FIRST DIVISION effective March 31, 1992.
6 It further claimed that
G.R. No. 163654               October 8, 2014
BPI EXPRESS CARD
CORPORATION,* Petitioner,  failed to submit the required application form in
vs.
MA. ANTONIA R. ARMOVIT, Respondent.
DECISION
BERSAMIN, J.:
This case involves a credit card holder's claim for
damages arising from the suspension of her credit
privileges due to her supposed failure to reapply for
their reactivation. She has insisted that she was not
informed of the condition for reactivation.
The Case
Petitioner BPI Express Credit Card Corporation
(BPI Express Credit) seeks the reversal of and
assails the adverse decision promulgated on
February 26, 2004,1 whereby the Court of Appeals
(CA) affirmed the judgment rendered on April 22,
1996 by the Regional Trial Court, Branch 216, in
Quezon City, (RTC) adjudging it liable to pay moral
and exemplary damages, attorney’s fees and costs
of suit to its credit card holder Ma. Antonia R.
Armovit, the respondent herein.2
Antecedents
Armovit, then a depositor of the Bank of the
Philippine Islands at its Cubao Branch, was issued
by BPI Express Credit a pre-approved BPI Express
Credit Card (credit card) in 1989with a credit limit
of ₱20,000.00 that was to expire atthe end of
March 1993.3 On November 21, 1992, she treated
her British friends from Hong Kongto lunch at
Mario’s Restaurant in the Ortigas Center in Pasig.
As the host, she handed to the waiter her credit
card to settle the bill, but the waiter soon returned
to inform her that her credit card had been
cancelled upon verification with BPI Express Credit
and would not be honored. Inasmuch asshe was
relying on her credit card because she did not then
carry enough cash that day, her guests were made
to share the bill to her extreme embarrassment.
Outraged, Armovit called BPI Express Credit to
verify the status of her credit card. She learned that
her credit card had been summarily cancelled for
failure to pay her outstanding obligations. She
vehemently denied having defaulted onher
payments. Thus, by letter dated February 3,
1993,4 she demanded compensation for the shame,
embarrassment and humiliation she had suffered in
the amount of ₱2,000,000.00.
In its reply letter dated February 5, 1993,5 BPI
Express Credit claimed that it had sent Armovit a
telegraphic message on March 19, 1992 requesting
her to pay her arrears for three consecutive months,
and that she did not comply with the request,
causing it totemporarily suspend her credit card
she had been notified of the suspension and
cautioned to refrain from using the credit card to
avoid inconvenience or embarrassment;7 and that
while the obligation was settled by April, 1992, she
order to reactivate her credit card privileges. Thus,
BPI Express Credit countered that her demand for
monetary compensation had no basis in fact and in
law.
On March 12, 1993, Armovit received a telegraphic
message from BPI Express Credit apologizing for its
error of inadvertently including her credit card in
Caution List No. 225 dated March 11, 1993 sent to
its affiliated merchants.8
As a result, Armovit sued BPI Express Credit for
damages in the RTC, insisting that she had been a
credit card holder in good standing, and that she
did not have any unpaid bills at the time of the
incident.
In its answer with counterclaim,9 BPI Express
Credit raised the defense of lack of cause of
action,and maintained that Armovit had defaulted
in her obligations for three consecutive months,
thereby causing the temporary suspension of her
credit card in accordance with the terms and
conditions of the credit card.10 It pointed out that
Armovit had been duly notified of the suspension;
that for her failure to comply with the requirement
for the submission of the application form and
other documents as directed in its letter dated April
8, 1992,11 her credit card had not been reactivated
and had remained in the list of suspended cards at
the time she used it on November 21, 1992; and
thatthe telegraphic message of March 11, 1993,
which was intended for another client whose credit
card had been erroneously included in the caution
list, was mistakenly sent to her.12
Judgment of the RTC
In the judgment rendered April 22, 1996,13 the RTC,
ruling in favor of Armovit, observed that the terms
and conditions governing the issuance and use of
the credit card embodied in the application
formhad been furnished to her for the first time
only on April 8, 1992, or after her credit card
privileges had already been suspended; that,
accordingly, she could not be blamed for not
complying with the same; that even if she had been
notified of the temporary suspension of her credit
card, her payment on April 1, 1992 had rendered
the continued suspension of her credit card
unjustified; and that there was no clear showing
that the submission of the application form had
been a condition precedent to the lifting of its
suspension.
Finding BPI Express Credit guilty ofnegligence and
bad faith, the RTC ordered it to pay Armovit moral
damages of ₱100,000.00; exemplary damages and
attorney’s fees each in the amount of ₱10,000.00;
and the costs of suit.
Decision of the CA
Both parties appealed to the CA.
On February 26, 2004, the CA promulgated its
assailed decision,14 concurring with the RTC, and
declaredthat because Armovit had not signed any
application form in the issuance and renewals of
her credit card from 1989 up to 1992, she could not
have known the terms and conditions embodied in
the application form even ifthe credit card had
specified that its use bound the holder to its terms
and conditions. It did not see merit in BPI Express
Credit’s contention that the submission of a new
application form was a pre-requisite for the lifting
ofthe suspension of her credit card, inasmuch as
such condition was not stated in a clear and
unequivocal manner in its letter dated April 8,
1992. It noted that the letter of apology mentioning
another inadvertence committed, even if it claimed
the letter of apology as intended for another card
holder, still highlighted BPI Express Credit’s
negligence in its dealings with her account. Anent
Armovit’s appeal, the CA did not increase the
amounts of damages for lack of basis, observing
that moral and exemplary damages were awarded
not to enrich her at the expense of BPI Express
Credit but to alleviate the anxiety and
embarrassment suffered.
BPI Express Credit’s motion for reconsideration
was denied through the resolution promulgated on
May 14, 2004.15
Hence, this appeal by petition for review on
certiorari.
Issue
The sole issue is whether or not the CA erred in
sustaining the award of moral and exemplary
damages in favor of Armovit.
Ruling of the Court
The petition for review lacks merit.
The relationship between the credit card issuer and
the credit card holder is a contractual one that is
governed by the terms and conditions found in the
card membership agreement.16 Such terms and
conditions constitute the law between the parties.
In case of their breach, moral damages may be
recovered where the defendant is shown to have
acted fraudulently or in bad faith.17 Malice or bad
faith implies a conscious and intentional design to
do a wrongful actfor a dishonest purpose or moral
obliquity.18 However, a conscious or intentional
design need not always be present because
negligence may occasionally be so gross as to
amount to malice or bad faith.19 Hence, bad faith in
the context of Article 2220 of the Civil Code
includes gross negligence.20
BPI Express Credit contends thatit was not grossly
negligent in refusing to lift the suspension of
Armovit’s credit card privileges inasmuch as she
had not complied with the requisite submission of a
new application form; and that under the
circumstances its negligence, if any, was not so
gross as to amount to malice or bad faith following
the ruling in Far East Bank and Trust Company v.
Court of Appeals.21
The Court disagrees with the contentions of BPI
Express Credit.1âwphi1 The Terms and Conditions
Governing the Issuance and Use of the BPI Express
Credit Card22 printed on the credit card application
form spelled out the terms and conditions of the
contract between BPI Express Credit and its card
holders, including Armovit. Such terms and
conditions determined the rights and obligations of
the parties.23 Yet, a review of such terms and
conditions did not reveal that Armovit needed to
submit her new application as the antecedent
condition for her credit card to be taken out of the
list of suspended cards.
Considering that the terms and conditions nowhere
stated that the card holder must submit the new
application form in order to reactivate her credit
card, to allow BPI Express Credit toimpose the duty
to submit the new application form in order to
enableArmovit to reactivate the credit card would
contravene the Parol Evidence Rule.24 Indeed, there
was no agreement between the parties to add the
submission of the new application form as the
means to reactivate the credit card. When she did
not promptly settle her outstanding balance, BPI
Express Credit sent a message on March 19, 1992
demanding payment with the warning that her
failure to pay would force it to temporarily suspend
her credit card effective March 31, 1992. It then
sent another demand letter dated March 31, 1992
requesting her to settle her obligation in order to
lift the suspension of her credit card and prevent its
cancellation. In April 1992, she paid her obligation.
In the context of the contemporaneous and
subsequent acts of the parties, the only condition
for the reinstatement of her credit card was the
payment of her outstanding obligation.25 Had it
intended otherwise, BPI Express Credit would have
surelyu informed her of the additional requirement
in its letters of March 19, 1992 and March 31, 1992.
That it did not do so confirmed that they did not
agree on having her submit the new application
form as the condition to reactivate her credit card.
The letter of BPI Express Credit dated April 8, 1992
did not clearly and categorically inform Armovit
that the submission of the new application form
was the pre-condition for the reactivation of her
credit card. The statement in the letter (i.e., "…
accomplish the enclosed application form and
provide us with informations/documents that can
help our Credit Committee in reevaluating your
existingfacility with us.") merely raised doubt as to
whether the requirement had really been a pre-
condition or not. With BPI Express Credit being the
party causing the confusion, the interpretation of
the contract could not be donein its
favor.26 Moreover, it cannot be denied that a credit
card contract is considered as a contract of
adhesion because its terms and conditions are
solely prepared by the credit card issuer.
Consequently, the terms and conditions have to be
construed against BPI Express Credit as the party
who drafted the contract.27
Bereft of the clear basis to continuewith the
suspension of the credit card privileges of Armovit,
BPI Express Credit acted in wanton disregard of its
contractual obligations with her. We concur with
the apt observation by the CA that BPI Express
Credit’s negligence was even confirmed by the
telegraphic message it had addressed and sent to
Armovit apologizing for the inconvenience caused
in inadvertently including her credit card in the
caution list. It was of no consequence that the
telegraphic message could have been intended for
another client, as BPI Express Credit apparently
sought to convey subsequently, because the tenor
ofthe apology included its admission of negligence
in dealing with its clients, Armovit included.
Indeed, BPI Express Credit did not observe the
prudence expected of banks whose business was
imbued with public interest.
We hold that the CA rightly sustained the award of
₱100,000.00 as moral damages. To us, too, that
amount was fair and reasonable under the
circumstances. Similarly, the grant of exemplary
damages was warranted under Article 2232 of the
New Civil Code because BPI Express Credit acted in
a reckless and oppressive manner. Finally, with
Armovit having been forced to litigate in order to
protect her rights and interests, she was entitled to
recover attorney's fees and expenses oflitigation. 28
WHEREFORE, the Court AFFIRMS the decision
promulgated on February 26, 2004; and ORDERS
the petitioner to pay the costs of suit.
SO ORDERED.
HILARIO P.   G.R. No. 162336
SORIANO,
Petitioner,    
     
- versus -   Present:
     
PEOPLE OF   CARPIO, J., Chairperson
THE PHILIPPINES, ,
BANGKO SENTRAL   CORONA,*
NG
PILIPINAS (BSP),   BRION,
PHILIPPINE
DEPOSIT   DEL CASTILLO, and
INSURANCE
CORPORATION   PEREZ, JJ.
(PDIC), PUBLIC
PROSECUTOR    
ANTONIO C.
BUAN, and STATE    
PROSECUTOR   Promulgated:
ALBERTO R.
FONACIER,    
Respondents.  [1]   February 1, 2010
x-----------------------------------------
--------------------------x
 
 
DECISION
DEL CASTILLO, J.:
 
A bank officer violates the DOSRI[2] law when he
acquires bank funds for his personal benefit, even if
such acquisition was facilitated by a fraudulent loan
application. Directors, officers, stockholders, and their
related interests cannot be allowed to interpose the
fraudulent nature of the loan as a defense to escape
culpability for their circumvention of Section 83 of
Republic Act (RA) No. 337.[3]
Before us is a Petition for Review
on Certiorari[4] under Rule 45 of the Rules of Court,
assailing the September 26, 2003 Decision[5] and
the February 5, 2004 Resolution[6] of the Court of
Appeals (CA) in CA-G.R. SP No. 67657. The challenged
Decision disposed as follows:
WHEREFORE, premises
considered, the instant petition for
certiorari is hereby DENIED.[7]
Factual Antecedents
 
Sometime in 2000, the Office of Special Investigation
(OSI) of the Bangko Sentral ng Pilipinas (BSP),
through its officers,[8] transmitted a
letter  dated March 27, 2000 to Jovencito Zuo, Chief
[9]
State Prosecutor of the Department of Justice
(DOJ). The letter attached as annexes five affidavits,
[10]
 which would allegedly serve as bases for filing
criminal charges for Estafa thru Falsification of
Commercial Documents, in relation to Presidential
Decree (PD) No. 1689,[11] and for Violation of Section 83
of RA 337, as amended by PD 1795, [12] against, inter
alia, petitioner herein Hilario P. Soriano. These five
affidavits, along with other documents, stated that
spouses Enrico and Amalia Carlos appeared to have an
outstanding loan of P8 million with the Rural Bank of
San Miguel (Bulacan), Inc. (RBSM), but had never
applied for nor received such loan; that it was petitioner,
who was then president of RBSM, who had ordered,
facilitated, and received the proceeds of the loan; and
that the P8 million loan had never been authorized by
RBSM's Board of Directors and no report thereof had
ever been submitted to the Department of Rural Banks,
Supervision and Examination Sector of the BSP. The
letter of the OSI, which was not subscribed under oath,
ended with a request that a preliminary investigation be
conducted and the corresponding criminal charges be
filed against petitioner at his last known address.
 
Acting on the letter-request and its annexes, State
Prosecutor Albert R. Fonacier proceeded with the
preliminary investigation. He issued a subpoena with
the witnesses affidavits and supporting documents
attached, and required petitioner to file his counter-
affidavit. In due course, the investigating officer issued a
Resolution finding probable cause and correspondingly
filed two separate informations against petitioner before
the Regional Trial Court (RTC) of Malolos, Bulacan.[13]
 
The first Information,[14] dated November 14, 2000 and
docketed as Criminal Case No. 237-M-2001, was for
estafa through falsification of commercial documents,
under Article 315, paragraph 1(b), of the Revised Penal
Code (RPC), in relation to Article 172 of the RPC and PD
1689. It basically alleged that petitioner and his co-
accused, in abuse of the confidence reposed in them as
RBSM officers, caused the falsification of a number of
loan documents, making it appear that one Enrico
Carlos filled up the same, and thereby succeeded in
securing a loan and converting the loan proceeds for
their personal gain and benefit.[15] The information
reads:
That in or about the month of
April, 1997, and thereafter, in San
Miguel, Bulacan, and within the
jurisdiction of this Honorable Court, the
said accused HILARIO P.
SORIANO and ROSALINDA
ILAGAN, as principals by direct
participation, with unfaithfulness or
abuse of confidence and taking
advantage of their position as President
of the Rural Bank of San Miguel
(Bulacan), Inc. and Branch Manager of
the Rural Bank of San Miguel San
Miguel Branch [sic], a duly organized
banking institution under Philippine
Laws, conspiring, confederating and
mutually helping one another, did then
and there, willfully and feloniously
falsify loan documents consisting of
undated loan application/information
sheet, credit proposal dated April 14,
1997, credit proposal dated April 22,
1997, credit investigation report dated
April 15, 1997, promissory note dated
April 23, 1997, disclosure statement on
loan/credit transaction dated April 23,
1997, and other related documents, by
making it appear that one Enrico Carlos
filled up the application/information
sheet and filed the aforementioned loan
documents when in truth and in fact
Enrico Carlos did not participate in the
execution of said loan documents and
that by virtue of said falsification and
with deceit and intent to cause damage,
the accused succeeded in securing a
loan in the amount of eight million
pesos (PhP8,000,000.00) from the
Rural Bank of San Miguel San Ildefonso
branch in the name of Enrico Carlos
which amount of PhP8 million
representing the loan proceeds the
accused thereafter converted the same
amount to their own personal gain and
benefit, to the damage and prejudice of
the Rural Bank of San Miguel San
Ildefonso branch, its creditors, the
Bangko Sentral ng Pilipinas, and the
Philippine Deposit Insurance
Corporation.
CONTRARY TO LAW.[16]
The other Information[17] dated November 10,
2000 and docketed as Criminal Case No. 238-M-2001,
was for violation of Section 83 of RA 337, as amended
by PD 1795. The said provision refers to the prohibition
against the so-called DOSRI loans. The information
alleged that, in his capacity as President of RBSM,
petitioner indirectly secured an P8 million loan with
RBSM, for his personal use and benefit, without the
written consent and approval of the bank's Board of
Directors, without entering the said transaction in the
bank's records, and without transmitting a copy of the
transaction to the supervising department of the bank.
His ruse was facilitated by placing the loan in the name
of an unsuspecting RBSM depositor, one Enrico Carlos.
[18]
 The information reads:
 
That in or about the month of
April, 1997, and thereafter, and within
the jurisdiction of this Honorable Court,
the said accused, in his capacity as
President of the Rural Bank of San
Miguel (Bulacan), Inc., did then and
there, willfully and feloniously indirectly
borrow or secure a loan with the Rural
Bank of San Miguel San Ildefonso
branch, a domestic rural banking
institution created, organized and
existing under Philippine laws,
amounting to eight million pesos
(PhP8,000,000.00), knowing fully well
that the same has been done by him
without the written consent and
approval of the majority of the board of
directors of the said bank, and which
consent and approval the said accused
deliberately failed to obtain and enter
the same upon the records of said
banking institution and to transmit a
copy thereof to the supervising
department of the said bank, as
required by the General Banking Act, by
using the name of one depositor Enrico
Carlos of San Miguel, Bulacan, the latter
having no knowledge of the said loan,
and one in possession of the said
amount of eight million pesos
(PhP8,000,000.00), accused converted
the same to his own personal use and
benefit, in flagrant violation of the said
law.
 
CONTRARY TO LAW.[19]
 
Both cases were raffled to Branch 79 of the RTC
of Malolos, Bulacan.[20]
 
On June 8, 2001, petitioner moved to quash [21] these
informations on two grounds: that the court had no
jurisdiction over the offense charged, and that the facts
charged do not constitute an offense.
 
On the first ground, petitioner argued that the letter
transmitted by the BSP to the DOJ constituted the
complaint and hence was defective for failure to comply
with the mandatory requirements of Section 3(a), Rule
112 of the Rules of Court, such as the statement of
address of petitioner and oath and subscription.
[22]
 Moreover, petitioner argued that the officers of
OSI, who were the signatories to the letter-
complaint, were not authorized by the BSP Governor,
much less by the Monetary Board, to file the
complaint. According to petitioner, this alleged fatal
oversight violated Section 18, pars. (c) and (d) of the
New Central Bank Act (RA 7653).
 
On the second ground, petitioner contended that the
commission of estafa under paragraph 1(b) of Article
315 of the RPC is inherently incompatible with the
violation of DOSRI law (as set out in Section 83[23] of RA
337, as amended by PD 1795),[24] hence a person cannot
be charged for both offenses. He argued that a violation
of DOSRI law requires the offender to obtain a
loan from his bank, without complying with
procedural, reportorial, or ceiling requirements. On the
other hand, estafa under par. 1(b), Article 315 of the RPC
requires the offender to misappropriate or convert
something that he holds in trust, or on
commission, or for administration, or under any
other obligation involving the duty to return the same.
[25]
 
Essentially, the petitioner theorized that the
characterization of possession is different in the two
offenses. If petitioner acquired the loan as DOSRI, he
owned the loaned money and therefore, cannot
misappropriate or convert it as contemplated in the
offense of estafa. Conversely, if petitioner committed
estafa, then he merely held the money in trust for
someone else and therefore, did not acquire a loan in
violation of DOSRI rules.
Ruling of the Regional Trial Court
 
In an Order[26] dated August 8, 2001, the trial court
denied petitioner's Motion to Quash for lack of
merit. The lower court agreed with the prosecution that
the assailed OSI letter was not the complaint-affidavit
itself; thus, it need not comply with the requirements
under the Rules of Court. The trial court held that the
affidavits, which were attached to the OSI letter,
comprised the complaint-affidavit in the case. Since
these affidavits were duly subscribed and sworn to
before a notary public, there was adequate compliance
with the Rules. The trial court further held that the two
offenses were separate and distinct violations, hence the
prosecution of one did not pose a bar to the other.[27]
 
Petitioners Motion for Reconsideration was
likewise denied in an Order dated September 5, 2001.[28]
 
Aggrieved, petitioner filed a Petition
for Certiorari[29] with the CA, reiterating his arguments
before the trial court.
 
Ruling of the Court of Appeals
The CA denied the petition on both issues presented by
petitioner.
 
On the first issue, the CA determined that the BSP letter,
which petitioner characterized to be a fatally infirm
complaint, was not actually a complaint, but a
transmittal or cover letter only. This transmittal letter
merely contained a summary of the affidavits which
were attached to it. It did not contain any averment of
personal knowledge of the events and transactions that
constitute the elements of the offenses charged. Being a
mere transmittal letter, it need not comply with the
requirements of Section 3(a) of Rule 112 of the Rules of
Court.[30]
The CA further determined that the five affidavits
attached to the transmittal letter should be considered
as the complaint-affidavits that charged petitioner with
violation of Section 83 of RA 337 and for Estafa thru
Falsification of Commercial Documents. These
complaint-affidavits complied with the mandatory
requirements set out in the Rules of Court they were
subscribed and sworn to before a notary public and
subsequently certified by State Prosecutor Fonacier,
who personally examined the affiants and was
convinced that the affiants fully understood their sworn
statements.[31]
Anent the second ground, the CA found no merit in
petitioner's argument that the violation of the DOSRI
law and the commission of estafa thru falsification of
commercial documents are inherently inconsistent with
each other. It explained that the test in considering a
motion to quash on the ground that the facts charged do
not constitute an offense, is whether the facts alleged,
when hypothetically admitted, constitute the elements
of the offense charged. The appellate court held that this
test was sufficiently met because the allegations in the
assailed informations, when hypothetically admitted,
clearly constitute the elements of Estafa thru
Falsification of Commercial Documents and Violation of
DOSRI law.[32]
Petitioners Motion for Reconsideration[33] was likewise
denied for lack of merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues[34] for our
consideration:
I positions and arguments on the first issue, the Court
Whether the complaint complied with
the mandatory requirements provided
under Section 3(a), Rule 112 of the
Rules of Court and Section 18,
paragraphs (c) and (d) of RA 7653.
 
II
Whether a loan transaction within the
ambit of the DOSRI law (violation of
Section 83 of RA 337, as amended)
could also be the subject of Estafa under
Article 315 (1) (b) of the Revised Penal
Code.
 
III
Is a petition for certiorari under Rule 65
the proper remedy against an Order
denying a Motion to Quash?
 
IV
Whether petitioner is entitled to a writ
of injunction.
 
 
Our Ruling
The petition lacks merit.
First Issue:
Whether the complaint complied
with the mandatory requirements
provided under Section 3(a), Rule
112 of the Rules of Court and
Section 18, paragraphs (c) and (d)
of
Republic Act No. 7653
 Petitioner moved to withdraw the first issue from the
instant petition
On March 5, 2007, the Court noted[35] petitioner's
Manifestation and Motion for Partial Withdrawal of the
Petition[36] dated February 7, 2007. In the said motion,
petitioner informed the Court of the promulgation of a
Decision entitled Soriano v. Hon. Casanova,[37] which
also involved petitioner and similar BSP letters to the
DOJ. According to petitioner, the said Decision
allegedly ruled squarely on the nature of the BSP letters
and the validity of the sworn affidavits attached
thereto. For this reason, petitioner moved for the partial
withdrawal of the instant petition insofar as it involved
the issue of whether or not a court can legally acquire
jurisdiction over a complaint which failed to comply
with the mandatory requirements provided under
Section 3(a), Rule 112 of the Rules of Court and Section
18, paragraphs (c) and (d) of RA 7653.[38]
Given that the case had already been submitted for
resolution of the Court when petitioner filed his latest
motion, and that all respondents had presented their
deems it proper to rule on the same.
 In Soriano v. Hon. Casanova, the Court held that
the affidavits attached to the BSP transmittal letter
complied with the mandatory requirements under the
Rules of Court.
 
 
To be sure, the BSP letters involved in Soriano v. Hon.
Casanova[39] are not the same as the BSP letter
involved in the instant case. However, the BSP letters
in Soriano v. Hon. Casanova and the BSP letter subject
of this case are similar in the sense that they are all
signed by the OSI officers of the BSP, they were not
sworn to by the said officers, they all contained
summaries of their attached affidavits, and they all
requested the conduct of a preliminary investigation
and the filing of corresponding criminal charges against
petitioner Soriano. Thus, the principle of stare
decisis dictates that the ruling in Soriano v. Hon.
Casanova be applied in the instant case once a question
of law has been examined and decided, it should be
deemed settled and closed to further argument.[40]
We held in Soriano v. Hon. Casanova, after a
close scrutiny of the letters transmitted by the BSP to
the DOJ, that these were not intended to be the
complaint, as envisioned under the Rules. They did not
contain averments of personal knowledge of the events
and transactions constitutive of any offense. The letters
merely transmitted for preliminary investigation the
affidavits of people who had personal knowledge of the
acts of petitioner. We ruled that these affidavits, not the
letters transmitting them, initiated the preliminary
investigation. Since these affidavits were subscribed
under oath by the witnesses who executed them before a
notary public, then there was substantial compliance
with Section 3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority from
the BSP Governor or the Monetary Board to file a
criminal case against Soriano, we held that the
requirements of Section 18, paragraphs (c) and (d) of
RA 7653 did not apply because the BSP did not institute
the complaint but merely transmitted the affidavits of
the complainants to the DOJ.
 
We further held that since the offenses for which
Soriano was charged were public crimes, authority
holds that it can be initiated by any competent person
with personal knowledge of the acts committed by the
offender. Thus, the witnesses who executed the
affidavits clearly fell within the purview of any
competent person who may institute the complaint for a
public crime.
The ruling in Soriano v. Hon. Casanova has
been adopted and elaborated upon in the recent case
of Santos-Concio v. Department of Justice.[41] Instead
of a transmittal letter from the BSP, the Court
in Santos-Concio was faced with an NBI-NCR Report,
likewise with affidavits of witnesses as
attachments. Ruling on the validity of the witnesses
sworn affidavits as bases for a preliminary investigation,
we held:
The Court is not unaware of the practice of
incorporating all allegations in one document
denominated as complaint-affidavit. It does not
pronounce strict adherence to only one
approach, however, for there are cases where
the extent of ones personal knowledge may not
cover the entire gamut of details material to the
alleged offense.  The private offended party or
relative of the deceased may not even have
witnessed the fatality, in which case the peace
officer or law enforcer has to rely chiefly on
affidavits of witnesses.  The Rules do not in fact
preclude the attachment of a referral or
transmittal letter similar to that of the NBI-
NCR.  Thus, in Soriano v. Casanova, the Court
held:
    A close scrutiny of the letters transmitted by
the BSP and PDIC to the DOJ shows that
these were not intended to be the complaint
envisioned under the Rules.  It may be clearly
inferred from the tenor of the letters that the
officers merely intended to transmit the
affidavits of the bank employees to the DOJ.  requirements provided under Section 3(a), Rule 112 of
Nowhere in the transmittal letters is there any
averment on the part of the BSP and PDIC
officers of personal knowledge of the events and
transactions constitutive of the criminal
violations alleged to have been made by the
accused. In fact, the letters clearly stated that
what the OSI of the BSP and the LIS of the
PDIC did was to respectfully transmit to the
DOJ for preliminary investigation the affidavits
and personal knowledge of the acts of the
petitioner. These affidavits were subscribed
under oath by the witnesses who executed them
before a notary public.  Since the  affidavits,
not  the  letters  transmitting them, were
intended to initiate the preliminary
investigation, we hold that Section 3(a), Rule
112 of the Rules of Court was substantially
complied with.
  Citing the ruling of this Court
in Ebarle v. Sucaldito, the Court of
Appeals correctly held that a complaint
for purposes of preliminary
investigation by the fiscal need not be
filed by the offended party.  The rule
has been that, unless the offense
subject thereof is one that cannot
be prosecuted de oficio, the same
may be filed, for preliminary
investigation purposes, by any
competent person.  The crime of
estafa is a public crime which can be
initiated by any competent person.  The
witnesses who executed the affidavits
based on their personal knowledge of
the acts committed by the petitioner fall
within the purview of any competent
person who may institute the complaint
for a public crime. x x x (Emphasis and
italics supplied)   
 
             A preliminary investigation can
thus validly proceed on the basis of an
affidavit of any competent person,
without the referral document, like the
NBI-NCR Report, having been sworn to
by the law enforcer as the nominal
complainant.  To require otherwise is a
needless exercise.  The cited case
of Oporto, Jr. v. Judge Monserate does
not appear to dent this proposition. 
After all, what is required is to reduce
the evidence into affidavits, for
while reports and even raw information
may justify the initiation of an
investigation, the preliminary
investigation stage can be held only
after sufficient evidence has been
gathered and evaluated which may
warrant the eventual prosecution of the
case in court.[42]
 
Following the foregoing rulings in Soriano v. Hon.
Casanova and Santos-Concio v. Department of
Justice, we hold that the BSP letter, taken together with
the affidavits attached thereto, comply with the
the Rules of Court and Section 18, paragraphs (c) and
(d) of RA 7653.
Second Issue:
Whether a loan transaction
within the ambit of the DOSRI
law (violation of Section 83 of RA
337, as amended) could be the
subject of Estafa under Article 315
(1) (b) of the
Revised Penal Code
 
The second issue was raised by petitioner in the
context of his Motion to Quash Information on the
ground that the facts charged do not constitute an
offense.[43] It is settled that in considering a motion to
quash on such ground, the test is whether the facts
alleged, if hypothetically admitted, would establish the
essential elements of the offense charged as defined by
law.The trial court may not consider a situation contrary
to that set forth in the criminal complaint or
information. Facts that constitute the defense of the
petitioner[s] against the charge under the information
must be proved by [him] during trial. Such facts or
circumstances do not constitute proper grounds for a
motion to quash the information on the ground that the
material averments do not constitute the offense. [44]
We have examined the two informations against
petitioner and we find that they contain allegations
which, if hypothetically admitted, would establish the
essential elements of the crime of DOSRI violation and
estafa thru falsification of commercial documents.
 
In Criminal Case No. 238-M-2001 for violation of
DOSRI rules, the information alleged that petitioner
Soriano was the president of RBSM; that he was able to
indirectly obtain a loan from RBSM by putting the loan
in the name of depositor Enrico Carlos; and that he did
this without complying with the requisite board
approval, reportorial, and ceiling requirements.
 
In Criminal Case No. 237-M-2001 for estafa thru
falsification of commercial documents, the information
alleged that petitioner, by taking advantage of his
position as president of RBSM, falsified various loan
documents to make it appear that an Enrico Carlos
secured a loan of P8 million from RBSM; that petitioner
succeeded in obtaining the loan proceeds; that he later
converted the loan proceeds to his own personal gain
and benefit; and that his action caused damage and
prejudice to RBSM, its creditors, the BSP, and the PDIC.
Significantly, this is not the first occasion that we
adjudge the sufficiency of similarly worded
informations. In Soriano v. People,[45] involving the
same petitioner in this case (but different transactions),
we also reviewed the sufficiency of informations for
DOSRI violation and estafa thru falsification of
commercial documents, which were almost
identical, mutatis mutandis, with the subject
informations herein. We held in Soriano v. People that
there is no basis for the quashal of the informations as
they contain material allegations charging Soriano with
violation of DOSRI rules and estafa thru falsification of
commercial documents.
 
Petitioner raises the theory that he could not
possibly be held liable for estafa in concurrence with the
charge for DOSRI violation. According to him, the
DOSRI charge presupposes that he acquired a loan,
which would make the loan proceeds his own money
and which he could neither possibly misappropriate nor
convert to the prejudice of another, as required by the
statutory definition of estafa.[46] On the other hand, if
petitioner did not acquire any loan, there can be no
DOSRI violation to speak of. Thus, petitioner posits that
the two offenses cannot co-exist. This theory does not
persuade us.
 
Petitioners theory is based on the false premises
that the loan was extended to him by the bank in his
own name, and that he became the owner of the loan
proceeds. Both premises are wrong.
 
The bank money (amounting to P8 million)
which came to the possession of petitioner was money
held in trust or administration by him for the bank, in
his
 
fiduciary capacity as the President of said bank. [47] It is
not accurate to say that petitioner became the owner of
the P8 million because it was the proceeds of a
loan. That would have been correct if the
bank knowingly extended the loan to petitioner
himself. But that is not the case here. According to the
information for estafa, the loan was supposed to be for
another person, a certain Enrico Carlos; petitioner,
through falsification, made it appear that said Enrico
Carlos applied for the loan when in fact he (Enrico
Carlos) did not. Through such fraudulent device,
petitioner obtained the loan proceeds and converted the
same. Under these circumstances, it cannot be said that
petitioner became the legal owner of the P8
million. Thus, petitioner remained the banks fiduciary
with respect to that money, which makes it capable of
misappropriation or conversion in his hands.
The next question is whether there can also be,
at the same time, a charge for DOSRI violation in such a
situation wherein the accused bank officer
did not secure a loan in his own name, but was alleged
to have used the name of another person in order to
indirectly secure a loan from the bank. We answer this
in the affirmative. Section 83 of RA 337 reads:
 
Section 83. No director or
officer of any banking institution shall,
either directly or indirectly, for himself
or as the representative or agent of
others, borrow any of the deposits of
funds of such bank, nor shall he
become a guarantor, indorser, or
surety for loans from such bank to
others, or in any manner be an obligor
for moneys borrowed from the bank or
loaned by it, except with the written
approval of the majority of the directors
of the bank, excluding the director
concerned. Any such approval shall be
entered upon the records of the
corporation and a copy of such entry
shall be transmitted forthwith to the
Superintendent of Banks. The office of
any director or officer of a bank who
violates the provisions of this section
shall immediately become vacant and
the director or officer shall be punished
by imprisonment of not less than one
year nor more than ten years and by a
fine of not less than one thousand nor
more than ten thousand pesos. x x x
 
The prohibition in Section 83 is broad enough to cover
various modes of borrowing.[48] It covers loans by a bank
director or officer (like herein petitioner) which are
made either: (1) directly, (2) indirectly, (3) for himself,
(4) or as the representative or agent of others. It applies
even if the director or officer is a mere guarantor,
indorser or surety for someone else's loan or is in any
manner an obligor for money borrowed from the bank
or loaned by it. The covered transactions are prohibited
unless the approval, reportorial and ceiling
requirements under Section 83 are complied with. The
prohibition is intended to protect the public, especially
the depositors,[49] from the overborrowing of bank funds
by bank officers, directors, stockholders and related
interests, as such overborrowing may lead to bank
failures.[50] It has been said that banking institutions are
not created for the benefit of the directors [or officers].
While directors have great powers as directors, they
have no special privileges as individuals. They cannot
use the assets of the bank for their own benefit except as
permitted by law. Stringent restrictions are placed about
them so that when acting both for the bank and for one
of themselves at the same time, they must keep within
certain prescribed lines regarded by the legislature as
essential to safety in the banking business.[51]
 
A direct borrowing is obviously one that is
made in the name of the DOSRI himself or where the
DOSRI is a named party, while an indirect borrowing
includes one that is made by a third party, but the
DOSRI has a stake in the transaction.[52] The latter type
indirect borrowing applies here. The information in
Criminal Case 238-M-2001 alleges that petitioner in his
capacity as President of Rural Bank of San Miguel San
Ildefonso branch x x x indirectly borrow[ed] or
secure[d] a loan with [RBSM] x x x knowing fully well
that the same has been done by him without the written
consent and approval of the majority of the board of
directors x x x, and which consent and approval the said
accused deliberately failed to obtain and enter the same
upon the records of said banking institution and to
transmit a copy thereof to the supervising department of
the said bank x x x by using the name of one depositor
Enrico Carlos x x x, the latter having no knowledge of
the said loan, and once in possession of the said amount
of eight million pesos (P8 million), [petitioner]
converted the same to his own personal use and
benefit.[53]
 
The foregoing information describes the
manner of securing the loan as indirect; names
petitioner as the benefactor of the indirect loan; and
states that the requirements of the law were not
complied with. It contains all the required
elements[54] for a violation of Section 83, even if
petitioner did not secure the loan in his own name.
 
The broad interpretation of the prohibition in
Section 83 is justified by the fact that it
even expressly covers loans to third parties where the
third parties are aware of the transaction (such as
principals represented by the DOSRI), and where the
DOSRIs interest does not appear to be beneficial but
even burdensome (such as in cases when the DOSRI
acts as a mere guarantor or surety). If the law finds it
necessary to protect the bank and the banking system in
such situations, it will surely be illogical for it to exclude
a case like this where the DOSRI acted for his own
benefit, using the name of an unsuspecting person. A
contrary interpretation will effectively allow a DOSRI to
use dummies to circumvent the requirements of the law.
In sum, the informations filed against petitioner
do not negate each other.
 
Third Issue:
 
Is a Rule 65 petition for certiorari the proper
remedy against
an Order denying a Motion to Quash?
This issue may be speedily resolved by adopting our
ruling in Soriano v. People,[55] where we held:
In fine, the Court has
consistently held that a special civil
action for certiorari is not the proper
remedy to assail the denial of a motion
to quash an information. The proper
procedure in such a case is for the
accused to enter a plea, go to trial
without prejudice on his part to present
the special defenses he had invoked in
his motion to quash and if after trial on
 the merits, an adverse decision is
rendered, to appeal therefrom in the WHEREFORE, the petition
manner authorized by law. Thus, is DENIED. The assailed September 26,
petitioners should not have forthwith
filed a special civil action 2003 Decision as well as the February 5, 2004
for certiorari with the CA and instead,
they should have gone to trial and Resolution of the Court of Appeals in CA-G.R. SP No.
reiterated the special defenses 67657 are AFFIRMED. Costs against petitioner.
contained in their motion to quash.
There are no special or exceptional  
circumstances in the present case that SO ORDERED.
would justify immediate resort to a SECOND
filing of a petition for certiorari. DIVISION
Clearly, the CA did not commit any  
reversible error, much less, grave abuse
of discretion in dismissing the petition. JOSE C. GO, G.R. No. 178
[56]
Petitioner,  
    Present:
Fourth Issue:    
    QUISUMBING
Whether petitioner is entitled to a -         versus - *
CARPIO,
writ of injunction   CARPIO MOR
  BRION, and
The requisites to justify an injunctive relief are: (1) the
  ABAD, JJ.
right of the complainant is clear and unmistakable; (2)    
the invasion of the right sought to be protected is BANGKO SENTRAL NG  
material and substantial; and (3) there is an urgent and PILIPINAS, Promulgated:
Respondent.  
paramount necessity for the writ to prevent serious
October 23, 20
damage. A clear legal right means one clearly founded x --------------------------------------------------------------------
in or granted by law or is enforceable as a matter of law.    
Absent any clear and unquestioned legal right, the  
issuance of an injunctive writ would constitute grave   DECISION
abuse of discretion.[57] Caution and prudence must, at all    
times, attend the issuance of an injunctive writ because
  BRION, J.:
it effectively disposes of the main case without trial
and/or due process.[58] In Olalia v. Hizon,[59] the Court Through the present petition for review
held as follows: on certiorari,[1] petitioner Jose C. Go (Go) assails
  the October 26, 2006 decision[2] of the Court of
It has been consistently held Appeals (CA) in CA-G.R. SP No. 79149, as well as
that there is no power the exercise of its June 4, 2007 resolution.[3] The CA decision and
which is more delicate, which requires
greater caution, deliberation and sound resolution annulled and set aside the May 20,
discretion, or more dangerous in a 2003[4] and June 30, 2003[5] orders of the Regional
doubtful case, than the issuance of an Trial Court (RTC), Branch 26, Manila which
injunction. It is the strong arm of equity granted Gos motion to quash the Information filed
that should never be extended unless to against him.
cases of great injury, where courts of  
law cannot afford an adequate or  
commensurate remedy in damages. THE FACTS
Every court should remember  
that an injunction is a limitation upon  
the freedom of action of the On August 20, 1999, an Information [6] for violation
[complainant] and should not be of Section 83 of Republic Act No. 337 (RA 337) or
granted lightly or precipitately. It
the General Banking Act, as amended by
should be granted only when the court
is fully satisfied that the law permits it Presidential Decree No. 1795, was filed against Go
and the emergency demands it. before the RTC. The charge reads:
 
  That on or about and during
the period comprised between June
Given this Court's findings in the earlier issues of the
27, 1996 and September 15, 1997,
instant case, we find no compelling reason to grant the inclusive, in the City of Manila,
Philippines, the said accused,
injunctive relief sought by petitioner. being then the Director and the
President and Chief Executive
 
Officer of the Orient
 Commercial Banking
Corporation (Orient Bank), a
commercial banking institution
created, organized and existing
under Philippines laws, with its
main branch located at C.M. Recto
Avenue, this City, and taking
advantage of his position as such
officer/director of the said bank, did
then and there wilfully,
unlawfully and knowingly
borrow, either directly or
indirectly, for himself or as the
representative of his other
related companies, the deposits
or funds of the said banking
institution and/or become a excluding
guarantor, indorser or obligor
for loans from the said bank to
others, by then and there using
said borrowed deposits/funds
of the said bank in facilitating
and granting and/or caused the
facilitating and granting of
credit lines/loans and, among
others, to the New Zealand
Accounts loans in the total
amount of TWO BILLION AND
SEVEN HUNDRED FIFTY-FOUR
MILLION NINE HUNDRED
FIVE THOUSAND AND EIGHT
HUNDRED FIFTY-SEVEN AND
0/100 PESOS, Philippine
Currency, said accused knowing
fully well that the same has
been done by him without the
written approval of the
majority of the Board of
Directors of said Orient
Bank and which approval the said
accused deliberately failed to obtain
and enter the same upon the records
of said banking institution and to
transmit a copy of which to the
supervising department of the said
bank, as required by the General
Banking Act.
 
CONTRARY TO LAW.
[Emphasis supplied.]
 
On May 28, 2001, Go pleaded not guilty to the
offense charged.
 
After the arraignment, both the prosecution
and accused Go took part in the pre-trial
conference where the marking of the voluminous
evidence for the parties was accomplished. After the
completion of the marking, the trial court ordered
the parties to proceed to trial on the merits.
 
Before the trial could commence, however, Go filed
on February 26, 2003[7] a motion to quash the
Information, which motion Go amended on March
1, 2003.[8] Go claimed that the Information
was defective, as the facts charged therein
do not constitute an offense under Section
83 of RA 337 which states:
 
No director or officer of any banking
institution shall either directly or
indirectly, for himself or as the
representative or agent of
another, borrow any of the deposits
of funds of such banks, nor shall
he become a guarantor, indorser, or
surety for loans from such bank, to
others, or in any manner be an
obligor for money borrowed from
the bank or loaned by it, except with
the written approval of the majority
of the directors of the bank,
the director
concerned. Any such approval shall
be entered upon the records of the
corporation and a copy of such entry
shall be transmitted forthwith to the
appropriate supervising
department. The office of any
director or officer of a bank who
violates the provisions of this section
shall immediately become vacant
and the director or officer shall be
punished by imprisonment of not
less than one year nor more than ten
years and by a fine of not less than
one thousand nor more than ten
thousand pesos.
 
The Monetary Board may regulate
the amount of credit
accommodations that may be
extended, directly or indirectly, by
banking institutions to their
directors, officers, or
stockholders.However, the
outstanding credit accommodations
which a bank may extend to each of
its stockholders owning two percent
(2%) or more of the subscribed
capital stock, its directors, or its
officers, shall be limited to an
amount equivalent to the respective
outstanding deposits and book value
of the paid-in capital contribution in
the bank. Provided, however, that
loans and advances to officers in the
form of fringe benefits granted in
accordance with rules and
regulations as may be prescribed by
Monetary Board shall not be subject
to the preceding limitation. (As
amended by PD 1795)
 
In addition to the conditions
established in the preceding
paragraph, no director or a building
and loan association shall engage in
any of the operations mentioned in
said paragraphs, except upon the
pledge of shares of the association
having a total withdrawal value
greater than the amount
borrowed. (As amended by PD 1795)
 
In support of his motion to quash, Go
averred that based on the facts alleged in the
Information, he was being prosecuted for
borrowing the deposits or funds of the Orient
Bank and/or acting as a guarantor, indorser or
obligor for the banks loans to other persons. The
use of the word and/or meant that he was charged
for being either a borrower or a guarantor, or for
being both a borrower and guarantor. Go claimed
that the charge was not only vague, but also did not
constitute an offense. He posited that Section 83 of
RA 337 penalized only directors and officers of
banking institutions who acted either as borrower
or as guarantor, but not as both.
 
Go further pointed out that the Information
failed to state that his alleged act of borrowing
and/or guarantying was not among the exceptions
provided for in the law.According to Go, the second
paragraph of Section 83 allowed banks to extend
credit accommodations to their directors, officers,
and stockholders, provided it is limited to an
amount equivalent to the respective outstanding
deposits and book value of the paid-in capital
contribution in the bank. Extending credit
accommodations to bank directors, officers, and
stockholders is not per se prohibited, unless the
amount exceeds the legal limit. Since the
Information failed to state that the amount he
purportedly borrowed and/or guarantied was
beyond the limit set by law, Go insisted that the acts
so charged did not constitute an offense.
Finding Gos contentions persuasive, the
RTC granted Gos motion to quash the Information
on May 20, 2003. It denied on June 30, 2003 the
motion for reconsideration filed by the prosecution.
 
The prosecution did not accept the RTC
ruling and filed a petition for certiorari to question
it before the CA. The Information, the prosecution
claimed, was sufficient. The word and/or did not
materially affect the validity of the Information, as
it merely stated a mode of committing the crime
penalized under Section 83 of RA 337. Moreover,
the prosecution asserted that the second paragraph
of Section 83 (referring to the credit
accommodation limit) cannot be interpreted as an
exception to what the first paragraph provided. The
second paragraph only sets borrowing limits that, if
violated, render the bank, not the director-
borrower, liable. A violation of the second
paragraph of Section 83 under which Go is being
prosecuted is therefore separate and distinct from a
violation of the first paragraph. Thus, the
prosecution prayed that the orders of the RTC
quashing the Information be set aside and the
criminal case against Go be reinstated.
On October 26, 2006, the CA rendered the
assailed decision granting the prosecutions petition
for certiorari.[9] The CA declared that the RTC
misread the law when it decided to quash the
Information against Go. It explained that the
allegation that Go acted either as a borrower or a
guarantor or as both borrower and guarantor
merely set forth the different modes by which the
offense was committed. It did not necessarily mean
that Go acted both as borrower and guarantor for
the same loan at the same time. It agreed with the
prosecutions stand that the second paragraph of
Section 83 of RA 337 is not an exception to the first
paragraph. Thus, the failure of the Information to
state that the amount of the loan Go borrowed or
guaranteed exceeded the legal limits was, to the CA,
an irrelevant issue. For these reasons, the CA
annulled and set aside the RTCs orders and ordered
the reinstatement of the criminal charge against
Go. After the CAs denial of his motion for
reconsideration,[10] Go filed the present appeal
by certiorari.
 
THE PETITION
 
In his petition, Go alleges that the appellate
court legally erred in overturning the trial courts
orders. He insists that the Information failed to
allege the acts or omissions complained of with
sufficient particularity to enable him to know the
offense being charged; to allow him to properly
prepare his defense; and likewise to allow the court
to render proper judgment.
Repeating his arguments in his motion to
quash, Go reads Section 83 of RA 337 as penalizing
a director or officer of a banking institution for
either borrowing the deposits or funds of the bank,
or guaranteeing or indorsing loans to others, but
not for assuming both capacities. He claimed that
the prosecutions shotgun approach in alleging that
he acted as borrower and/or guarantor rendered
the Information highly defective for failure to
specify with certainty the specific act or omission
complained of. To petitioner Go, the prosecutions
approach was a clear violation of his constitutional
right to be informed of the nature and cause of the
accusation against him.
 
Additionally, Go reiterates his claim that
credit accommodations by banks to their directors
and officers are legal and valid, provided that these
are limited to their outstanding deposits and book
value of the paid-in capital contribution in the
bank. The failure to state that he borrowed deposits
and/or guaranteed loans beyond this limit rendered
the Information defective. He thus asks the Court to
reverse the CA decision to reinstate the criminal
charge.
 In its Comment,[11] the prosecution raises
the same defenses against Gos contentions. It
insists on the sufficiency of the allegations in the
Information and prays for the denial of Gos
petition.
THE COURTS RULING
 
 
The Court does not find the petition
meritorious and accordingly denies it.
 The Accuseds Right to be Informed
Under the Constitution, a person who
stands charged of a criminal offense has the right to
be informed of the nature and cause of the
accusation against him.[12] The Rules of Court, in
implementing the right, specifically require that the
acts or omissions complained of as constituting the
offense, including the qualifying and aggravating
circumstances, must be stated in ordinary and
concise language, not necessarily in the language
used in the statute, but in terms sufficient to enable
a person of common understanding to know what
offense is being charged and the attendant
qualifying and aggravating circumstances present,
so that the accused can properly defend himself and
the court can pronounce judgment.[13] To broaden
the scope of the right, the Rules authorize the
quashal, upon motion of the accused, of an
Information that fails to allege the acts constituting
the offense.[14] Jurisprudence has laid down the
fundamental test in appreciating a motion to quash
an Information grounded on the insufficiency of the
facts alleged therein. We stated in People v.
Romualdez[15] that:
The determinative test in
appreciating a motion to quash xxx
is the sufficiency of the averments in
the information, that is, whether the
facts alleged, if hypothetically
admitted, would establish the
essential elements of the offense as
defined by law without considering
matters aliunde. As Section 6, Rule
110 of the Rules of Criminal
Procedure requires, the
information only needs to state
the ultimate facts; the
evidentiary and other details
can be provided during the
trial.
 
To restate the rule, an
Information only needs to state
the ultimate facts constituting
the offense, not the finer details
of why and how the illegal acts
alleged amounted to undue
injury or damage matters that are
appropriate for the trial. [Emphasis
supplied]
 
The facts and circumstances necessary to be
included in the Information are determined by
reference to the definition and elements of the
specific crimes. The Information must allege
clearly and accurately the elements of the
crime charged.[16]
 Elements of Violation of
Sectio
n 83
of RA
337
Under Section 83, RA 337, the following elements
must be present to constitute a violation of its first
paragraph:
1.     the offender is a director or officer of any
banking institution;
2.     the offender, either directly or indirectly,
for himself or as representative or agent of
another, performs any of the following acts:
a.     he borrows any of the deposits or
funds of such bank; or
b.     he becomes a guarantor, indorser,
or surety for loans from such bank to
others, or
c.      he becomes in any manner an
obligor for money borrowed
from bank or loaned by it;
3.     the offender has performed any of such
acts without the written approval of the
majority of the directors of the bank,
excluding the offender, as the director
concerned.
A simple reading of the above elements
easily rejects Gos contention that the law penalizes
a bank director or officer only either for borrowing
the banks deposits or funds or for guarantying
loans by the bank, but not for acting in both
capacities. The essence of the crime is
becoming an obligor of the bank without
securing the necessary written approval of
the majority of the banks directors.
 
The second element merely lists down the
various modes of committing the offense. The third
mode, by declaring that [no director or officer of
any banking institution shall xxx] in any
manner be an obligor for money borrowed
from the bank or loaned by it, in fact serves a
catch-all phrase that covers any situation when a
director or officer of the bank becomes its
obligor. The prohibition is directed against a
bank director or officer who becomes in any
manner an obligor for money borrowed
from or loaned by the bank without the
written approval of the majority of the
banks board of directors. To make a distinction
between the act of borrowing and guarantying is
therefore unnecessary because in either situation,
the director or officer concerned becomes an
obligor of the bank against whom the obligation is
juridically demandable.
 
The language of the law is broad enough to
encompass either act of borrowing or guaranteeing,
or both. While the first paragraph of Section 83 is
penal in nature, and by principle should be strictly
construed in favor of the accused, the Court is
unwilling to adopt a liberal construction that would
defeat the legislatures intent in enacting the
statute.The objective of the law should allow for a
reasonable flexibility in its construction. Section 83
of RA 337, as well as other banking laws adopting
the same prohibition, [17] was enacted to ensure that
loans by banks and similar financial institutions to
their own directors, officers, and stockholders are
above board.[18] Banks were not created for the
benefit of their directors and officers; they cannot
use the assets of the bank for their own benefit,
except as may be permitted by law. Congress has
thus deemed it essential to impose restrictions on
borrowings by bank directors and officers in order
to protect the public, especially the depositors.
[19]
 Hence, when the law prohibits directors and
officers of banking institutions from becoming in
any manner an obligor of the bank (unless with the
approval of the board), the terms of the prohibition
shall be the standards to be applied to directors
transactions such as those involved in the present
case.
 Credit accommodation limit is not an
exception nor is it an element of the
offen
se
Contrary to Gos claims, the second
paragraph of Section 83, RA 337 does not provide
for an exception to a violation of the first paragraph
thereof, nor does it constitute as an element of the
offense charged. Section 83 of RA 337 actually
imposes three restrictions: approval, reportorial,
and ceiling requirements.
The approval requirement (found in the
first sentence of the first paragraph of the law)
refers to the written approval of the majority of the
banks board of directors required before bank
directors and officers can in any manner be an
obligor for money borrowed from or loaned by the
bank. Failure to secure the approval renders the
bank director or officer concerned liable for
prosecution and, upon conviction, subjects him to
the penalty provided in the third sentence of first
paragraph of Section 83.
 
The reportorial requirement, on the
other hand, mandates that any such approval
should be entered upon the records of the
corporation, and a copy of the entry be transmitted
to the appropriate supervising department. The
reportorial requirement is addressed to the bank
itself, which, upon its failure to do so, subjects it
to quo warrantoproceedings under Section 87 of
RA 337.[20]
 
The ceiling requirement under the
second paragraph of Section 83 regulates the
amount of credit accommodations that banks may
extend to their directors or officers by limiting
these to an amount equivalent to the respective
outstanding deposits and book value of the paid-in
capital contribution in the bank. Again, this is a
requirement directed at the bank. In this light, a
prosecution for violation of the first paragraph of
Section 83, such as the one involved here, does not
require an allegation that the loan exceeded the
legal limit. Even if the loan involved is below the
legal limit, a written approval by the majority of the
banks directors is still required; otherwise, the bank
director or officer who becomes an obligor of the
bank is liable. Compliance with the ceiling
requirement does not dispense with the approval
requirement.
 
Evidently, the failure to observe the three
requirements under Section 83 paves the way for
the prosecution of three different offenses, each
with its own set of elements. A successful
indictment for failing to comply with the approval
requirement will not necessitate proof that the
other two were likewise not observed.
 Rules of Court allow amendment of
insufficient Information
Assuming that the facts charged in the Information
do not constitute an offense, we find it erroneous
for the RTC to immediately order the dismissal of
the Information, without giving the prosecution a
chance to amend it. Section 4 of Rule 117 states:
SEC. 4. Amendment of complaint
or information.If the motion to quash
is based on an alleged defect of the
complaint or information which can be
cured by amendment, the court shall
order that an amendment be made.
 
 If it is based on the ground
that the facts charged do not
constitute an offense, the
prosecution shall be given by the
court an opportunity to correct
the defect by amendment. The
motion shall be granted if the
prosecution fails to make the
amendment, or the complaint or
information still suffers from the
same defect despite the
amendment. [Emphasis supplied]
 
Although an Information may be defective because
the facts charged do not constitute an offense, the
dismissal of the case will not necessarily follow. The
Rules specifically require that the prosecution
should be given a chance to correct the defect; the
court can order the dismissal only upon the
prosecutions failure to do so. The RTCs failure to
provide the prosecution this
opportunity twice  constitutes
[21]
an arbitrary
exercise of power that was correctly addressed by
the CA through the certiorari petition. This defect
in the RTCs action on the case, while not central to
the issue before us, strengthens our conclusion that
this criminal case should be resolved through full-
blown trial on the merits.
WHEREFORE, we DENY the petitioners petition
for review on certiorari and AFFIRM the decision
of the Court of Appeals in CA-G.R. SP No. 79149,
promulgated on October 26, 2006, as well as its
resolution of June 4, 2007. The Regional Trial
Court, Branch 26, Manila is directed
to PROCEED with the hearing of Criminal Case
No. 99-178551. Costs against the petitioner.
 
SO ORDERED.
G.R. No. 83139 April 12, 1989
ARNEL SY, petitioner,  action for consignation of the aforesaid amount
vs.
HONORABLE COURT OF APPEALS, STATE
INVESTMENT HOUSE, INC. and THE
REGISTER OF DEEDS OF
RIZAL, respondents.
Manuel T. Ubarra for petitioner.
Vicente D. Minora co-counsel for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for
respondent State Investment House, Inc.
CORTES, J.:
For a resolution of the issues raised in the instant
petition involving the amount required to redeem
the subject foreclosed property, the Court must first
determine what law to apply. Is it Section 30, Rule
39 of the Revised Rules of Court in relation to Act
No. 3135 as amended, or Section 78 of Rep. Act No.
337 (General Banking Act) as amended by P.D. No.
1828?
The facts of the case are as follows:
On March 2, 1979, Carlos Coquinco executed in
favor of private respondent State Investment
House, Inc. (hereinafter referred to as SIHI) a real
estate mortgage over a 952 square-meter parcel of
land in San Juan, Metro-Manila, together with all
the improvements thereon, covered by TCT No.
2782 issued in his name, as security for the
payment of a loan in the amount of P1,000,000.00.
For failure of Carlos Coquinco to pay his
outstanding balance of P1,126,220.56 computed as
of October 19, 1982 [Record, p. 217-E] the
mortgaged property was extrajudicially foreclosed
by SIHI and was sold at public auction on February
10, 1983 for P760,000.00 to SIHI as the only
bidder. The certificate of sale in favor of SIHI was
registered with the Registry of Deeds of Pasig on
February 28, 1983.
On May 22, 1983, SIHI filed before the Regional
Trial Court (RTC) of Manila an action against
Carlos Coquinco for the collection of the sum of
P612,031.84, representing the deficiency of his
indebtedness as of February 10, 1983.
In the meantime, petitioner acquired by virtue of a
deed of assignment Carlos Coquinco's right of
redemption for and in consideration of
P500,000.00. Before the expiration of the one-year
redemption period, petitioner offered to redeem the
foreclosed property from SIHI by tendering to the
latter two (2) manager's checks issued by
SOLIDBANK, one for P760,000.00 representing
the purchase price, and another for P91,200.00
representing interest at the rate of 1% per month
for 12 months, totalling P851,200.00. SIHI rejected
this offer.
Thus, on February 20, 1984, petitioner filed an
with the RTC, docketed as Civil Case No. 84-22839,
to compel SIHI to accept the P851,200.00 as
payment of the redemption price for the foreclosed
property, to order SIHI to surrender the title over
the property and to issue a certificate of redemption
in favor of petitioner.
On February 27, 1984, a day before the expiration
of the redemption period, petitioner decided to
redeem the foreclosed property directly from the
Ex-Officio Regional Sheriff of Rizal, who accepted
from him the amount of P851,200.00 as
redemption price and P4,269.00 as percentage fee
of collection, and issued to him the corresponding
certificate of redemption.
On March 30,1984, SIHI filed a motion to dismiss
Civil Case No. 84-22839 on the ground of lack of
cause of action, alleging that the amount sought to
be consigned was insufficient for purposes of
redemption pursuant to Section 78 of Rep. Act No.
337, otherwise known as the General Banking Act.
In an order dated April 24, 1984, the RTC
dismissed petitioner's action on the ground, among
others, that there being no valid tender of payment,
there was no valid consignation. No appeal was
interposed by petitioner from this order.
After the dismissal of the aforementioned action,
SIHI consolidated its ownership over the foreclosed
property, and caused the cancellation of TCT No.
2782 and the issuance of TCT No. 44775 covering
the same property in its name.
After learning of this development, petitioner
instituted another action in the Regional Trial
Court on June 11, 1984, this time a complaint for
annulment and cancellation of title, with damages,
against SIHI and the Register of Deeds for the
Province of Rizal, docketed as Civil Case No. 51169.
During the pendency of the action, SIHI sold the
subject property to spouses Domingo Lim and Lim
Siu Keng. Defendant Register of Deeds, thereafter,
cancelled TCT No. 44775 and issued TCT No.
46409 in the name of the spouses.
On July 7, 1986, the court a quo dismissed
petitioner's complaint holding that it stated no
cause of action because petitioner failed to effect a
valid redemption as required under Section 78 of
the General Banking Act, as amended by P.D. No.
1828. The court accordingly ordered petitioner to
pay SIHI the following sums of money: P10,000.00
as temperate damages; P20,000.00 as exemplary
damages on the finding that petitioner had
instituted the case in violation of the res
judicata rule; and P20,000.00 as attorney's fees
[CA Decision, p. 4; Rollo, p. 32]. Petitioner's motion
for reconsideration was subsequently denied.
Petitioner then appealed to respondent appellate
court, raising as errors: (1) the application of
Section 78 of the General Banking Act, as amended,
instead of Act No. 3135, in relation to Section 30,
Rule 39 of the Revised Rules of Court; (2) the
holding that the dismissal of Civil Case No. 84-
22839 (consignation case) from which petitioner
failed to appeal and wherein the court made a
finding that petitioner made no valid tender of
payment of the redemption price, had the effect
of res judicata on the case at hand; (3) the finding
that SIHI committed no actionable wrong in
conveying the subject property to spouses Domingo
Lim and Lim Siu Keng; and, (4) the award of
damages assessed against petitioner [CA Decision,
p. 5; Rollo, p. 33].
In its decision promulgated on April 28, 1988,
respondent appellate court affirmed the trial court's
judgment with the modification that the award for
temperate and exemplary damages assessed against
petitioner was set aside for lack of legal basis [CA
Decision, p. 11; Rollo, p. 39].
Not satisfied with the above decision, petitioner
filed the instant petition for review on certiorari,
raising basically the same errors he had raised in
the appellate court.
The issues raised in this petition may be reduced
into four, to wit:
I. Whether Act No. 3135, as
amended, in relation to Section 30,
Rule 39 of the Revised Rules of
Court, or Section 78 of Rep. Act No.
337 (General Banking Act), as
amended by P.D. No. 1828, is the
applicable law in determining the
redemption price;
II. Whether or not the dismissal of
Civil Case No. 84-22839
(consignation case) had the effect
of res judicata with respect to Civil
Case No. 51169;
III. Whether or not the Register of
Deeds for the province of Rizal may
be held liable for damages for
cancelling TCT No. 2782 and issuing
TCT No. 44775 in favor of SIHI; and,
IV. Whether or not the award of
attorney's fees and expenses of
litigation assessed against petitioner
is proper.
As regards the first issue, petitioner insists that the
present case is governed by Act No. 3135, as
amended, in relation to Section 30, Rule 39 of the
Revised Rules of Court which provides in part:
SEC. 30. Time and manner of, and
amounts payable on, successive
redemptions. Notice to be given and
filed. — The judgment debtor, or
redemptioner,, may redeem the
property from the purchaser, at any
time within twelve months after the
sale on paying the purchaser the
amount of his purchase, with one
percentum per month interest
thereon in addition, up to the time
of redemption, together with the
amount of any assessments or taxes
which the purchaser may have paid
thereon after purchase, and interest
on such last-named amount at the
same rate... [Emphasis supplied.]
Thus, petitioner contends that a valid redemption
was made by him as assignee of the mortgagor's
right of redemption when he tendered and paid to
the Sheriff of Rizal the amount of P851,000.00
representing the purchase price plus interest
computed at the rate of 1% per month for a period
of twelve months. This was the same amount
allegedly tendered to, and refused acceptance by,
SIHI. In support of his contention, petitioner
invokes the case of Philippine National Bank v. The
Honorable Court of Appeals and Divina Alim [G.R.
No. 60208, December 5, 1985,140 SCRA 360].
On the other hand, respondent appellate court,
citing the case of Ponce de Leon v. Rehabilitation
Finance Corporation [G.R. No. L-24571, December
18, 1970, 36 SCRA 289], applied Section 78 of the
General Banking Act, as amended by P. D. No.
1828, and consequently held that no valid
redemption was effected by petitioner because the
amount tendered to SIHI and thereafter paid to the
sheriff was insufficient, it being less than the
amount due under the real estate mortgage contract
of Carlos Coquinco or the latter's outstanding
balance, with interest as specified in the mortgage
contract plus expenses incurred by SIHI by reason
of the foreclosure and sale of the subject property.
The Court finds that respondent appellate court
committed no reversible error, having acted in
accordance with the law and jurisprudence.
Section 78 of the General Banking Act, as amended
by P.D. No. 1828, states that:
... In the event of foreclosure, whether judicially or
extra-judicially, of any mortgage on real estate
which is security for any loan granted before the
passage of this Act or under the provisions of this
Act, the mortgagor or debtor whose real property
has been sold at public auction, judicially or extra-
judicially, for the full or partial payment of an
obligation to any bank, banking or credit
institution, within the purview of this Act shall have
the right, within one year after the sale of the real
estate as a result of the foreclosure of the respective
mortgage, to redeem the property by paying the
amount fixed by the court in the order of execution,
or the amount due under the mortgage deed, as the
case may be, with interest thereon at the rate
specified in the mortgage and all the costs, and
judicial and other expenses incurred by the bank
or institution concerned by reason of the execution
and sale and as a result of the custody of said
property less the income received from the
property. [Emphasis supplied].
It must be emphasized that the above section is
applicable not only to "banks and banking
institutions," but also to "credit institutions." And,
as certified by the Central Bank,* SIHI is a credit
institution, i.e. financial intermediary engaged in
quasi-banking functions within the purview of
Section 78, it being an entity authorized to engage
in the lending of funds or purchasing of receivables
or other obligations with funds obtained from the
public as provided in the General Banking Act
under Section 2-A (a); ** and, to lend, invest or
place funds deposited with them, acquired by them
or otherwise coursed through them, either for their
own account or for the account of others under
Section 2-D(c) *** [Record, p. 246].
Moreover, petitioner by virtue of the deed of
assignment of Carlos Coquinco's right of
redemption must be deemed subrogated to the
rights and obligations of his assignor, and bound by
exactly the same conditions, relative to the
redemption of the subject property that bound the
latter as debtor and mortgagor [Gorospe v. Santos,
G.R. No. L-30079, January 30, 1976, 69 SCRA 191].
Had Carlos Coquinco attempted to redeem the
subject foreclosed property, he would have had to
pay "the amount due under the mortgage deed ...
with interest thereon at the rate specified in the
mortgage and all costs ... and other expenses
incurred . . . by reason of the execution (or
foreclosure] and sale and as a result of the custody
of said property less the income received from the
property . . ." pursuant to Section 78 of the General
Banking Act in order to effect a valid redemption.
Since petitioner merely stepped into the shoes of
Carlos Coquinco his assignor, petitioner should
have tendered and paid the same amount in order
to redeem the property.
Contrary to petitioner's claim, the Court's decision
in Ponce de Leon v. Rehabilitation Finance
Corporation, supra, is applicable. In that case, the
Court had occasion to state that the General
Banking Act partakes of the nature of an
amendment to Act No. 3135 insofar as the
redemption price is concerned, when the mortgagee
is a bank or banking or credit institution, Section 6
of Act No. 3135 being, in this respect, inconsistent
with Section 78 of the General Banking Act.
Although the foreclosure and sale of the subject
property was done by SIHI pursuant to Act No.
3135, as amended (whereby entities like SIHI are
authorized to extrajudicially foreclose and sell
mortgaged properties only under a special power
inserted in or annexed to the real estate mortgage
contract, and interested parties, like petitioner
herein, are given one year from the date of sale
within which to redeem the foreclosed properties),
Section 78 of the General Banking Act, as amended,
provides the amount at which the subject property
is redeemable from SIHI, which is, in this case, the
amount due under the mortgage deed, or the
outstanding obligation of Carlos Coquinco plus
interest and expenses.
The decision in the 1985 case of Philippine
National Bank v. The Honorable Court of Appeals,
supra, invoked by petitioner is not determinative of
the issues in the instant petition because that case
is applicable only to extrajudicial foreclosures by
the PNB effected pursuant to a mortgage contract
entered into prior to the enactment in 1975 of the
Revised Charter of the PNB, P.D. No. 694 (which
contained provisions on redemption), and deals
specifically with the amount of interest to be
included in the computation of the redemption
price.
Thus, inasmuch as petitioner failed to tender and
pay the required amount for the redemption of the
subject property pursuant to Section 78 of the
General Banking Act, as amended, no valid
redemption was effected by him. Consequently,
there was no legal obstacle to the consolidation of
title by SIHI.
Considering that the Court has made the foregoing
categorical finding that petitioner failed to effect a
valid redemption of the subject property, it is
deemed unnecessary to pass upon the merits of the
second issue presented in the instant petition.
As regards the third issue, suffice it to say that the
respondent Register of Deeds incurred no liability
when he cancelled TCT No. 2782 and issued in lieu
thereof TCT No. 44775 in the name of SIHI, the
former having acted in fulfillment of his official
functions and in accordance with law.
With regard to the fourth issue, petitioner contends
that since respondent appellate court had set aside
the award of temperate and exemplary damages on
the finding that petitioner had acted in good faith in
filing the present action, it should have also deleted
the award of attorney's fees and expenses of
litigation assessed against him for lack of legal
basis.
This contention is meritorious.
A perusal of Article 2208 of the New Civil Code will
reveal that the award of attorney's fees as a form of
damages is the exception rather than the general
rule for it is predicated upon the existence of
exceptional circumstances, such as a "clearly
unfounded civil action or proceeding" or evident
bad faith on the plaintiffs part in instituting his
action [Tan Ti v. Alvear, 26 Phil. 566 (1914); Buan
v. Camaganacan, G.R. No. L-21569, February 28,
1966,16 SCRA 321; Philippine National Bank v.
Court of Appeals, G.R. No. L-45770, March 20,
1988, 159 SCRA 433].
It cannot be said that the present action instituted
by petitioner was clearly unfounded. Although the
theory upon which petitioner's complaint was
based is untenable, he had raised legitimate issues
on the application of Section 78 of the General
Banking Act to credit institutions like SIHI, and the
import of the decisions in the cases of Ponce de
Leon v. Rehabilitation Finance Corporation and
Philippine National Bank v. The honorable Court
of Appeals. Neither was it established that
petitioner had acted in bad faith in the filing of his
action against SIHI notwithstanding the dismissal
of his complaint in Civil Case No. 84-22839
(consignation case). The Court agrees with the
holding of the respondent appellate court that the
filing of the present action by petitioner was merely
... a misapprehension of a legal
remedy as would normally be taken
within the ambit of permissible legal
procedure. This, is a scene
happening daily in our courts where
the opposing parties would avail of
every conceivable rule in the statute
books to ventilate their claim or
defenses. [Petitioner's] persistence
to pay the redemption petition price
is an act which the court does not
consider condemnable as to make
[him] liable for temperate and
exemplary damages. We are inclined
to presume that [he] acted in good
faith [CA Decision, p. 10; Rollo, P.
38.]
WHEREFORE, the decision of respondent Court of
Appeals in CA-G.R. CV No. 13387 promulgated on
April 28, 1988, is hereby AFFIRMED with the
modification that the award of attorney's fees and
expenses of litigation is set aside.
SO ORDERED.
NION BANK OF THE
PHILIPPINES, petitioner, vs. COURT
OF APPEALS, APOLONIA DE JESUS
GREGORIO, LUCIANA DE JESUS
GREGORIO, GONZALO VINCOY,
married to TRINIDAD GREGORIO
VINCOY, respondents.
RESOLUTION
DE LEON, JR., J.:
This is a motion for reconsideration of the
resolution of this Court dated July 12, 1999
dismissing the petition for review
on certiorari filed by petitioner Union Bank of the
Philippines which assailed the decision of the Court
of Appeals (a) upholding the validity of the real
estate mortgage executed by respondents Gonzalo
and Trinidad Vincoy in favor of petitioner as
security for a loan in the principal amount of Two
Million Pesos (P2,000,000.00), and (b) fixing the
redemption price of the property mortgaged at
Three Million Two Hundred Ninety Thousand
Pesos (P3,290,000.00) representing the purchase
price of the said property at the foreclosure sale
plus one percent (1%) monthly interest from April
19, 1991, the date of the foreclosure sale, until its
redemption pursuant to Section 30, Rule 39 of the
Rules of Court.
The following are the factual antecedents.
On March 2, 1990, respondents-spouses
Gonzalo and Trinidad Vincoy mortgaged their
residence in favor of petitioner to secure the
payment of a loan to Delco Industries (Phils.),
Incorporated[1] in the amount of Two Million Pesos
(P2,000,000.00). For failure of the respondents to
pay the loan at its date of maturity, petitioner
extrajudicially foreclosed the mortgage and
scheduled the foreclosure sale on April 10,
1991. The petitioner submitted the highest bid of
Three Million Two Hundred Ninety Thousand
Pesos (P3,290,000.00) at the foreclosure
sale. Accordingly, a certificate of sale was issued to
petitioner and duly annotated at the back of the
Transfer Certificate of Title covering the property
on May 8, 1991.[2]
Prior to the expiration of the redemption
period on May 8, 1992, the respondents filed a
complaint for annulment of mortgage with the
lower court. In their complaint, respondents alleged
that the subject property mortgaged to petitioner
had in fact been constituted as a family home as
early as October 27, 1989. Among the beneficiaries
of the said family home are the sisters of
respondent Trinidad Vincoy, namely Apolonia and
Luciana De Jesus Gregorio whose consent to the
mortgage was not obtained.[3] Respondents thus
assailed the validity of the mortgage on the ground
that Article 158 of the Family Code [4] prohibits the
execution, forced sale, attachment or any other
encumbrance of a family home without the written
consent of majority of the beneficiaries thereof of
legal age.[5] On the other hand, petitioner
maintained that the mortgaged property of
respondents could not be legally constituted as a
family home because its actual value exceeded
Three Hundred Thousand Pesos (P300,000.00),
the maximum value for a family home in urban
areas as stipulated in Article 157 of the Family
Code.[6]
The lower court rendered judgment declaring
the constitution of the family home void and the
mortgage executed in favor of the petitioner
valid. It held, among others, that Article 158 of the
Family Code was not applicable to respondents
family home as the value of the latter at the time of
its alleged constitution exceeded Three Hundred
Thousand Pesos (P300,000.00).[7] It also ordered
respondent Gonzalo Vincoy and/or Delco
Industries (Phils.), Inc. to pay petitioner his and/or
its outstanding obligation as of February 15, 1993 in
the amount of Four Million Eight Hundred Sixteen
Thousand One Hundred Ninety-Four Pesos and
Forty-Four Centavos (P4,816,194.44) including
such sums that may accrue by way of interests and
penalties.[8]
Aggrieved, respondents appealed to the Court
of Appeals contending that the lower court erred in
finding that their family home was not duly
constituted, and that the mortgage in favor of
petitioner is valid. Respondents also claimed that
the correct amount sufficient for the redemption of
their property as of February 15, 1993 is Two
Million Seven Hundred Seventy-Three Thousand
Seven Hundred Twelve Pesos and Eighty-Seven
Centavos (P2,773,712.87)[9] and not Four Million
Eight Hundred Sixteen Thousand One Hundred
Ninety-Four Pesos and Forty-Four Centavos
(P4,816,194.44) as found by the lower court.
In a decision promulgated on June 4, 1997, the
Court of Appeals sustained the finding of the lower
court that the alleged family home of the
respondents did not fall within the purview of
Article 157 of the Family Code as its value at the
time of its constitution was more than the
maximum value of Three Hundred Thousand Pesos
(P300,000.00). Hence, the Court of Appeals
upheld the validity of the mortgage executed over
the said property in favor of the petitioner.
[10]
 However, it found that the amount sufficient for
the redemption of the foreclosed property is Three
Million Two Hundred Ninety Thousand Pesos
(P3,290,000.00) equivalent to the purchase price
at the foreclosure sale plus one percent (1%)
monthly interest from April 19, 1991 up to the date
of redemption[11] pursuant to Section 30, Rule 39 of
the Rules of Court.[12]
Dissatisfied with the ruling of the Court of
Appeals, the petitioner filed a petition for review on
certiorari with this Court submitting the following
issues for resolution:
1. The Court of Appeals resolves an issue of
redemption which was not even directly raised by
the parties and contrary to the evidence on record.
2. Assuming without admitting that respondents
are entitled to redemption, the price set by the
Court of Appeals is not based on law.[13]
Petitioner contends, first of all, that in allowing
the respondents to redeem the subject foreclosed
property, the Court of Appeals completely ignored
the fact that neither respondents complaint before
the lower court nor their brief filed before the Court
of Appeals prayed for the redemption of the said
property. On the contrary, respondents had
consistently insisted on the nullity of the
mortgage. Thus, to allow them to redeem the
property would contradict the very theory of their
case.[14]
Petitioner also contends that the respondents
had already lost their right to redeem the foreclosed
property when they failed to exercise their right of
redemption by paying the redemption price within
the period provided for by law.[15] In the event,
however, that the Court upholds the right of the
respondents to redeem the said property, the
petitioner claims that it is not Section 30, Rule 39
of the Rules of Court that applies in determining
the amount sufficient for redemption but Section
78 of the General Banking Act as amended by
Presidential Decree No. 1828[16] which provides:
xxx. In the event of foreclosure, whether judicially
or extrajudicially, of any mortgage on real estate
which is security for any loan granted before the
passage of this Act or under the provisions of this
Act, the mortgagor or debtor whose real property
has been sold at public auction, judicially or
extrajudicially, for the full or partial payment of
an obligation to any bank, banking or credit
institution, within the purview of this Act shall have
the right, within one year after the sale of the real
estate as a result of the foreclosure of the
respective mortgage, to redeem the property by
paying the amount fixed by the court in the order
of execution, or the amount due under the
mortgage deed, as the case may be, with interest
thereon at the rate specified in the mortgage, and
all the costs, and judicial and other expenses
incurred by the bank or institution concerned by
reason of the execution and sale and as a result of
the custody of the said property less the income
received from the property. [Italics supplied].
This Court dismissed the petition in a
Resolution promulgated on July 12, 1999 on the
ground that the Court of Appeals did not commit
any reversible error and that the petition raises
mere questions of fact already amply passed upon
by the appellate court.[17] Hence, the instant motion
for reconsideration.
We are persuaded to reconsider.
First of all, it is important to note that this case
was decided by the lower court on the basis only of
the pleadings submitted by the parties. No trial was
conducted, thus, no evidence other than that
submitted with the pleadings could be considered.
A careful scrutiny of the pleadings filed by the
respondents before the lower court reveals that at
no time did the respondents pray that they be
allowed to redeem the subject foreclosed property.
[18]
 On the other hand, respondents never wavered
from the belief that the mortgage over the said
property is, in the first place, void for having been
executed over a duly constituted family home
without the consent of the beneficiaries
thereof. After upholding the validity of the
mortgage, the lower court ordered respondent
Gonzalo Vincoy and/or Delco Industries, Inc. to pay
petitioner the amount of Four Million Eight
Hundred Sixteen Thousand One Hundred Ninety-
Four Pesos and Forty-Four Centavos
(P4,816,194.44) plus interests and penalties
representing Vincoys and/or Delcos outstanding
obligation to petitioner as of February 15, 1993.
[19]
 There is no mention whatsoever of respondents
right to redeem the property.
Respondents raised the issue of redemption for
the first time only on appeal in contesting the
amount ordered by the lower court to be paid by
respondents to the petitioner. Thus, the actuation
of the Court of Appeals in allowing the respondents
to redeem the subject foreclosed property is not
legally permissible. In petitions for review or appeal
under Rule 45 of the Rules of Court, the appellate
tribunal is limited to the determination of whether
the lower court committed reversible error.[20]
It is settled jurisprudence that an issue which
was neither averred in the complaint nor raised
during the trial in the court below cannot be raised
for the first time on appeal as it would be offensive
to the basic rules of fair play, justice and due
process.[21] On this ground alone, the Court of
Appeals should have completely ignored the issue
of respondents right to redeem the subject
foreclosed property. In addition, a reason just as
glaringly obvious exists for declaring the
respondents right of redemption already non-
existent one year after May 8, 1991, the date of the
registration of the sale at public auction.
Pursuant to Section 78 of the General Banking
Act, a mortgagor whose real property has been sold
at a public auction, judicially or extrajudicially, for
the full or partial payment of an obligation to any
bank, shall have the right, within one year after the
sale of the real estate to redeem the property. The
one-year period is actually to be reckoned from the
date of the registration of the sale. [22] Clearly
therefore, respondents had only until May 8, 1992
to redeem the subject foreclosed property. Their
failure to exercise that right of redemption by
paying the redemption price within the period
prescribed by law effectively divested them of said
right. It bears reiterating that during the one year
redemption period, respondents never attempted to
redeem the subject property but instead persisted
in their theory that the mortgage is null and
void. To allow them now to redeem the same
property would, as petitioner aptly puts it, be
letting them have their cake and eat it too.
It cannot also be argued that the action for
annulment of the mortgage filed by the respondents
tolled the running of the one year period of
redemption. In the case of Sumerariz v.
Development Bank of the Philippines,[23] petitioners
therein contended that the one-year period to
redeem the property foreclosed by respondent was
suspended by the institution of an action to annul
the foreclosure sale filed three (3) days before the
expiration of the period. To this we ruled that:
We have not found, however, any statute or
decision in support of this pretense. Moreover, up
to now plaintiffs have not exercised the right of
redemption. Indeed, although they have intimated
their wish to redeem the property in question, they
have not deposited the amount necessary
therefor. It may not be amiss to note that, unlike
Section 30 of Rule 39 of the Rules of Court, which
permits the extension of the period of redemption
of mortgaged properties, Section 3 of
Commonwealth Act No. 459, in relation to Section
9 of Republic Act No. 85, which governs the
redemption of property mortgaged to the Bank does
no contain a similar provision. Again this question
has been definitely settled by the previous case
declaring that plaintiffs right of redemption has
already been extinguished in view of their failure to
exercise it within the statutory period."[24]
Also, in the more recent case of Vaca v. Court
of Appeals,[25] we declared that the pendency of an
action questioning the validity of a mortgage cannot
bar the issuance of the writ of possession after title
to the property has been consolidated in the
mortgagee.[26] The implication is clear: the period of
redemption is not interrupted by the filing of an
action assailing the validity of the mortgage, so that
at the expiration thereof, the mortgagee who
acquires the property at the foreclosure sale can
proceed to have the title consolidated in his name
and a writ of possession issued in his favor.
To rule otherwise, and allow the institution of
an action questioning the validity of a mortgage to
suspend the running of the one year period of
redemption would constitute a dangerous
precedent. A likely offshoot of such a ruling is the
institution of frivolous suits for annulment of
mortgage intended merely to give the mortgagor
more time to redeem the mortgaged property.
As a final word, although the issue pertaining
to the correct amount for the redemption of the
subject foreclosed property has been rendered moot
by the foregoing, a point of clarification should
perhaps be made as to the applicable legal
provision. Petitioners contention that Section 78 of
the General Banking Act governs the determination
of the redemption price of the subject property is
meritorious. InPonce de Leon v. Rehabilitation
Finance Corporation,[27] this Court had occasion to
rule that Section 78 of the General Banking Act had
the effect of amending Section 6 of Act No.
3135[28] insofar as the redemption price is
concerned when the mortgagee is a bank, as in this
case, or a banking or credit institution. [29] The
apparent conflict between the provisions of Act No.
3135 and the General Banking Act was, therefore,
resolved in favor of the latter, being a special and
subsequent legislation. This pronouncement was
reiterated in the case of Sy v. Court of
Appeals[30] where we held that the amount at which
the foreclosed property is redeemable is the amount
due under the mortgage deed, or the outstanding
obligation of the mortgagor plus interest and
expenses in accordance with Section 78 of the
General Banking Act.[31] It was therefore manifest
error on the part of the Court of Appeals to apply in
the case at bar the provisions of Section 30 Rule 39
of the Rules of Court in fixing the redemption price
of the subject foreclosed property.
WHEREFORE, the motion for
reconsideration is hereby GRANTED. This Courts
Resolution dated July 12, 1999 is MODIFIED
insofar as respondents are found to have lost their
right to redeem the subject foreclosed property.
SO ORDERED.
GOLDENWAY MERCHANDISING
CORPORATION, Petitioner,  clause under the Constitution. Additionally,
vs.
EQUITABLE PCI BANK, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on
certiorari which seeks to reverse and set aside the
Decision1 dated November 19, 2010 and
Resolution2 dated January 31, 2011 of the Court of
Appeals (CA) in CA-G.R. CV No. 91120. The CA
affirmed the Decision3 dated January 8, 2007 of the
Regional Trial Court (RTC) of- Valenzuela City,
Branch 171 dismissing the complaint in Civil Case
No. 295-V -01.
The facts are undisputed.
On November 29, 1985, Goldenway Merchandising
Corporation (petitioner) executed a Real Estate
Mortgage in favor of Equitable PCI Bank
(respondent) over its real properties situated in
Valenzuela, Bulacan (now Valenzuela City) and
covered by Transfer Certificate of Title (TCT) Nos.
T-152630, T-151655 and T-214528 of the Registry of
Deeds for the Province of Bulacan. The mortgage
secured the Two Million Pesos (₱2,000,000.00)
loan granted by respondent to petitioner and was
duly registered.4
As petitioner failed to settle its loan obligation,
respondent extrajudicially foreclosed the mortgage
on December 13, 2000. During the public auction,
the mortgaged properties were sold for
₱3,500,000.00 to respondent. Accordingly, a
Certificate of Sale was issued to respondent on
January 26, 2001. On February 16, 2001, the
Certificate of Sale was registered and inscribed on
TCT Nos. T-152630, T-151655 and T-214528.5
In a letter dated March 8, 2001, petitioner’s counsel
offered to redeem the foreclosed properties by
tendering a check in the amount of ₱3,500,000.00.
On March 12, 2001, petitioner’s counsel met with
respondent’s counsel reiterating petitioner’s
intention to exercise the right of
redemption.6 However, petitioner was told that
such redemption is no longer possible because the
certificate of sale had already been registered.
Petitioner also verified with the Registry of Deeds
that title to the foreclosed properties had already
been consolidated in favor of respondent and that
new certificates of title were issued in the name of
respondent on March 9, 2001.
On December 7, 2001, petitioner filed a
complaint7 for specific performance and damages
against the respondent, asserting that it is the one-
year period of redemption under Act No. 3135
which should apply and not the shorter redemption
period provided in Republic Act (R.A.) No. 8791.
Petitioner argued that applying Section 47 of R.A.
8791 to the real estate mortgage executed in 1985
would result in the impairment of obligation of
contracts and violation of the equal protection
petitioner faulted the respondent for allegedly
failing to furnish it and the Office of the Clerk of
Court, RTC of Valenzuela City with a Statement of
Account as directed in the Certificate of Sale, due to
which petitioner was not apprised of the
assessment and fees incurred by respondent, thus
depriving petitioner of the opportunity to exercise
its right of redemption prior to the registration of
the certificate of sale.
In its Answer with Counterclaim,8 respondent
pointed out that petitioner cannot claim that it was
unaware of the redemption price which is clearly
provided in Section 47 of R.A. No. 8791, and that
petitioner had all the opportune time to redeem the
foreclosed properties from the time it received the
letter of demand and the notice of sale before the
registration of the certificate of sale. As to the check
payment tendered by petitioner, respondent said
that even assuming arguendo such redemption was
timely made, it was not for the amount as required
by law.
On January 8, 2007, the trial court rendered its
decision dismissing the complaint as well as the
counterclaim. It noted that the issue of
constitutionality of Sec. 47 of R.A. No. 8791 was
never raised by the petitioner during the pre-trial
and the trial. Aside from the fact that petitioner’s
attempt to redeem was already late, there was no
valid redemption made because Atty. Judy Ann
Abat-Vera who talked to Atty. Joseph E. Mabilog of
the Legal Division of respondent bank, was not
properly authorized by petitioner’s Board of
Directors to transact for and in its behalf; it was
only a certain Chan Guan Pue, the alleged President
of petitioner corporation, who gave instruction to
Atty. Abat-Vera to redeem the foreclosed
properties.9
Aggrieved, petitioner appealed to the CA which
affirmed the trial court’s decision. According to the
CA, petitioner failed to justify why Section 47 of
R.A. No. 8791 should be declared unconstitutional.
Furthermore, the appellate court concluded that a
reading of Section 47 plainly reveals the intention
to shorten the period of redemption for juridical
persons and that the foreclosure of the mortgaged
properties in this case when R.A. No. 8791 was
already in effect clearly falls within the purview of
the said provision.10
Petitioner’s motion for reconsideration was likewise
denied by the CA.
In the present petition, it is contended that Section
47 of R.A. No. 8791 is inapplicable considering that
the contracting parties expressly and categorically
agreed that the foreclosure of the real estate
mortgage shall be in accordance with Act No. 3135.
Citing Co v. Philippine National Bank11 petitioner
contended that the right of redemption is part and
parcel of the Deed of Real Estate Mortgage itself
and attaches thereto upon its execution, a vested
right flowing out of and made dependent upon the
law governing the contract of mortgage and not on
the mortgagee’s act of extrajudicially foreclosing
the mortgaged properties. This Court thus held in
said case that "Under the terms of the mortgage
contract, the terms and conditions under which
redemption may be exercised are deemed part and
parcel thereof whether the same be merely
conventional or imposed by law."
Petitioner then argues that applying Section 47 of
R.A. No. 8791 to the present case would be a
substantial impairment of its vested right of
redemption under the real estate mortgage
contract. Such impairment would be violative of the
constitutional proscription against impairment of
obligations of contract, a patent derogation of
petitioner’s vested right and clearly changes the
intention of the contracting parties. Moreover,
citing this Court’s ruling in Rural Bank of Davao
City, Inc. v. Court of Appeals12 where it was held
that "Section 119 prevails over statutes which
provide for a shorter period of redemption in
extrajudicial foreclosure sales", and in Sulit
v. Court of Appeals,13 petitioner stresses that it has
always been the policy of this Court to aid rather
than defeat the mortgagor’s right to redeem his
property.
Petitioner further argues that since R.A. No. 8791
does not provide for its retroactive application,
courts therefore cannot retroactively apply its
provisions to contracts executed and consummated
before its effectivity. Also, since R.A. 8791 is a
general law pertaining to the banking industry
while Act No. 3135 is a special law specifically
governing real estate mortgage and foreclosure,
under the rules of statutory construction that in
case of conflict a special law prevails over a general
law regardless of the dates of enactment of both
laws, Act No. 3135 clearly should prevail on the
redemption period to be applied in this case.
The constitutional issue having been squarely
raised in the pleadings filed in the trial and
appellate courts, we shall proceed to resolve the
same.
The law governing cases of extrajudicial foreclosure
of mortgage is Act No. 3135,14 as amended by Act
No. 4118. Section 6 thereof provides:
SEC. 6. In all cases in which an extrajudicial sale is
made under the special power hereinbefore
referred to, the debtor, his successors-in-interest or
any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property
subsequent to the mortgage or deed of
trust under which the property is sold, may redeem
the same at any time within the term of one year
from and after the date of the sale; and such
redemption shall be governed by the provisions of
sections four hundred and sixty-four to four
hundred and sixty-six, inclusive, of the Code of
Civil Procedure,15 in so far as these are not
inconsistent with the provisions of this Act.
The one-year period of redemption is counted from
the date of the registration of the certificate of sale.
In this case, the parties provided in their real estate
mortgage contract that upon petitioner’s default
and the latter’s entire loan obligation becoming
due, respondent may immediately foreclose the
mortgage judicially in accordance with the Rules of
Court, or extrajudicially in accordance with Act No.
3135, as amended.
However, Section 47 of R.A. No. 8791 otherwise
known as "The General Banking Law of 2000"
which took effect on June 13, 2000, amended Act
No. 3135. Said provision reads:
SECTION 47. Foreclosure of Real Estate Mortgage.
— In the event of foreclosure, whether judicially or
extrajudicially, of any mortgage on real estate
which is security for any loan or other credit
accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or
partial payment of his obligation shall have the
right within one year after the sale of the real estate,
to redeem the property by paying the amount due
under the mortgage deed, with interest thereon at
the rate specified in the mortgage, and all the costs
and expenses incurred by the bank or institution
from the sale and custody of said property less the
income derived therefrom. However, the purchaser
at the auction sale concerned whether in a judicial
or extrajudicial foreclosure shall have the right to
enter upon and take possession of such property
immediately after the date of the confirmation of
the auction sale and administer the same in
accordance with law. Any petition in court to enjoin
or restrain the conduct of foreclosure proceedings
instituted pursuant to this provision shall be given
due course only upon the filing by the petitioner of
a bond in an amount fixed by the court conditioned
that he will pay all the damages which the bank
may suffer by the enjoining or the restraint of the
foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the
property in accordance with this provision until,
but not after, the registration of the certificate of
foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3)
months after foreclosure, whichever is earlier.
Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their
expiration. (Emphasis supplied.)
Under the new law, an exception is thus made in
the case of juridical persons which are allowed to
exercise the right of redemption only "until, but not
after, the registration of the certificate of
foreclosure sale" and in no case more than three (3)
months after foreclosure, whichever comes first.16
May the foregoing amendment be validly applied in
this case when the real estate mortgage contract
was executed in 1985 and the mortgage foreclosed
when R.A. No. 8791 was already in effect?
We answer in the affirmative.
When confronted with a constitutional question, it
is elementary that every court must approach it
with grave care and considerable caution bearing in
mind that every statute is presumed valid and every
reasonable doubt should be resolved in favor of its
constitutionality.17 For a law to be nullified, it must
be shown that there is a clear and unequivocal
breach of the Constitution. The ground for nullity
must be clear and beyond reasonable
doubt.18Indeed, those who petition this Court to
declare a law, or parts thereof, unconstitutional
must clearly establish the basis therefor. Otherwise,
the petition must fail.19
Petitioner’s contention that Section 47 of R.A. 8791
violates the constitutional proscription against
impairment of the obligation of contract has no
basis.
The purpose of the non-impairment clause of the
Constitution20 is to safeguard the integrity of
contracts against unwarranted interference by the
State. As a rule, contracts should not be tampered
with by subsequent laws that would change or
modify the rights and obligations of the
parties.21 Impairment is anything that diminishes
the efficacy of the contract. There is an impairment
if a subsequent law changes the terms of a contract
between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws
remedies for the enforcement of the rights of the
parties.22
Section 47 did not divest juridical persons of the
right to redeem their foreclosed properties but only
modified the time for the exercise of such right by
reducing the one-year period originally provided in
Act No. 3135. The new redemption period
commences from the date of foreclosure sale, and
expires upon registration of the certificate of sale or
three months after foreclosure, whichever is earlier.
There is likewise no retroactive application of the
new redemption period because Section 47 exempts
from its operation those properties foreclosed prior
to its effectivity and whose owners shall retain their
redemption rights under Act No. 3135.
Petitioner’s claim that Section 47 infringes the
equal protection clause as it discriminates
mortgagors/property owners who are juridical
persons is equally bereft of merit.
The equal protection clause is directed principally
against undue favor and individual or class
privilege.1âwphi1 It is not intended to prohibit
legislation which is limited to the object to which it
is directed or by the territory in which it is to
operate. It does not require absolute equality, but
merely that all persons be treated alike under like
conditions both as to privileges conferred and
liabilities imposed.23 Equal protection permits of
reasonable classification.24 We have ruled that one
class may be treated differently from another where
the groupings are based on reasonable and real
distinctions.25 If classification is germane to the
purpose of the law, concerns all members of the
class, and applies equally to present and future
conditions, the classification does not violate the
equal protection guarantee.26
We agree with the CA that the legislature clearly
intended to shorten the period of redemption for
juridical persons whose properties were foreclosed
and sold in accordance with the provisions of Act
No. 3135.27
The difference in the treatment of juridical persons
and natural persons was based on the nature of the
properties foreclosed – whether these are used as
residence, for which the more liberal one-year
redemption period is retained, or used for
industrial or commercial purposes, in which case a
shorter term is deemed necessary to reduce the
period of uncertainty in the ownership of property
and enable mortgagee-banks to dispose sooner of
these acquired assets. It must be underscored that
the General Banking Law of 2000, crafted in the
aftermath of the 1997 Southeast Asian financial
crisis, sought to reform the General Banking Act of
1949 by fashioning a legal framework for
maintaining a safe and sound banking system.28 In
this context, the amendment introduced by Section
47 embodied one of such safe and sound practices
aimed at ensuring the solvency and liquidity of our
banks.1âwphi1 It cannot therefore be disputed that
the said provision amending the redemption period
in Act 3135 was based on a reasonable classification
and germane to the purpose of the law.
This legitimate public interest pursued by the
legislature further enfeebles petitioner’s
impairment of contract theory.
The right of redemption being statutory, it must be
exercised in the manner prescribed by the
statute,29 and within the prescribed time limit, to
make it effective. Furthermore, as with other
individual rights to contract and to property, it has
to give way to police power exercised for public
welfare.30 The concept of police power is well-
established in this jurisdiction. It has been defined
as the "state authority to enact legislation that may
interfere with personal liberty or property in order
to promote the general welfare." Its scope, ever-
expanding to meet the exigencies of the times, even
to anticipate the future where it could be done,
provides enough room for an efficient and flexible
response to conditions and circumstances thus
assuming the greatest benefits.31
The freedom to contract is not absolute; all
contracts and all rights are subject to the police
power of the State and not only may regulations
which affect them be established by the State, but
all such regulations must be subject to change from
time to time, as the general well-being of the
community may require, or as the circumstances
may change, or as experience may demonstrate the
necessity.32 Settled is the rule that the non-
impairment clause of the Constitution must yield to
the loftier purposes targeted by the Government.
The right granted by this provision must submit to
the demands and necessities of the State’s power of
regulation.33 Such authority to regulate businesses
extends to the banking industry which, as this
Court has time and again emphasized, is
undeniably imbued with public interest.34
Having ruled that the assailed Section 47 of R.A.
No. 8791 is constitutional, we find no reversible
error committed by the CA in holding that
petitioner can no longer exercise the right of
redemption over its foreclosed properties after the
certificate of sale in favor of respondent had been
registered.
WHEREFORE, the petition for review on certiorari
is DENIED for lack of merit. The Decision dated
November 19, 2010 and Resolution dated January
31, 2011 of the Court of Appeals in CA-G.R. CV No.
91120 are hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.
FIRST DIVISION
[G.R. No. 148163. December 6, 2004]
BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, petitioner,
vs. JUANITA B. YBAEZ, CHARLES B.
YBAEZ, JOSEPH B. YBAEZ and
JEROME B. YBAEZ, respondents.
DECISION
QUISUMBING, J.:
In this petition for review, Banco Filipino
Savings and Mortgage Bank seeks the reversal of
the Decision[1] dated April 17, 2001 of the Court of
Appeals in CA-G.R. CV No. 57927 affirming the
Decision[2] dated July 16, 1997 of the Regional Trial
Court, Branch 13 of Cebu City in Civil Case No.
CEB-16548.
The facts of this case are as follows:
On March 7, 1978, respondents obtained a loan
secured by a Deed of Real Estate
Mortgage over Transfer Certificate of Title (TCT)
No. 69836 from petitioner bank. The loan was used
for the construction of a commercial building in
Cebu City. On October 25, 1978, respondents
obtained an additional loan from the petitioner
thus increasing their obligation to one million
pesos. A corresponding Amendment of Real
Estate Mortgage was thereafter executed.
On December 24, 1982, the loan was again re-
structured, increasing the loan obligation
to P1,225,000 and the Real Estate Mortgage was
again amended. Respondents executed
a Promissory Note for the sum of P1,225,000
payable in fifteen years, with a stipulated interest of
21% per annum, and stipulating monthly payments
of P22,426. The first payment was payable on
January 24, 1983, and the succeeding payments
were due every 24th of each month thereafter.[3] The
note also stipulated that in case of default in the
payment of any of the monthly amortization and
interest, respondents shall pay a penalty equivalent
to 3% of the amount due each month.[4]
Respondents total payment from 1983 to 1988
amounted[5] to P1,455,385.07, broken down as
follows:
1983 247,631.54
1984 81,797.24
1985 173,875.77
1986 284,364.82
1987 380,000.00
1988 287,715.70[6]
From 1989 onwards, respondents did not pay a
single centavo. They aver that Banco Filipino had
ceased operations and/or was not allowed to
continue business, having been placed under
liquidation by the Central Bank.
On January 15, 1990, respondents lawyer wrote
Special Acting Liquidator, Renan Santos, and
requested that plaintiff return the mortgaged
property of the respondents since it had sufficiently
profited from the loan and that the interest and
penalty charges were excessive. Petitioner bank
denied the request.[7]
Banco Filipino was closed on January 1, 1985
and re-opened for business on July 1, 1994. From
its closure to its re-opening, petitioner bank did not
transact any business with its customers.[8]
On August 24, 1994, respondents were served
a Notice of Extra Judicial Sale of their property
covered by TCT No. 69836 to satisfy their
indebtedness allegedly of P6,174,337.46 which
includes the principal, interest, surcharges and 10%
attorneys fees. The public auction was scheduled on
September 22, 1994 at 2:00 in the afternoon.
On September 19, 1994, respondents filed a
suit for Injunction, Accounting and Damages,
alleging that there was no legal and factual basis for
the foreclosure proceedings since the loan had
already been fully paid. A restraining order was
issued the following day by the lower court
enjoining petitioner to cease and desist from selling
the property at a public auction.[9]
On July 16, 1997, the lower court rendered
a Decision, disposing as follows:
WHEREFORE, judgment is hereby rendered
directing defendant Banco Filipino Savings and
Mortgage Bank to render a correct accounting of
the obligations of plaintiffs with it after eliminating
interest from January 1, 1985 to July 1, 1994 when
it was closed, and reducing interest from 21% to
17% per annum, at the time it was in operation, and
totally eliminating [the] surcharge of 1% per month,
within a period of fifteen (15) days from the time
the judgment shall have become final and
executory.
Plaintiffs are directed to pay the bank within a
period of thirty (30) days from the time they will
receive defendant banks true and correct
accounting, otherwise the order of injunction will
be lifted/dissolved.
Defendants are enjoined from foreclosing the real
estate mortgage on the property of plaintiffs, unless
the latter fail to pay in accordance with the
[preceding] paragraph.
Without special pronouncement as to costs.
SO ORDERED.[10]
Not satisfied with the decision, both parties
appealed the case to the Court of Appeals.
Petitioner filed its Notice of Appeal on August 19,
1997, while respondents filed theirs on August 22,
1997. On April 17, 2001, the Court of Appeals
rendered a Decision affirming the decision of the
trial court stating:
WHEREFORE, for lack of merit, both appeals are
DISMISSED and the Decision appealed from is
AFFIRMED.
SO ORDERED.[11]
Petitioner now alleges the following errors:
I. THE COURT OF APPEALS ERRED IN
CONCURRING WITH THE TRIAL
COURTS DECISION ORDERING THE
DEFENDANT BANK (HEREIN
PETITIONER) TO RENDER A contrary to law, morals, good customs, public
CORRECT ACCOUNTING OF
PLAINTIFFS LOAN BECAUSE THE
STATEMENT OF ACCOUNT (EXH. 5
and 6 Defendant) SUBMITTED BY
DEFENDANT BANK DOES NOT
REFLECT THE TRUE AND CORRECT
AMOUNT AS IT IMPOSES A 21% PER
ANNUM INTEREST WHICH THE
COURT OF APPEALS CONSIDERED
AS EXCESSIVE AND THAT IT HAS NO
PROBATIVE VALUE AS ITS
SIGNATORIES WERE NOT
PRESENTED AS WITNESSES.
II. THE COURT OF APPEALS ERRED IN
ORDERING THE DELETION OF THE
3% PER MONTH SURCHARGE
SIMPLY BECAUSE THE PLAINTIFF-
BORROWER HAD MADE
SUBSTANTIAL PAYMENTS FROM
1983 TO 1988.
III. THE COURT OF APPEALS
COMMITTED AN ERROR IN RULING
THAT THE PLAINTIFFS-
BORROWERS (HEREIN
RESPONDENTS) CANNOT BE
CONSIDERED TO HAVE DEFAULTED
IN THEIR PAYMENT SINCE
DEFENDANT BANK CEASED
OPERATION FROM 1985 TO 1991.[12]
To resolve the controversy we shall address the
following pertinent questions: (1) What is the effect
of the temporary closure of Banco Filipino from
January 1, 1985 to July 1, 1994 on the loan? (2) Is
the rate of interest set at 21% per annum legal? and
(3) Is the 3% monthly surcharge valid?
In Banco Filipino Savings and Mortgage Bank
v. Monetary Board,[13] the validity of the closure
and receivership of Banco Filipino was put in issue.
But the pendency of the case did not diminish the
authority of the designated liquidator to administer
and continue the banks transactions. The Court
allowed the banks liquidator to continue receiving
collectibles and receivables or paying off creditors
claims and other transactions pertaining to
normal operations of a bank. Among these
transactions were the prosecution of suits against
debtors for collection and for foreclosure of
mortgages. The bank was allowed to collect
interests on its loans while under liquidation,
provided that the interests were legal.
Petitioner contends that the 21% annual
interest was freely and voluntarily agreed upon by
the parties, and that it was neither excessive nor
violative of the Usury Law.[14]
On the other hand, respondents state that the
rate of 21% was usurious because the loan was
incurred on December 24, 1982, before the de
facto repeal of the Usury Law on January 1, 1983.
[15]
 Respondents add that the normal rate by which
petitioner charges its borrowers at that time was
only 17%, or 4% lower than the rate it gave to
respondents.
It is an elementary rule of contracts that the
contracting parties are free to stipulate the terms of
their contract for as long as the terms are not
policy, public order, and national interests. [16] Laws
in force at the time the contract was made generally
govern its interpretation and application. The loan
agreement between petitioner and respondents
specifies the obligation of the debtor to pay interest.
In principle said stipulation is binding between the
parties.[17]
We note that at the time the parties entered
into the said loan agreement, the pertinent law, Act
No. 2655, already provided that the rate of interest
for the forbearance of money when secured by a
mortgage upon real estate should not be more than
12% per annum or the maximum rate prescribed
by the Monetary Board and in force at the time the
loan was granted. On December 1, 1979, the
Monetary Board of the Central Bank of the
Philippines[18] had issued CBP Circular No. 705-79.
[19]
 On loan transactions with maturities of more
than 730 days, it fixed the effective rate of interest
at 21% per annum for both secured and unsecured
loans. Since the loan in question has fixed 15 years
for its maturity, it fell within the coverage of said
CBP Circular. Thus, we agree that the 21% interest
is not violative of the Usury Law as it stood at the
time of the loan transaction.
As to the monthly surcharge, petitioner relies
on CBP Circular No. 905-82.[20] The ceiling on
interest rates prescribed by the Usury Law,
according to petitioner, were expressly removed.
Petitioner argues that the said circular had
retroactive effect since it is merely procedural in
nature. Hence according to petitioner, the
imposition of 3% monthly surcharge by the bank
against the borrower is legal.
On this matter, we disagree with petitioner.
CBP Circular No. 905-82, which was effective
January 1, 1983, did not repeal nor in any way
amend the Usury Law. The Circular simply
suspended the effectivity of the Usury Law. A
Central Bank Circular cannot repeal a law. Only a
law can repeal another law. Thus, the retroactive
application of a CBP Circular cannot, and should
not, be presumed.[21] The loan was entered into on
December 24, 1982, but CBP Circular No. 905-82
was given force and effect only on January 1, 1983.
Thus, CBP Circular No. 905-82 could not be made
applicable to the loan agreement in this case, and
petitioner could not rely on this Circular for its
imposition of 3% monthly surcharge.
Petitioner also argues that the 3% monthly
surcharge partakes of the nature of a penalty clause.
[22]
 A penal clause is an accessory undertaking to
assume greater liability in case of breach and is
attached to an obligation in order to secure its
performance.[23] The penalty shall substitute the
indemnity for damages and the payment of
interests in case of non-compliance. [24] But if such
stipulation is found contrary to law for being
usurious, it can be nullified by the courts without
affecting the principal obligation. [25]
In the loan agreement between the parties in
this case, the total interest and other
charges exceed the prescribed 21% ceiling. Hence,
the imposition of the 3% monthly surcharge, as the
penal clause to the obligation, violated the limit
imposed by the Usury Law. Said surcharge of 3%
monthly must be declared null and void.
To recapitulate: the respondents principal
obligation to pay the monthly amortization
of P22,426, validly subsists. Only the 3% monthly
surcharge is void. The monthly amortization
of P22,426, for 15 years, would amount
to P4,036,680. To date, respondents already paid
the amount of P1,455,385.07. Thus, only the
outstanding balance of P2,581,294.93 remains due.
Respondents were given by the RTC 30 days
from receipt of decision, within which to pay their
outstanding obligation. We now reiterate that
period of 30 days, from receipt of this Decision, for
respondents to pay the amount of P2,581,294.93 to
the bank as full payment of the outstanding balance
on their loan obligation. Otherwise, the order of
injunction restraining petitioner from foreclosing
the property shall be lifted.
WHEREFORE, the Decision of the Regional
Trial Court, which was sustained by the Court of
Appeals, is hereby MODIFIED as follows: (1) the
interest rate at 21% per annum is hereby declared
VALID; (2) the 3% monthly surcharge is
NULLIFIED for being violative of the Usury Law at
the time; and (3) respondents are ORDERED to pay
petitioner the amount of P2,581,294.93 within 30
days from receipt of this Decision. No
pronouncement as to costs.
SO ORDERED.
FIRST DIVISION
[G.R. No. 135046. August 17, 1999]
SPOUSES FLORANTE and LAARNI
BAUTISTA, petitioners, vs. PILAR
DEVELOPMENT
CORPORATION, respondent.
DECISION
PUNO, J.:
This petition for review seeks to reverse and set
aside the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 51363[1] which reversed
the Decision of the Regional Trial Court, Makati,
Branch 138 in Civil Case No. 17702.[2]
The following facts are uncontroverted.
In 1978, petitioner spouses Florante and Laarni
Bautista purchased a house and lot in Pilar Village,
Las Pinas, Metro Manila. To partially finance the
purchase, they obtained from the Apex Mortgage &
Loan Corporation (Apex) a loan in the amount of
P100,180.00. They executed a promissory note on
December 22, 1978 obligating themselves, jointly
and severally, to pay the "principal sum of
P100,180.00 with interest rate of 12% and service
charge of 3%" for a period of 240 months, or twenty
years, from date, in monthly installments of
P1,378.83.[3] Late payments were to be charged a
penalty of one and one-half per cent (1 1/2%) of the
amount due. In the same promissory note,
petitioners authorized Apex to "increase the rate of
interest and/or service charges" without notice to
them in the event that a law, Presidential Decree or
any Central Bank regulation should be enacted
increasing the lawful rate of interest and service
charges on the loan.[4] Payment of the promissory
note was secured by a second mortgage on the
house and lot purchased by petitioners.[5]
Petitioner spouses failed to pay several
installments. On September 20, 1982, they
executed another promissory note in favor of
Apex. This note was in the amount of P142,326.43
at the increased interest rate of twenty-one per cent
(21%) per annum with no provision for service
charge but with penalty charge of 1 1/2% for late
payments. Payment was to be made for a period of
196 months or 16.33 years in monthly installments
of P2,576.68, inclusive of principal and
interest. Petitioner spouses also authorized Apex to
"increase/decrease the rate of interest and/or
service charges" on the note in the event any law or
Central Bank regulation shall be passed increasing
or decreasing the same.[6]
In November 1983, petitioner spouses again
failed to pay the installments. On June 6, 1984,
Apex assigned the second promissory note to
respondent Pilar Development Corporation without
notice to petitioners.
On August 31, 1987, respondent corporation, as
successor-in-interest of Apex, instituted against
petitioner spouses Civil Case No. 17702 before the
Regional Trial Court, Makati, Branch
138. Respondent corporation sought to collect from
petitioners the amount of P140,515.11 representing
the unpaid balance of the principal debt from
November 23, 1983, including interest at the rate of
twenty-one per cent (21%) under the second
promissory note, and 25% and 36% per annum in
accordance with Central Bank Circular No. 905,
series of 1982. Respondent also sought payment of
ten per cent (10%) of the amount due as attorney's
fees.[7]
In their answer, petitioner spouses mainly
contended that the terms of the second promissory
note increasing the interest rate to 21% and the
escalation clauses authorizing Apex to increase
interest rates pursuant to any law or Central Bank
regulation are null and void in the absence of a de-
escalation clause in the same note.[8]
After pre-trial, both parties submitted the case
for decision on the sole issue of the interest rate.
The trial court rendered judgment on
September 22, 1995. It ordered petitioner spouses
to pay respondent corporation the sum of
P140,515.11, with interest at the rate of 12% per
annum, plus service charge, viz:
"WHEREFORE, judgment is hereby rendered as
follows:
(a) Plaintiff is entitled to collect from the
defendants the amount of P140,515.11 with interest
at the rate of 12% per annum from November 23,
1983 until the amount is fully paid plus the
stipulated service charge;
(b) Ordering defendants as joint and several
obligors to pay plaintiff the amount stated in
paragraph (a) hereof;
(c) Counterclaim is hereby dismissed.
No pronouncement as to costs.
SO ORDERED." [9]
Both parties appealed to the Court of
Appeals. In a Decision dated May 14, 1998, the
appellate court reversed the trial court by applying
the interest rate of 21% per annum, and adding
attorney's fees of 10%. Thus:
"IN VIEW OF ALL THE FOREGOING, the
appealed judgment is hereby REVERSED and SET
ASIDE and a new one entered ordering the
defendants to pay the plaintiffs the amount of
P142,326.43, as principal with interest at the rate of
21% from November 23, 1983 until the amount is
fully paid; the sum equivalent to 10% of the amount
due as attorney's fees and the costs of this suit.
SO ORDERED." [10]
Petitioner spouses moved for
reconsideration. In a Resolution dated August 18,
1998, the Court of Appeals denied the motion but
reduced the principal amount of the obligation
from P142,326.42 to P140,515.11.[11]
Hence this recourse.
Petitioner spouses claim that the Court of
Appeals erred:
I
IN RULING THAT THE TWO (2) PROMISSORY
NOTES EXECUTED BY THE PARTIES ARE
INDEPENDENT OF EACH OTHER.
CONVERSELY, IN NOT RULING THAT THE SAID
PROMISSORY NOTES CONSTITUTE A SINGLE-
LOAN TRANSACTION.
II
IN RULING THAT THE APPLICABLE RATE OF
INTEREST IS 21% PER ANNUM AS STIPULATED
IN THE SECOND PROMISSORY NOTE.
CONVERSELY, IN NOT RULING THAT THE
ESCALATION OF INTEREST RATE FROM 12%
PER ANNUM (1ST PROMISSORY NOTE) TO 21%
PER ANNUM (2ND PROMISSORY NOTE) IS
UNLAWFUL.
III
IN RULING THAT 10% OF THE AMOUNT DUE IS
AWARDABLE AS ATTORNEY'S FEES.
CONVERSELY, IN NOT RULING THAT THE
AWARD OF 10% ATTORNEY'S FEES IS NOT
PROPER UNDER THE CIRCUMSTANCES.
IV
IN RULING THAT NOTICE OF ASSIGNMENT OF
CREDIT IS "POINTLESS AND UNSUSTAINABLE."
CONVERSELY, IN NOT RULING THAT NOTICE
TO THE DEBTOR IS REQUIRED WHEN CREDIT
IS ASSIGNED.
V
IN NOT RULING THAT UNDER THE
CIRCUMSTANCES PETITIONERS ARE
ENTITLED TO MORAL AND EXEMPLARY
DAMAGES.[12]
 The controversy in this petition involves the
rate of interest respondent creditor is entitled to
collect on petitioners' loan: whether it be 12% under
the promissory note of December 22, 1978, or 21%
under the promissory note of September 20, 1982.
Petitioners claim that the interest rate of 12%
per annum should be adjudged inasmuch as the
two promissory notes constitute one
transaction. Allegedly, the first note defined the
terms and conditions of the loan while the second
note is merely an extension of and derives its
existence from the former. Hence, the second note
is governed by the stipulations in the first note.[13]
The two promissory notes are identically
entitled "Promissory Note with Authority to Assign
Credit." The notes were prepared by Apex in
standard form and consist of two (2) pages
each. Except for one or two stipulations, they
contain the same provisions and the same blanks
for the amount of the loan and other pertinent data
subject of each note. However, on the upper right
portion of the second note, there appears a
typewritten entry which reads:
"This cancels PN # A-387-78 dated December 22,
1978."[14]
Correspondingly, on the face of each page of the
first promissory note, i.e., PN No. A-387-78 dated
December 22, 1978, the word "Cancelled" is boldly
stamped twice with the date "September 16, 1982"
and a signature written in a space inside the letters
of the word.[15]
The first promissory note was cancelled by the
express terms of the second promissory note. To
cancel is to strike out, to revoke, rescind or
abandon, to terminate.[16] In fine, the first note was
revoked and terminated. Simply put, it was
novated. The extinguishment of an obligation by
the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the
first is a novation.[17] Novation is made either by
changing the object or principal conditions,
referred to as an objective or real novation; or by
substituting the person of the debtor or subrogating
a third person to the rights of the creditor, which is
known as subjective or personal novation.[18] In
both objective and subjective novation, a dual
purpose is achieved-- an obligation is extinguished
and a new one is created in lieu thereof. [19] Novation
may either be express, when the new obligation
declares in unequivocal terms that the old
obligation is extinguished; or implied, when the
new obligation is on every point incompatible with
the old one.[20] Express novation takes place when
the contracting parties expressly disclose that their
object in making the new contract is to extinguish
the old contract, otherwise the old contract remains
in force and the new contract is merely added to it,
and each gives rise to an obligation still in force.[21]
Novation has four (4) essential requisites: (1)
the existence of a previous valid obligation; (2) the
agreement of all parties to the new contract; (3) the
extinguishment of the old contract; and (4) the
validity of the new one. [22] In the instant case, all
four requisites have been complied with. The first
promissory note was a valid and subsisting contract
when petitioner spouses and Apex executed the
second promissory note. The second promissory
note absorbed the unpaid principal and interest of
P142,326.43 in the first note which amount became
the principal debt therein, payable at a higher
interest rate of 21% per annum. Thus, the terms of
the second promissory note provided for a higher
principal, a higher interest rate, and a higher
monthly amortization, all to be paid within a
shorter period of 16.33 years. These changes are
substantial and constitute the principal conditions
of the obligation.[23] Both parties voluntarily
accepted the terms of the second note; and also in
the same note, they unequivocally stipulated to
extinguish the first note. Clearly, there was animus
novandi, an express intention to novate. [24] The first
promissory note was cancelled and replaced by the
second note. This second note became the new
contract governing the parties' obligations.
In their second assigned error, petitioners
contend that in the second promissory note, the
escalation of the interest rate from 12% to 21% per
annum is unlawful and cannot be imposed for
failure of the escalation provisions to include valid
de-escalation clauses. In the absence of de-
escalation clauses, the Court of Appeals allegedly
erred in applying Central Bank Circulars Nos. 705,
712 and 905 issued by the Monetary Board of the
Central Bank of the Philippines.[25]
At the time the parties executed the first
promissory note in 1978, the interest of 12% was
the maximum rate fixed by the Usury Law for loans
secured by a mortgage upon registered real estate.
[26]
 On December 1, 1979, the Monetary Board of the
Central Bank of the Philippines[27] issued Circular
No. 705 which fixed the effective rate of interest on
loan transactions with maturities of more than 730
days to twenty-one per cent (21%) per annum for
both secured and unsecured loans.[28] On January
28, 1980, The Monetary Board issued Circular No.
712 reiterating the effective interest rate of 21% on
said loan transactions.[29] On January 1, 1983, CB
Circular No. 905, series of 1982, took effect. This
Circular declared that the rate of interest 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."[30] In short, Circular No. 905 removed
the ceiling on interest rates for secured and
unsecured loans, regardless of maturity.[31]
When the second promissory note was
executed on September 20, 1982, Central Bank
Circulars Nos. 705 and 712 were already in
effect. These Circulars fixed the effective interest
rate for secured loan transactions with maturities of
more than 730 days, i.e, two (2) years, at 21% per
annum. The interest rate of 21% provided in the
second promissory note was therefore authorized
under these Circulars.
The question of whether the escalation clauses
in the second promissory note are valid is
irrelevant. Respondent corporation has signified
that it is collecting petitioners' debt only at the fixed
interest rate of 21% per annum, as expressly agreed
upon in the second promissory note, not at the
escalated rates authorized under the escalation
clauses.[32] The Court of Appeals therefore did not
err in applying the interest rate of 21% to
petitioner's loan under the second promissory note.
Neither did the Court of Appeals err in
imposing attorney's fees of ten per cent (10%) on
the amount due. The award of attorney's fees is
expressly stipulated in the fourth paragraph of the
promissory note itself, viz:
"In case of non-payment of the amount of this note
or any portion of it on demand when given due, or
any other amount/s due on account of this note, the
entire obligation shall become due and
demandable, and if for the enforcement of the
payment thereof, APEX MORTGAGE AND LOANS
CORP. is constrained to entrust the case to its
attorneys, I/We, jointly and severally, bind
myself/ourselves to pay TEN (10%) per cent on the
amount due on the note as attorney's fees, such
amount in no case to be less than FIVE HUNDRED
(P500.00) PESOS in addition to the legal fees and
other incidental expenses."[33]
Petitioners' lack of bad faith in resisting
imposition of the increased interest rate cannot
serve to mitigate their liability for liquidated
damages. Petitioner Florante Bautista is a lawyer
and he should have been aware of the effects of the
stipulations in the second promissory note and the
pertinent CB Circulars on his obligation. At the
same time, there is no showing that the amount of
liquidated damages is iniquitous and
unconscionable for this court to equitably reduce
the same.[34]
Finally, the fact that petitioners were not
notified of the assignment of their credit by Apex to
herein respondent corporation is not material. In
the eighth paragraph of the second promissory
note, petitioners expressly waived notice to any
assignment of credit, viz:
"It is understood that APEX MORTGAGE AND
LOANS CORPORATION has the right to assign this
promissory note, or make use of it as collateral in
favor of any third person whomsoever and this will
constitute as an authority therefore waiver of notice
of such action taken [sic]."[35]
The purpose of the notice is only to inform the
debtor that from the date of the assignment,
payment should be made to the assignee and not to
the original creditor.[36]
IN VIEW WHEREOF, the petition is denied
and the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 51363 are affirmed.
SO ORDERED.
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,  Corporation made deliveries of the
vs.
HON. COURT OF APPEALS AND
MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza
for petitoner.
Zapa Law Office for private respondent.
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
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,  nothing to do with, nor involving loans or
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
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)  International, Inc., vs. Intermediate Appellate
. . . 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.  aside the decision of the appellate court and
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
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
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
ofAppeals 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)  liable for damages.19 The provisions under Title
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
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  BACKWAGES
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
G.R. No. 189871               August 13, 2013
DARIO NACAR, PETITIONER, 
vs.
GALLERY FRAMES AND/OR FELIPE
BORDEY, JR., RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing
the Decision1 dated September 23, 2008 of 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.
The factual antecedents are undisputed.
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
Decision3 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:
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:
SEPARATION PAY
Date Hired = August 1990
Rate = ₱198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00
Date Dismissed = January 24, 1997
Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = ₱62,986.00
198.00 x 26 days x 6.4 mos. = ₱32,947.20
TOTAL = ₱95.933.76
xxxx
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
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 Resolution 5 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
Dissatisfied, respondents filed a Petition for Review
on Certiorari before the CA. On August 24, 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
Respondents then sought relief before the Supreme
Court, docketed as G.R. No. 151332. Finding no
reversible error on the part of the CA, this Court
denied the petition in the Resolution dated April 17,
2002.8
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
conference was consequently scheduled, but
respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for
Correct Computation, praying that his 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 and Examination
Unit of the NLRC arrived at an updated amount in
the sum of ₱471,320.31.12
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 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 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 January 14, 2003.
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.
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
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.
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, 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 234 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
X305.136 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.
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.
SO ORDERED.
G.R. No. 107508. April 25, 1996]
PHILIPPINE NATIONAL BANK, petitioner,
vs. COURT OF APPEALS, CAPITOL
CITY DEVELOPMENT BANK,
PHILIPPINE BANK OF
COMMUNICATIONS, and F. ABANTE
MARKETING, respondents.
SYLLABUS
1. COMMERCIAL LAW; NEGOTIABLE
INSTRUMENTS; MATERIAL
ALTERATION, DEFINED, - An alteration is
said to be material if it alters the effect of the
instrument. It means an unauthorized change
in an instrument that purports to modify in any
respect the obligation of a party or an
unauthorized addition of words or numbers or
other change to an incomplete instrument
relating to the obligation of a party. In other
words, a material alteration is one which
changes the items which are required to be
stated under Section 1 of the Negotiable
Instruments Law.
2. ID.; ID.; IMMATERIAL ALTERATION;
EFFECT ON THE INSTRUMENT. - In his
book entitled Pandect of Commercial Law and
Jurisprudence, Justice Jose C. Vitug opines
that an innocent alteration (generally, changes
on items other than those required to be stated
under Sec. 1, N. I. L.) and spoliation
(alterations done by a stranger) will not avoid
the instrument, but the holder may enforce it
only according to its original tenor.
3. ID.; ID.; ID.; PRESENT IN CASE AT
BAR. The case at bench is unique in the sense
that what was altered is the serial number of
the check in question, an item which, it can
readily be observed, is not an essential
requisite for negotiability under Section 1 of
the Negotiable Instrument Law. The
aforementioned alteration did not change the
relations between the parties. The name of the
drawer and the drawee were not altered. The
intended payee was the same. The sum of
money due to the payee remained the
same. The checks serial number is not the sole
indication of its origin. As succinctly found by
the Court of Appeals, the name of the
government agency which issued the subject
check was prominently printed therein. The
checks issuer was therefore sufficiently
identified, rendering the referral to the serial
number redundant and
inconsequential. Petitioner, thus cannot refuse
to accept the check in question on the ground
that the serial number was altered, the same
being an immaterial or innocent one.
4. CIVIL LAW; DAMAGES; ATTORNEYS
FEES; AWARD THEREOF DEMANDS
FACTUAL, LEGAL AND EQUITABLE
JUSTIFICATION. The award of attorneys
fees lies within the discretion of the court and
depends upon the circumstances of each
case. However, the discretion of the court to
award attorneys fees under Article 2208 of the
Civil Code of the Philippines demands factual,
legal and equitable justification, without which
the award is a conclusion without a premise
and improperly left to speculation and
conjecture. It becomes a violation of the
proscription against the imposition of a penalty
on the right to litigate (Universal Shipping
Lines, Inc. v. Intermediate Appellate
Court, 188 SCRA 170 [1990]). The reason for
the award must be stated in the text of the
courts decision. If it is stated only in the
dispositive portion of the decision, the same
shall be disallowed. As to the award of
attorneys fees being an exception rather than
the rule, it is necessary for the court to make
findings of fact and law that would bring the
case within the exception and justify the grant
of the award (Refractories Corporation of the
Philippines v. Intermediate Appellate
Court, 176 SCRA 539).
APPEARANCES OF COUNSEL
Monsod Tamargo Valencia & Associates for
private respondent Capitol City Development
Bank.
 Siguion Reyna Montecillo & Ongsiako for
private respondent Philippine Bank of
Communications.
DECISION
KAPUNAN, J.:
This is a petition for review on certiorari under
Rule 45 of the Rules of Court assailing the decision
dated April 29, 1992 of respondent Court of
Appeals in CA-G.R. CV No. 24776 and its resolution
dated September 16, 1992, denying petitioner
Philippine National Banks motion for
reconsideration of said decision.
The facts of the case are as follows:
A check with serial number 7-3666-223-3,
dated August 7, 1981 in the amount of P97,650.00
was issued by the Ministry of Education and
Culture (now Department of Education, Culture
and Sports [DECS]) payable to F. Abante
Marketing. This check was drawn against
Philippine National Bank (herein petitioner).
On August 11, 1981, F. Abante Marketing, a
client of Capitol City Development Bank (Capitol),
deposited the questioned check in its savings
account with said bank. In turn, Capitol deposited
the same in its account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the
check to petitioner for clearing.
Petitioner cleared the check as good and,
thereafter, PBCom credited Capitols account for the
amount stated in the check. However, on October
19, 1981, petitioner returned the check to PBCom
and debited PBComs account for the amount
covered by the check, the reason being that there
was a material alteration of the check number.
PBCom, as collecting agent of Capitol, then
proceeded to debit the latters account for the same
amount, and subsequently, sent the check back to
petitioner. Petitioner, however, returned the check
to PBCom.
On the other hand, Capitol could not, in turn,
debit F. Abante Marketings account since the latter
had already withdrawn the amount of the check as
of October 15, 1981. Capitol sought clarification
from PBCom and demanded the re-crediting of the
amount. PBCom followed suit by requesting an
explanation and re-crediting from petitioner.
Since the demands of Capitol were not heeded,
it filed a civil suit with the Regional Trial Court of
Manila against PBCom which, in turn, filed a third-
party complaint against petitioner for
reimbursement/indemnity with respect to the
claims of Capitol. Petitioner, on its part, filed a
fourth-party complaint against F. Abante
Marketing.
On October 3, 1989; the Regional Trial Court
rendered its decision the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered as
follows:
1.) On plaintiffs complaint, defendant Philippine
Bank of Communications is ordered to re-credit or
reimburse plaintiff Capitol City Development Bank
the amount of P97,650.00, plus interest of 12
percent thereto from October 19, 1981 until the
amount is fully paid;
2.) On Philippine Bank of Communications third-
party complaint, third-party defendant PNB is
ordered to reimburse and indemnify Philippine
Bank of Communications for whatever amount
PBCom pays to plaintiff;
3.) On Philippine National Banks fourth-party
complaint, F. Abante Marketing is ordered to
reimburse and indemnify PNB for whatever
amount PNB pays to PBCom;
4.) On attorneys fees, Philippine Bank of
Communications is ordered to pay Capitol City
Development Bank attorneys fees in the amount of
Ten Thousand (P 10,000.00) Pesos; but PBCom is
entitled to reimbursement/indemnity from PNB;
and Philippine National Bank to be, in turn,
reimbursed or indemnified by F. Abante Marketing
for the same amount;
5.) The Counterclaims of PBCom and PNB are
hereby dismissed;
6.) No pronouncement as to costs.
SO ORDERED.[1]
An appeal was interposed before the
respondent Court of Appeals which rendered its
decision on April 29, 1992, the decretal portion of
which reads:
WHEREFORE, the judgment appealed from is
modified by exempting PBCom from liability to
plaintiff-appellee for attorneys fees and ordering
PNB to honor the check for P97,650.00, with
interest as declared by the trial court, and pay
plaintiff-appellee attorneys fees of P10,000.00.
After the check shall have been honored by PNB,
PBCom shall re-credit plaintiff-appellees account
with it with the amount. No pronouncement as to
costs.
SO ORDERED.[2]
A motion for reconsideration of the decision
was denied by the respondent Court in its
resolution dated September 16, 1992 for lack of
merit.[3]
Hence, petitioner filed the instant petition
which raises the following issues:
I
WHETHER OR NOT AN ALTERATION OF THE
SERIAL NUMBER OF A CHECK IS A MATERIAL
ALTERATION UNDER THE NEGOTIABLE
INSTRUMENTS LAW.
II
WHETHER OR NOT A CERTIFICATION HEREIN
ISSUED BY THE MINISTRY OF EDUCATION CAN
BE GIVEN WEIGHT IN EVIDENCE.
III
WHETHER OR NOT A DRAWEE BANK WHO
FAILED TO RETURN A CHECK WITHIN THE
TWENTY FOUR (24) HOUR CLEARING PERIOD
MAY RECOVER THE VALUE OF THE CHECK
FROM THE COLLECTING BANK.
IV
WHETHER OR NOT IN THE ABSENCE OF
MALICE OR ILL WILL PETITIONER PNB MAY BE
HELD LIABLE FOR ATTORNEYS FEES.[4]
We find no merit in the petition.
We shall first deal with the effect of the
alteration of the serial number on the negotiability
of the check in question.
Petitioner anchors its position on Section 125
of the Negotiable Instrument Law (ACT No. 2031)
[5]
 which provides:
Section 125. What constitutes a material alteration.
- Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or
interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to
be made;
(f) Or which adds a place of payment where no
place of payment is specified, or any other change
or addition which alters the effect of the instrument
in any respect, is a material alteration.
Petitioner alleges that there is no hard and fast
rule in the interpretation of the aforequoted
provision of the Negotiable Instruments Law. It
maintains that under Section 125(f), any change
that alters the effect of the instrument is a material
alteration.[6]
We do not agree.
An alteration is said to be material if it alters
the effect of the instrument.[7] It means an
unauthorized change in an instrument that
purports to modify in any respect the obligation of a
party or an unauthorized addition of words or
numbers or other change to an incomplete
instrument relating to the obligation of a party. [8] In
other words, a material alteration is one which
changes the items which are required to be stated
under Section 1 of the Negotiable Instrument Law.
Section 1 of the Negotiable Instruments Law
provides:
Section 1. - Form of negotiable instruments. An
instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order
to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee,
he must be named or otherwise indicated therein
with reasonable certainty.
In his book entitled Pandect of Commercial
Law and Jurisprudence, Justice Jose C. Vitug
opines that an innocent alteration (generally,
changes on items other than those required to be
stated under Sec. 1, N.I.L.) and spoliation
(alterations done by a stranger) will not avoid the
instrument, but the holder may enforce it only
according to its original tenor.[9]
Reproduced hereunder are some examples of
material and immaterial alterations:
A. Material Alterations:
(1) Substituting the words or bearer for order.
(2) Writing protest waived above blank
indorsements.
(3) A change in the date from which interest is to
run.
(4) A check was originally drawn as follows: Iron
County Bank, Crystal Falls, Mich. Aug. 5, 1901. Pay
to G.L. or order $9 fifty cents CTR. The insertion of
the figure 5 before the figure 9, the instrument
being otherwise unchanged.
(5) Adding the words with interest with or without
a fixed rate.
(6) An alteration in the maturity of a note, whether
the time for payment is thereby curtailed or
extended.
(7) An instrument was payable First Natl Bank, the
plaintiff added the word Marion.
(8) Plaintiff, without consent of the defendant,
struck out the name of the defendant as payee and
inserted the name of the maker of the original note.
(9) Striking out the name of the payee and
substituting that of the person who actually
discounted the note.
(10) Substituting the address of the maker for the
name of a co-maker.[10]
B. Immaterial Alterations:
(1) Changing I promise to pay to We promise to
pay, where there are two makers.
(2) Adding the word annual after the interest
clause.
(3) Adding the date of maturity as a marginal
notation.
(4) Filling in the date of the actual delivery where
the makers of a note gave it with the date in blank,
July . . .
(5) An alteration of the marginal figures of a note
where the sum stated in words in the body
remained unchanged.
(6) The insertion of the legal rate of interest where
the note had a provision for interest at . . . per cent.
(7) A printed form of promissory note had on the
margin the printed words, Extended to . . . The
holder on or after maturity wrote in the blank space
the words May 1, 1913, as a reference memorandum
of a promise made by him to the principal maker at
the time the words were written to extend the time
of payment.
(8) Where there was a blank for the place of
payment, filling in the blank with the place desired.
(9) Adding to an indorsees name the abbreviation
Cash when it had been agreed that the draft should
be discounted by the trust company of which the
indorsee was cashier.
(10) The indorsement of a note by a stranger after
its delivery to the payee at the time the note was
negotiated to the plaintiff.
(11) An extension of time given by the holder of a
note to the principal maker, without the consent of
the a surety co-maker.[11]
The case at the bench is unique in the sense
that what was altered is the serial number of the
check in question, an item which, it can readily be
observed, is not an essential requisite for
negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration
did not change the relations between the
parties. The name of the drawer and the drawee
were not altered. The intended payee was the same.
The sum of money due to the payee remained the
same. Despite these findings, however, petitioner
insists, that:
xxx xxx xxx.
It is an accepted concept, besides being a negotiable
instrument itself, that a TCAA check by its very
nature is the medium of exchange of governments
(sic) instrumentalities or agencies. And as (a) safety
measure, every government office o(r) agency (is)
assigned TCAA checks bearing different number
series.
A concrete example is that of the disbursements of
the Ministry of Education and Culture. It is issued
by the Bureau of Treasury sizeable bundles of
checks in booklet form with serial numbers
different from other government office or
agency. Now, for fictitious payee to succeed in its
malicious intentions to defraud the government, all
it need do is to get hold of a TCAA Check and have
the serial numbers of portion (sic) thereof changed
or altered to make it appear that the same was
issued by the MEC.
Otherwise, stated, it is through the serial numbers
that (a) TCAA Check is determined to have been
issued by a particular office or agency of the
government.[12]
xxx xxx xxx
Petitioners arguments fail to convince. The
checks serial number is not the sole indication of its
origin. As succinctly found by the Court of Appeals,
the name of the government agency which issued
the subject check was prominently printed
therein. The checks issuer was therefore sufficiently
identified, rendering the referral to the serial
number redundant and inconsequential. Thus, we
quote with favor the findings of the respondent
court:
xxx xxx xxx
If the purpose of the serial number is merely to
identify the issuing government office or agency, its
alteration in this case had no material effect
whatsoever on the integrity of the check. The
identity of the issuing government office or agency
was not changed thereby and the amount of the
check was not charged against the account of
another government office or agency which had no
liability under the check.The owner and issuer of
the check is boldly and clearly printed on its face,
second line from the top: MiNiSTRY OF
EDUCATiON AND CULTURE, and below the
name of the payee are the rubber-stamped words:
Ministry of Educ. & Culture. These words are not
alleged to have been falsely or fraudulently
intercalated into the check. The ownership of the
check is established without the necessity of
recourse to the serial number. Neither is there any
proof that the amount of the check was erroneously
charged against the account of a government office
or agency other than the Ministry of Education and
Culture.Hence, the alteration in the number of the
check did not affect or change the liability of the
Ministry of Education and Culture under the check
and, therefore, is immaterial. The genuineness of
the amount and the signatures therein of
then Deputy Minister of Education Hermenegildo
C. Dumlao and of the resident Auditor, Penomio C.
Alvarez are not challenged. Neither is the
authenticity of the different codes appearing
therein questioned x x x.[13] (Italics ours.)
 Petitioner, thus cannot refuse to accept the
check in question on the ground that the serial
number was altered, the same being an immaterial
or innocent one.
We now go to the second issue. It is petitioners
submission that the certification issued by Minrado
C. Batonghinog, Cashier III of the MEC clearly
shows that the check was altered. Said certification
reads:
July 22,which was triggered by the return and debit made
1985 by PNB. However, this Court finds that it would be
TO WHOM IT MAY CONCERN:
This is to certify that according to the records of
this Office, TCAA PNB Check No. SN7-3666223-3
dated August 7, 1981 drawn in favor of F. Abante
Marketing in the amount of NINETY (S)EVEN
THOUSAND SIX HUNDRED FIFTY PESOS ONLY
(P97,650.00) was not issued by this Office nor
released to the payee concerned. The series number
of said check was not included among those
requisition by this Office from the Bureau of
Treasury.
Very truly yours,
(SGD.) MINRADO C. BATONGHINOG Cashier III.
[14]
Petitioner claims that even if the author of the
certification issued by the Ministry of Education
and Culture (MEC) was not presented, still the best
evidence of the material alteration would be the
disputed check itself and the serial number
thereon. Petitioner thus assails the refusal of
respondent court to give weight to the certification
because the author thereof was not presented to
identify it and to be cross-examined thereon.[15]
We agree with the respondent court.
The one who signed the certification was not
presented before the trial court to prove that the
said document was really the document he
prepared and that the signature below the said
document is his own signature. Neither did
petitioner present an eyewitness to the execution of
the questioned document who could possibly
identify it.[16] Absent this proof, we cannot rule on
the authenticity of the contents of the certification.
Moreover, as we previously emphasized, there was
no material alteration on the check, the change of
its serial number not being substantial to its
negotiability.
Anent the third issue - whether or not the
drawee bank may still recover the value of the check
from the collecting bank even if it failed to return
the check within the twenty-four (24) hour clearing
period because the check was tampered - suffice it
to state that since there is no material alteration in
the check, petitioner has no right to dishonor it and
return it to PBCom, the same being in all respects
negotiable.
However, the amount of P10,000.00 as
attorneys fees is hereby deleted. In their respective
decisions, the trial court and the Court of Appeals
failed to explicitly state the rationale for the said
award. The trial court merely ruled as follows:
With respect to Capitols claim for damages
consisting of alleged loss of opportunity, this Court
finds that Capitol failed to adequately substantiate
its claim. What Capitol had presented was a self-
serving, unsubstantiated and speculative
computation of what it allegedly could have earned
or realized were it not for the debit made by PBCom
fair and reasonable to impose interest at 12% per
annum on the principal amount of the check
computed from October 19, 1981 (the date PBCom
debited Capitols account) until the amount is fully
paid and reasonable attorneys fees.[17] (Italics
ours.)
And contrary to the Court of Appeals
resolution, petitioner unambiguously questioned
before it the award of attorneys fees, assigning the
latter as one of the errors committed by the trial
court.[18]
The foregoing is in conformity with the guiding
principles laid down in a long line of cases and
reiterated recently in Consolidated Bank & Trust
Corporation (Solidbank) v. Court of Appeals:[19]
The award of attorneys fees lies within the
discretion of the court and depends upon the
circumstances of each case. However, the discretion
of the court to award attorneys fees under Article
2208 of the Civil Code of the Philippines demands
factual, legal and equitable justification, without
which the award is a conclusion without a premise
and improperly left to speculation and
conjecture. It becomes a violation of the
proscription against the imposition of a penalty on
the right to litigate (Universal Shipping Lines
Inc. v. Intermediate Appellate Court, 188 SCRA 170
[1990]). The reason for the award must be stated in
the text of the courts decision. If it is stated only in
the dispositive portion of the decision, the same
shall be disallowed. As to the award of attorneys
fees being an exception rather than the rule, it is
necessary for the court to make findings of fact and
law that would bring the case within the exception
and justify the grant of the award (Refractories
Corporation of the Philippines v. Intermediate
Appellate Court, 176 SCRA 539).
WHEREFORE, premises considered, except
for the deletion of the award of attorneys fees, the
decision of the Court of Appeals is hereby
AFFIRMED.
SO ORDERED.
G.R. No. 174433               February 24, 2014
PHILIPPINE NATIONAL BANK, Petitioner, 
vs.
SPOUSES ENRIQUE MANALO &
ROSALINDA JACINTO, ARNOLD J.
MANALO, ARNEL J. MANALO, and ARMA J.
MANALO, Respondents.
 DECISION
BERSAMIN, J.:
Although banks are free to determine the rate of
interest they could impose on their borrowers, they
can do so only reasonably, not arbitrarily. They may
not take advantage of the ordinary borrowers' lack
of familiarity with banking procedures and jargon.
Hence, any stipulation on interest unilaterally
imposed and increased by them shall be struck
down as violative of the principle of mutuality of
contracts.
Antecedents
Respondent Spouses Enrique Manalo and
Rosalinda Jacinto (Spouses Manalo) applied for an
All-Purpose Credit Facility in the amount of
₱1,000,000.00 with Philippine National Bank
(PNB) to finance the construction of their house.
After PNB granted their application, they executed
a Real Estate Mortgage on November 3, 1993 in
favor of PNB over their property covered by
Transfer Certificate of Title No. S- 23191 as security
for the loan.1 The credit facility was renewed and
increased several times over the years. On
September 20, 1996, the credit facility was again
renewed for ₱7,000,000.00. As a consequence, the
parties executed a Supplement to and Amendment
of Existing Real Estate Mortgage whereby the
property covered by TCT No. 171859 was added as
security for the loan.
The additional security was registered in the names
of respondents Arnold, Arnel, Anthony, and Arma,
all surnamed Manalo, who were their children.2
It was agreed upon that the Spouses Manalo would
make monthly payments on the interest. However,
PNB claimed that their last recorded payment was
made on December, 1997. Thus, PNB sent a
demand letter to them on their overdue account
and required them to settle the account. PNB sent
another demand letter because they failed to heed
the first demand.3
After the Spouses Manalo still failed to settle their
unpaid account despite the two demand letters,
PNB foreclose the mortgage. During the foreclosure
sale, PNB was the highest bidder for
₱15,127,000.00 of the mortgaged properties of the
Spouses Manalo. The sheriff issued to PNB the
Certificate of Sale dated November 13, 2000.4
After more than a year after the Certificate of Sale
had been issued to PNB, the Spouses Manalo
instituted this action for the nullification of the
foreclosure proceedings and damages. They alleged
that they had obtained a loan for ₱1,000,000.00
from a certain Benito Tan upon arrangements made
by Antoninus Yuvienco, then the General Manager
of PNB’s Bangkal Branch where they had
transacted; that they had been made to understand
and had been assured that the ₱1,000,000.00
would be used to update their account, and that
their loan would be restructured and converted into
a long-term loan;5 that they had been surprised to
learn, therefore, that had been declared in default
of their obligations, and that the mortgage on their
property had been foreclosed and their property
had been sold; and that PNB did not comply with
Section 3 of Act No. 3135, as amended.6
PNB and Antoninus Yuvienco countered that the
₱1,000,000.00 loan obtained by the Spouses
Manalo from Benito Tan had been credited to their
account; that they did not make any assurances on
the restructuring and conversion of the Spouses
Manalo’s loan into a long-term one;7 that PNB’s
right to foreclose the mortgage had been clear
especially because the Spouses Manalo had not
assailed the validity of the loans and of the
mortgage; and that the Spouses Manalo did not
allege having fully paid their indebtedness.8
Ruling ofthe RTC
After trial, the RTC rendered its decision in favor of
PNB, holding thusly:
In resolving this present case, one of the most
significant matters the court has noted is that while
during the pre-trial held on 8 September 2003,
plaintiff-spouses Manalo with the assistance
counsel had agreed to stipulate that defendants had
the right to foreclose upon the subject properties
and that the plaintiffs[‘] main thrust was to prove
that the foreclosure proceedings were invalid, in the
course of the presentation of their evidence, they
modified their position and claimed [that] the loan
document executed were contracts of adhesion
which were null and void because they were
prepared entirely under the defendant bank’s
supervision. They also questioned the interest rates
and penalty charges imposed arguing that these
were iniquitous, unconscionable and therefore
likewise void.
Not having raised the foregoing matters as issues
during the pre-trial, plaintiff-spouses are
presumably estopped from allowing these matters
to serve as part of their evidence, more so because
at the pre-trial they expressly recognized the
defendant bank’s right to foreclose upon the subject
property (See Order, pp. 193-195).
However, considering that the defendant bank did
not interpose any objection to these matters being
made part of plaintiff’s evidence so much so that
their memorandum contained discussions
rebutting plaintiff spouses arguments on these
issues, the court must necessarily include these
matters in the resolution of the present case.9
The RTC held, however, that the Spouses Manalo’s
"contract of adhesion" argument was unfounded
because they had still accepted the terms and
conditions of their credit agreement with PNB and
had exerted efforts to pay their obligation;10 that the
Spouses Manalo were now estopped from
questioning the interest rates unilaterally imposed
by PNB because they had paid at those rates for
three years without protest;11 and that their
allegation about PNB violating the notice and
publication requirements during the foreclosure
proceedings was untenable because personal notice
to the mortgagee was not required under Act No.
3135.12
The Spouses Manalo appealed to the CA by
assigning a singular error, as follows:
THE COURT A QUO SERIOUSLY ERRED IN
DISMISSING PLAINTIFF-APPELLANTS’
COMPLAINT FOR BEING (sic) LACK OF MERIT
NOTWITHSTANDING THE FACT THAT IT WAS
CLEARLY SHOWN THAT THE FORECLOSURE
PROCEEDINGS WAS INVALID AND ILLEGAL.13
The Spouses Manalo reiterated their arguments,
insisting that: (1) the credit agreements they
entered into with PNB were contracts of
adhesion;14 (2) no interest was due from them
because their credit agreements with PNB did not
specify the interest rate, and PNB could not
unilaterally increase the interest rate without first
informing them;15 and (3) PNB did not comply with
the notice and publication requirements under
Section 3 of Act 3135.16 On the other hand, PNB and
Yuvienco did not file their briefs despite notice. 17
Ruling ofthe CA
In its decision promulgated on March 28,
2006,18 the CA affirmed the decision of the RTC
insofar as it upheld the validity of the foreclosure
proceedings initiated by PNB, but modified the
Spouses Manalo’s liability for interest. It directed
the RTC to see to the recomputation of their
indebtedness, and ordered that should the
recomputed amount be less than the winning bid in
the foreclosure sale, the difference should be
immediately returned to the Spouses Manalo.
The CA found it necessary to pass upon the issues
of PNB’s failure to specify the applicable interest
and the lack of mutuality in the execution of the
credit agreements considering the earlier cited
observation made by the trial court in its decision.
Applying Article 1956 of the Civil Code, the CA held
that PNB’s failure to indicate the rate of interest in
the credit agreements would not excuse the Spouses
Manalo from their contractual obligation to pay
interest to PNB because of the express agreement to
pay interest in the credit agreements. Nevertheless,
the CA ruled that PNB’s inadvertence to specify the
interest rate should be construed against it because
the credit agreements were clearly contracts of
adhesion due to their having been prepared solely
by PNB.
The CA further held that PNB could not unilaterally
increase the rate of interest considering that the
credit agreements specifically provided that prior
notice was required before an increase in interest
rate could be effected. It found that PNB did not
adduce proof showing that the Spouses Manalo had
been notified before the increased interest rates
were imposed; and that PNB’s unilateral imposition
of the increased interest rate was null and void for
being violative of the principle of mutuality of
contracts enshrined in Article 1308 of the Civil
Code. Reinforcing its "contract of adhesion"
conclusion, it added that the Spouses Manalo’s
being in dire need of money rendered them to be
not on an equal footing with PNB. Consequently,
the CA, relying on Eastern Shipping Lines, v. Court
of Appeals,19 fixed the interest rate to be paid by the
Spouses Manalo at 12% per annum, computed from
their default.
The CA deemed to be untenable the Spouses
Manalo’s allegation that PNB had failed to comply
with the requirements for notice and posting under
Section 3 of Act 3135. The CA stated that Sheriff
Norberto Magsajo’s testimony was sufficient proof
of his posting of the required Notice of Sheriff’s Sale
in three public places; that the notarized Affidavit
of Publication presented by Sheriff Magsajo was
prima facie proof of the publication of the notice;
and that the Affidavit of Publication enjoyed the
presumption of regularity, such that the Spouses
Manalo’s bare allegation of non-publication without
other proof did not overcome the presumption.
On August 29, 2006, the CA denied the Spouses
Manalo’s Motion for Reconsideration and PNB’s
Partial Motion for Reconsideration.20
Issues
In its Memorandum,21 PNB raises the following
issues:
I
WHETHER OR NOT THE COURT OF APPEALS
WAS CORRECT IN NULLIFYING THE INTEREST
RATES IMPOSED ON RESPONDENT SPOUSES’
LOAN AND IN FIXING THE SAME AT TWELVE
PERCENT (12%) FROM DEFAULT, DESPITE THE
FACT THAT (i) THE SAME WAS RAISED BY THE
RESPONDENTS ONLY FOR THE FIRST TIME ON
APPEAL (ii) IT WAS NEVER PART OF THEIR
COMPLAINT (iii) WAS EXLUDED AS AN ISSUE
DURING PRE-TRIAL, AND WORSE, (iv) THERE
WAS NO FORMALLY OFFERED PERTAINING TO
THE SAME DURING TRIAL.
II
WHETHER OR NOT THE COURT OF APPEALS
CORRECTLY RULED THAT THERE WAS NO
MUTUALITY OF CONSENT IN THE IMPOSITION
OF INTEREST RATES ON THE RESPONDENT
SPOUSES’ LOAN DESPITE THE EXISTENCE OF
FACTS AND CIRCUMSTANCES CLEARLY
SHOWING RESPONDENTS’ ASSENT TO THE
RATES OF INTEREST SO IMPOSED BY PNB ON
THE LOAN.
Anent the first issue, PNB argues that by passing
upon the issue of the validity of the interest rates,
and in nullifying the rates imposed on the Spouses
Manalo, the CA decided the case in a manner not in
accord with Section 15, Rule 44 of the Rules of
Court, which states that only questions of law or
fact raised in the trial court could be assigned as
errors on appeal; that to allow the Spouses Manalo
to raise an issue for the first time on appeal would
"offend the basic rules of fair play, justice and due
process;"22 that the resolution of the CA was limited
to the issues agreed upon by the parties during pre-
trial;23 that the CA erred in passing upon the
validity of the interest rates inasmuch as the
Spouses Manalo did not present evidence thereon;
and that the Judicial Affidavit of Enrique Manalo,
on which the CA relied for its finding, was not
offered to prove the invalidity of the interest rates
and was, therefore, inadmissible for that purpose.24
As to the substantive issues, PNB claims that the
Spouses Manalo’s continuous payment of interest
without protest indicated their assent to the
interest rates imposed, as well as to the subsequent
increases of the rates; and that the CA erred in
declaring that the interest rates and subsequent
increases were invalid for lack of mutuality between
the contracting parties.
Ruling
The appeal lacks merit.
1.
Procedural Issue
Contrary to PNB’s argument, the validity of the
interest rates and of the increases, and on the lack
of mutuality between the parties were not raised by
the Spouses Manalo’s for the first time on appeal.
Rather, the issues were impliedly raised during the
trial itself, and PNB’s lack of vigilance in voicing out
a timely objection made that possible.
It appears that Enrique Manalo’s Judicial Affidavit
introduced the issues of the validity of the interest
rates and the increases, and the lack of mutuality
between the parties in the following manner, to wit:
5. True to his words, defendant Yuvienco,
after several days, sent us a document
through a personnel of defendant PNB,
Bangkal, Makati City Branch, who required
me and my wife to affix our signature on the
said document;
6. When the document was handed over me,
I was able to know that it was a Promissory
Note which was in ready made form and
prepared solely by the defendant PNB;
xxxx
21. As above-noted, the rates of interest
imposed by the defendant bank were never
the subject of any stipulation between us
mortgagors and the defendant PNB as
mortgagee;
22. The truth of the matter is that defendant
bank imposed rate of interest which ranges
from 19% to as high as 28% and which
changes from time to time;
23. The irregularity, much less the invalidity
of the imposition of iniquitous rates of
interest was aggravated by the fact that we
were not informed, notified, nor the same
had our prior consent and acquiescence
therefor. x x x25
PNB cross-examined Enrique Manalo upon his
Judicial Affidavit. There is no showing that PNB
raised any objection in the course of the cross
examination.26 Consequently, the RTC rightly
passed upon such issues in deciding the case, and
its having done so was in total accord with Section
5, Rule 10 of the Rules of Court, which states:
Section 5. Amendment to conform to or authorize
presentation of evidence. – When 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. Such amendment of the pleadings as
may be necessary to cause them to conform to the
evidence and to raise these issues may be made
upon motion of any party at any time, even after
judgment; but failure to amend does not affect the
result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall
do so with liberality if the presentation of the merits
of the action and the ends of substantial justice will
be subserved thereby. The court may grant a
continuance to enable the amendment to be made.
In Bernardo Sr. v. Court of Appeals,27 we held that:
It is settled that even if the complaint be defective,
but the parties go to trial thereon, and the plaintiff,
without objection, introduces sufficient evidence to
constitute the particular cause of action which it
intended to allege in the original complaint, and the
defendant voluntarily produces witnesses to meet
the cause of action thus established, an issue is
joined as fully and as effectively as if it had been
previously joined by the most perfect pleadings.
Likewise, when issues not raised by the pleadings
are tried by express or implied consent of the
parties, they shall be treated in all respects as if
they had been raised in the pleadings.
The RTC did not need to direct the amendment of
the complaint by the Spouses Manalo. Section 5,
Rule 10 of the Rules of Court specifically declares
that the "failure to amend does not affect the result
of the trial of these issues." According to Talisay-
Silay Milling Co., Inc. v. Asociacion de Agricultores
de Talisay-Silay, Inc.:28
The failure of a party to amend a pleading to
conform to the evidence adduced during trial does
not preclude an adjudication by the court on the
basis of such evidence which may embody new
issues not raised in the pleadings, or serve as a
basis for a higher award of damages. Although the
pleading may not have been amended to conform to
the evidence submitted during trial, judgment may
nonetheless be rendered, not simply on the basis of
the issues alleged but also on the basis of issues
discussed and the assertions of fact proved in the
course of trial.1âwphi1 The court may treat the
pleading as if it had been amended to conform to
the evidence, although it had not been actually so
amended. Former Chief Justice Moran put the
matter in this way:
When evidence is presented by one party, with the
expressed or implied consent of the adverse party,
as to issues not alleged in the pleadings, judgment
may be rendered validly as regards those issues,
which shall be considered as if they have been
raised in the pleadings. There is implied, consent to
the evidence thus presented when the adverse party
fails to object thereto." (Emphasis supplied)
Clearly, a court may rule and render judgment on
the basis of the evidence before it even though the
relevant pleading had not been previously
amended, so long as no surprise or prejudice is
thereby caused to the adverse party. Put a little
differently, so long as the basic requirements of fair
play had been met, as where litigants were given
full opportunity to support their respective
contentions and to object to or refute each other's
evidence, the court may validly treat the pleadings
as if they had been amended to conform to the
evidence and proceed to adjudicate on the basis of
all the evidence before it.
There is also no merit in PNB’s contention that the
CA should not have considered and ruled on the
issue of the validity of the interest rates because the
Judicial Affidavit of Enrique Manalo had not been
offered to prove the same but only "for the purpose
of identifying his affidavit."29 As such, the affidavit
was inadmissible to prove the nullity of the interest
rates.
We do not agree.
Section 5, Rule 10 of the Rules of Court is
applicable in two situations.1âwphi1 The first is
when evidence is introduced on an issue not alleged
in the pleadings and no objection is interposed by
the adverse party. The second is when evidence is
offered on an issue not alleged in the pleadings but
an objection is raised against the offer.30 This case
comes under the first situation. Enrique Manalo’s
Judicial Affidavit would introduce the very issues
that PNB is now assailing. The question of whether
the evidence on such issues was admissible to prove
the nullity of the interest rates is an entirely
different matter. The RTC accorded credence to
PNB’s evidence showing that the Spouses Manalo
had been paying the interest imposed upon them
without protest. On the other hand, the CA’s
nullification of the interest rates was based on the
credit agreements that the Spouses Manalo and
PNB had themselves submitted.
Based on the foregoing, the validity of the interest
rates and their increases, and the lack of mutuality
between the parties were issues validly raised in the
RTC, giving the Spouses Manalo every right to raise
them in their appeal to the CA. PNB’s contention
was based on its wrong appreciation of what
transpired during the trial. It is also interesting to
note that PNB did not itself assail the RTC’s ruling
on the issues obviously because the RTC had
decided in its favor. In fact, PNB did not even
submit its appellee’s brief despite notice from the
CA.
2.
Substantive Issue
The credit agreement executed succinctly stipulated
that the loan would be subjected to interest at a rate
"determined by the Bank to be its prime rate plus
applicable spread, prevailing at the current
month."31 This stipulation was carried over to or
adopted by the subsequent renewals of the credit
agreement. PNB thereby arrogated unto itself the
sole prerogative to determine and increase the
interest rates imposed on the Spouses Manalo.
Such a unilateral determination of the interest rates
contravened the principle of mutuality of contracts
embodied in Article 1308 of the Civil Code.32
The Court has declared that a contract where there
is no mutuality between the parties partakes of the
nature of a contract of adhesion,33 and any
obscurity will be construed against the party who
prepared the contract, the latter being presumed
the stronger party to the agreement, and who
caused the obscurity.34 PNB should then suffer the
consequences of its failure to specifically indicate
the rates of interest in the credit agreement. We
spoke clearly on this in Philippine Savings Bank v.
Castillo,35 to wit:
The unilateral determination and imposition of the
increased rates is violative of the principle of
mutuality of contracts under Article 1308 of the
Civil Code, which provides that ‘[t]he contract must
bind both contracting parties; its validity or
compliance cannot be left to the will of one of
them.’ A perusal of the Promissory Note will readily
show that the increase or decrease of interest rates
hinges solely on the discretion of petitioner. It does
not require the conformity of the maker before a
new interest rate could be enforced. Any contract
which appears to be heavily weighed in favor of one
of the parties so as to lead to an unconscionable
result, thus partaking of the nature of a contract of
adhesion, is void. Any stipulation regarding the
validity or compliance of the contract left solely to
the will of one of the parties is likewise invalid.
(Emphasis supplied)
PNB could not also justify the increases it had
effected on the interest rates by citing the fact that
the Spouses Manalo had paid the interests without
protest, and had renewed the loan several times.
We rule that the CA, citing Philippine National
Bank v. Court of Appeals,36 rightly concluded that
"a borrower is not estopped from assailing the
unilateral increase in the interest made by the
lender since no one who receives a proposal to
change a contract, to which he is a party, is obliged
to answer the same and said party’s silence cannot
be construed as an acceptance thereof."37
Lastly, the CA observed, and properly so, that the
credit agreements had explicitly provided that prior
notice would be necessary before PNB could
increase the interest rates. In failing to notify the
Spouses Manalo before imposing the increased
rates of interest, therefore, PNB violated the
stipulations of the very contract that it had
prepared. Hence, the varying interest rates imposed
by PNB have to be vacated and declared null and
void, and in their place an interest rate of 12% per
annum computed from their default is fixed
pursuant to the ruling in Eastern Shipping Lines,
Inc. v. Court of Appeals.38
The CA’s directive to PNB (a) to recompute the
Spouses Manalo’s indebtedness under the oversight
of the RTC; and (b) to refund to them any excess of
the winning bid submitted during the foreclosure
sale over their recomputed indebtedness was
warranted and equitable. Equally warranted and
equitable was to make the amount to be refunded, if
any, bear legal interest, to be reckoned from the
promulgation of the CA’s decision on March 28,
2006.39Indeed, the Court said in Eastern Shipping
Lines, Inc. v. Court of Appeals40 that interest should
be computed from the time of the judicial or
extrajudicial demand. However, this case presents a
peculiar situation, the peculiarity being that the
Spouses Manalo did not demand interest either
judicially or extrajudicially. In the RTC, they
specifically sought as the main reliefs the
nullification of the foreclosure proceedings brought
by PNB, accounting of the payments they had made
to PNB, and the conversion of their loan into a long
term one.41 In its judgment, the RTC even upheld
the validity of the interest rates imposed by
PNB.42 In their appellant’s brief, the Spouses
Manalo again sought the nullification of the
foreclosure proceedings as the main relief. 43 It is
evident, therefore, that the Spouses Manalo made
no judicial or extrajudicial demand from which to
reckon the interest on any amount to be refunded
to them. Such demand could only be reckoned from
the promulgation of the CA’s decision because it
was there that the right to the refund was first
judicially recognized. Nevertheless, pursuant to
Eastern Shipping Lines, Inc. v. Court of
Appeals,44 the amount to be refunded and the
interest thereon should earn interest to be
computed from the finality of the judgment until
the full refund has been made.
Anent the correct rates of interest to be applied on
the amount to be refunded by PNB, the Court, in
Nacar v. Gallery Frames45 and S.C. Megaworld
Construction v. Parada,46 already applied Monetary
Board Circular No. 799 by reducing the interest
rates allowed in judgments from 12% per annum to
6% per annum.47 According to Nacar v. Gallery
Frames, MB Circular No. 799 is applied
prospectively, and judgments that became final and
executory prior to its effectivity on July 1, 2013 are
not to be disturbed but continue to be implemented
applying the old legal rate of 12% per annum.
Hence, the old legal rate of 12% per annum applied
to judgments becoming final and executory prior to
July 1, 2013, but the new rate of 6% per annum
applies to judgments becoming final and executory
after said dater.
Conformably with Nacar v. Gallery Frames and S.C.
Megaworld Construction v. Parada, therefore, the
proper interest rates to be imposed in the present
case are as follows:
1. Any amount to be refunded to the
Spouses Manalo shall bear interest of 12%
per annum computed from March 28, 2006,
the date of the promulgation of the CA
decision, until June 30, 2013; and 6% per
annum computed from July 1, 2013 until
finality of this decision; and
2. The amount to be refunded and its
accrued interest shall earn interest of 6%
per annum until full refund.
WHEREFORE, the Court AFFIRMS the decision
promulgated by the Court of Appeals on March 28,
2006 in CA-G.R. CV No. 84396, subject to the
MODIFICATION that any amount to be refunded
to the respondents shall bear interest of 12% per
annum computed from March 28, 2006 until June
30, 2013, and 6% per annum computed from July 1,
2013 until finality hereof; that the amount to be
refunded and its accrued interest shall earn interest
at 6o/o per annum until full refund; and DIRECTS
the petitioner to pay the costs of suit.
SO ORDERED.
[ G.R. No. 177260, March 30, 2011 ]
LOTTO RESTAURANT CORPORATION,
REPRESENTED BY SUAT KIM GO, PETITIONER,
VS. BPI FAMILY SAVINGS BANK, INC.,
RESPONDENT.
DECISION
ABAD, J.:
This case is about a bank's right under the loan
agreement to adjust the loan interest from a fixed
rate to the prevailing market rate and, further, to
foreclose the real estate mortgage that secures the
same upon the borrower's default.
The Facts and the Case
On December 23, 1999 petitioner Lotto Restaurant
Corporation (Lotto) got a loan of P3,000,000.00
from the DBS Bank (DBS) at an interest rate of
11.5% per annum.  The promissory note it executed
provided that Lotto would pay DBS a monthly
amortization of P35,045.69 for 180 months.  To
secure payment of the loan, Lotto, represented by
Suat Kim Go (Go), its General Manager, mortgaged
to DBS a condominium unit that belonged to it.[1]
Lotto paid its monthly amortizations for 12 months
from December 24, 1999 to December 24, 2000. 
But in January 2001, after DBS increased the
interest to 19% per annum, Lotto contested the
increase and stopped paying the loan.  After
respondent BPI Family Savings Bank, Inc. (BPI)
acquired DBS, Lotto tried to negotiate with BPI for
reduction of interest but the latter agreed to reduce
it to only 14.7% per annum, which was still
unacceptable to Lotto.[2]
On October 21, 2002 BPI foreclosed the mortgage
on Lotto's condominium unit[3] to satisfy its unpaid
claim of P5,283,470.26, which included interest,
penalties, fire insurance premium, attorney's fees,
and estimated foreclosure expenses.  BPI's
computation applied an interest rate of 19% per
annum for the period December 24, 2000 to
November 24, 2001; and 14.7% per annum for the
period December 24, 2001 to October 10, 2002.[4]
To stop the foreclosure, Lotto filed against BPI with
the Regional Trial Court (RTC) of Manila[5] in Civil
Case 02-105415 an action for reformation or
annulment of real estate mortgage with prayer for a
temporary restraining order (TRO) and preliminary
injunction.[6]  The RTC issued a TRO on January 3,
2003 and a preliminary injunction on February 6,
2003,[7] enjoining the foreclosure sale of the
condominium unit.  Mediation in the case failed.[8]
On January 11, 2005 the RTC rendered a decision
in Lotto's favor,[9] finding that DBS breached the
stipulations in the promissory note when it
unilaterally increased the interest rate on its loan
from 11.5% to 19% per annum.  Further, the RTC
held that the mortgage on the condominium unit
was void since the Lotto Board of Directors did not
authorize Go to sign the document.  The RTC
directed the Register of Deeds to cancel the
encumbrance on Lotto's title and ordered Lotto to
pay BPI its loan of P2,990,832.00 at P35,045.69 a
month, less the amortizations that it already paid.
Aggrieved, BPI appealed to the Court of Appeals
(CA), which reversed the RTC Decision on
November 22, 2006[10] in CA-G.R. CV 84701.  The
CA held that Lotto was estopped from questioning
the validity of the promissory note and the real
estate mortgage since, having authorized Go to take
out a loan from the bank, it followed that it also
authorized her to provide the security that the loan
required.  The CA also clarified that Lotto's gross
loan was P3,000,000.00; the P2,990,832.00 that
the RTC referred to was the net proceeds of the
loan.
As to the increase in the interest rate, the CA found
that the 11.5% rate provided in the promissory note
pertained only to the period from December 24,
1999 to December 24, 2000.  The note provided
that, upon the lapse of that period, the loan would
already bear an interest based on the prevailing
market rate.  The increase from 11.5% to 19% for
the subsequent period was thus valid.  The CA
upheld the mortgage and lifted the RTC's writ of
preliminary injunction.  With the denial of its
motion for reconsideration, [11] Lotto filed the
present petition for review.
The Issues Presented
The issues in this case are:
1. Whether or not DBS, now BPI, validly adjusted
the rate of interest on Lotto's loan from 11.5% to
19% per annum beginning on December 24, 2000;
and
2. Whether or not BPI has the right to foreclose the
real estate mortgage for non-payment of the loan.
The Court's Ruling
One.  Lotto insists that DBS had no right to
unilaterally increase the interest rate on its loan
from 11.5% to 19% per annum after the passage of a
year.  Lotto argues that DBS could, under the terms
and conditions of the promissory note, make such
adjustments only after 180 months following the
execution of the promissory note.
But, paragraphs 7 and 8 of the promissory
note[12] clearly provide that the 11.5% interest
rate per annum applied only to the first year of the
loan.  Thus:
7.  EFFECTIVE INTEREST RATE (nr=er)  11.5*  
%p.a.
(Method of Computation attached)     12.24.99-
12.24.2000
8. SCHEDULE OF PAYMENT
a. Single payment due on _________ P_______
                                          (Date)
b. Total Installment Payments __________
P_______
Payable in  180*    months/year
          (no. of payments)      * Thereafter interest
to be based
                                              on prevailing market
rate.
at   P    35,045.69   each installment___________
   1.24.00 (sic)-12.24.00 (Emphasis added)

It is plainly clear from paragraph 7 above that the
11.5% per annum interest was to apply to the period
December 24, 1999 to December 24, 2000
("12.24.99-12.24.00"). They form but one
statement of the stipulated interest rate and the
period to which such interest rate applied.
Additionally, the statement of applicable interest
rate bears an asterisk sign, which footnoted the
information that "[t]hereafter interest to be based
on prevailing market rate."  This means that the
rate of interest would be adjusted to the prevailing
market rate after December 24, 2000.
Lotto of course calls attention to the statement
down in paragraph 8 of the promissory note
(Schedule of Payment), particularly in its sub-
paragraph b, that the "Total Installment Payments"
are "Payable in 180* months x x x."  Lotto claims
that the asterisk sign after the figure "180" means
that the interest would be adjusted to the prevailing
market rate at the end of 180 months.  But Lotto's
interpretation would have a ridiculous implication
since that "180 months" is the statement of the pay
out period for the loan.   The loan would have been
paid after 180 months and, therefore, there would
be no occasion for charging Lotto a new rate of
interest on a past loan.
Besides such interpretation would directly
contravene the clear provision of paragraph 7 that
the 11.5% per annum interest was to apply only to
the period December 24, 1999 to December 24,
2000 ("12.24.99-12.24.00").  As held in Manila
International Airport Authority v. Judge
Gingoyon,[13] various stipulations in a contract must
be read together and given effect as their meanings
warrant.  Taken together, paragraphs 7 and 8
intended the 11.5% interest rate to apply only to the
first year of the loan.
The Court has previously upheld as valid
the proviso in loans that the interest rate would be
made to depend on the prevailing market rate.   The Court of Appeals affirmed the Regional Trial
Such provision does not signify an automatic
increase in the interest.  It simply means that the
bank may adjust the interest according to the
prevailing market rate.  This may result to either an
increase or a decrease in the interest.[14]
Two. Lotto claims that the real estate mortgage
that Go executed was void since it did not authorize
her to execute the same and since DBS did not sign
it.  But Lotto admitted in its complaint below that
Go had obtained a loan from DBS on its behalf,
with the condominium unit as collateral. [15]  With
this admission, Lotto should be deemed estopped
from assailing the validity and due execution of that
mortgage deed.
As to BPI's right to foreclose, the records show that
Lotto defaulted in its obligation when it
unjustifiably stopped paying its amortizations after
the first year.  Consequently, there is no question
that BPI (which succeeded DBS) had a clear right to
foreclose on Lotto's collateral.   The Court held
in Equitable PCI Bank, Inc. v. OJ-Mark Trading,
Inc.[16] that foreclosure is but a necessary
consequence of non-payment of mortgage
indebtedness.  The creditor-mortgagee has the right
to foreclose the mortgage, sell the property, and
apply the proceeds of the sale to the satisfaction of
the unpaid loan.[17]
At any rate, not all is lost for Lotto.  It could avail
itself of lower interest where the prevailing market
rate warrants. And, under Section 47[18] of the
General Banking Law, it has the right to redeem the
property by paying the amount due, with interest
rate specified under the mortgage deed, as well as
all the costs and expenses incurred by the bank.[19]
WHEREFORE, the Court DENIES the petition
and AFFIRMS the November 22, 2006 decision
and the March 28, 2007 resolution of the Court of
Appeals in CA-G.R. CV 84701.
SO ORDERED.
LORANTE VITUG, Petitioner, v. EVANGELINE
A. ABUDA, Respondent.
DECISION
LEONEN, J.:chanRoblesvirtualLawlibrary
Parties who have validly executed a contract and
have availed themselves of its benefits may not, to
escape their contractual obligations, invoke
irregularities in its execution to seek its
invalidation.
This is a Petition for Review on Certiorari under
Rule 45 assailing the Court of Appeals' October 26,
2011 Decision and its March 8, 2012 Resolution.
Court's December 19, 2008 Decision upholding the
validity of the mortgage contract executed by
petitioner Florante Vitug (Vitug) and respondent
Evangeline A. Abuda (Abuda).
On March 17, 1997, Abuda loaned P250,000.00 to
Vitug and his wife, Narcisa Vitug.1 As security for
the loan, Vitug mortgaged to Abuda his property in
Tondo Foreshore along R-10, Block A-50-3, Del
Pan to Kagitingan Streets, Tondo, Manila. 2 The
property was then subject of a conditional Contract
to Sell between the National Housing Authority and
Vitug. Pertinent portions of the mortgage deed
reads
That, Mortgagor, is the owner, holder of a
Conditional Contract to Sell of the National
Housing Authority (NHA) over a piece of property
located at the Tondo Foreshore along R-10, Block
"A-50-3, Delpan to Kagitingan Streets in the district
of Tondo, Manila;
That, with the full consent of wife Narcisa Vitug,
hereby mortgage to Evangeline A. Abuda, with full
consent of husband Paulino Abuda, said property
for TWO HUNDRED FIFTY THOUSAND PESOS
ONLY (P250,000.00), in hand paid by Mortgagee
and in hand received to full satisfaction by
Mortgagor, for SIX MONTHS (6) within which to
pay back the full amount plus TEN PERCENT
(10%) agreed interest per month counted from the
date stated hereon;
That, upon consummation and completion of the
sale by the NHA of said property, the title-award
thereof, shall be received by the Mortgagee by
virtue of a Special Power of Attorney, executed by
Mortgagor in her favor, authorizing Mortgagee to
expedite, follow-up, cause the release and to
received [sic] and take possession of the title award
of the said property from the NHA, until the
mortgage amount is fully paid for and
settled[.]3ChanRoblesVirtualawlibrary
cralawlawlibrary
On November 17, 1997, the parties executed a
"restructured"4 mortgage contract on the property
to secure the amount of P600,000.00 representing
the original P250,000.00 loan, additional
loans,5 and subsequent credit
accommodations6 given by Abuda to Vitug with an
interest of five (5) percent per month.7 By then, the
property was covered by Transfer Certificate of
Title No. 234246 under Vitug's name.8
Spouses Vitug failed to pay their loans despite
Abuda's demands.9
On November 21, 2003, Abuda filed a Complaint
for Foreclosure of Property before the Regional
Trial Court of Manila.10
On December 19, 2008, the Regional Trial Court
promulgated a Decision in favor of Abuda. 11The
dispositive portion of the Decision reads
WHEREFORE, judgment is rendered in favor of
the plaintiffs [sic] and against the defendant
1. Ordering the defendant to pay unto the court
and/or to the judgment debtor within the
reglementary period of Ninety (90) days the
principal sum of P600,000.00 with interest at 5%
per month from May 31, 2002 to actual date of
payment plus P20,000.00 as and for attorney's
fees;
2. Upon default of the defendant to fully pay the
aforesaid sums, the subject mortgaged property
shall be sold at public auction to pay off the
mortgage debt and its accumulated interest plus
attorney's fees, expenses and costs; and
3. After the confirmation of the sale, ordering the
defendant and all persons claiming rights under her
[sic] to immediately vacate the subject premises.
SO ORDERED.12cralawlawlibrary
Vitug appealed the December 19, 2008 Regional
Trial Court Decision before the Court of
Appeals.13 He contended that the real estate
mortgage contract he and Abuda entered into was
void on the grounds of fraud and lack of consent
under Articles 1318, 1319, and 1332 of the Civil
Code.14 He alleged that he was only tricked into
signing the mortgage contract, whose terms he did
not really understand. Hence, his consent to the
mortgage contract was vitiated.15
On October 26, 2011, the Court of Appeals
promulgated a Decision,16 the dispositive portion of
which reads
WHEREFORE, the instant appeal
is PARTIALLY GRANTED.  The Decision of the
RTC dated December 19, 2008 in Civil Case No. 03-
108470 in favor of the appellee and against the
appellant is AFFIRMED with
the MODIFICATION that an interest rate of 1%
per month or 12% per annum shall be applied to the
principal loan of P600,000.00, computed from the
date of judicial demand, i.e., November 21, 2003;
and 12% interest per annum on the amount due
from the date of the finality of the Decision until
fully paid.
SO ORDERED.17ChanRoblesVirtualawlibrary
cralawlawlibrary
The Court of Appeals found that Vitug failed to pay
his obligation within the stipulated six-month
period under the March 17, 1997 mortgage
contract.18 As a result of this failure, the parties
entered into a restructured mortgage contract on
November 17, 1997.19 The new mortgage contract
was signed before a notary public by Vitug, his wife
Narcisa, and witnesses Rolando Vitug, Ferdinand
Vitug, and Emily Vitug.20
The Court of Appeals also found that all the
elements of a valid mortgage contract were present
in the parties' mortgage contract.21 The mortgage
contract was also clear in its terms—that failure to
pay the P600,000.00 loan amount, with a 5%
interest rate per month from November 17, 1997 to
November 17, 1998, shall result in the foreclosure of
Vitug's mortgaged property.22 No evidence on
record showed that Vitug was defrauded when he
entered into the agreement with Abuda.23
However, the Court of Appeals found that the
interest rates imposed on Vitug's loan were
"iniquitous, unconscionable[,] and exorbitant."24 It
instead ruled that a legal interest of 1% per month
or 12% per annum should apply from the judicial
demand on November 21, 2003.25cralawred
On November 23, 2011, Vitug moved for the
reconsideration of the Court of Appeals' October
26, 2011 Decision.26 He pointed out that not all the
requisites of a valid mortgage contract were present
since he did not have free disposal of his property
when he mortgaged it to Abuda. His transfer
certificate of title had an annotation by the National
Housing Authority, which restricted his right to
dispose or encumber the property.27 The restriction
clause provided that the National Housing
Authority's consent must first be obtained before he
may dispose or encumber his property.28
Abuda, according to Vitug, failed to get the National
Housing Authority's consent before the property
was mortgaged to him.
Vitug also argued in his Motion for Reconsideration
that the property was exempt from execution
because it was constituted as a family home before
its mortgage.
In the Resolution promulgated on March 8,
2012,29 the Court of Appeals denied Vitug's Motion
for Reconsideration.
Vitug filed this Petition for Review on Certiorari
under Rule 45 to assail the Court of Appeals'
October 26, 2011 Decision and its March 8, 2012
Resolution.
Vitug raises the following
issues:chanRoblesvirtualLawlibrary
First, whether petitioner Florante Vitug may raise
in this Petition issues regarding the National
Housing Authority's alleged lack of consent to the
mortgage, as well as the exemption of his property
from execution;
Second, whether the restriction clause in
petitioner's title rendered invalid the real estate
mortgage he and respondent Evangeline Abuda
executed; and
Lastly, whether petitioner's property is a family
home that is free from execution, forced sale, or
attachment under the Family Code.30
We deny the Petition.
Petitioner argues that not all the requisites of a
valid mortgage are present.31 A mortgagor must
have free disposal of the mortgaged property. 32 The
existence of a restriction clause33 in his title means
that he does not have free disposal of his
property.34 The restriction clause does not allow
him to mortgage the property without the National
Housing Authority's approval.35 Since the National
Housing Authority never gave its consent to the
mortgage,36 the mortgage contract between him and
respondent is invalid.37
On the other hand, respondent argues that the only
issue in this case should be the validity of the real
estate mortgage executed by petitioner in her
favor.38 Petitioner raised other issues, such as the
alleged lack of written consent by the National
Housing Authority (and the property's exemption
from execution), only in his Motion for
Reconsideration before the Court of Appeals.39
Respondent also argues that the National Housing
Authority issued a Permit to Mortgage the property.
This was formally offered in evidence before the
Regional Trial Court as Exhibit "E."40 The National
Housing Authority even accepted respondent's
personal checks to settle petitioner's mortgage
obligations to the National Housing
Authority.41 The National Housing Authority would
have already foreclosed petitioner's property if not
for the loan that respondent extended to
petitioner.42
Petitioner counters that the Permit to Mortgage
cited by respondent was only valid for 90 days and
was subject to the conditions that respondent failed
to fulfill. These conditions are
(1)  The Mortgage Contract must provide that
"In the event of foreclosure, the NHA shall be
notified of the date, time and place of the auction
sale so that it can participate in the foreclosure sale
of the property."
(2)  The mortgage contract must be submitted to
NHA for verification and final approval[.] 43
Thus, according to petitioner, there was neither
written consent nor approval by the National
Housing Authority of the mortgage
contracts.44cralawlawlibrary
Petitioner further contends that the alleged lack of
NHA consent on the mortgage (and, being a family
home, his property's exemption from execution)
was raised in his Answer to respondent's complaint
for foreclosure filed before the Regional Trial Court,
thus
20.  Similarly, defendant has constituted their
family home over said mortgage property and
should that property be sold, defendant and his
family will be left with no place to reside with [sic]
within Metro Manila, hence, for humanitarian
reason[s], the defendant prayed that he be given
ample time within which to settle his obligation
with the plaintiff;
21. Lastly, the Memorandum of Encumbrances
contained at the back of defendant's title prohibits
her from  selling,  encumbering, mortgaging,
leasing, sub-leasing or in any manner altering or
disposing the lot or right thereon, in whole or in
part within the period often (10) years from the
time of issuance of said title without first obtaining
the consent of the NHA. As reflected in the title, the
same was issued on 25 June 1997 hence, the
mortgage executed even prior to the issuance of
said title should be declared
void.45ChanRoblesVirtualawlibrary
cralawlawlibrary
I (3) That  the  persons  constituting  the  pledge  or
Due process46 dictates that arguments not raised in
the trial court may not be considered by the
reviewing court.47
Petitioner may raise in his Petition the issues of
lack of the National Housing Authority's consent to
the mortgage and his property's alleged exemption
from execution.
The records show that petitioner mentioned these
issues as early as in his Answer to respondent's
Complaint48 and Pre-trial Brief.49 The trial court
acknowledged these issues, but found that his
defenses based on these grounds could not be given
credence
The defendant further stated that he is willing to
pay the obligation is unconscionable. Further, the
said property constituted their family home. The
defendant claimed that Memorandum of
Encumbrance prohibits her from selling,
encumbering, mortgaging, leasing, subleasing or in
any manner altering or disposing the lot or right
thereon in whole or in part within ten (10) years
from the time of issuance of the said title without
obtaining the consent of the NHA.
. . . The court opines that the defendant has failed to
raise a legitimate and lawful ground in order to bar
the herein plaintiff from asserting its lawful right
under the law.
The contention of the defendant that the subject
mortgaged property is their family home is
irrelevant as the debt secured by mortgages on the
premises before or after the constitution of the
family home does not exempt the same from
execution (Rule 106 of the Rules of
Court).50cralawlawlibrary
Whether these arguments seasonably raised are
valid is, however, a different matter.
II
All the elements of a valid mortgage contract were
present. For a mortgage contract to be valid, the
absolute owner of a property must have free
disposal of the property.51 That property must be
used to secure the fulfillment of an
obligation.52 Article 2085 of the Civil Code provides
Art. 2085. The following requisites are essential to
contracts of pledge and mortgage
(1) That they be constituted to secure the fulfillment
of a principal obligation;
(2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
mortgage have the free disposal of their property,
and in the absence thereof, that they be legally
authorized for the purpose.
....
cralawlawlibrary
Petitioner, who held under his name a transfer
certificate of title to the property, mortgaged the
property to respondent to secure the payment of his
loan of P600,000.00.
Petitioner claims that he only borrowed
P250,000.00 and that he was only made to sign
another mortgage contract whose terms he did not
agree to.
These claims were already found by the trial court
and the Court of Appeals to be unsupported by
evidence. Petitioner's consent to the mortgage
contract dated November 17, 1997 was not vitiated.
He voluntarily signed it in the presence of a notary
public, his wife, and other witnesses.53
Further, the amount of P600,000.00 under the
November 17, 1997 mortgage contract represented
the initial loan of P250,000.00 and the subsequent
loan amounts, which were found to have been
actually released to petitioner. The November 17,
1997 mortgage contract reflected the changes in the
parties' obligations after they executed the March
17, 1997 mortgage contract.
This court is not a trier of facts. As a general rule,
findings of fact of the lower court and of the Court
of Appeals are not reviewable and are binding upon
this court54 unless the circumstances of the case are
shown to be covered by the exceptions.55 Petitioner
failed to show any ground for this court to review
the trial court's and the Court of Appeals' finding
that petitioner mortgaged his property in
consideration of a loan amounting to P600,000.00.
Petitioner's undisputed title to and ownership of
the property is sufficient to give him free disposal of
it. As owner of the property, he has the right to
enjoy all attributes of ownership including jus
disponendi or the right to  encumber,  alienate,  or
dispose  his  property  "without  other limitations
than those established by law."56
Petitioner's claim that he lacks free disposal of the
property stems from the existence of the
restrictions imposed on his title by the National
Housing Authority. These restrictions were
annotated on his title, thus
Entry No. 4519/V-013/T-234246 -RESTRICTION-
that the Vendee shall not sell, encumber, mortgage,
lease, sub-let or in any manner, alter or dispose the
lot or right therein at any time, in whole or in part
without obtaining the written consent of the
Vendor. Other restrictions set forth in Doc. No.
287; Page No. 59; Book No. 250; SERIES of 1997 of
Notary Public for Quezon City, Liberty S. Perez.
Date of instrument - June 24, 1997
Date of inscription- June 25, 1997- 11:39
a.m.57ChanRoblesVirtualawlibrary
cralawlawlibrary
The National Housing Authority's restrictions were
provisions in a contract it executed with petitioner.
This contract bound petitioner to certain conditions
before transferring or encumbering the property.
Specifically, when the National Housing Authority
sold the property to petitioner, petitioner became
obligated not to sell, encumber, mortgage, lease,
sublease, alter, or dispose the property without the
National Housing Authority's consent.
These restrictions do not divest petitioner of his
ownership rights. They are mere burdens or
limitations on petitioner's jus disponendi. Thus,
petitioner may dispose or encumber his property.
However, the disposition or encumbrance of his
property is subject to the limitations and to the
rights that may accrue to the National Housing
Authority. When annotated to the title, these
restrictions serve as notice to the whole world that
the National Housing Authority has claims over the
property, which it may enforce against others.
Contracts entered into in violation of restrictions on
a property owner's rights do not always have the
effect of making them void ab initio.58 This has
been clarified as early as 1956 in Municipality of
Camiling v. Lopez.59
The Municipality of Camiling sought to collect from
Diego Z. Lopez payments for the lease of "certain
fisheries." As. a defense, Diego Z. Lopez invoked the
alleged nullity of the lease contract he entered into
with the Municipality of Camiling.
Citing Municipality of Hagonoy v.
Evangelista,60 the trial court ruled that the lease
contract between the Municipality of Camiling and
Diego Z. Lopez was void since it "was not approved
by the provincial governor in violation of section
2196 of the Revised Administrative Code."61 This
court reversed the trial court's Decision and noted
the incorrect interpretation in Municipality of
Hagonoy of the term "nulos" under Article 4 of the
then Civil Code: "Son nulos los actos ejecutados
contra lo dispuesto en la ley, salvo los casos en que
la naisma ley or dene su validez."62
In Municipality of Camiling, this court explained
that void acts declared in Article 4 of the Old Civil
Code63refer to those made in violation of the law.
Not all those acts are void from the beginning. Void
acts may be "those that are ipso facto void and
those which are merely voidable."64
The lease contract executed by the Municipality of
Camiling and Diego Z. Lopez was not treated
as ipso facto void. Section 2196 of the
Administrative Code required the provincial
governor's approval before the municipal council
entered into contracts. However, the same
provision did not prohibit the municipal council
from entering into contracts involving the
properties of the municipality.65 The municipal
council's exercise of power to enter into these
contracts might have been limited, but its power
was recognized. This court found that aside from
the lack of approval, the contract had no badge of
illegality that would make it ipso facto void. The
execution of the contract was not tainted with
violation of public order, morality, or public policy.
The contract could have been ratified. Hence, this
court said that it was "merely voidable at the option
of the party who in law is granted the right to
invoke its invalidity."66
The same doctrine was repeated in Sarmiento v.
Salud,67 which involved a property in Kamuning,
Quezon City. The property was sold by Philippine
Homesite and Housing Corp. to Spouses Francisco
and Marcelina Sarmiento. The transfer certificate of
title that covered the property contained an
annotation stating that the property was sold on the
condition that it could not be resold within 25 years
from contract date. Sale could be made within the
period only to People's Homesite and Housing
Corporation.68 Spouses Sarmiento later mortgaged
the property to Jorge Salud. Because Spouses
Sarmiento failed to redeem the property, the sheriff
auctioned and sold the property to Jorge Salud,
who was issued a certificate of sale.
Spouses Sarmiento sought to prevent the
foreclosure of the property by filing an action for
annulment of the foreclosure proceedings, sale, and
certificate of sale on the ground that the prohibition
against sale of the property within 25 years was
violated.
This court did not declare the contract void for
violating the condition that the property could not
be resold within 25 years. Instead, it recognized
People's Homesite and Housing Corporation's right
to cause the annulment of the contract. Since the
condition was made in favor of People's Homesite
and Housing Corporation, it was the Corporation,
not Spouses Sarmiento, who had a cause of action
for annulment.69In effect, this court considered the
contract between Spouses Sarmiento and Jorge
Salud as merely voidable at the option of People's
Homesite and Housing Corporation.
Thus, contracts that contain provisions in favor of
one party may be void ab initio or
voidable.70 Contracts that lack consideration,71 those
that are against public order or public policy,72 and
those that are attended by illegality73 or
immorality74 are void ab initio.
Contracts that only subject a property owner's
property rights to conditions or limitations but
otherwise contain all the elements of a valid
contract are merely voidable by the person in whose
favor the conditions or limitations are made.75
The mortgage contract entered into by petitioner
and respondent contains all the elements of a valid
contract of mortgage. The trial court and the Court
of Appeals found no irregularity in its execution.
There was no showing that it was attended by
fraud, illegality, immorality, force or intimidation,
and lack of consideration.
At most, therefore, the restrictions made the
contract entered into by the parties voidable76 by
the person in whose favor they were made—in this
case, by the National Housing
Authority.77 Petitioner has no actionable right or
cause of action based on those restrictions.78
Having the right to assail the validity of the
mortgage contract based on violation of the
restrictions, the National Housing Authority may
seek the annulment of the mortgage
contract.79 Without any action from the National
Housing Authority, rights and obligations,
including the right to foreclose the property in case
of non-payment of the secured loan, are still
enforceable between the parties that executed the
mortgage contract.
The voidable nature of contracts entered into in
violation of restrictions or conditions necessarily
implies that the person in whose favor the
restrictions were made has two (2) options. It may
either: (1) waive80its rights accruing from such
restrictions, in which case, the duly executed
subsequent contract remains valid; or (2) assail the
subsequent contract based on the breach of
restrictions imposed in its favor.
In Sarmiento, this court recognized that the right to
waive follows from the right to invoke any violation
of conditions under the contract. Only the person
who has the right to invoke this violation has the
cause of action for annulment of contract. The
validity or invalidity of the contract on the ground
of the violation is dependent on whether that
person will invoke this right. Hence, there was
effectively a waiver on the part of People's
Homesite and Housing Corporation when it did not
assail the validity of the mortgage in that case
It follows that on the assumption that the mortgage
to appellee Salud and the foreclosure sale violated
the condition in the Sarmiento contract, only the
PHHC was entitled to invoke the condition
aforementioned, and not the Sarmientos. The
validity or invalidity of the sheriffs foreclosure sale
to appellant Salud thus depended exclusively on the
PHHC; the latter could attack the sale as violative
of its right of exclusive reacquisition; but it (PHHC)
also could waive the condition and treat the sale as
good, in which event, the sale can not be assailed
[for] breach of the condition aforestated. Since it
does not appear anywhere in the record that the
PHHC treated the mortgage and foreclosure sale as
an infringement of the condition, the validity of the
mortgage, with all its consequences, including its
foreclosure and sale thereat, can not be an issue
between the parties to the present case. In the last
analysis, the appellant, as purchaser at the
foreclosure sale, should be regarded as the owner of
the lot, subject only to the right of PHHC to have
his acquisition of the land set aside if it so
desires.81cralawlawlibrary
There is no showing that the National Housing
Authority assailed the validity of the mortgage
contract on the ground of violation of restrictions
on petitioner's title. The validity of the mortgage
contract based on the restrictions is not an issue
between the parties. Petitioner has no cause of
action against respondent based on those
restrictions. The mortgage contract remains
binding upon petitioner and respondent.
In any case, there was at least substantial
compliance with the consent requirement given the
National Housing Authority's issuance of a Permit
to Mortgage. The Permit reads
25 November 1997
MR. FLORANTE VITUG 
901 Del Pan Street
Tondo, Manila
PERMIT TO MORTGAGE
Dear Mr. Vitug,
Please be informed that your request dated 20
November 1997 for permission to mortgage
Commercial Lot 5, Block 1, Super Block 3, Area I,
Tondo Foreshore Estate Management Project
covered by TCT No. 234246 is hereby GRANTED
subject to the following terms and conditions
1.  The Mortgage Contract must provide that
"In the event of foreclosure, the NHA shall be
notified of the date, time and place of the auction
sale so that it can participate in the foreclosure sale
of the property."
2. The mortgage contract must be submitted to
NHA for verification and final approval; and
3. This permit shall be good only for a period of
ninety (90) days from date of receipt hereof.
Very truly yours,
(Signed)
Mariano M. Pineda 
General Manager82
cralawlawlibrary
Petitioner insists that the Permit cannot be treated
as consent by the National Housing Authority
because of respondent's failure to comply with its
conditions.
However, a reading of the mortgage contract
executed by the parties on November 17, 1997
shows otherwise. The November 17, 1997 mortgage
contract had references to the above conditions
imposed by the National Housing Authority, thus
It is the essence of this Contract, that if and should
the Mortgagor fails to comply and pay the principal
obligations hereon within the period of the
Contract, the Mortgage shall be foreclosed
according to law and in which case the NHA shall
be duly notified of the matter.
That this mortgage contract shall be submitted to
the NHA for verifixation [sic] and final approval
in accordance with NHA permit to mortgage the
property.83(Emphasis supplied)cralawlawlibrary
Assuming there was non-compliance with the
conditions set forth in the Permit, petitioner cannot
blame respondent. The restrictions were part of the
contract between the National Housing Authority
and petitioner. It was petitioner, not respondent,
who had the obligation to notify and obtain the
National Housing Authority's consent within the
prescribed period before sale or encumbrance of
the property.
Petitioner cannot invoke his own mistake to assail
the validity of a contract he voluntarily entered
into.84
III
Even if the mortgage contract were illegal or
wrongful, neither of the parties may assail the
contract's validity as against the other because they
were equally at fault.85 This is the principle of in
pari delicto (or in delicto) as embodied in Articles
1411 and 1412 of the Civil Code
Art. 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties
being in pari delicto, they shall have no action
against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative
to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the
contract.
This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to
comply with his promise.
Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
criminal offense, the following rules shall be
observed
(1) When the fault is on the part of both contracting
parties, neither may recover what he has given by
virtue of the contract, or demand the performance
of the other's undertaking;
(2) When only one of the contracting parties is at
fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of
what has been promised him. The other, who is not
at fault, may demand the return of what he has
given without any obligation to comply his
promise.cralawlawlibrary
Under this principle, courts shall not aid parties in
their illegal acts.86  The court shall leave them as
they are.87 It is an equitable principle that bars
parties from enforcing their illegal acts, assailing
the validity of their acts, or using its invalidity as a
defense.88
In the 1906 case of Batarra v. Marcos,89 this court
declared that a person cannot enforce a promise to
marry based on the consideration of "carnal
connection." This court ruled that whether or not
such consideration was a crime, neither of the
parties can recover because the acts "were common
to both parties."90
In Bough v. Cantiveros,91 this court refused to
enforce in favor of the guilty parties a contract of
sale that was not only simulated but also executed
to defeat any attempt by a husband to recover
properties from his wife.
Another case, Liguez v. Court of Appeals,92 involves
a party's claim over a property based on a deed of
donation executed in her favor when she was 16
years old. The heirs of the donor assailed the
donation on the ground of having an illicit causa.
The donor in that case was found to have had
sexual relations with the claimant. The donation
was done to secure the claimant's continuous
cohabitation with the donor, as well as to gratify the
donor's sexual impulses. At the time of the
donation, the donor was married to another
woman. The donated property was part of their
conjugal property.
This court held that the donation was founded on
an illicit causa. While this court found the principle
of in pari delicto inapplicable in that case given the
claimant's minority at the time of donation, it had
the occasion to say that the parties were barred
"from pleading the illegality of the bargain either as
a cause of action or as a defense."93 The claimant
was declared entitled to the donated property,
without prejudice to the share and legitimes of the
donor's forced heirs.
In the later case of Villegas v. Rural Bank of
Tanjay, Inc.,94 this court ruled that the petitioners
in that case were not entitled to relief because they
did not come to court with clean hands.
This court found that they "readily participated in a
ploy to circumvent the Rural Banks Act and offered
no objection when their original loan of
P350,000.00 was divided into small separate loans
not exceeding P50,000.00 each."95 They and
respondent bank were in pari delicto. They could
not be given affirmative relief against each
other.96 Hence, Spouses Villegas may not seek the
annulment of the loan and mortgage contracts they
voluntarily executed with respondent bank on the
ground that these contracts were simulated to make
it appear that the loans were sugar crop loans,
allowing respondent bank to approve it pursuant to
Republic Act No. 720, otherwise known as the
Rural Banks Act.
The principle of in pari delicto admits exceptions.
It does not apply when the result of its application
is clearly against statutory law, morals, good
customs, and public policy.97
In Philippine Banking Corporation, representing
the Estate of Justina Santos v. Lui She,98 this court
refused to apply the principle of in pari
delicto. Applying the principle meant that this court
had to declare as valid between the parties a 50-
year lease contract with option to buy, which was
executed by a Filipino and a Chinese citizen. This
court ruled that the policy to conserve land in favor
of Filipinos would be defeated if the principle of in
pari delicto was applied instead of setting aside the
contracts executed by the parties.99
Petitioner in this case did not come to this court
with clean hands. He was aware of the restrictions
in his title when he executed the loan and mortgage
contracts with respondent. He voluntarily executed
the contracts with respondent despite this
knowledge. He also availed himself of the benefits
of the loan and mortgage contract. He cannot now
assail the validity of the mortgage contract to
escape the obligations incurred because of it.100
Petitioner also failed to show that upholding the
validity of the mortgage contract would be contrary
to law, morals, good customs, and public policy.
Petitioner's contract with the National Housing
Authority is not a law prohibiting the transfer or
encumbrance of his property. It does not render
subsequent transactions involving the property a
violation of morals, good customs, and public
policy. Violation of its terms does not render
subsequent transactions involving the property
void ab initio.101 It merely provides the National
Housing Authority with a cause of action to annul
subsequent transactions involving the property.
IV
Petitioner argues that the property should be
exempt from forced sale, attachment, and
execution, based on Article 155 of the Family
Code.102 Petitioner and his family have been
neighbors with respondent since 1992, before the
execution of the mortgage contract.103
Even though petitioner's property has been
constituted as a family home, it is not exempt from
execution. Article 155 of the Family Code explicitly
provides that debts secured by mortgages are
exempted from the rule against execution, forced
sale, or attachment of family home
Art. 155. The family home shall be exempt from
execution, forced sale or attachment except
(3) For debts secured by mortgages on the premises
before or after such constitution[.]cralawlawlibrary
Since petitioner's property was voluntarily used by
him as security for a loan he obtained from
respondent, it may be subject to execution and
attachment.
V
The Court of Appeals correctly found that the
interest rates of 5% or 10% per month imposed on
petitioner's loan were unconscionable.
Parties are free to stipulate interest rates in their
loan contracts in view of the suspension of the
implementation of the Usury Law ceiling on
interest effective January 1, 1983.104
The freedom to stipulate interest rates is granted
under the assumption that we have a perfectly
competitive market for loans where a borrower has
many options from whom to borrow. It assumes
that parties are on equal footing during bargaining
and that neither of the parties has a relatively
greater bargaining power to command a higher or
lower interest rate. It assumes that the parties are
equally in control of the interest rate and equally
have options to accept or deny the other party's
proposals. In other words, the freedom is granted
based on the premise that parties arrive at interest
rates that they are willing but are not compelled to
take either by force of another person or by force of
circumstances.105
However, the premise is not always true. There are
imperfections in the loan market. One party may
have more bargaining power than the other. A
borrower may be in need of funds more than a
lender is in need of lending them. In that case, the
lender has more commanding power to set the
price of borrowing than the borrower has the
freedom to negotiate for a lower interest rate.
Hence, there are instances when the state must step
in to correct market imperfections resulting from
unequal bargaining positions of the parties.
Article 1306 of the Civil Code limits the freedom to
contract to promote public morals, safety, and
welfare106chanroblesvirtuallawlibrary
Art. 1306. 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.cralawlawlibrary
In stipulating interest rates, parties must ensure
that the rates are neither iniquitous nor
unconscionable. Iniquitous or unconscionable
interest rates are illegal and, therefore, void for
being against public morals.107 The lifting of the
ceiling on interest rates may not be read as
"grant[ing] lenders carte blanche[authority] to
raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging
of their assets."108
Voluntariness of stipulations on interest rates is not
sufficient to make the interest rates
valid.109 In Castro v. Tan
chanroblesvirtuallawlibrary
110
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.111cralawlawlibrary
Thus, even if the parties voluntarily agree to an
interest rate, courts are given the discretionary
power to equitably reduce it if it is later found to be
iniquitous or unconscionable.112 Courts
approximate what the prevailing market rate would
have been under the circumstances had the parties
had equal bargaining power.
An interest rate is not inherently conscionable or
unconscionable. Interest rates become
unconscionable in light of the context in which they
were imposed or applied. In Medel v. Court of
Appeals,113 this Court ruled that the stipulated
interest of 5.5% or 66% per annum was
unconscionable and contrary to morals. It was
declared void. This court reduced the interest rate
to 1% per month or 12% per annum.114
This court also ruled that the interest rates of 3%,
5%, and 10% per month were unconscionable, thus
justifying the need to reduce the interest rates to
12% per annum.115
On the other hand, despite rulings that interest
rates of 3% and 5% per month are unconscionable,
this court in Toledo v. Hydenu116 found that the
interest rate of 6% to 7% per month
was not unconscionable. This court noted
circumstances that differentiated that case
from Medel and found that the borrower
in Toledo was not in dire need of money when she
obtained a loan; this implied that the interest rates
were agreed upon by the parties on equal footing.
This court also found that it was the borrower
in Toledo who was guilty of inequitable acts
Noteworthy is the fact that in Medel, the defendant-
spouses were never able to pay their indebtedness
from the very beginning and when their obligations
ballooned into a staggering sum, the creditors filed
a collection case against them. In this case, there
was no urgency of the need for money on the part
of Jocelyn, the debtor, which compelled her to
enter into said loan transactions. She used the
money from the loans to make advance payments
for prospective clients of educational plans offered
by her employer. In this way, her sales production
would increase, thereby entitling her to 50%
rebate on her sales. This is the reason why she did
not mind the 6% to 7% monthly interest. Notably
too, a business transaction of this nature between
Jocelyn and Marilou continued for more than five
years. Jocelyn religiously paid the agreed amount of
interest until she ordered for stop payment on some
of the checks issued to Marilou. The checks were in
fact sufficiently funded when she ordered the stop
payment and then filed a case questioning the
imposition of a 6% to 7% interest rate for being
allegedly iniquitous or unconscionable and, hence,
contrary to morals.
It was clearly shown that before Jocelyn availed of
said loans, she knew fully well that the same
carried with it an interest rate of 6% to 7% per
month, yet she did not complain. In fact, when she
availed of said loans, an advance interest of 6% to
7% was already deducted from the loan amount,
yet she never uttered a word of protest.
After years of benefiting from the proceeds of the
loans bearing an interest rate of 6% to 7% per
month and paying for the same, Jocelyn cannot
now go to court to have the said interest rate
annulled on the ground that it is excessive,
iniquitous, unconscionable, exorbitant, and
absolutely revolting to the conscience of man. "This
is so because among the maxims of equity are (1) he
who seeks equity must do equity, and (2) he who
comes into equity must come with clean hands. The
latter is a frequently stated maxim which is also
expressed in the principle that he who has done
inequity shall not have equity. It signifies that a
litigant may be denied relief by a court of equity on
the ground that his conduct has been inequitable,
unfair and dishonest, or fraudulent, or deceitful as
to the controversy in issue."
We are convinced that Jocelyn did not come to
court for equitable relief with equity or with clean
hands. It is patently clear from the above
summary of the facts that the conduct of Jocelyn
can by no means be characterized as nobly fair,
just, and reasonable. This Court likewise notes
certain acts of Jocelyn before filing the case with
the RTC. In September 1998, she requested
Marilou not to deposit her checks as she can cover
the checks only the following month. On the next
month, Jocelyn again requested for another
extension of one month. It turned out that she was
only sweet-talking Marilou into believing that she
had no money at that time. But as testified by
Serapio Romarate, an employee of the Bank of
Commerce where Jocelyn is one of their clients,
there was an available balance of P276,203.03 in
the latter's account and yet she ordered for the
stop payments of the seven checks which can
actually be covered by the available funds in said
account. She then caught Marilou by surprise when
she surreptitiously filed a case for declaration of
nullity of the document and for
damages.117 (Emphases supplied, citations
omitted)cralawlawlibrary
Under the circumstances of this case, we find no
reason to uphold the stipulated interest rates of 5%
to 10% per month on petitioner's loan. Petitioner
obtained the loan out of extreme necessity. As
pointed out by respondent, the property would have
been earlier foreclosed by the National Housing
Authority if not for the loan. Moreover, it would be
unjust to impose a heavier burden upon petitioner,
who would already be losing his and his family's
home. Respondent would not be unjustly deprived
if the interest rate is reduced. After all, respondent
still has the right to foreclose the property. Thus,
we affirm the Court of Appeals Decision to reduce
the interest rate to 1% per month or 12% per
annum.
However, we modify the rates in accordance with
the guidelines set forth in Nacar v. Gallery Frames
chanroblesvirtuallawlibrary
118
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
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.119cralawlawlibrary
Thus, the interest rate for petitioner's loan should
be further reduced to 6% per annum from July 1,
2013 until full satisfaction.
WHEREFORE, the Petition is DENIED. The
Court of Appeals Decision dated October 26, 2011
and its Resolution dated March 8, 2012
are AFFIRMED. The interest rate for the loan of
P600,000.00 is further reduced to 6% per annum
from July 1, 2013 until fully paid.
SO ORDERED.chanroblesvirtuallawlibrary

1. When the obligation is breached, and it ICENTE D. CABANTING AND LALAINE V.

consists in the payment of a sum of money, CABANTING, Petitioners, v. BPI FAMILY
i.e., a loan or forbearance of money, the SAVINGS BANK, INC., Respondent.
interest due should be that which may have
been stipulated in writing. Furthermore, the DECISION
interest due shall itself earn legal interest
from the time it is judicially demanded. In PERALTA, J.:
the absence of stipulation, the rate of
interest shall be 6% per annum to be
This deals with the Petition for Review
computed from default, i.e., from judicial or
on Certiorari under Rule 45 of the Rules of Court
extrajudicial demand under and subject to
praying that the Decision1 of the Court of Appeals
the provisions of Article 1169 of the Civil
(CA), promulgated on September 28, 2011, and the
Code.
Resolution2 dated May 16, 2012, denying
petitioner's motion for reconsideration thereof, be
2. When an obligation, not constituting a loan
reversed and set aside.
or forbearance of money, is breached, an
interest on the amount of damages awarded
The antecedent facts are as follows:
may be imposed at the discretion of the
court at the rate of 6% per annum. No
On January 14, 2003, petitioners bought on
interest, however, shall be adjudged on
installment basis from Diamond Motors
unliquidated claims or damages, except
Corporation a 2002 Mitsubishi Adventure SS MT
when or until the demand can be
and for value received, petitioners also signed,
established with reasonable certainty. 
executed and delivered to Diamond Motors a
Accordingly,  where  the  demand  is
Promissory Note with Chattel Mortgage. Therein,
established with reasonable certainty, the
petitioners jointly and severally obligated
interest
themselves to pay Diamond Motors the sum of
shall begin to run from the time the claim is
P836,032.00, payable in monthly installments in
made judicially or extrajudicially (Art. 1169,
accordance with the schedule of payment indicated
Civil Code), but when such certainty cannot
therein, and which obligation is secured by a chattel
be so reasonably established at the time the
mortgage on the aforementioned motor vehicle. On
demand is made, the interest shall begin to
the day of the execution of the document, Diamond
run only from the date the judgment of the
Motors, with notice to petitioners, executed a Deed
court is made (at which time the
of Assignment, thereby assigning to BPI Family
quantification of damages may be deemed
Savings Bank, Inc. (BPI Family) all its rights, title
to have been reasonably ascertained). The
and interest to the Promissory Note with Chattel
actual base for the computation of legal
Mortgage.
interest shall, in any case, be on the amount
finally adjudged.
Come October 16, 2003, however, a Complaint was
filed by BPI Family against petitioners for Replevin
3. When the judgment of the court awarding a
and damages before the Regional Trial Court of
sum of money becomes final and executory,
Manila (RTC), praying that petitioners be ordered
the rate of legal interest, whether the case
to pay the unpaid portion of the vehicle's purchase
falls under paragraph 1 or paragraph 2,
price, accrued interest thereon at the rate of
above, shall be 6% per annum from such
36% per annum as of August 26, 2003, 25%
finality until its satisfaction, this interim
attorney's fees and 25% liquidated damages, as
period being deemed to be by then an
stipulated on the Promissory Note with Chattel
equivalent to a forbearance of credit.
Mortgage. BPI Family likewise prayed for the
issuance of a writ of replevin but it failed to file a
bond therefor, hence, the writ was never issued.
BPI Family alleged that petitioners failed to pay
three (3) consecutive installments and despite
written demand sent to petitioners through
registered mail, petitioners failed to comply with
said demand to pay or to surrender possession of
the vehicle to BPI Family.
In their Answer, petitioners alleged that they sold
the subject vehicle to one Victor S. Abalos, with the
agreement that the latter shall assume the
obligation to pay the remaining monthly
installments. It was then Abalos who made
payments to BPI Family through his personal
checks, and BPI Family accepted the post-dated
checks delivered to it by Abalos. The checks issued
by Abalos for the months of May 2003 to October
2003 were made good, but subsequent checks were
dishonored and not paid. Petitioners pointed out
that BPI Family should have sued Abalos instead of
them.
Trial ensued, where BPI Family dispensed with the
testimony of its sole witness and formally offered
its documentary evidence. When it was petitioners'
turn to present its defense, several hearing dates
were cancelled, sometimes due to failure of either
or both the petitioners' and/or respondent's
counsels to appear. What is clear, though, is that
despite numerous opportunities given to petitioners
to present evidence, they were never able to present
their witness, Jacobina T. Alcantara, despite the
court's issuance of a subpoena duces tecum ad
testificandum. Said failure to present evidence on
several hearing dates and petitioners' absence at
the hearing on February 13, 2008 prompted BPI
Family to move that petitioners' right to present
evidence be deemed waived. On the same date, the
RTC granted said motion and the case was
submitted for decision. There is nothing on record
to show that petitioners ever moved for
reconsideration of the Order dated February 13,
2008.
On April 14, 2008, the RTC rendered a Decision,
the dispositive portion of which reads as follows:
WHEREFORE, and in the view of the foregoing
considerations, judgment is hereby rendered in
favor of the plaintiff BPI Family Savings Bank, Inc.
and against the defendants VICENTE D.
CABANTING and LALAINE V. CABANTING,
by ordering the latter to pay the plaintiff Bank the
sum of Php742,022.92, with interest at the rate of
24% per annumfrom the filing of the Complaint,
until its full satisfaction, as well as the amount of
P20,000.00 for and as attorney's fees.
With costs against the defendants.
SO ORDERED.3
Aggrieved by the RTC's Decision, herein petitioners
appealed to the CA. However, in its Decision dated
September 28, 2011, the appellate court affirmed
with modification the judgment of the trial court, to
wit:
WHEREFORE, premises considered, the appeal
is DISMISSED. The Decision of the Regional Trial
Court dated April 14, 2008 is AFFIRMED but
with MODIFICATION. The defendants-
appellants are ordered to pay the plaintiff-appellee
the sum of Seven Hundred Forty Thousand
One Hundred Fifty-Five Pesos and Eighteen
Centavos (P740,155.18), in Philippine
currency, with legal interest of 12% per
annum from the filing of the Complaint, until its
full satisfaction. The award of Twenty Thousand
Pesos (P20,000.00) as attorney's fees is
DELETED.
Costs against the defendants-appellants.
SO ORDERED.4ChanRoblesVirtualawlibrary
The CA ruled that a preponderance of evidence was
in favor of respondent, as the evidence, coupled
with petitioners' admission in their Answer,
established that petitioners indeed executed a
Promissory Note with Chattel Mortgage and then
failed to pay the forty-three (43) monthly
amortizations. Moreover, since petitioners were
deemed to have waived their right to present
evidence, there is nothing on record to prove their
claim that there was a valid assumption of
obligation by one Victor S. Abalos. Petitioners'
motion for reconsideration of the CA Decision was
denied per Resolution dated May 16, 2012.
Elevating the matter to this Court via a petition for
review on certiorari, petitioners now raise the
following issues:
1. Whether or not respondent bank may be held
entitled to the possession of the motor vehicle
subject of the instant case for replevin, or the
payment of its value and damages, without proof of
prior demand;
2. Whether or not petitioners were deprived of their
right to due process when they were deemed to
have waived their right to present evidence in their
behalf.5
The petition is devoid of merit.
The CA is correct that no prior demand was
necessary to make petitioners' obligation due and
payable. The Promissory Note with Chattel
Mortgage clearly stipulated that "[i]n case of
my/our [petitioners'] failure to pay when due and
payable, any sum which I/We x x x or any of us may
now or in the future owe to the holder of this note x
x x then the entire sum outstanding under this note
shall immediately become due and payable without
the necessity of notice or demand which I/We
hereby waive."6Petitioners argue that such
stipulation should be deemed invalid as the
document they executed was a contract of adhesion.
It is important to stress the Court's ruling in Dio v.
St. Ferdinand Memorial Park, Inc.,7 to wit:
A contract of adhesion, wherein one party imposes
a ready-made form of contract on the other, is not
strictly against the law. A contract of adhesion
is as binding as ordinary contracts, the
reason being that the party who adheres to
the contract is free to reject it entirely.
Contrary to petitioner's contention, not every
contract of adhesion is an invalid agreement. As we
had the occasion to state in Development Bank of
the Philippines v. Perez:
x x x In discussing the consequences of a contract of
adhesion, we held in Rizal Commercial Banking
Corporation v. Court of Appeals:
chanRoblesvirtualLawlibrary
It bears stressing that a contract of adhesion is just
as binding as ordinary contracts. It is true that we
have, on occasion, struck down such contracts as
void when the weaker party is imposed upon in
dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain
on equal footing, Nevertheless, contracts of
adhesion are not invalid per se; they arc not
entirely prohibited. The one who adheres to
the contract is in reality free to reject it
entirely; if he adheres, he gives his consent.
The validity or cnforceability of the
impugned contracts will have to be
determined by the peculiar circumstances
obtaining in each case and the situation of
the parties concerned. Indeed, Article 24 of the
New Civil Code provides that "[in] all contractual,
property or other relations, when one of the parties
is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental
weakness, tender age, or other handicap, the courts
must be vigilant for his protection." x x
x8ChanRoblesVirtualawlibrary
Here, there is no proof that petitioners were
disadvantaged, uneducated or utterly inexperienced
in dealing with financial institutions; thus, there is
no reason for the court to step in and protect the
interest of the supposed weaker party.
Verily, petitioners are bound by the aforementioned
stipulation in the Promissory Note with Chattel
Mortgage waiving the necessity of notice and
demand to make the obligation due and
payable. Agner v. BPI Family Savings Bank,
Inc.,9 which is closely similar to the present case, is
squarely applicable. Petitioners therein also
executed a Promissory Note with Chattel Mortgage
containing the stipulation waiving the need for
notice and demand. The Court ruled:
xxx Even assuming, for argument's sake, that no
demand letter was sent by respondent, there is
really no need for it because petitioners legally
waived the necessity of notice or demand in the
Promissory Note with Chattel Mortgage, which they
voluntarily and knowingly signed in favor of
respondent's predecessor-in-interest. Said contract
expressly stipulates:
chanRoblesvirtualLawlibrary
In case of my/our failure to pay when due and
payable, any sum which I/We are obliged to pay
under this note and/or any other obligation which
I/We or any of us may now or in the future owe to
the holder of this note or to any other party whether
as principal or guarantor xxx then the entire sum
outstanding under this note shall, without prior
notice or demand, immediately become due and
payable. (Emphasis and underscoring supplied)
A provision on waiver of notice or demand has been
recognized as legal and valid in Bank of the
Philippine Islands v. Court of Appeals, wherein We
held:
The Civil Code in Article 1169 provides that one
incurs in delay or is in default from the time the
obligor demands the fulfillment of the obligation
from the obligee. However, the law expressly
provides that demand is not necessary under
certain circumstances, and one of these
circumstances is when the parties expressly waive
demand. Hence, since the co-signors expressly
waived demand in the promissory notes, demand
was unnecessary for them to be in default.
Further, the Court even ruled in Navarro v.
Escobido that prior demand is not a condition
precedent to an action for a writ of replevin, since
there is nothing in Section 2, Rule 60 of the Rules
of Court that requires the applicant to make a
demand on the possessor of the property before an
action for a writ of replevin could be filed.10
Clearly, as stated above, Article 1169 (1) of the Civil
Code allows a party to waive the need for notice and
demand. Petitioners' argument that their liability
cannot be deemed due and payable for lack of proof
of demand must be struck down.
There is likewise no merit to petitioners' claim that
they were deprived of due process when they were
deemed to have waived their right to present
evidence. Time and again, the Court has stressed
that there is no deprivation of due process when a
party is given an opportunity to be heard, not only
through hearings but even through pleadings, so
that one may explain one's side or arguments; or an
opportunity to seek reconsideration of the action or
ruling being assailed.11 The records bear out that
herein petitioners were given several opportunities
to present evidence, but said opportunities were
frittered away. We stress the fact that petitioners
did not even bother to move for reconsideration of
the Order dated February 13, 2008, deeming
petitioners to have waived their right to present
evidence. Such is glaring proof of their propensity
to waste the opportunities granted them to present
their evidence.
Lastly, the CA is correct that the interest rate being
charged by respondent under the Promissory Note
with Chattel Mortgage is quite unreasonable.
In New Sampaguita Builders Construction, Inc.
(NSBCI) v. Philippine National Bank,12 the Court
ruled that "the interest ranging from 26
percent to 35 percent in the statements of
account - 'must be equitably reduced for
being iniquitous, unconscionable and
exorbitant.' Rates found to be iniquitous or
unconscionable are void, as if it there were
no express contract thereon. Above all, it is
undoubtedly against public policy to charge
excessively for the use of money." However,
pursuant to prevailing jurisprudence and banking
regulations, the Court must modify the lower
court's award of legal interest. In Nacar v. Gallery
Frames,13 the Court held, thus:
xxx the guidelines laid down in the case
of Eastern Shipping Lines 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.
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:
chanRoblesvirtualLawlibrary
Thus, legal interest, effective July 1, 2013, was set at
six percent (6%) per annum in accordance
with Bangko Sentral ng Pilipinas - Monetary
Board Circular No. 799, Series of
2013.chanrobleslaw
WHEREFORE, the petition is DENIED. The
Decision of the Court of Appeals, promulgated on
September 28, 2011, and the Resolution dated May
16, 2012 in CA-G.R. CV No. 91814 are AFFIRMED
with MODIFICATION by ordering payment of
legal interest at the rate of twelve percent (12%) per
annumfrom the time of filing of the complaint up to
June 30, 2013, and thereafter, at the lower rate of
six percent (6%) per annum from July 1, 2013 until
full satisfaction, pursuant to Bangko Sentral ng
Pilipinas - Monetary Board Circular No. 799, Series
of 2013 and applicable jurisprudence.
SO ORDERED.cralawlawlibrary

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 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.

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 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.14