.
18 Art. 1157. Obligations arise from.
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Qausi-delicts."
19 Art. 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
20 Art. 2195. The provisions of this Title (on Damages) shall be
respectively applicable to all obligations mentioned in article 1157.
21 Art. 1956. No interest shall be due unless it has been expressly stipulated
in writing.
22 Art. 2212. Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this point.
23 Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation.
"However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
"In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins."
24 Art. 2210. Interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract.
Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may,
in a proper case, be adjudicated in the discretion of the court.
25 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.
26 Art. 2213. Interest cannot be recovered upon unliquidated claims or
damages, except when the demand can be established with reasonable
certainty.
FIRST DIVISION
G.R. No. L-30771 May 28, 1984
LIAM LAW, plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.
Felizardo S.M. de Guzman for plaintiff-appellee.
Mariano M. de Joya for defendants-appellants.
MELENCIO-HERRERA, J.:
This is an appeal by defendants from a Decision rendered by the then Court of First Instance of
Bulacan. The appeal was originally taken to the then Court of Appeals, which endorsed it to this
instance stating that the issue involved was one of law.
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to
defendant partnership and defendant Elino Lee Chi, as the managing partner. The loan became
ultimately due on January 31, 1960, but was not paid on that date, with the debtors asking for
an extension of three months, or up to April 30, 1960.
On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00
was extended to April 30, 1960, but the obligation was increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency
shall form part of the principal obligation to answer for attorney's fees, legal
interest, and other cost incident thereto to be paid unto the creditor and his
successors in interest upon the termination of this agreement.
Defendants again failed to pay their obligation by April 30, 1960 and, on September 23, 1960,
plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal obligation,
but claimed that the additional P6,000.00 constituted usurious interest.
Upon application of plaintiff, the Trial Court issued, on the same date of September 23, 1960, a
writ of Attachment on real and personal properties of defendants located at Karanglan, Nueva
Ecija. After the Writ of Attachment was implemented, proceedings before the Trial Court versed
principally in regards to the attachment.
On January 18, 1961, an Order was issued by the Trial Court stating that "after considering the
manifestation of both counsel in Chambers, the Court hereby allows both parties to
simultaneously submit a Motion for Summary Judgment. 1 The plaintiff filed his Motion for
Summary Judgment on January 31, 1961, while defendants filed theirs on February 2, 196l. 2
On June 26, 1961, the Trial Court rendered decision ordering defendants to pay plaintiff "the
amount of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . . with
legal rate of interest on both amounts from April 30, 1960." It is from this judgment that
defendants have appealed.
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the
P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor proves the
contrary". No evidentiary hearing having been held, it has to be concluded that defendants had
not proven that the P6,000.00 obligation was illegal. Confirming the Trial Court's finding, we
view the P6,000.00 obligation as liquidated damages suffered by plaintiff, as of March 17, 1960,
representing loss of interest income, attorney's fees and incidentals.
The main thrust of defendants' appeal is the allegation in their Answer that the P6,000.00
constituted usurious interest. They insist the claim of usury should have been deemed admitted
by plaintiff as it was "not denied specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation sued shall file its answer in writing
under oath to any complaint brought or filed against said person or
corporation before a competent court to recover the money or other personal
or real property, seeds or agricultural products, charged or received in
violation of the provisions of this Act. The lack of taking an oath to an
answer to a complaint will mean the admission of the facts contained in the
latter.
The foregoing provision envisages a complaint filed against an entity which has committed
usury, for the recovery of the usurious interest paid. In that case, if the entity sued shall not file
its answer under oath denying the allegation of usury, the defendant shall be deemed to have
admitted the usury. The provision does not apply to a case, as in the present, where it is the
defendant, not the plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged
as lender and borrower may agree upon. 4 The Rules of Court in regards to allegations of usury,
procedural in nature, should be considered repealed with retroactive effect.
Statutes regulating the procedure of the courts will be construed as
applicable to actions pending and undetermined at the time of their passage.
Procedural laws are retrospective in that sense and to that extent. 5
... Section 24(d), Republic Act No. 876, known as the Arbitration Law,
which took effect on 19 December 1953, and may be retroactively applied
to the case at bar because it is procedural in nature. ... 6
WHEREFORE, the appealed judgment is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
Footnotes
1 p. 81, Record on Appeal.
2 p. 116, Ibid.
3 Section 1, Rule 9.
4 "SECTION 1. The rate of interest, including commissions, premiums, fees
and other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or judicial shag not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as
 amended." (Central Bank Circular No. 905, Series of 1982, 78 Off. Gaz.
7336).
5 People vs. Sumilang, 77 Phil. 764 (1946).
6 De Lopez, et al. vs. Vda. de Fajardo, et al., 101 Phil., pp. 1104, 1109
(1957).
EN BANC
G.R. No. 192986 January 15, 2013
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B.
OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman,
GOVERNOR ARMANDO M. TETANGCO, JR., and its incumbent members: JUANITA
D. AMATONG, ALFREDO C. ANTONIO, PETER FA VILA, NELLY F.
VILLAFUERTE, IGNACIO R. BUNYE and CESAR V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance to the public, filed
directly with this Court this Petition for Certiorari under Rule 65 of the 1997 Rules of Court,
seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing
the Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no
authority to continue enforcing Central Bank Circular No. 905, 1 issued by the CB-MB in 1982,
which "suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock corporation
organized to engage in pro bono concerns and activities relating to money lending issues. It was
incorporated on July 9, 2010,2 and a month later, it filed this petition, joined by its founder and
president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed by the Usury
Law. Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board may fix the
maximum rates of interest which banks may pay on deposits and on other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates
of interest which banks may charge for different types of loans and for any other credit
operations, or may fix the maximum differences which may exist between the interest or
rediscount rates of the Central Bank and the rates which the banks may charge their customers
if the respective credit documents are not to lose their eligibility for rediscount or advances in
the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or lending
operations of the banks shall apply only to future operations and not to those made prior to the
date on which the modification becomes effective.
In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the
Board may also fix the maximum rates that banks may pay to or collect from their customers in
the form of commissions, discounts, charges, fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684,
giving the CB-MB authority to prescribe different maximum rates of interest which may be
imposed for a loan or renewal thereof or the forbearance of any money, goods or credits,
provided that the changes are effected gradually and announced in advance. Thus, Section 1-a
of Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and
to change such rate or rates whenever warranted by prevailing economic and social conditions:
Provided, That changes in such rate or rates may be effected gradually on scheduled dates
announced in advance.
In the exercise of the authority herein granted the Monetary Board may prescribe higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as
such loans made by pawnshops, finance companies and other similar credit institutions although
the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board
is also authorized to prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries. (Underlining and
emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued CB Circular No. 905,
Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its General
Provisions, removed the ceilings on interest rates on loans or forbearance of any money, goods
or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan
or forbearance of any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or juridical, shall
not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
(Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the CB’s "Manual of Regulations for
Banks and Other Financial Intermediaries" (Manual of Regulations) by removing the applicable
ceilings on specific interest rates. Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended
Book I, Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the ceilings
for interest and other charges, commissions, premiums, and fees applicable to commercial
banks; Sections 12 and 17 removed the interest ceilings for thrift banks (Book II, Subsections
2303, 2349); Sections 19 and 21 removed the ceilings applicable to rural banks (Book III,
Subsection 3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank
financial intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P). 4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof, Section 135,
reads:
Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46 and 132 of this
Act, Republic Act No. 265, as amended, the provisions of any other law, special charters, rule
or regulation issued pursuant to said Republic Act No. 265, as amended, or parts thereof, which
may be inconsistent with the provisions of this Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to this Court to secure a writ
of certiorari, petitioners contend that the transcendental importance of their Petition can readily
be seen in the issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory
or constitutional authority to prescribe the maximum rates of interest for all kinds of
credit transactions and forbearance of money, goods or credit beyond the limits
prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular No.
905, which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB
Circular No. 905.5
Petitioners attached to their petition copies of several Senate Bills and Resolutions of the 10th
Congress, which held its sessions from 1995 to 1998, calling for investigations by the Senate
Committee on Banks and Financial Institutions into alleged unconscionable commercial rates
of interest imposed by these entities. Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator
Vicente C. Sotto III and the late Senator Blas F. Ople, respectively, sought to amend Act No.
2655 by fixing the rates of interest on loans and forbearance of credit; Philippine Senate
Resolution (SR) No. 1053,8 10739 and 1102,10 filed by Senators Ramon B. Magsaysay, Jr.,
Gregorio B. Honasan and Franklin M. Drilon, respectively, urged the aforesaid Senate
Committee to investigate ways to curb the high commercial interest rates then obtaining in the
country; Senator Ernesto Maceda filed SB No. 1151 to prohibit the collection of more than two
months of advance interest on any loan of money; and Senator Raul Roco filed SR No.
114411seeking an investigation into an alleged cartel of commercial banks, called "Club 1821",
reportedly behind the regime of high interest rates. The petitioners also attached news
clippings12 showing that in February 1998 the banks’ prime lending rates, or interests on loans
to their best borrowers, ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684, the
CB-MB was authorized only to prescribe or set the maximum rates of interest for a loan or
renewal thereof or for the forbearance of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social conditions, the changes to be effected
gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB to lift
or suspend the limits of interest on all credit transactions, when it issued CB Circular No. 905.
They further insist that under Section 109 of R.A. No. 265, the authority of the CB-MB was
clearly only to fix the banks’ maximum rates of interest, but always within the limits prescribed
by the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was promulgated without the benefit
of any prior public hearing, is void because it violated Article 5 of the New Civil Code, which
provides that "Acts executed against the provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity."
They further claim that just weeks after the issuance of CB Circular No. 905, the benchmark 91-
day Treasury bills (T-bills),13 then known as "Jobo" bills14 shot up to 40% per annum, as a result.
The banks immediately followed suit and re-priced their loans to rates which were even higher
than those of the "Jobo" bills. Petitioners thus assert that CB Circular No. 905 is also
unconstitutional in light of Section 1 of the Bill of Rights, which commands that "no person
shall be deprived of life, liberty or property without due process of law, nor shall any person be
denied the equal protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to Section
109 of R.A. No. 265, and therefore, in view of the repealing clause in Section 135 of R.A. No.
7653, the BSP-MB has been stripped of the power either to prescribe the maximum rates of
interest which banks may charge for different kinds of loans and credit transactions, or to
suspend Act No. 2655 and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for certiorari, as well as to grant due course
thereto, is addressed to the sound discretion of the court. 15 A petition for certiorari being an
extraordinary remedy, the party seeking to avail of the same must strictly observe the procedural
rules laid down by law, and non-observance thereof may not be brushed aside as mere
technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal exercising
judicial or quasi-judicial functions.17 Judicial functions are exercised by a body or officer
clothed with authority to determine what the law is and what the legal rights of the parties are
with respect to the matter in controversy. Quasi-judicial function is a term that applies to the
action or discretion of public administrative officers or bodies given the authority to investigate
facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a
basis for their official action using discretion of a judicial nature.18
The CB-MB (now BSP-MB) was created to perform executive functions with respect to the
establishment, operation or liquidation of banking and credit institutions, and branches and
agencies thereof.19 It does not perform judicial or quasi-judicial functions. Certainly, the
issuance of CB Circular No. 905 was done in the exercise of an executive function. Certiorari
will not lie in the instant case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given question." In
private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that "every action
must be prosecuted or defended in the name of the real party in interest," who is "the party who
stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of
the suit." Succinctly put, a party’s standing is based on his own right to the relief sought.21
Even in public interest cases such as this petition, the Court has generally adopted the "direct
injury" test that the person who impugns the validity of a statute must have "a personal and
substantial interest in the case such that he has sustained, or will sustain direct injury as a
result."22 Thus, while petitioners assert a public right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to make out a sufficient interest in the
vindication of the public order and the securing of relief. It is significant that in this petition, the
petitioners do not allege that they sustained any personal injury from the issuance of CB Circular
No. 905.
Petitioners also do not claim that public funds were being misused in the enforcement of CB
Circular No. 905. In Kilosbayan, Inc. v. Morato,23 involving the on-line lottery contract of the
PCSO, there was no allegation that public funds were being misspent, which according to the
Court would have made the action a public one, "and justify relaxation of the requirement that
an action must be prosecuted in the name of the real party-in-interest." The Court held,
moreover, that the status of Kilosbayan as a people’s organization did not give it the requisite
personality to question the validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for bringing this suit. It
does not detract from the high regard for petitioners as civic leaders to say that their interest falls
short of that required to maintain an action under the Rule 3, Sec. 2. 24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good Government, 25 it was held that
no question involving the constitutionality or validity of a law or governmental act may be heard
and decided by the court unless there is compliance with the legal requisites for judicial inquiry,
namely: (a) that the question must be raised by the proper party; (b) that there must be an actual
case or controversy; (c) that the question must be raised at the earliest possible opportunity; and
(d) that the decision on the constitutional or legal question must be necessary to the
determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the requirements before
taxpayers, voters, concerned citizens, and legislators can be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that
the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election
law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes
upon their prerogatives as legislators.
While the Court may have shown in recent decisions a certain toughening in its attitude
concerning the question of legal standing, it has nonetheless always made an exception where
the transcendental importance of the issues has been established, notwithstanding the
petitioners’ failure to show a direct injury.27 In CREBA v. ERC,28 the Court set out the following
instructive guides as determinants on whether a matter is of transcendental importance, namely:
(1) the character of the funds or other assets involved in the case; (2) the presence of a clear case
of disregard of a constitutional or statutory prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any other party with a more direct and
specific interest in the questions being raised. Further, the Court stated in Anak Mindanao Party-
List Group v. The Executive Secretary29 that the rule on standing will not be waived where these
determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the implementation of CB
Circular No. 905. Neither were borrowers who were actually affected by the suspension of the
Usury Law joined in this petition. Absent any showing of transcendental importance, the petition
must fail.
More importantly, the Court notes that the instant petition adverted to the regime of high interest
rates which obtained at least 15 years ago, when the banks’ prime lending rates ranged from
26% to 31%,30 or even 29 years ago, when the 91-day Jobo bills reached 40% per annum. In
contrast, according to the BSP, in the first two (2) months of 2012 the bank lending rates
averaged 5.91%, which implies that the banks’ prime lending rates were lower; moreover,
deposit interests on savings and long-term deposits have also gone very low, averaging 1.75%
and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be approaching
0%.1âwphi1 In the auctions held on November 12, 2012, the rates of 3-month, 6-month and 1-
year T-bills have dropped to 0.150%, 0.450% and 0.680%, respectively.32 According to Manila
Bulletin, this very low interest regime has been attributed to "high liquidity and strong investor
demand amid positive economic indicators of the country."33
While the Court acknowledges that cases of transcendental importance demand that they be
settled promptly and definitely, brushing aside, if we must, technicalities of procedure, 34 the
delay of at least 15 years in the filing of the instant petition has actually rendered moot and
academic the issues it now raises.
For its part, BSP-MB maintains that the petitioners’ allegations of constitutional and statutory
violations of CB Circular No. 905 are really mere challenges made by petitioners concerning
the wisdom of the Circular. It explains that it was in view of the global economic downturn in
the early 1980’s that the executive department through the CB-MB had to formulate policies to
achieve economic recovery, and among these policies was the establishment of a market-
oriented interest rate structure which would require the removal of the government-imposed
interest rate ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular
No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long
been recognized and upheld in many cases. As the Court explained in the landmark case of
Medel v. CA,36 citing several cases, CB Circular No. 905 "did not repeal nor in anyway amend
the Usury Law but simply suspended the latter’s effectivity;"37that "a CB Circular cannot repeal
a law, [for] only a law can repeal another law;"38 that "by virtue of CB Circular No. 905, the
Usury Law has been rendered ineffective;"39 and "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon."40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc. 41 cited in DBP v.
Perez,42 we also belied the contention that the CB was engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latter’s effectivity. The illegality of usury is wholly the creature of legislation. A
Central Bank Circular cannot repeal a law. Only a law can repeal another law. x x x. 43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement authorized the PNB to
unilaterally increase the rate of interest to 25% per annum, plus a penalty of 6% per annum on
past dues, then to 30% on October 15, 1984, and to 42% on October 25, 1984. The Supreme
Court invalidated the rate increases made by the PNB and upheld the 12% interest imposed by
the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward,
the interest previously stipulated. x x x.45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld
the parties’ freedom of contract to agree freely on the rate of interest. It cited Article 1306 of
the New Civil Code, under which the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits,
regardless of maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended." It does not purport to suspend the Usury Law only as
it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the new
BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No. 7653,
which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks,
whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and similar credit institutions. It
even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No.
7653, merely supplemented it as it concerns loans by banks and other financial institutions. Had
R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in
unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because laws are
presumed to be passed with deliberation and full knowledge of all laws existing pertaining to
the subject.46 An implied repeal is predicated upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws. Thus, in the absence of an express repeal,
a subsequent law cannot be construed as repealing a prior law unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and old laws.47 We find no such
conflict between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor is there any reason whatsoever
which may justify such imposition as righteous and as one that may be sustained within the
sphere of public or private morals.50
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck
down for being contrary to morals, if not against the law.51 Indeed, under Article 1409 of the
Civil Code, these contracts are deemed inexistent and void ab initio, and therefore cannot be
ratified, nor may the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lender’s right
to recover the principal of a loan, nor affect the other terms thereof. 52 Thus, in a usurious loan
with mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by
the creditor upon failure by the debtor to pay the debt due. The debt due is considered as without
the stipulated excessive interest, and a legal interest of 12% per annum will be added in place
of the excessive interest formerly imposed,53following the guidelines laid down in the landmark
case of Eastern Shipping Lines, Inc. v. Court of Appeals,54 regarding the manner of computing
legal interest:
damage arising from the breach or a delay in the performance of obligations in general," with
the application of both rates reckoned "from the time the complaint was filed until the [adjudged]
amount is fully paid." In either instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition "that the courts are vested with
discretion, depending on the equities of each case, on the award of interest."57 (Citations
omitted)
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
SO ORDERED.

BIENVENIDO L. REYES
II. With regard particularly to an award of interest in the concept of actual and compensatory Associate Justice
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
SECOND DIVISION
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 G.R. No. 107569 November 8, 1994
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code. PHILIPPINE NATIONAL BANK, petitioner,
vs.
2. When an obligation, not constituting a loan or forbearance of money, is breached, COURT OF APPEALS, REMEDIOS JAYME-FERNANDEZ and AMADO
an interest on the amount of damages awarded may be imposed at the discretion of FERNANDEZ, respondents.
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 Vidad, Corpus & Associates for petitioner.
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 Remedios Jayme-Fernandez for privaate respondents.
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
PUNO, J.:
finally adjudged.

Petitioner bank seeks the review of the decision, dated October 15, 1992, of the Court of
3. When the judgment of the court awarding a sum of money becomes final and
Appeals 1 in CA G.R. CV No. 27195, the dispositive portion of which reads as follows:
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 WHEREFORE, the judgment appealed from is hereby SET ASIDE and a
credit.55 (Citations omitted) new one is entered ordering defendant-appellee PNB to re-apply the interest
rate of 12% per annum to plaintiffs-appellants' (referring to herein private
respondents) indebtedness and to accordingly take the appropriate charges
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals, 56 as follows:
from plaintiffs-appellants' (private respondents') payment of P81,000.00
made on December 26, 1985. Any balance on the indebtedness should,
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and likewise, be charged interest at the rate of 12% per annum.
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
SO ORDERED.
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
The parties do not dispute the facts as laid down by respondent court in its impugned
decision, viz.:
On April 7, 1982, (private respondents) as owners of a NACIDA-registered
enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund
(CIGLF) from the Philippine National Bank (PNB) in the amount of Fifty
Thousand (P50,000.00) Pesos, as evidenced by a Credit Agreement. Under
the Promissory Note covering the loan, the loan was to be amortized over a
period of three (3) years to end on March 29, 1985, at twelve (12%) percent
interest annually.
To secure the loan, (private respondents) executed a Real Estate Mortgage
over a 1.5542-hectare parcel of unregistered agricultural land located at
Cambang-ug, Toledo City, which was appraised by the PNB at P1,062.52
and given a loan value of P531.26 by the Bank. In addition, (private
respondents) executed a Chattel Mortgage over a thermo plastic-forming
machine, which had an appraisal value of P8,800 and a loan value of
P4,400.00.
The Credit Agreement provided inter alia, that —
(a) The BANK reserves the right to increase the interest
rate within the limits allowed by law at any time
depending on whatever policy it may adopt in the
future; Provided, that the interest rate on this
accommodation shall be correspondingly decreased in
the event that the applicable maximum interest is
reduced by law or by the Monetary Board. In either
case, the adjustment in the interest rate agreed upon
shall take effect on the effectivity date of the increase
or decrease in the maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate of
interest, at any time without notice, beyond the stipulated rate of 12% but
only "within the limits allowed by law."
The Real Estate Mortgage contract likewise provided that —
(k) INCREASE OF INTEREST RATE: The rate of
interest charged on the obligation secured by this
mortgage as well as the interest on the amount which
may have been advanced by the MORTGAGE, in
accordance with the provision hereof, shall be subject
during the life of this contract to such an increase within
the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe for its debtors.
On February 17, 1983, (private respondents) were granted an additional
NACIDA loan of Fifty Thousand (P50,000.00) Pesos by the PNB, for which
(private respondents) executed another Promissory Note, which was to
mature on April 1, 1985. Other than the date of maturity, the second
promissory note contained the same terms and stipulations as the previous
note. The parties likewise executed a new Credit Agreement, changing the
amount of the loan from P50,000.00 to P100,000.00, but otherwise
preserving the stipulations contained in the original agreement.
As additional security for the loan, (private respondents) constituted another
real estate mortgage over 2 parcels of registered land, with a combined area
of 311 square meters, located at Guadalupe, Cebu City. The land, upon
which several buildings are standing, was appraised by the PNB to have a
value of P40,000.00 and a loan value of P28,000.00.
In a letter dated August 1, 1984, the PNB informed (private respondents)
"that the interest rate of your CIGLF loan account with us is now 25% per
annum plus a penalty of 6% per annum on past dues." The PNB further
increased this interest rate to 30% on October 15, 1984; and to 42% on
October 25, 1984.
The records show that as of December 1985, (private respondents) had an
outstanding principal account of P81,000.00 of which P18,523.14 was
credited to the principal, P57,488.89 to the interest, and the rest to penalty
and other charges. Thus, as of said date, the unpaid principal obligation of
(private respondent) amounted to P62,830.32.
Thereafter, (private respondents) exerted efforts to get the PNB to re-adopt
the 12% interest and to condone the present interest and penalties due; but
to no avail. 2 (Citations omitted.)
On December 15, 1987, private respondents filed a suit for specific performance against
petitioner PNB and the NACIDA. It was docketed as Civil Case No. CEB-5610, and raffled to
the Regional Trial Court, 7th Judicial Region, Cebu City, Br. 7.3 Private respondents prayed the
trial court to order:
1. The PNB and NACIDA to issue in (private respondents') favor, a release
of mortgage;
2. The PNB to pay pecuniary consequential damages for the destruction of
(private respondents') enterprise;
3. The PNB to pay moral and exemplary damages as well as the costs of
suit; and
4. Granting (private respondents') such other relief as may be found just and
equitable in the premises.4
On February 26, 1990, the trial court dismissed private respondents' complaint in Civil Case No.
CEB-5610. On October 15, 1992, the Court of Appeals reversed the dismissal with respect to
petitioner bank, and disallowed the increases in interest rates.
Petitioner bank now contends that "respondent Court of Appeals committed grave error when it
ruled (1) that the increase in interest rates are unauthorized; (2) that the Credit Agreement and
the Promissory Notes are not the law between the parties; (3) that CB Circular No. 773 and CB
Circular
No. 905 are not applicable; and (4) that private respondents are not estopped from questioning
the increase of rate interest made by petitioner." 5
The petition is bereft of merit.
In making the unilateral increases in interest rates, petitioner bank relied on the escalation clause
contained in their credit agreement which provides, as follows:
The Bank reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in
the future and provided, that, the interest rate on this accommodation shall
be correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease in maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.)
No. 1684 which further amended Act No. 2655 ("The Usury Law"), as amended, thus:
Section 2. The same Act is hereby amended by adding a new section after
Section 7, to read as follows:
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of
money, goods or credits may stipulate that the rate of interest agreed upon
may be increased in the event that the applicable maximum rate of interest
is increased by law or by the Monetary Board; Provided, That such
stipulation shall be valid only if there is also a stipulation in the agreement
that the rate of interest agreed upon shall be reduced in the event that the
applicable maximum rate of interest is reduced by law or by the Monetary
Board; Provided further, That the adjustment in the rate of interest agreed
upon shall take effect on or after the effectivity of the increase or decrease
in the maximum rate of interest.
Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to prescribe the
maximum rates of interest for loans and certain forbearances. Pursuant to such authority, the
Monetary Board issued Central Bank (C.B.) Circular No. 905, series of 1982, Section 5 of which
provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other
Financial Intermediaries) is hereby amended to read as follows:
Sec. 1303. Interest and Other Charges. — The rate of
interest, including commissions, premiums, fees and
other charges, on any loan, or forbearance of any
money, goods or credits, regardless of maturity and
whether secured or unsecured, shall not be subject to
any ceiling prescribed under or pursuant to the Usury
Law, as amended.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward,
the interest previously stipulated. However, contrary to the stubborn insistence of petitioner
bank, the said law and circular did not authorize either party to unilaterally raise the interest rate
without the other's consent.
It is basic that there can be no contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. If this assent is wanting on the part of the one who
contracts, his act has no more efficacy than if it had been done under duress or by a person of
unsound mind.6
Similarly, contract changes must be made with the consent of the contracting parties. The minds
of all the parties must meet as to the proposed modification, especially when it affects an
important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the
rate of interest is always a vital component, for it can make or break a capital venture. Thus, any
change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it
unbridled right tounilaterally upwardly adjust the interest on private respondents' loan. That
would completely take away from private respondents the right to assent to an important
modification in their agreement, and would negate the element of mutuality in contracts.
In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held
—
. . . The unilateral action of the PNB in increasing the interest rate on the
private respondent's loan violated the mutuality of contracts ordained in
Article 1308 of the Civil Code:
Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them.
In order that obligations arising from contracts may have the force or law
between the parties, there must be mutuality between the parties based on
their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void . . . . Hence, even assuming that
the . . . loan agreement between the PNB and the private respondent gave
the PNB a license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have been null
 and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of a
contract of adhesion, where the parties do not bargain on equal footing, the
weaker party's (the debtor) participation being reduced to the alternative "to
take it or leave it" . . . . Such a contract is a veritable trap for the weaker
party whom the courts of justice must protect against abuse and imposition.
(Citation omitted.)
Private respondents are not also estopped from assailing the unilateral increases in interest rate
made by petitioner bank. No one receiving a proposal to change a contract to which he is a party,
is obliged to answer the proposal, and his silence per se cannot be construed as an
acceptance.7 In the case at bench, the circumstances do not show that private respondents
implicitly agreed to the proposed increases in interest rate which by any standard were too
sudden and too stiff.
IN VIEW THEREOF, the instant petition is DENIED for lack of merit, and the decision of the
Court of Appeals in CA-G.R. CV No. 27195, dated October 15, 1992, is AFFIRMED. Costs
against petitioner.
SO ORDERED.
Narvasa, C.J., Regalado and Mendoza, JJ., concur.
THIRD DIVISION
G.R. No. 101771 December 17, 1996
SPOUSES MARIANO and GILDA FLORENDO, petitioners,
vs.
COURT OF APPEALS and LAND BANK OF THE PHILIPPINES, respondents.
PANGANIBAN, J.:p
May a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason
of the voluntary resignation of the borrower?
Such is the query raised in the petition for review on certiorari now before us, which assails the
Decision promulgated on June 19, 1991 by respondent Court of Appeals 1 in CA-G.R. CV No.
24956, upholding the validity and enforceability of the escalation by private respondent Land
Bank of the Philippines of the applicable interest rate on the housing loan taken out by petitioner-
spouses.
The Antecedent Facts
Petitioners filed an action for Injunction with Damages docketed as Civil Case No. 86-38146
before the Regional Trial Court of Manila, Branch XXII against respondent bank. Both parties,
after entering into a joint stipulation of facts, submitted the case for decision on the basis of said
stipulation and memoranda. The stipulation reads in part: 2
1. That (Petitioner) Gilda Florendo (was) an employee of (Respondent
Bank) from May 17, 1976 until August 16, 1984 when she voluntarily
resigned. However, before her resignation, she applied for a housing loan
of P148,000.00, payable within 25 years from (respondent bank's)
Provident Fund on July 20, 1983;
2. That (petitioners) and (respondent bank), through the latter's duly
authorized representative, executed the Housing Loan Agreement, . . .;
3. That, together with the Housing Loan Agreement, (petitioners) and
(respondent bank), through the latter's authorized representative, also
executed a Real Estate Mortgage and Promissory
Note, . . .;
4. That the loan . . . was actually given to (petitioner) Gilda Florendo, . . .,
in her capacity as employee of (respondent bank);
5. That on March 19, 1985, (respondent bank) increased the interest rate on
(petitioner's) loan from 9%per annum to 17%, the said increase to take
effect on March 19, 1985;
6. That the details of the increase are embodied in (Landbank's) ManCom
Resolution No. 85-08 dated March 19, 1985, . . . , and in a PF (Provident
Fund) Memorandum Circular (No. 85-08, Series of 1985), . . .;
7. That (respondent bank) first informed (petitioners) of the said increase in
a letter dated June 7, 1985, . . . . Enclosed with the letter are a copy of the
PF Memo Circular . . . and a Statement of Account as of May 31, 1985, . .
.;
8. That (petitioners) protested the increase in a letter dated June 11, 1985 to
which (respondent bank) replied through a letter dated July 1, 1985, . . .
Enclosed with the letter is a Memorandum dated June 26, 1985 of
(respondent bank's) legal counsel, A.B. F. Gaviola, Jr., . . .;
9. That thereafter, (respondent bank) kept on demanding that (petitioner)
pay the increased interest or the new monthly installments based on the
increased interest rate, but Plaintiff just as vehemently maintained that the
said increase is unlawful and unjustifiable. Because of (respondent bank's)
repeated demands, (petitioners) were forced to file the instant suit for
Injunction and Damages;
 10. That, just the same, despite (respondent bank's) demands that
(petitioners) pay the increased interest or increased monthly installments,
they (petitioners) have faithfully paid and discharged their loan obligations,
more particularly the monthly payment of the original stipulated installment
of P1,248.72. Disregarding (respondent bank's) repeated demand for
increased interest and monthly installment, (petitioners) are presently up-
to-date in the payments of their obligations under the original contracts
(Housing Loan Agreement, Promissory Note and Real Estate Mortgage)
with (respondent bank);
xxx xxx xxx
The clauses or provisions in the Housing Loan Agreement and the Real Estate Mortgage referred
to above as the basis for the escalation are:
a. Section I-F of Article VI of the Housing Loan Agreement, 3 which
provides that, for as long as the loan or any portion thereof or any sum that
may be due and payable under the said loan agreement remains outstanding,
the borrower shall —
f) Comply with all the rules and regulations of the
program imposed by the LENDER and to comply with
all the rules and regulations that the Central Bank of the
Philippines has imposed or will impose in connection
with the financing programs for bank officers and
employees in the form of fringe benefits.
b. Paragraph (f) of the Real Estate Mortgage 4 which states:
The rate of interest charged on the obligation secured
by this mortgage. . ., shall be subject, during the life of
this contract, to such an increase/decrease in
accordance with prevailing rules, regulations and
circulars of the Central Bank of the Philippines as the
Provident Fund Board of Trustees of the Mortgagee
may prescribe for its debtors and subject to the
condition that the increase/decrease shall only take
effect on the date of effectivity of said
increase/decrease and shall only apply to the remaining
balance of the loan.
c. and ManCom (Management Committee) Resolution No. 85-08, together
with PF (Provident Fund) Memorandum Circular No. 85-08, which
escalated the interest rates on outstanding housing loans of bank employees
who voluntarily "secede" (resign) from the Bank; the range of rates varied
depending upon the number of years service rendered by the employees
concerned. The rates were made applicable to those who had previously
resigned from the bank as well as those who would be resigning in the
future.
The trial court ruled in favor of respondent bank, and held that the bank was vested with
authority to increase the interest rate (and the corresponding monthly amortizations) pursuant
to said escalation provisions in the housing loan agreement and the mortgage contract. The
dispositive portion of the said decision reads: 5
WHEREFORE, judgment is hereby rendered denying the instant suit for
injunction and declaring that the rate of interest on the loan agreement in
question shall be 17% per annum and the monthly amortization on said loan
properly raised to P2,064.75 a month, upon the finality of this judgment.
xxx xxx xxx
Petitioners promptly appealed, arguing that, inter alia, the increased rate of interest is onerous
and was imposed unilaterally, without the consent of the borrower-spouses. Respondent bank
likewise appealed and contested the propriety of having the increased interest rate apply only
upon the finality of the judgment and not from March 19, 1985.
The respondent Court subsequently affirmed with modification the decision of the trial court,
holding that: 6
. . . Among the salient provisions of the mortgage is paragraph (f) which
provides that the interest rate shall be subject, during the term of the loan,
to such increases/decreases as may be allowed under the prevailing rules
and/or circulars of the Central Bank and as the Provident Fund of the Bank
may prescribe for its borrowers. In other words, the spouses agreed to the
escalation of the interest rate on their original loan. Such an agreement is a
contractual one and the spouses are bound by it. Escalation clauses have
been ruled to be valid stipulations in contracts in order to maintain fiscal
stability and to retain the value of money in long term contracts (Insular
Bank of Asia and America vs. Spouses Epifania Salazar and Ricardo
Salazar, 159 SCRA 133). One of the conditions for the validity of an
escalation clause such as the one which refers to an increase rate is that the
contract should also contain a proviso for a decrease when circumstances
so warrant it. Paragraph (f) referred to above contains such provision.
A contract is binding on the parties no matter that a provision thereof later
proves onerous and which on hindsight, a party feels he should not have
agreed to in the first place.
and disposed as follows: 7
WHEREFORE, the dispositive part of the decision is MODIFIED in the
sense that the interest of 17% on the balance of the loan of the spouses shall
be computed starting July 1, 1985.
Dissatisfied, the petitioners had recourse to this Court.
The Issues
Petitioners ascribe to respondent Court "a grave and patent error" in not nullifying the
respondent bank's unilateral increase of the interest rate and monthly amortizations of the loan
—
1. . . . (simply because of) a bare and unqualified stipulation that the interest
rate may be increased;
2. . . . on the ground that the increase has no basis in the contracts between
the parties;
3. . . . on the ground that the increase violates Section 7-A of the Usury Law;
4. . . . on the ground that the increase and the contractual provision that
(respondent bank) relies upon for the increase are contrary to morals, good
customs, public order and public policy. 8
The key issue may be simply presented as follows: Did the respondent bank have a valid and
legal basis to impose an increased interest rate on the petitioners' housing loan?
The Court's Ruling
Basis for Increased Interest Rate
Petitioners argue that the HLA provision covers only administrative and other matters, and does
not include interest rates per se, since Article VI of the agreement deals with insurance on and
upkeep of the mortgaged property. As for the stipulation in the mortgage deed, they claim that
it is vague because it does not state if the "prevailing" CB rules and regulations referred to
therein are those prevailing at the time of the execution of these contracts or at the time of the
increase or decrease of the interest rate. They insist that the bank's authority to escalate interest
rates has not been shown to be "crystal-clear as a matter of fact" and established beyond doubt.
The contracts being "contracts of adhesion," any vagueness in their provisions should be
interpreted in favor of petitioners.
We note that Section 1-F of Article VI of the HLA cannot be read as an escalation clause as it
does not make any reference to increases or decreases in the interest rate on loans. However,
paragraph (f) of the mortgage contract is clearly and indubitably an escalation provision, and
therefore, the parties were and are bound by the said stipulation that "(t)he rate of interest
charged on the obligation secured by this mortgage . . ., shall be subject, during the life of this
contract, to such an increase/decrease in accordance with prevailing rules, regulations and
circulars of the Central Bank of the Philippines as the Provident Fund Board of Trustees of the
Mortgagee (respondent bank) may prescribe for its debtors . . . ." 9 Contrary to petitioners'
allegation, there is no vagueness in the aforequoted proviso; even their own arguments (below)
indicate that this provision is quite clear to them.
In Banco Filipino Savings & Mortgage Bank vs. Navarro, 10 this Court in essence ruled that in
general there is nothing inherently wrong with escalation clauses. In IBAA vs. Spouses
Salazar, 11 the Court reiterated the rule that escalation clauses are valid stipulations in
commercial contracts to maintain fiscal stability and to retain the value of money in long term
contracts.
Application of the Escalation to Petitioners
Petitioners however insist that while ManCom Resolution No. 85-08 authorized a rate increase
for resigned employees, it could not apply as to petitioner-employee because nowhere in the
loan agreement or mortgage contract is it provided that petitioner-wife's resignation will be a
ground for the adjustment of interest rates, which is the very bedrock of and the raison
d'etre specified in said ManCom Resolution.
They additionally contend that the escalation is violative of Section 7-A of the Usury Law (Act
No. 2655, as amended) which requires a law or MB act fixing an increased maximum rate of
interest, and that escalation upon the will of the respondent bank is contrary to the principle of
mutuality of contracts, per Philippine National Bank vs.Court of Appeals. 12
What is actually central to the disposition of this case is not really the validity of the escalation
clause but the retroactive enforcement of the ManCom Resolution as against petitioner-
employee. In the case at bar, petitioners have put forth a telling argument that there is in fact no
Central Bank rule, regulation or other issuance which would have triggered an application of
the escalation clause as to her factual situation.
In Banco Filipino, 13 this Court, speaking through Mme. Justice Ameurfina M. Herrera,
disallowed the bank from increasing the interest rate on the subject loan from 12% to 17%
despite an escalation clause in the loan agreement authorizing the bank to "correspondingly
increase the interest rate stipulated in this contract without advance notice to me/us in the event
a law should be enacted increasing the lawful rates of interest that may be charged on this
particular kind of loan". In said case, the bank had relied upon a Central Bank circular as
authority to up its rates. The Court ruled that CB Circular No. 494, although it has the effect of
law, is not a law, but an administrative regulation.
In PNB vs. Court of Appeals, 14 this Court disallowed the increases in interest rate imposed by
the petitioner-bank therein, on the ground, among others, that said bank relied merely on its own
Board Resolution (No. 681), PNB Circular No. 40-79-84, and PNB Circular No. 40-129-84,
which were neither laws nor resolutions of the Monetary Board.
In the case at bar, the loan was perfected on July 20, 1983. PD No. 116 became effective on
January 29, 1973. CB Circular No. 416 was issued on July 29, 1974. CB Circ. 504 was issued
February 6, 1976. CB Circ. 706 was issued December 1, 1979. CB Circ. 905, lifting any interest
rate ceiling prescribed under or pursuant to the Usury Law, as amended, was promulgated in
1982. These and other relevant CB issuances had already come into existence prior to the
perfection of the housing loan agreement and mortgage contract, and thus it may be said that
these regulations had been taken into consideration by the contracting parties when they first
entered into their loan contract. In light of the CB issuances in force at that time, respondent
bank was fully aware that it could have imposed an interest rate higher than 9% per annum rate
for the housing loans of its employees, but it did not. In the subject loan, the respondent bank
knowingly agreed that the interest rate on petitioners' loan shall remain at 9% p.a. unless a CB
issuance is passed authorizing an increase (or decrease) in the rate on such employee loans and
the Provident Fund Board of Trustees acts accordingly. Thus, as far as the parties were
concerned, all other onerous factors, such as employee resignations, which could have been used
to trigger an application of the escalation clause were considered barred or waived. If the
intention were otherwise, they — especially respondent bank — should have included such
factors in their loan agreement.
ManCom Resolution No. 85-08, which is neither a rule nor a resolution of the Monetary Board,
cannot be used as basis for the escalation in lieu of CB issuances, since paragraph (f) of the
mortgage contract very categorically specifies that any interest rate increase be in accordance
with "prevailing rules, regulations and circulars of the Central Bank . . . as the Provident Fund
Board . . . may prescribe." The Banco Filipino and PNB doctrines are applicable four-square in
this case. As a matter of fact, the said escalation clause further provides that the increased
interest rate "shall only take effect on the date of effectivity of (the) increase/decrease"
authorized by the CB rule, regulation or circular. Without such CB issuance, any proposed
increased rate will never become effective.
We have already mentioned (and now reiterate our holding in several
cases 15) that by virtue of CB Circular 905, the Usury Law has been rendered ineffective. Thus,
petitioners' contention that the escalation clause is violative of the said law is bereft of any merit.
On the other hand, it will not be amiss to point out that the unilateral determination and
imposition of increased interest rates by the herein respondent bank is obviously violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. As this Court
held in PNB: 16
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on
their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the . . . loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact there was none)
to increase the interest rate at will during the term of the loan, that license
would have been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do not bargain
on equal footing, the weaker party's (the debtor) participation being reduced
to the alternative "to take it or leave it" (Qua vs. Law Union & Rock
Insurance Co., 95 Phil 85). Such a contract is a veritable trap for the weaker
party whom the courts of justice must protect against abuse and imposition.
The respondent bank tried to sidestep this difficulty by averring that petitioner Gilda Florendo
as a former bank employee was very knowledgeable concerning respondent bank's lending rates
and procedures, and therefore, petitioners were "on an equal footing" with respondent bank as
far as the subject loan contract was concerned. That may have been true insofar as entering into
the original loan agreement and mortgage contract was concerned. However, that does not hold
true when it comes to the determination and imposition of escalated rates of interest as
unilaterally provided in the ManCom Resolution, where she had no voice at all in its preparation
and application.
To allay fears that respondent bank will inordinately be prejudiced by being stuck with this
"sweetheart loan" at patently concessionary interest rates, which according to respondent bank
is the "sweetest deal" anyone could obtain and is an act of generosity considering that in 1985
lending rates in the banking industry were peaking well over 30% p.a., 17 we need only point
out that the bank had the option to impose in its loan contracts the condition that resignation of
an employee-borrower would be a ground for escalation. The fact is it did not. Hence, it must
live with such omission. And it would be totally unfair to now impose said condition, not to
mention that it would violate the principle of mutuality of consent in contracts. It goes without
saying that such escalation ground can be included in future contracts — not to agreements
already validly entered into.
Let it be clear that this Court understands respondent bank's position that the concessional
interest rate was really intended as a means to remunerate its employees and thus an escalation
due to resignation would have been a valid stipulation. But no such stipulation was in fact made,
and thus the escalation provision could not be legally applied and enforced as against herein
petitioners.
WHEREFORE, the petition is hereby GRANTED. The Court hereby REVERSES and SETS
ASIDE the challenged Decision of the Court of Appeals. The interest rate on the subject housing
loan remains at nine (9) percent per annum and the monthly amortization at P1,248.72.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.
FIRST DIVISION
G.R. No. 187678 April 10, 2013
SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners,
vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the February 20, 2009 Decision 1 and April 27, 2009
Resolution2 of the Court of Appeals (CA) in CA G.R. CV No. 80338. The CA affirmed the April
14, 2003 Decision3 of the Regional Trial Court (RTC) of Makati City, Branch 147.
The factual antecedents:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking
Corporation (respondent) as evidenced by two Promissory Notes both dated October 6, 1998
and numbered 507-001051-34 and 507-001052-0,5 for the sums of !!6,216,000 and ₱4, 139,000,
respectively. The loan was secured by a Real Estate Mortgage (REM) over petitioners’ property
Principal balance of PN# 5070010520. . . . . . . . . . . . . . 4,139,000.00
located at 49 Greensville St., White Plains, Quezon City covered by Transfer Certificate of Title
(TCT) No. RT-103568 (167394) PR-412086 of the Register of Deeds of Quezon City. Interest on ₱4,139,000.00 fr. 04-Nov-99

When petitioners failed to pay the monthly amortizations due, respondent demanded the full 04-Nov-2000 366 days @ 15.00%. . . . . . . . . . . . . . . . . 622,550.96
payment of the outstanding balance with accrued monthly interests. On September 5, 2000,
petitioners received respondent’s last demand letter7 dated August 29, 2000. Interest on ₱4,139,000.00 fr. 04-Nov-2000

04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 83,346.99

As of February 23, 2001, the amount due on the two promissory notes totaled ₱19,201,776.63
representing the principal, interests, penalties and attorney’s fees. On the same day, the Interest on ₱4,139,000.00 fr. 04-Dec-2000
mortgaged property was sold at public auction, with respondent as highest bidder for the amount
of ₱10,300,000. 04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 75,579.27

Interest on ₱4,139,000.00 fr. 04-Jan-2001

On May 8, 2001, petitioners received8 a demand letter9 dated May 2, 2001 from respondent for
the payment of ₱8,901,776.63, the amount of deficiency after applying the proceeds of the 04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 68,548.64
foreclosure sale to the mortgage debt. As its demand remained unheeded, respondent filed a
collection suit in the trial court. In its Complaint,10 respondent prayed that judgment be rendered Interest on ₱4,139,000.00 fr. 04-Feb-2001
ordering the petitioners to pay jointly and severally: (1) ₱8,901,776.63 representing the amount
of deficiency, plus interests at the legal rate, from February 23, 2001 until fully paid; (2) an 23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 38,781.86
additional amount equivalent to 1/10 of 1% per day of the total amount, until fully paid, as
penalty; (3) an amount equivalent to 10% of the foregoing amounts as attorney’s fees; and (4) Penalty charge @ 1/10 of 1% of the total amount due
expenses of litigation and costs of suit. (₱4,139,000.00 from 11-04-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 1,974,303.00
In their Answer,11 petitioners admitted the existence of the debt but interposed, by way of special
Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002,110.73
and affirmative defense, that the complaint states no cause of action considering that the
principal of the loan was already paid when the mortgaged property was extrajudicially PN# 507-0010513 due on 04-07-2004
foreclosed and sold for ₱10,300,000. Petitioners contended that should they be held liable for Principal balance of PN# 5070010513. . . . . . . . . . . . . . 6,216,000.00
any deficiency, it should be only for ₱55,000 representing the difference between the total
outstanding obligation of ₱10,355,000 and the bid price of ₱10,300,000. Petitioners also argued Interest on ₱6,216,000.00 fr. 06-Oct-99
that even assuming there is a cause of action, such deficiency cannot be enforced by respondent 04-Nov-2000 395 days @ 15.00%. . . . . . . . . . . . . . . . . 1,009,035.62
because it consists only of the penalty and/or compounded interest on the accrued interest which
is generally not favored under the Civil Code. By way of counterclaim, petitioners prayed that Interest on ₱6,216,000.00 fr. 04-Nov-2000
respondent be ordered to pay ₱100,000 in attorney’s fees and costs of suit. 04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 125,171.51

At the trial, respondent presented Ms. Annabelle Cokai Yu, its Senior Loans Assistant, as Interest on ₱6,216,000.00 fr. 04-Dec-2000
witness. She testified that she handled the account of petitioners and assisted them in processing 04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 113,505.86
their loan application. She called them monthly to inform them of the prevailing rates to be used
Interest on ₱6,216,000.00 fr. 04-Jan-2001
in computing interest due on their loan. As of the date of the public auction, petitioners’
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 102,947.18
outstanding balance was ₱19,201,776.6312 based on the following statement of account which
she prepared: Interest on ₱6,216,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 58,243.07
STATEMENT OF ACCOUNT
As of FEBRUARY 23, 2001 Penalty charge @ 1/10 of 1% of the total amount due
IGNACIO F. JUICO (₱6,216,000.00 from 10-06-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00
PN# 507-0010520 due on 04-07-2004
10,770,199.2
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1âwphi1

17,772,309.9
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Less: A/P applied to balance of principal (55,000.00)
17,456,160.5
Less: Accounts payable L & D (261,149.39) 7
Add: 10% Attorney’s Fee 1,745,616.06
19,201,776.6
Total amount due 3 ₱19,201,776.63 inclusive of principal, interests, penalties and attorney’s fees. It ruled that the
10,300,000.0
Less: Bid Price 0 shall not be deemed to have been made until the interests have been covered. This being the
TOTAL DEFICIENCY AMOUNT AS OF
13
FEB. 23, 2001 8,901,776.63
Petitioners thereafter received a demand letter14 dated May 2, 2001 from respondent’s counsel
for the deficiency amount of ₱8,901,776.63. Ms. Yu further testified that based on the Statement
of Account15 dated March 15, 2002 which she prepared, the outstanding balance of petitioners
was ₱15,190,961.48.16
On cross-examination, Ms. Yu reiterated that the interest rate changes every month based on the
prevailing market rate and she notified petitioners of the prevailing rate by calling them monthly
before their account becomes past due. When asked if there was any written authority from
petitioners for respondent to increase the interest rate unilaterally, she answered that petitioners
signed a promissory note indicating that they agreed to pay interest at the prevailing rate.17
Petitioner Ignacio F. Juico testified that prior to the release of the loan, he was required to sign
a blank promissory note and was informed that the interest rate on the loan will be based on
prevailing market rates. Every month, respondent informs him by telephone of the prevailing
interest rate. At first, he was able to pay his monthly amortizations but when he started to incur
delay in his payments due to the financial crisis, respondent pressured him to pay in full,
including charges and interests for the delay. His property was eventually foreclosed and was
sold at public auction.18
On cross-examination, petitioner testified that he is a Doctor of Medicine and also engaged in
the business of distributing medical supplies. He admitted having read the promissory notes and
that he is aware of his obligation under them before he signed the same.19
In its decision, the RTC ruled in favor of respondent. The fallo of the RTC decision reads:
WHEREFORE, premises considered, the Complaint is hereby sustained, and Judgment is
rendered ordering herein defendants to pay jointly and severally to plaintiff, the following:
1. ₱8,901,776.63 representing the amount of the deficiency owing to the plaintiff, plus
interest thereon at the legal rate after February 23, 2001;
2. An amount equivalent to 10% of the total amount due as and for attorney’s fees,
there being stipulation therefor in the promissory notes;
3. Costs of suit.
SO ORDERED.20
The trial court agreed with respondent that when the mortgaged property was sold at public
auction on February 23, 2001 for ₱10,300,000 there remained a balance of ₱8,901,776.63 since
before foreclosure, the total amount due on the two promissory notes aggregated to
amount realized at the auction sale was applied to the interest, conformably with Article 1253
of the Civil Code which provides that if the debt produces interest, payment of the principal
case, petitioners’ principal obligation subsists but at a reduced amount of ₱8,901,776.63.
The trial court further held that Ignacio’s claim that he signed the promissory notes in blank
cannot negate or mitigate his liability since he admitted reading the promissory notes before
signing them. It also ruled that considering the substantial amount involved, it is unbelievable
that petitioners threw all caution to the wind and simply signed the documents without reading
and understanding the contents thereof. It noted that the promissory notes, including the terms
and conditions, are pro forma and what appears to have been left in blank were the promissory
note number, date of the instrument, due date, amount of loan, and condition that interest will
be at the prevailing rates. All of these details, the trial court added, were within the knowledge
of the petitioners.
When the case was elevated to the CA, the latter affirmed the trial court’s decision. The CA
recognized respondent’s right to claim the deficiency from the debtor where the proceeds of the
sale in an extrajudicial foreclosure of mortgage are insufficient to cover the amount of the debt.
Also, it found as valid the stipulation in the promissory notes that interest will be based on the
prevailing rate. It noted that the parties agreed on the interest rate which was not unilaterally
imposed by the bank but was the rate offered daily by all commercial banks as approved by the
Monetary Board. Having signed the promissory notes, the CA ruled that petitioners are bound
by the stipulations contained therein.
Petitioners are now before this Court raising the sole issue of whether the interest rates imposed
upon them by respondent are valid. Petitioners contend that the interest rates imposed by
respondent are not valid as they were not by virtue of any law or Bangko Sentral ng Pilipinas
(BSP) regulation or any regulation that was passed by an appropriate government entity. They
insist that the interest rates were unilaterally imposed by the bank and thus violate the principle
of mutuality of contracts. They argue that the escalation clause in the promissory notes does not
give respondent the unbridled authority to increase the interest rate unilaterally. Any change
must be mutually agreed upon.
Respondent, for its part, points out that petitioners failed to show that their case falls under any
of the exceptions wherein findings of fact of the CA may be reviewed by this Court. It contends
that an inquiry as to whether the interest rates imposed on the loans of petitioners were supported
by appropriate regulations from a government agency or the Central Bank requires a
reevaluation of the evidence on records. Thus, the Court would in effect, be confronted with a
factual and not a legal issue.
The appeal is partly meritorious.
The principle of mutuality of contracts is expressed in Article 1308 of the Civil Code, which
provides:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them. Article 1956 of the Civil Code likewise ordains that "no interest
shall be due unless it has been expressly stipulated in writing."
The binding effect of any agreement between parties to a contract is premised on two settled
principles: (1) that any obligation arising from contract has the force of law between the parties;
and (2) that there must be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid. 21
Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by
the contracting parties. This Court has long recognized that there is nothing inherently wrong
with escalation clauses which are valid stipulations in commercial contracts to maintain fiscal
stability and to retain the value of money in long term contracts.22 Hence, such stipulations are
not void per se.23
Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to assent to
an important modification in the agreement" is void. A stipulation of such nature violates the
principle of mutuality of contracts.24 Thus, this Court has previously nullified the unilateral
determination and imposition by creditor banks of increases in the rate of interest provided in
loan contracts.25
In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the escalation clause stated: "I/We
hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this
contract without advance notice to me/us in the event a law should be enacted increasing the
lawful rates of interest that may be charged on this particular kind of loan." While escalation
clauses in general are considered valid, we ruled that Banco Filipino may not increase the
interest on respondent borrower’s loan, pursuant to Circular No. 494 issued by the Monetary
Board on January 2, 1976, because said circular is not a law although it has the force and effect
of law and the escalation clause has no provision for reduction of the stipulated interest "in the
event that the applicable maximum rate of interest is reduced by law or by the Monetary Board"
(de-escalation clause).
Subsequently, in Insular Bank of Asia and America v. Spouses Salazar27 we reiterated that
escalation clauses are valid stipulations but their enforceability are subject to certain conditions.
The increase of interest rate from 19% to 21% per annum made by petitioner bank was
disallowed because it did not comply with the guidelines adopted by the Monetary Board to
govern interest rate adjustments by banks and non-banks performing quasi-banking functions.
In the 1991 case of Philippine National Bank v. Court of Appeals, 28 the promissory notes
authorized PNB to increase the stipulated interest per annum "within the limits allowed by law
at any time depending on whatever policy PNB may adopt in the future; Provided, that, the
interest rate on this note shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board." This Court declared the
increases (from 18% to 32%, then to 41% and then to 48%) unilaterally imposed by PNB to be
in violation of the principle of mutuality essential in contracts.29
A similar ruling was made in a 1994 case30 also involving PNB where the credit agreement
provided that "PNB reserves the right to increase the interest rate within the limits allowed by
law at any time depending on whatever policy it may adopt in the future: Provided, that the
interest rate on this accommodation shall be correspondingly decreased in the event that the
applicable maximum interest is reduced by law or by the Monetary Board x x x".
Again, in 1996, the Court invalidated escalation clauses authorizing PNB to raise the stipulated
interest rate at any time without notice, within the limits allowed by law. The Court observed
that there was no attempt made by PNB to secure the conformity of respondent borrower to the
successive increases in the interest rate. The borrower’s assent to the increases cannot be implied
from their lack of response to the letters sent by PNB, informing them of the increases.31
In the more recent case of Philippine Savings Bank v. Castillo, 32 we sustained the CA in
declaring as unreasonable the following escalation clause: "The rate of interest and/or bank
charges herein stipulated, during the terms of this promissory note, its extensions, renewals or
other modifications, may be increased, decreased or otherwise changed from time to time within
the rate of interest and charges allowed under present or future law(s) and/or government
regulation(s) as the PSBank may prescribe for its debtors." Clearly, the increase or decrease of
interest rates under such clause hinges solely on the discretion of petitioner as it does not require
the conformity of the maker before a new interest rate could be enforced. We also said that
respondents’ assent to the modifications in the interest rates cannot be implied from their lack
of response to the memos sent by petitioner, informing them of the amendments, nor from the
letters requesting for reduction of the rates. Thus:
… the validity of the escalation clause did not give petitioner the unbridled right to unilaterally
adjust interest rates. The adjustment should have still been subjected to the mutual agreement
of the contracting parties. In light of the absence of consent on the part of respondents to the
modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the
inclusion of a de-escalation clause in the loan agreement.33
It is now settled that an escalation clause is void where the creditor unilaterally determines and
imposes an increase in the stipulated rate of interest without the express conformity of the
debtor. Such unbridled right given to creditors to adjust the interest independently and upwardly
would completely take away from the debtors the right to assent to an important modification
in their agreement and would also negate the element of mutuality in their contracts. 34While a
ceiling on interest rates under the Usury Law was already lifted under Central Bank Circular
No. 905, nothing therein "grants lenders carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their assets."35
The two promissory notes signed by petitioners provide:
I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the
case may be, the interest rate/service charge presently stipulated in this note without any advance
notice to me/us in the event a law or Central Bank regulation is passed or promulgated by the
Central Bank of the Philippines or appropriate government entities, increasing or decreasing
such interest rate or service charge.36
Such escalation clause is similar to that involved in the case of Floirendo, Jr. v. Metropolitan
Bank and Trust Company37 where this Court ruled:
The provision in the promissory note authorizing respondent bank to increase, decrease or
otherwise change from time to time the rate of interest and/or bank charges "without advance
notice" to petitioner, "in the event of change in the interest rate prescribed by law or the
Monetary Board of the Central Bank of the Philippines," does not give respondent bank
unrestrained freedom to charge any rate other than that which was agreed upon. Here, the
monthly upward/downward adjustment of interest rate is left to the will of respondent bank
alone. It violates the essence of mutuality of the contract.38
More recently in Solidbank Corporation v. Permanent Homes, Incorporated, 39 we upheld as
valid an escalation clause which required a written notice to and conformity by the borrower to
the increased interest rate. Thus:
The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December
1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905
which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for
secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the
parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury
Law is within the range of judicial notice which courts are bound to take into account. Although
interest rates are no longer subject to a ceiling, the lender still does not have an unbridled license
to impose increased interest rates. The lender and the borrower should agree on the imposed
rate, and such imposed rate should be in writing.
The three promissory notes between Solidbank and Permanent all contain the following
provisions:
"5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate
agreed in this Note or Loan on the basis of, among others, prevailing rates in the local or
international capital markets. For this purpose, We/I authorize Solidbank to debit any deposit or
placement account with Solidbank belonging to any one of us. The adjustment of the interest
rate shall be effective from the date indicated in the written notice sent to us by the bank, or if
no date is indicated, from the time the notice was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due under
this Note or Loan within thirty (30) days from the receipt by anyone of us of the written notice.
Otherwise, We/I shall be deemed to have given our consent to the interest rate adjustment."
The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on
said stipulations; (2) repricing takes effect only upon Solidbank’s written notice to Permanent
of the new interest rate; and (3) Permanent has the option to prepay its loan if Permanent and
Solidbank do not agree on the new interest rate. The phrases "irrevocably authorize," "at any
time" and "adjustment of the interest rate shall be effective from the date indicated in the written
notice sent to us by the bank, or if no date is indicated, from the time the notice was sent,"
emphasize that Permanent should receive a written notice from Solidbank as a condition for the
adjustment of the interest rates. (Emphasis supplied.)
In this case, the trial and appellate courts, in upholding the validity of the escalation clause,
underscored the fact that there was actually no fixed rate of interest stipulated in the promissory
notes as this was made dependent on prevailing rates in the market. The subject promissory
notes contained the following condition written after the first paragraph:
With one year grace period on principal and thereafter payable in 54 equal monthly instalments
to start on the second year. Interest at the prevailing rates payable quarterly in arrears. 40
In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder assailed the trial and appellate
courts in ruling for the validity of the escalation clause in the Cardholder’s Agreement. On
petitioner’s contention that the interest rate was unilaterally imposed and based on the standards
and rate formulated solely by respondent credit card company, we held:
The contractual provision in question states that "if there occurs any change in the prevailing
market rates, the new interest rate shall be the guiding rate in computing the interest due on the
outstanding obligation without need of serving notice to the Cardholder other than the required
posting on the monthly statement served to the Cardholder." This could not be considered an
escalation clause for the reason that it neither states an increase nor a decrease in interest rate.
Said clause simply states that the interest rate should be based on the prevailing market rate.
Interpreting it differently, while said clause does not expressly stipulate a reduction in interest
rate, it nevertheless provides a leeway for the interest rate to be reduced in case the prevailing
market rates dictate its reduction.
Admittedly, the second paragraph of the questioned proviso which provides that "the Cardholder
hereby authorizes Security Diners to correspondingly increase the rate of such interest in the
event of changes in prevailing market rates x x x" is an escalation clause. However, it cannot be
said to be dependent solely on the will of private respondent as it is also dependent on the
prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long as they are not solely
potestative but based on reasonable and valid grounds. Obviously, the fluctuation in the market
rates is beyond the control of private respondent.42 (Emphasis supplied.)
In interpreting a contract, its provisions should not be read in isolation but in relation to each
other and in their entirety so as to render them effective, having in mind the intention of the
parties and the purpose to be achieved. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken
jointly.43
Here, the escalation clause in the promissory notes authorizing the respondent to adjust the rate
of interest on the basis of a law or regulation issued by the Central Bank of the Philippines,
should be read together with the statement after the first paragraph where no rate of interest was
fixed as it would be based on prevailing market rates. While the latter is not strictly an escalation
clause, its clear import was that interest rates would vary as determined by prevailing market
Sub-Total 14,008,754.66
rates. Evidently, the parties intended the interest on petitioners’ loan, including any upward or
downward adjustment, to be determined by the prevailing market rates and not dictated by Less: A/P applied to balance of principal (55,000.00)
respondent’s policy. It may also be mentioned that since the deregulation of bank rates in 1983,
the Central Bank has shifted to a market-oriented interest rate policy.44 Less: Accounts payable L & D (261,149.39)

There is no indication that petitioners were coerced into agreeing with the foregoing provisions 13,692,605.27
of the promissory notes. In fact, petitioner Ignacio, a physician engaged in the medical supply
Add: Attorney's Fees 1,369,260.53
business, admitted having understood his obligations before signing them. At no time did
petitioners protest the new rates imposed on their loan even when their property was foreclosed Total Amount Due 15,061,865.79
by respondent.
Less: Bid Price 10,300,000.00
This notwithstanding, we hold that the escalation clause is still void because it grants respondent
the power to impose an increased rate of interest without a written notice to petitioners and their
written consent. Respondent’s monthly telephone calls to petitioners advising them of the TOTAL DEFICIENCY AMOUNT 4,761,865.79
prevailing interest rates would not suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the total debt should have been provided
by the respondent to enable petitioners to make an informed decision. An appropriate form must
also be signed by the petitioners to indicate their conformity to the new rates. Compliance with WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The February 20,
these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided 2009 · Decision and April 27, 2009 Resolution of the Court of Appeals in CA G.R. CV No.
impositions do not have the force of law between the parties, because such impositions are not 80338 are hereby MODIFIED. Petitioners Spouses Ignacio F. Juico and Alice P. Juico are
based on the parties’ essential equality.45 hereby ORDERED to pay jointly and severally respondent China Banking Corporation ₱4, 7 61
,865. 79 representing the amount of deficiency inclusive of interest, penalty charge and
attorney's fees. Said amount shall bear interest at 12% per annum, reckoned from the time of the
Modifications in the rate of interest for loans pursuant to an escalation clause must be the result filing of the complaint until its full satisfaction.
of an agreement between the parties. Unless such important change in the contract terms is
mutually agreed upon, it has no binding effect.46 In the absence of consent on the part of the
petitioners to the modifications in the interest rates, the adjusted rates cannot bind them. Hence, No pronouncement as to costs.
we consider as invalid the interest rates in excess of 15%, the rate charged for the first year.
SO ORDERED.
Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal
obligation under the two promissory notes which they failed to settle is ₱10,355,000. However, EN BANC
due to China Bank’s unilateral increases in the interest rates from 15% to as high as 24.50% and
penalty charge of 1/10 of 1% per day or 36.5% per annum for the period November 4, 1999 to G.R. No. 189871 August 13, 2013
February 23, 2001, petitioners’ balance ballooned to ₱19,201,776.63. Note that the original
amount of principal loan almost doubled in only 16 months. The Court also finds the penalty
charges imposed excessive and arbitrary, hence the same is hereby reduced to 1% per month or DARIO NACAR, PETITIONER,
12% per annum.1âwphi1 vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
Petitioners’ Statement of Account, as of February 23, 2001, the date of the foreclosure
proceedings, should thus be modified as follows: DECISION

PERALTA, J.:
Principal ₱10,355,000.00

Interest at 15% per annum This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008 of
₱10,355,000 x .15 x 477 days/365 days 2,029,863.70 the Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9,
2009 denying petitioner’s motion for reconsideration.
Penalty at 12% per annum 1,623 ,890. 96
The factual antecedents are undisputed.
₱10,355,000 x .12 x 477days/365 days
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch
of the National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF)
and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner and found
that he was dismissed from employment without a valid or just cause. Thus, petitioner was
awarded backwages and separation pay in lieu of reinstatement in the amount of ₱158,919.92.
The dispositive portion of the decision, reads:
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty
of constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred
eighty-six pesos and 56/100 (₱62,986.56) Pesos representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred
thirty-three and 36/100 (₱95,933.36) representing his backwages; and

With the foregoing, we find and so rule that respondents failed to discharge the burden of
showing that complainant was dismissed from employment for a just or valid cause. All the
more, it is clear from the records that complainant was never afforded due process before he
was terminated. As such, we are perforce constrained to grant complainant’s prayer for the
payments of separation pay in lieu of reinstatement to his former position, considering the
strained relationship between the parties, and his apparent reluctance to be reinstated, computed
only up to promulgation of this decision as follows:
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of the
Labor Arbiter. Respondents filed a motion for reconsideration, but it was denied. 6

SEPARATION PAY
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24,
Date Hired = August 1990 2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion for
Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001. 7
Rate = ₱198/day
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332.
Date of Decision = Aug. 18, 1998 Finding no reversible error on the part of the CA, this Court denied the petition in the Resolution
dated April 17, 2002.8
Length of Service = 8 yrs. & 1 month

₱198.00 x 26 days x 8 months = ₱41,184.00 An Entry of Judgment was later issued certifying that the resolution became final and executory
on May 27, 2002.9The case was, thereafter, referred back to the Labor Arbiter. A pre-execution
BACKWAGES conference was consequently scheduled, but respondents failed to appear.10

Date Dismissed = January 24, 1997

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
Rate per day = ₱196.00 backwages be computed from the date of his dismissal on January 24, 1997 up to the finality of
the Resolution of the Supreme Court on May 27, 2002.11 Upon recomputation, the Computation
Date of Decisions = Aug. 18, 1998 and Examination Unit of the NLRC arrived at an updated amount in the sum of ₱471,320.31.12

a) 1/24/97 to 2/5/98 = 12.36 mos.
₱196.00/day x 12.36 mos.
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day
₱198.00 x 26 days x 6.4 mos.
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the
Sheriff to collect from respondents the total amount of ₱471,320.31. Respondents filed a Motion
= ₱62,986.56 to Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded
separation pay of ₱62,986.56 and limited backwages of ₱95,933.36, no more recomputation is
required to be made of the said awards. They claimed that after the decision becomes final and
= ₱62,986.00 executory, the same cannot be altered or amended anymore.14 On January 13, 2003, the Labor
Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on
= ₱32,947.20 January 14, 2003.

TOTAL = ₱95.933.76 Respondents again appealed before the NLRC, which on June 30, 2003 issued a
Resolution17 granting the appeal in favor of the respondents and ordered the recomputation of
the judgment award.
xxxx
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to
be final and executory. Consequently, another pre-execution conference was held, but
respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed judgment award in the sum of
₱471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for
recomputation, where the judgment award of petitioner was reassessed to be in the total amount
of only ₱147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the
original amount as determined by the Labor Arbiter in his Decision dated October 15, 1998,
pending the final computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment
award that was due to petitioner in the amount of ₱147,560.19, which petitioner eventually
received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary
award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the
amount of ₱11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that
should be enforced considering that it was the one that became final and executory. However,
the Labor Arbiter reasoned that since the decision states that the separation pay and backwages
are computed only up to the promulgation of the said decision, it is the amount of ₱158,919.92
that should be executed. Thus, since petitioner already received ₱147,560.19, he is only entitled
to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its
Resolution22 dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was
likewise denied in the Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that
since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which
already became final and executory, a belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to enforce the said judgment. Consequently, it
can no longer be modified in any respect, except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated
October 9, 2009.
Hence, the petition assigning the lone error:
I A source of misunderstanding in implementing the final decision in this case proceeds from the
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED,
COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW
IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER
LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the
Labor Arbiter’s decision, the same is not final until reinstatement is made or until finality of the
decision, in case of an award of separation pay. Petitioner maintains that considering that the
October 15, 1998 decision of the Labor Arbiter did not become final and executory until the
April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book
of Entries on May 27, 2002, the reckoning point for the computation of the backwages and
separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was
rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the payment
of interest from the finality of the decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were
awarded to petitioner by the October 15, 1998 decision of the Labor Arbiter, no more
recomputation is required to be made of said awards. Respondents insist that since the decision
clearly stated that the separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no longer appealed the decision,
petitioner is only entitled to the award as computed by the Labor Arbiter in the total amount of
₱158,919.92. Respondents added that it was only during the execution proceedings that the
petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to
petitioner at this point of the proceedings would substantially vary the decision of the Labor
Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of
Appeals (Sixth Division),27 wherein the issue submitted to the Court for resolution was the
propriety of the computation of the awards made, and whether this violated the principle of
immutability of judgment. Like in the present case, it was a distinct feature of the judgment of
the Labor Arbiter in the above-cited case that the decision already provided for the computation
of the payable separation pay and backwages due and did not further order the computation of
the monetary awards up to the time of the finality of the judgment. Also in Session Delights, the
dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the
labor arbiter's original computation of the awards made, pegged as of the time the decision was
rendered and confirmed with modification by a final CA decision, is legally proper. The
question is posed, given that the petitioner did not immediately pay the awards stated in the
original labor arbiter's decision; it delayed payment because it continued with the litigation until
final judgment at the CA level.
way the original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed
with finality. This is the finding of the illegality of the dismissal and the awards of separation
pay in lieu of reinstatement, backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor
arbiter made shows that it was time-bound as can be seen from the figures used in the
computation. This part, being merely a computation of what the first part of the decision
established and declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the computation is already in
the labor arbiter's decision that the CA had affirmed. The public and private respondents, on the
other hand, posit that a re-computation is necessary because the relief in an illegal dismissal
decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality
of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken
place, also made a computation of the award, is understandable in light of Section 3, Rule VIII
of the then NLRC Rules of Procedure which requires that a computation be made. This Section
in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
practicable, shall embody in any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor
arbiter's decision. As we noted above, this implication is apparent from the terms of the
computation itself, and no question would have arisen had the parties terminated the case and
implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the
finding of illegality as well as on all the consequent awards made. Hence, the petitioner appealed
the case to the NLRC which, in turn, affirmed the labor arbiter's decision. By law, the NLRC
decision is final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds
through a timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC
exceeded its authority in affirming the payment of 13th month pay and indemnity, lapsed to
finality and was subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of
the original labor arbiter's decision, the implementing labor arbiter ordered the award re-
computed; he apparently read the figures originally ordered to be paid to be the computation
due had the case been terminated and implemented at the labor arbiter's level. Thus, the labor
arbiter re-computed the award to include the separation pay and the backwages due up to the
finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor
arbiter's approved computation went beyond the finality of the CA decision (July 29, 2003) and
included as well the payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now
questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially
considered the labor arbiter's original decision in accordance with its basic component parts as
we discussed above. To reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary consequences of
the illegal dismissal, computed as of the time of the labor arbiter's original decision. 28
Consequently, from the above disquisitions, under the terms of the decision which is sought to
be executed by the petitioner, no essential change is made by a recomputation as this step is a
necessary consequence that flows from the nature of the illegality of dismissal declared by the
Labor Arbiter in that decision.29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law – specifically, Article 279 of the Labor Code
and the established jurisprudence on this provision – that is read into the decision. By the nature
of an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed
under Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal
upon execution of the decision does not constitute an alteration or amendment of the final
decision being implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a violation of the principle
of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it cannot
avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's
decision. Article 279 provides for the consequences of illegal dismissal in no uncertain terms,
qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In allowing
separation pay, the final decision effectively declares that the employment relationship ended
so that separation pay and backwages are to be computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines,
Inc. v. Court of Appeals,32 the Court laid down the guidelines regarding the manner of
computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
 so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 34 of Circular
No. 905, Series of 1982 and, accordingly, issued Circular No. 799,35 Series of 2013, effective
July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of an express contract as to such rate of interest,
shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for Banks
and Sections 4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank
Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum
- as reflected in the case of Eastern Shipping Lines40and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular
No. 799 - but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate
of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer
v. Bangko Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set
interest rates and to issue and enforce Circulars when it ruled that "the BSP-MB may prescribe
the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and similar credit institutions. It
even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July
1, 2013, said judgments shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.1âwphi1
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6%
per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of
Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED
and SET ASIDE. Respondents are Ordered to Pay petitioner:
 (1) backwages computed from the time petitioner was illegally dismissed on January
24, 1997 up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332
became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one
month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from
July 1, 2013 until their full satisfaction.
We rule on the petition for review on certiorari assailing the decision[1] and
resolution[2] of the Court of Appeals[3] (CA) in CA-G.R. SP No. 89326. These CA rulings
dismissed the petition for certiorari the petitioner Session Delights Ice Cream and Fast Foods
(petitioner) filed to challenge the resolutions[4] of the Second Division of the National Labor
Relations Commission[5] (NLRC) that in turn affirmed the order[6] of the Labor
Arbiter[7] granting a re-computation of the monetary awards in favor of the private respondent
Adonis Armenio M. Flora (private respondent).
The Facts

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary
benefits awarded and due to petitioner in accordance with this Decision. The private respondent filed against the petitioner a complaint for illegal dismissal,
entitled Adonis Armenio M. Flora, Complainant versus Session Delights Ice Cream & Fast
SECOND DIVISION Foods, et. al, Private respondents, docketed as NLRC Case No. RAB-CAR 09-0507-00.

SESSION DELIGHTS ICE CREAM AND FAST FOODS, G.R. No. 172149
The labor arbiter decided the complaint on February 8, 2001, finding that the
Petitioner,
petitioner illegally dismissed the private respondent. The decision awarded the private
respondent backwages, separation pay in lieu of reinstatement, indemnity, and attorneys fees,
under a computation that the decision itself outlined in its dispositive portion. The dispositive
Present: portion reads:

- versus - CARPIO, J., Chairperson,

BRION, WHEREFORE, judgment is hereby rendered declaring private respondent

guilty of illegal dismissal. Accordingly, private respondent SESSION
BERSAMIN,* DELIGHTS is ordered to pay complainant the following:
THE HON. COURT OF APPEALS (Sixth Division), ABAD, and
HON. NATIONAL LABOR RELATIONS
COMMISSION (Second Division) and ADONIS PEREZ, JJ. a) Backwages:
ARMENIO M. FLORA,
P170.00 x 154 days P 26,180.00
Respondents.
Promulgated: Proportional 13th month pay

P 26,180/12 2,181.65 28,361.65

February 8, 2010

b) Separation Pay:

P 170.00 x 314/12 x 1 4,448.35

x---------------------------------------------------------------------------------------------------------x
DECISION
c) Indemnity of P5,000.00 for failure to observe due process
BRION, J.:

d) Attorneys fees which is 10% of the total award in the amount

of P3,781.00.
 1. Additional backwages: (March 1, 2001-Sept. 17, 2003)
SO ORDERED.[8]
March 1, 2001-April 30, 2002:

P178.00 x 52 days = 9,256.00

May 1, 2001-June 30, 2002:

On the petitioners appeal, the NLRC affirmed the labor arbiters decision in its resolutions
dated May 31, 2002 and September 30, 2002.[9] The dispositive portion of the NLRCs P185.00 x 365 days = 67,525.00
resolution of May 31, 2002 states:
July 1, 2002- Sept. 17, 2003:
WHEREFORE, premises considered, the decision under review is
P190.00 x 382 days = 72,580.00 149,361.00
hereby AFFIRMED, and the appeal, DISMISSED, for lack of merit. [10]
Proportional 13th month pay:

P149,361.00/12 = 12,446.75
The petitioner continued to seek relief, this time by filing a petition for certiorari before the CA,
which petition was docketed as CA-G.R. SP No. 74653. 161,807.75

2. Additional separation pay:

On July 4, 2003, the CA dismissed the petition and affirmed with modification the P190.00 x 314/12 x 3 years = 14,915.00
NLRC decision by deleting the awards for a proportionate 13th month pay and for
indemnity.[11] The CA decision became final per Entry of Judgment dated July 29, 2003.[12] The 3. Additional attorneys fee:
dispositive portion of this CA decision states:
P176,722.75 x 10% = 17,672.25 194,395.00

TOTAL 253,986.00
WHEREFORE, premises considered, the instant petition is
hereby DISMISSED. The decision of the National Labor Relations
Commission is AFFIRMED with modification that the award of
proportional 13th month pay as well as the award of indemnity of P 5,000.00 The petitioner objected to the re-computation and appealed the labor arbiters order to
for failure to observe due process are DELETED. the NLRC. The petitioner claimed that the updated computation was inconsistent with the
dispositive portion of the labor arbiters February 8, 2001 decision, as modified by the CA in
CA-G.R. SP No. 74653. The NLRC disagreed with the petitioner and affirmed the labor arbiters
decision in a resolution dated October 25, 2004. The NLRC also denied the petitioners motion
In January 2004, and in the course of the execution of the above final judgment for reconsideration in its resolution dated January 31, 2005.
pursuant to Section 3, Rule VIII[13] of the then NLRC Rules of Procedure, the Finance Analyst
of the Labor Arbiters Office held a pre-execution conference with the contending parties in
attendance. The Finance Analyst submitted an updated computation of the monetary awards due
the private respondent in the total amount of P235,986.00.[14] This updated computation The petitioner sought recourse with the CA through a petition for certiorari on the
included additional backwages and separation pay due the private respondent computed ground that the NLRC acted with grave abuse of discretion amounting to lack or excess of
from March 1, 2001 to September 17, 2003. The computation also included the proportionate jurisdiction.
amount of the private respondents 13th month pay. On March 25, 2004, the labor arbiter
approved the updated computation which ran, as follows:
The CA Rulings
COMPUTATION

Total computation as per NLRC CAR

The CA partially granted the petition in its decision of December 19, 2005 (now
decision dated February 8, 2001 (sic) 41,591.00 challenged before us) by deleting the awarded proportionate 13th month pay. The CA ruled:
 WHEREFORE, the petition is PARTIALLY GRANTED. The Labor during the pendency of the petitioners recourses with the NLRC and the CA cannot be read into
Arbiter is DIRECTED to compute only the following (a) private and implemented as part of the final and executory judgment.
respondents backwages from the time his salary was withheld up to July 29,
2003, the finality of the Decision in CA-G.R. SP No. 74653; (b) private
respondents separation pay from July 31, 2000 up to July 29, 2003; and (c)
The petitioner, as an alternative argument, argues that even assuming that the body of
attorneys fees equivalent to 10% of the total monetary claims from (a) and
the CA decision in CA-G.R. SP No. 74653 intended a computation of the monetary award up to
(b). The total monetary award shall earn legal interest from July 29,
the finality of the decision, the dispositive portion remains to be the directive that should be
2003 until fully paid. No pronouncement as to cost.
enforced, as it is the part of the decision that governs, settles, and declares the rights and
obligations of the parties.

SO ORDERED.[15]
The private respondent, for his part, counters that the computation of the monetary award until
the finality of the CA decision in CA-G.R. SP No. 74653 is in accord with Article 279 of the
Labor Code, as amended.

The CA explained in this ruling that employees illegally dismissed are entitled to reinstatement,
full backwages, inclusive of allowances and other benefits or their monetary equivalent,
computed from the time actual compensation was withheld from them, up to the time of actual The Courts Ruling
reinstatement. If reinstatement is no longer feasible, the backwages shall be computed from the
time of their illegal dismissal up to the finality of the decision. The CA reasoned that a re-
computation of the monetary awards was necessary to determine the correct amount due the We resolve to dismiss the petition and, accordingly, affirm the CA decision.
private respondent from the time his salary was withheld from him until July 29, 2003 (the date
of finality of the July 4, 2003 decision in CA-G.R. SP No. 74653) since the separation pay,
which was awarded in lieu of reinstatement, had not been paid by the petitioner. The attorneys
fees likewise have to be re-computed in light of the deletion of the proportionate 13th month pay We state at the outset that, as a rule, we frown upon any delay in the execution of final
and indemnity awards. and executory decisions, as the immediate enforcement of the parties rights, confirmed by a
final decision, is a major component of the ideal administration of justice. We admit, however,
The petitioner timely filed a motion for reconsideration which the CA denied in its that circumstances may transpire rendering delay unavoidable. One such occasion is when the
resolution of March 30, 2006, now similarly assailed before us. execution of the final judgment is not in accord with what the final judgment decrees in its
dispositive portion. Just as the execution of a final judgment is a matter of right for the winning
litigant who should not be denied the fruits of his or her victory, the right of the losing party to
give, perform, pay, and deliver only what has been decreed in the final judgment should also be
The Issue
respected.

The lone issue the petitioner raised is whether a final and executory decision (the labor
That a judgment should be implemented according to the terms of its dispositive
arbiters decision of February 8, 2001, as affirmed with modification by the CA decision in
portion is a long and well-established rule.[16] Otherwise stated, it is the dispositive portion that
CA-G.R. SP No. 74653) may be enforced beyond the terms decreed in its dispositive
categorically states the rights and obligations of the parties to the dispute as against each
portion.
other.[17] Thus, it is the dispositive portion which the entities charged with the execution of a
final judgment that must be enforced to ensure the validity of the execution.[18]

In the pleadings submitted to the Court, the petitioner insists on a literal reading and
application of the labor arbiters February 8, 2001 decision, as modified by the CA in CA-G.R.
A companion to the above rule on the execution of a final judgment is the principle
SP No. 74653. The petitioner argues that since the modified labor arbiters February 8,
of its immutability. Save for recognized exceptions,[19] a final judgment may no longer be
2001 decision did not provide in its dispositive portion for a computation of the monetary award
altered, amended or modified, even if the alteration, amendment or modification is meant to
up to the finality of the judgment in the case, the CA should have enforced the decision
correct what is perceived to be an erroneous conclusion of fact or law and regardless of what
according to its express and literal terms. In other words, the CA cannot now allow the execution
court, be it the highest Court of the land, renders it.[20] Any attempt on the part of the responsible
of the labor arbiters original decision (which the CA affirmed with finality but with
entities charged with the execution of a final judgment to insert, change or add matters not
modification) beyond the express terms of its dispositive portion; thus, the amounts that accrued
clearly contemplated in the dispositive portion violates the rule on immutability of judgments.

th
In the present case, with the CAs deletion of the proportionate 13 month pay and
indemnity awards in the labor arbiters February 8, 2001 decision, only the awards of backwages,
separation pay, and attorneys fees remain. These are the awards subject to execution.
Award of backwages and separation pay
A distinct feature of the judgment under execution is that the February 8, 2001 labor
arbiter decision already provided for the computation of the payable separation pay and
backwages due, and did not literally order the computation of the monetary awards up to the
time of the finality of the judgment. The private respondent, too, did not contest the decision
through an appeal. The petitioners argument to confine the awards to what the labor arbiter
stated in the dispositive part of his decision is largely based on these established features of the
judgment.
We reject the petitioners view as a narrow and misplaced interpretation of an illegal
dismissal decision, particularly of the terms of the labor arbiters decision.
While the private respondent failed to appeal the February 8, 2001 decision of the
labor arbiter, the failure, at the most, had the effect of making the awards granted to him final so
that he could no longer seek any other affirmative relief, or pray for any award additional to
what the labor arbiter had given. Other than these, the illegal dismissal case remained open for
adjudication based on the appeal made for the higher tribunals consideration. In other words,
the higher tribunals, on appropriate recourses made, may reverse the judgment and declare that
no illegal dismissal took place, or affirm the illegal dismissal already decreed with or
without modifying the monetary consequences flowing from the dismissal.
As the case developed and is presented to us, the issue before us is not the correctness
of the awards, nor the finality of the CAs judgment, nor the petitioners failure to appeal. The
issue before us is the propriety of the computation of the awards made, and, whether this
violated the principle of immutability of final judgments.
In concrete terms, the question is whether a re-computation in the course of execution
of the labor arbiters original computation of the awards made, pegged as of the time the decision
was rendered and confirmed with modification by a final CA decision, is legally proper. The
question is posed, given that the petitioner did not immediately pay the awards stated in the
original labor arbiters decision; it delayed payment because it continued with the litigation until
final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the
way the original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been
confirmed with finality. This is the finding of the illegality of the dismissal and the awards of
separation pay in lieu of reinstatement, backwages, attorneys fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation
the labor arbiter made shows that it was time-bound as can be seen from the figures used in the
computation. This part, being merely a computation of what the first part of the decision
established and declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the computation is already in
the labor arbiters decision that the CA had affirmed. The public and private respondents, on the
other hand, posit that a re-computation is necessary because the relief in an illegal dismissal
decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality
of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiters decision, at the same time that it found that an illegal dismissal
had taken place, also made a computation of the award, is understandable in light of Section 3,
Rule VIII of the then NLRC Rules of Procedure which requires that a computation be
made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at
all events, as far as practicable, shall embody in any such decision or order
the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the
labor arbiters decision. As we noted above, this implication is apparent from the terms of the
computation itself, and no question would have arisen had the parties terminated the case and
implemented the decision at that point.
However, the petitioner disagreed with the labor arbiters findings on all counts i.e.,
on the finding of illegality as well as on all the consequent awards made. Hence, the petitioner
appealed the case to the NLRC which, in turn, affirmed the labor arbiters decision. By
law,[21] the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional
grounds through a timely filed Rule 65 petition for certiorari. The CA decision, finding that
NLRC exceeded its authority in affirming the payment of 13th month pay and indemnity, lapsed
to finality and was subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal
portion of the original labor arbiters decision, the implementing labor arbiter ordered the award
re-computed; he apparently read the figures originally ordered to be paid to be the computation
due had the case been terminated and implemented at the labor arbiters level. Thus, the labor
arbiter re-computed the award to include the separation pay and the backwages due up to the
finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor
arbiters approved computation went beyond the finality of the CA decision (July 29, 2003) and
included as well the payment for awards the final CA decision had deleted specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now
questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as
it essentially considered the labor arbiters original decision in accordance with its basic
component parts as we discussed above. To reiterate, the first part contains the finding of
illegality and its monetary consequences; the second part is the computation of the awards or
monetary consequences of the illegal dismissal, computed as of the time of the labor arbiters
original decision.
To illustrate these points, had the case involved a pure money claim for a specific sum
(e.g. salary for a specific period) or a specific benefit (e.g. 13th month pay for a specific year)
made by a former employee, the labor arbiters computation would admittedly have continuing
currency because the sum is specific and any variation may only be on the interests that may
run from the finality of the decision ordering the payment of the specific sum.
In contrast with a ruling on a specific pure money claim, is a claim that relates to
status (as in this case, where the claim is the legality of the termination of the employment
relationship). In this type of cases, the decision or ruling is essentially declaratory of the status
and of the rights, obligations and monetary consequences that flow from the declared status (in
this case, the payment of separation pay and backwages and attorneys fees when illegal
dismissal is found). When this type of decision is executed, what is primarily implemented is
the declaratory finding on the status and the rights and obligations of the parties therein; the
arising monetary consequences from the declaration only follow as component of the parties
rights and obligations.
In the present case, the CA confirmed that indeed an illegal dismissal had taken place,
so that separation pay in lieu of reinstatement and backwages should be paid. How much that
separation pay would be, would ideally be stated in the final CA decision; if not, the matter is
for handling and computation by the labor arbiter of origin as the labor official charged with the
implementation of decisions before the NLRC.[22]
As the CA correctly pointed out, the basis for the computation of separation pay and
backwages is Article 279 of the Labor Code, as amended, which reads:
x x x An employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his
full backwages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.
By jurisprudence derived from this provision, separation pay may be awarded to an
illegally dismissed employee in lieu of reinstatement.[23] Recourse to the payment of separation
pay is made when continued employment is no longer possible, in cases where the dismissed
employees position is no longer available, or the continued relationship between the employer
and the employee is no longer viable due to the strained relations between them, or when the
dismissed employee opted not to be reinstated, or payment of separation benefits will be for the
best interest of the parties involved.[24]
This reading of Article 279, of course, does not appear to be disputed in the present case as the
petitioner admits that separation pay in lieu of reinstatement shall be paid, computed up to the
finality of the judgment finding that illegal dismissal had taken place. What the petitioner simply
disputes is the re-computation of the award when the final CA decision did not order any re-
computation while the NLRC decision that the CA affirmed and the labor arbiter decision the
NLRC in turn affirmed, already made a computation that on the basis of immutability of
judgment and the rule on execution of the dispositive portion of the decision should not now be
disturbed.
Consistent with what we discussed above, we hold that under the terms of the decision
under execution, no essential change is made by a re-computation as this step is a necessary
consequence that flows from the nature of the illegality of dismissal declared in that decision.
A re-computation (or an original computation, if no previous computation has been made) is a
part of the law specifically, Article 279 of the Labor Code and the established jurisprudence on
this provision that is read into the decision. By the nature of an illegal dismissal case, the reliefs
continue to add on until full satisfaction, as expressed under Article 279 of the Labor Code. The
re-computation of the consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being implemented. The illegal
dismissal ruling stands; only the computation of monetary consequences of this dismissal is
affected and this is not a violation of the principle of immutability of final judgments.
We fully appreciate the petitioners efforts in trying to clarify how the standing
jurisprudence on the payment of separation pay in lieu of reinstatement and the accompanying
payment of backwages ought to be read and reconciled. Its attempt, however, is out of place
and, rather than clarify, may only confuse the implementation of Article 279; the core issue in
this case is not the payment of separation pay and backwages but their re-computation in light
of an original labor arbiter ruling that already contained a dated computation of the monetary
consequences of illegal dismissal.
 That the amount the petitioner shall now pay has greatly increased is a consequence
that it cannot avoid as it is the risk that it ran when it continued to seek recourses against the
labor arbiters decision. Article 279 provides for the consequences of illegal dismissal in no
uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in
lieu of reinstatement is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In allowing
separation pay, the final decision effectively declares that the employment relationship ended
so that separation pay and backwages are to be computed up to that point. The decision also
becomes a judgment for money from which another consequence flows the payment of interest
in case of delay. This was what the CA correctly decreed when it provided for the payment of
the legal interest of 12% from the finality of the judgment, in accordance with our ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals.[25]

WHEREFORE, premises considered, we hereby AFFIRM the decision of the Court of

Appeals dated December 19, 2005 and its resolution dated March 30, 2006 in CA-G.R. SP No.
89326.

For greater certainty, the petitioner is ORDERED to PAY the private respondent:

(a) backwages computed from August 28, 2000 (the date the employer illegally
dismissed the private respondent) up to July 29, 2003, the date of finality of the decision of the
Court of Appeals in CA-G.R. SP No. 74653;

(b) separation pay computed from July 31, 2000 (the private respondents first day of
employment) up to July 29, 2003 at the rate of one month pay per year of service;

(c) ten percent (10%) attorneys fees based on the total amount of the awards under (a)
and (b) above; and

(d) legal interest of twelve percent (12%) per annum of the total monetary awards
computed from July 29, 2003, until their full satisfaction.

The labor arbiter is hereby ORDERED to make another re-computation according to

the above directives.

Costs against the petitioner.

SO ORDERED.