G.R. No.
174269 May 8, 2009 returned to Coster and informed the other members of the Pantaleon family
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna
Regina and son Adrian Roberto, joined an escorted tour of Western Europe
organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour
group arrived in Amsterdam in the afternoon of 25 October 1991, the second
to the last day of the tour. As the group had arrived late in the city, they failed
to engage in any sight-seeing. Instead, it was agreed upon that they would
start early the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster
Diamond House in Amsterdam around 10 minutes before 9:00 a.m. The group
had agreed that the visit to Coster should end by 9:30 a.m. to allow enough
time to take in a guided city tour of Amsterdam. The group was ushered into
Coster shortly before 9:00 a.m., and listened to a lecture on the art of
diamond polishing that lasted for around ten minutes.1 Afterwards, the group
was led to the store’s showroom to allow them to select items for purchase.
Mrs. Pantaleon had already planned to purchase even before the tour began
a 2.5 karat diamond brilliant cut, and she found a diamond close enough in
approximation that she decided to buy.2 Mrs. Pantaleon also selected for
purchase a pendant and a chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit
card together with his passport to the Coster sales clerk. This occurred at
around 9:15 a.m., or 15 minutes before the tour group was slated to depart
from the store. The sales clerk took the card’s imprint, and asked Pantaleon
to sign the charge slip. The charge purchase was then referred electronically
to respondent’s Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had
not yet been approved. His son, who had already boarded the tour bus, soon
that the entire tour group was waiting for them. As it was already 9:40 a.m.,
and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though
asked plaintiff to wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had demanded bank
references. Pantaleon supplied the names of his depositary banks, then
instructed his daughter to return to the bus and apologize to the tour group
for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented
his AmexCard, and 30 minutes after the tour group was supposed to have left
the store, Coster decided to release the items even without respondent’s
approval of the purchase. The spouses Pantaleon returned to the bus. It is
alleged that their offers of apology were met by their tourmates with stony
silence.4 The tour group’s visible irritation was aggravated when the tour
guide announced that the city tour of Amsterdam was to be canceled due to
lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais,
Belgium to London.5 Mrs. Pantaleon ended up weeping, while her husband
had to take a tranquilizer to calm his nerves.
It later emerged that Pantaleon’s purchase was first transmitted for approval
to respondent’s Amsterdam office at 9:20 a.m., Amsterdam time, then
referred to respondent’s Manila office at 9:33 a.m, then finally approved at
10:19 a.m., Amsterdam time.6 The Approval Code was transmitted to
respondent’s Amsterdam office at 10:38 a.m., several minutes after
petitioner had already left Coster, and 78 minutes from the time the
purchases were electronically transmitted by the jewelry store to
respondent’s Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the
United States before returning to Manila on 12 November 1992. While in the
United States, Pantaleon continued to use his AmEx card, several times
without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf
equipment amounting to US $1,475.00 using his AmEx card, but he cancelled
his credit card purchase and borrowed money instead from a friend, after
more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase
children’s shoes worth $87.00 at a store in Boston, and it took 20 minutes
before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a
letter7 through counsel to the respondent, demanding an apology for the
"inconvenience, humiliation and embarrassment he and his family thereby
suffered" for respondent’s refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24
March 1992,9 stating among others that the delay in authorizing the purchase
from Coster was attributable to the circumstance that the charged purchase
of US $13,826.00 "was out of the usual charge purchase pattern
established."10 Since respondent refused to accede to Pantaleon’s demand
for an apology, the aggrieved cardholder instituted an action for damages
with the Regional Trial Court (RTC) of Makati City, Branch 145.11 Pantaleon
prayed that he be awarded ₱2,000,000.00, as moral damages; ₱500,000.00,
as exemplary damages; ₱100,000.00, as attorney’s fees; and ₱50,000.00 as
litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor of
Pantaleon, awarding him ₱500,000.00 as moral damages, ₱300,000.00 as
exemplary damages, ₱100,000.00 as attorney’s fees, and ₱85,233.01 as
expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon
moved for partial reconsideration, praying that the trial court award the
increased amount of moral and exemplary damages he had prayed for.14 The
RTC denied Pantaleon’s motion for partial reconsideration, and thereafter
gave due course to respondent’s Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the
award of damages in favor of Pantaleon, holding that respondent had not
breached its obligations to petitioner. Hence, this petition.
The key question is whether respondent, in connection with the
aforementioned transactions, had committed a breach of its obligations to
Pantaleon. In addition, Pantaleon submits that even assuming that
respondent had not been in breach of its obligations, it still remained liable
for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of
Pantaleon and respondent’s credit authorizer, Edgardo Jaurigue, that the
normal approval time for purchases was "a matter of seconds." Based on that
standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there
had been delay on the part of respondent in approving the purchases.
However, it made two critical conclusions in favor of respondent. First, the
appellate court ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent "had exercised diligent
efforts to effect the approval" of the purchases, which were "not in
accordance with the charge pattern" petitioner had established for himself,
as exemplified by the fact that at Coster, he was "making his very first single
charge purchase of US$13,826," and "the record of [petitioner]’s past
spending with [respondent] at the time does not favorably support his ability
to pay for such purchase."17
On the premise that there was an obligation on the part of respondent "to
approve or disapprove with dispatch the charge purchase," petitioner argues
that the failure to timely approve or disapprove the purchase constituted
mora solvendi on the part of respondent in the performance of its obligation.
For its part, respondent characterizes the depiction by petitioner of its
obligation to him as "to approve purchases instantaneously or in a matter of
seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a
finding of default are that the obligation is demandable and liquidated; the
debtor delays performance; and the creditor judicially or extrajudicially
requires the debtor’s performance.18 Petitioner asserts that the Court of
Appeals had wrongly applied the principle of mora accipiendi, which relates
to delay on the part of the obligee in accepting the performance of the
obligation by the obligor. The requisites of mora accipiendi are: an offer of
performance by the debtor who has the required capacity; the offer must be
to comply with the prestation as it should be performed; and the creditor
refuses the performance without just cause.19 The error of the appellate
court, argues petitioner, is in relying on the invocation by respondent of "just
cause" for the delay, since while just cause is determinative of mora
accipiendi, it is not so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to
appreciate. Generally, the relationship between a credit card provider and its
card holders is that of creditor-debtor,20 with the card company as the
creditor extending loans and credit to the card holder, who as debtor is
obliged to repay the creditor. This relationship already takes exception to the
general rule that as between a bank and its depositors, the bank is deemed
as the debtor while the depositor is considered as the creditor.21 Petitioner is
asking us, not baselessly, to again shift perspectives and again see the credit
card company as the debtor/obligor, insofar as it has the obligation to the
customer as creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we were to
still regard respondent as the creditor in the context of this cause of action.
If there was delay on the part of respondent in its normal role as creditor to
the cardholder, such delay would not have been in the acceptance of the
performance of the debtor’s obligation (i.e., the repayment of the debt), but
it would be delay in the extension of the credit in the first place. Such delay
would not fall under mora accipiendi, which contemplates that the obligation
of the debtor, such as the actual purchases on credit, has already been
constituted. Herein, the establishment of the debt itself (purchases on credit
of the jewelry) had not yet been perfected, as it remained pending the
approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we
will have to first recognize that there was indeed an obligation on the part of
respondent to act on petitioner’s purchases with "timely dispatch," or for the
purposes of this case, within a period significantly less than the one hour it
apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the
tardiness on the part of respondent in acting on petitioner’s purchase at
Coster did constitute culpable delay on its part in complying with its
obligation to act promptly on its customer’s purchase request, whether such
action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for
purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was
that except for the three charge purchases subject of this case, approvals of
his charge purchases were always obtained in a matter of seconds.
Defendant’s credit authorizer Edgardo Jaurique likewise testified:
Q. – You also testified that on normal occasions, the normal approval
time for charges would be 3 to 4 seconds?
A. – Yes, Ma’am.
Both parties likewise presented evidence that the processing and approval of
plaintiff’s charge purchase at the Coster Diamond House was way beyond the
normal approval time of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster,
at 9:15 a.m. and by the time he had to leave the store at 10:05 a.m., no
approval had yet been received. In fact, the Credit Authorization System (CAS)
record of defendant at Phoenix Amex shows that defendant’s Amsterdam
office received the request to approve plaintiff’s charge purchase at 9:20
a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant
relayed its approval to Coster at 10:38 a.m., Amsterdam time, or 2:38,
Phoenix time, or a total time lapse of one hour and [18] minutes. And even
then, the approval was conditional as it directed in computerese [sic]
"Positive Identification of Card holder necessary further charges require bank
information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic
successive queries of Amexco Amsterdam which reads: "US$13,826.
Cardmember buying jewels. ID seen. Advise how long will this take?" They
were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix.
Manila Amexco could be unaware of the need for speed in resolving the
charge purchase referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam
transaction shows how Amexco Netherlands viewed the delay as unusually
frustrating. In sequence expressed in Phoenix time from 01:20 when the
charge purchased was referred for authorization, defendants own record
shows:
01:22 – the authorization is referred to Manila Amexco
 01:32 – Netherlands gives information that the identification of the
cardmember has been presented and he is buying jewelries worth US
$13,826.
01:33 – Netherlands asks "How long will this take?"
02:08 – Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its
contractual obligation to act on his use of the card abroad "with special
handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved
"within seconds," there really is no strict, legally determinative point of
demarcation on how long must it take for a credit card company to approve
or disapprove a customer’s purchase, much less one specifically contracted
upon by the parties. Yet this is one of those instances when "you’d know it
when you’d see it," and one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card purchase.
It is long enough time for the customer to walk to a bank a kilometer away,
withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or
disapprove" the purchase "in timely dispatch," and not "to approve the
purchase instantaneously or within seconds." Certainly, had respondent
disapproved petitioner’s purchase "within seconds" or within a timely
manner, this particular action would have never seen the light of day.
Petitioner and his family would have returned to the bus without delay –
internally humiliated perhaps over the rejection of his card – yet spared the
shame of being held accountable by newly-made friends for making them
miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation,
to verify whether the credit it is extending upon on a particular purchase was
indeed contracted by the cardholder, and that the cardholder is within his
means to make such transaction. The culpable failure of respondent herein is
not the failure to timely approve petitioner’s purchase, but the more
elemental failure to timely act on the same, whether favorably or
unfavorably. Even assuming that respondent’s credit authorizers did not have
sufficient basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason for the
delay, and duly advised him that resolving the same could take some time. In
that way, petitioner would have had informed basis on whether or not to
pursue the transaction at Coster, given the attending circumstances. Instead,
petitioner was left uncomfortably dangling in the chilly autumn winds in a
foreign land and soon forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant
acted fraudulently or in bad faith, and the court should find that under the
circumstances, such damages are due. The findings of the trial court are
ample in establishing the bad faith and unjustified neglect of respondent,
attributable in particular to the "dilly-dallying" of respondent’s Manila credit
authorizer, Edgardo Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant
prepared, is silent as to the amount of time it should take defendant to grant
authorization for a charge purchase, defendant acknowledged that the
normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires "special handling", meaning with
priority. Otherwise, the object of credit or charge cards would be lost; it
would be so inconvenient to use that buyers and consumers would be better
off carrying bundles of currency or traveller’s checks, which can be delivered
and accepted quickly. Such right was not accorded to plaintiff in the instances
complained off for reasons known only to defendant at that time. This, to the
Court’s mind, amounts to a wanton and deliberate refusal to comply with its
contractual obligations, or at least abuse of its rights, under the contract.24
xxx
The delay committed by defendant was clearly attended by unjustified
neglect and bad faith, since it alleges to have consumed more than one hour
to simply go over plaintiff’s past credit history with defendant, his payment
record and his credit and bank references, when all such data are already
stored and readily available from its computer. This Court also takes note of
the fact that there is nothing in plaintiff’s billing history that would warrant
the imprudent suspension of action by defendant in processing the purchase.
Defendant’s witness Jaurique admits:
 Q. – But did you discover that he did not have any outstanding
account?
A. – Nothing in arrears at that time.
Q. – You were well aware of this fact on this very date?
A. – Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s
account.25
It should be emphasized that the reason why petitioner is entitled to damages
is not simply because respondent incurred delay, but because the delay, for
which culpability lies under Article 1170, led to the particular injuries under
Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the
simply impatient, so this decision should not be cause for relief for those who
time the length of their credit card transactions with a stopwatch. The
somewhat unusual attending circumstances to the purchase at Coster – that
there was a deadline for the completion of that purchase by petitioner before
any delay would redound to the injury of his several traveling companions –
gave rise to the moral shock, mental anguish, serious anxiety, wounded
feelings and social humiliation sustained by the petitioner, as concluded by
the RTC.27 Those circumstances are fairly unusual, and should not give rise to
a general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC.
There is no hard-and-fast rule in determining what would be a fair and
reasonable amount of moral damages, since each case must be governed by
its own peculiar facts, however, it must be commensurate to the loss or injury
suffered.28 Petitioner’s original prayer for ₱5,000,000.00 for moral damages
is excessive under the circumstances, and the amount awarded by the trial
court of ₱500,000.00 in moral damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances,
and the amount of ₱300,000.00 appropriate. There is similarly no cause
though to disturb the determined award of ₱100,000.00 as attorney’s fees,
and ₱85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of
Appeals is REVERSED and SET ASIDE. The Decision of the Regional Trial Court
of Makati, Branch 145 in Civil Case No. 92-1665 is hereby REINSTATED. Costs
against respondent.
SO ORDERED.
G.R. No. 133179 March 27, 2008
ALLIED BANKING CORPORATION, Petitioner,
vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS
BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times
bend over backwards that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court
of Appeals’ (CA’s) Decision promulgated on March 18, 19981 in CA-G.R. CV
No. 46290 entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA
Decision modified the Decision dated November 15, 19932 of the Regional
Trial Court (RTC), Branch 63 in Makati City rendered in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner
Allied Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a
money market placement of PhP 1,152,597.35 for a term of 31 days to
mature on December 15, 1983,3 as evidenced by Provisional Receipt No. 1356
dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina
So, an officer of Allied, and instructed the latter to pre-terminate Lim Sio
Wan’s money market placement, to issue a manager’s check representing the
proceeds of the placement, and to give the check to one Deborah Dee Santos
who would pick up the check.5 Lim Sio Wan described the appearance of
Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form for a
manager’s check to be issued.7 The bank issued Manager’s Check No. 035669
for PhP 1,158,648.49, representing the proceeds of Lim Sio Wan’s money
market placement in the name of Lim Sio Wan, as payee.8 The check was
cross-checked "For Payee’s Account Only" and given to Santos.9
Thereafter, the manager’s check was deposited in the account of Filipinas
Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co.
(Metrobank),10 with the forged signature of Lim Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market
placement for PhP 2 million with respondent Producers Bank. Santos was the
money market trader assigned to handle FCC’s account.12 Such deposit is
evidenced by Official Receipt No. 31756813 and a Letter dated September 21,
1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of the
placement.14 The placement matured on October 25, 1983 and was rolled-
over until December 5, 1983 as evidenced by a Letter dated October 25,
1983.15 When the placement matured, FCC demanded the payment of the
proceeds of the placement.16 On December 5, 1983, the same date that So
received the phone call instructing her to pre-terminate Lim Sio Wan’s
placement, the manager’s check in the name of Lim Sio Wan was deposited
in the account of FCC, purportedly representing the proceeds of FCC’s money
market placement with Producers Bank.17 In other words, the Allied check
was deposited with Metrobank in the account of FCC as Producers Bank’s
payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine
Clearing House Corporation (PCHC) Rules and Regulations, Metrobank
stamped a guaranty on the check, which reads: "All prior endorsements
and/or lack of endorsement guaranteed."18
The check was sent to Allied through the PCHC. Upon the presentment of the
check, Allied funded the check even without checking the authenticity of Lim
Sio Wan’s purported indorsement. Thus, the amount on the face of the check
was credited to the account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money
market placement to mature on January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money market
placement, Lim Sio Wan went to Allied to withdraw it.21 She was then
informed that the placement had been pre-terminated upon her instructions.
She denied giving any instructions and receiving the proceeds thereof. She
desisted from further complaints when she was assured by the bank’s
manager that her money would be recovered.22
When Lim Sio Wan’s second placement matured on January 9, 1984, So called
Lim Sio Wan to ask for the latter’s instructions on the second placement. Lim
Sio Wan instructed So to roll-over the placement for another 30 days.23 On
January 24, 1984, Lim Sio Wan, realizing that the promise that her money
would be recovered would not materialize, sent a demand letter to Allied
asking for the payment of the first placement.24 Allied refused to pay Lim Sio
Wan, claiming that the latter had authorized the pre-termination of the
placement and its subsequent release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
198426 docketed as Civil Case No. 6757 against Allied to recover the proceeds
of her first money market placement. Sometime in February 1984, she
withdrew her second placement from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In turn,
Metrobank filed a fourth party complaint28 against FCC. FCC for its part filed
a fifth party complaint29 against Producers Bank. Summonses were duly
served upon all the parties except for Santos, who was no longer connected
with Producers Bank.30
On May 15, 1984, or more than six (6) months after funding the check, Allied
informed Metrobank that the signature on the check was forged.31 Thus,
Metrobank withheld the amount represented by the check from FCC. Later
on, Metrobank agreed to release the amount to FCC after the latter executed
an Undertaking, promising to indemnify Metrobank in case it was made to
reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as
a party-defendant, along with Allied.33 The RTC admitted the amended
complaint despite the opposition of Metrobank.34 Consequently, Allied’s
third party complaint against Metrobank was converted into a cross-claim
and the latter’s fourth party complaint against FCC was converted into a third
party complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the
amount of P1,158,648.49 plus 12% interest per annum from March
16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of
P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of
P173,792.20 by way of attorney’s fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Bank’s cross-claim against defendant Metrobank is
DISMISSED.
Likewise defendant Metrobank’s third-party complaint as against Filipinas
Cement Corporation is DISMISSED.
Filipinas Cement Corporation’s fourth-party complaint against Producer’s
Bank is also DISMISSED.
36
SO ORDERED.
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March
18, 1998, modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED.
Judgment is rendered ordering and sentencing defendant-appellant Allied
Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully
paid. The moral damages, attorney’s fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the same
proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not
authorize [Allied] to pre-terminate the initial placement and to deliver the
check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any
liability for the reimbursement of amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent
of 60% of amount adjudged demandable in clear disregard to the ultimate
liability of Metrobank as guarantor of all endorsement on the check, it being
the collecting bank.38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied
was not authorized to release the proceeds of Lim Sio Wan’s money market
placement to Santos. Allied clearly raises a question of fact. When the CA
affirms the findings of fact of the RTC, the factual findings of both courts are
binding on this Court.39
We also agree with the CA when it said that it could not disturb the trial
court’s findings on the credibility of witness So inasmuch as it was the trial
court that heard the witness and had the opportunity to observe closely her
deportment and manner of testifying. Unless the trial court had plainly
overlooked facts of substance or value, which, if considered, might affect the
result of the case,40 we find it best to defer to the trial court on matters
pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.41 Thus, the finding of the RTC, affirmed by the CA, that the
respective parties were negligent in the exercise of their obligations is also
conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan.
Fundamental and familiar is the doctrine that the relationship between a
bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a
simple loan or mutuum.42 More succinctly, in Citibank, N.A. (Formerly First
National City Bank) v. Sabeniano, this Court ruled that a money market
placement is a simple loan or mutuum.43 Further, we defined a money market
in Cebu International Finance Corporation v. Court of Appeals, as follows:
[A] money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and borrowers do
not deal directly with each other but through a middle man or dealer in open
market. In a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner and
the private respondent is in the nature of a loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is
entitled to payment upon her request, or upon maturity of the placement, or
until the bank is released from its obligation as debtor. Until any such event,
the obligation of Allied to Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are
considered extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and prescription, are governed
elsewhere in this Code. (Emphasis supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan
did not authorize the release of her money market placement to Santos and
the bank had been negligent in so doing, there is no question that the
obligation of Allied to pay Lim Sio Wan had not been extinguished. Art. 1240
of the Code states that "payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in interest, or any person
authorized to receive it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the
obligation as to the creditor, if there is no fault or negligence which can be
imputed to the latter. Even when the debtor acted in utmost good faith and
by mistake as to the person of his creditor, or through error induced by the
fraud of a third person, the payment to one who is not in fact his creditor, or
authorized to receive such payment, is void, except as provided in Article
1241. Such payment does not prejudice the creditor, and accrual of interest
is not suspended by it.45 (Emphasis supplied.)
Since there was no effective payment of Lim Sio Wan’s money market
placement, the bank still has an obligation to pay her at six percent (6%)
interest from March 16, 1984 until the payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio
Wan’s money. It points out that Metrobank guaranteed all prior
indorsements inscribed on the manager’s check, and without Metrobank’s
guarantee, the present controversy would never have occurred. According to
Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the
check is paid to the proper party is, aside from being an efficient intervening
cause, also the last negligent act, x x x contributory to the injury caused in the
present case, which thereby leads to the conclusion that it is the collecting
bank, Metrobank that is the proximate cause of the alleged loss of the
plaintiff in the instant case.46
We are not persuaded.
Proximate cause is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and without
which the result would not have occurred."47 Thus, there is an efficient
supervening event if the event breaks the sequence leading from the cause
to the ultimate result. To determine the proximate cause of a controversy,
the question that needs to be asked is: If the event did not happen, would the
injury have resulted? If the answer is NO, then the event is the proximate
cause.
In the instant case, Allied avers that even if it had not issued the check
payment, the money represented by the check would still be lost because of
Metrobank’s negligence in indorsing the check without verifying the
genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.—Every indorser who indorses
without qualification, warrants to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c)
of the next preceding section; and
b) That the instrument is at the time of his indorsement valid and
subsisting;
And in addition, he engages that on due presentment, it shall be accepted or
paid, or both, as the case may be according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who
may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.—Every person
negotiating an instrument by delivery or by a qualified indorsement,
warrants:
a) That the instrument is genuine and in all respects what it purports
to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of
no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons
negotiating public or corporation securities, other than bills and notes.
(Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it
purports to be" covers all the defects in the instrument affecting the validity
thereof, including a forged indorsement. Thus, the last indorser will be liable
for the amount indicated in the negotiable instrument even if a previous
indorsement was forged. We held in a line of cases that "a collecting bank
which indorses a check bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor."48
However, this general rule is subject to exceptions. One such exception is
when the issuance of the check itself was attended with negligence. Thus, in
the cases cited above where the collecting bank is generally held liable, in two
of the cases where the checks were negligently issued, this Court held the
institution issuing the check just as liable as or more liable than the collecting
bank.
In isolated cases where the checks were deposited in an account other than
that of the payees on the strength of forged indorsements, we held the
collecting bank solely liable for the whole amount of the checks involved for
having indorsed the same. In Republic Bank v. Ebrada,49 the check was
properly issued by the Bureau of Treasury. While in Banco de Oro Savings and
Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation,50 Banco de
Oro admittedly issued the checks in the name of the correct payees. And in
Traders Royal Bank v. Radio Philippines Network, Inc.,51 the checks were
issued at the request of Radio Philippines Network, Inc. from Traders Royal
Bank.1avvphi1
However, in Bank of the Philippine Islands v. Court of Appeals, we said that
the drawee bank is liable for 60% of the amount on the face of the negotiable
instrument and the collecting bank is liable for 40%. We also noted the
relative negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their
employees resulting in the encashment of the forged checks by an impostor.
Both banks were not able to overcome the presumption of negligence in the
selection and supervision of their employees. It was the gross negligence of
the employees of both banks which resulted in the fraud and the subsequent
loss. While it is true that petitioner BPI’s negligence may have been the
proximate cause of the loss, respondent CBC’s negligence contributed equally
to the success of the impostor in encashing the proceeds of the forged checks.
Under these circumstances, we apply Article 2179 of the Civil Code to the
effect that while respondent CBC may recover its losses, such losses are
subject to mitigation by the courts. (See Phoenix Construction Inc. v.
Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that
the demands of substantial justice are satisfied by allocating the loss of
P2,413,215.16 and the costs of the arbitration proceeding in the amount of
P7,250.00 and the cost of litigation on a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing
institution and the collecting bank should equally share the liability for the
loss of amount represented by the checks concerned due to the negligence
of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty
percent (50%-50%). Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto Pangilinan), in
allowing the retired hospital cashier to receive the checks for the payee
hospital for a period close to three years and in not properly ascertaining why
the retired hospital cashier was collecting checks for the payee hospital in
addition to the hospital’s real cashier, respondent Province contributed to
the loss amounting to P203,300.00 and shall be liable to the PNB for fifty
(50%) percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%)
percent of P203,300.00. It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payee’s indorsement.53
A reading of the facts of the two immediately preceding cases would reveal
that the reason why the bank or institution which issued the check was held
partially liable for the amount of the check was because of the negligence of
these parties which resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing
the manager’s check and in transmitting it to Santos without even a written
authorization.54 In fact, Allied did not even ask for the certificate evidencing
the money market placement or call up Lim Sio Wan at her residence or office
to confirm her instructions. Both actions could have prevented the whole
fraudulent transaction from unfolding. Allied’s negligence must be
considered as the proximate cause of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial
institution, the check would not have been issued and no loss of funds would
have resulted. In fact, there would have been no issuance of indorsement had
there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the
last indorser of the check. When Metrobank indorsed the check in
compliance with the PCHC Rules and Regulations55 without verifying the
authenticity of Lim Sio Wan’s indorsement and when it accepted the check
despite the fact that it was cross-checked payable to payee’s account
only,56 its negligent and cavalier indorsement contributed to the easier
release of Lim Sio Wan’s money and perpetuation of the fraud. Given the
relative participation of Allied and Metrobank to the instant case, both banks
cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities
of Allied and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery
of Lim Sio Wan’s indorsement, can raise the real defense of forgery as against
both banks.57
As to Producers Bank, Allied Bank’s argument that Producers Bank must be
held liable as employer of Santos under Art. 2180 of the Civil Code is
erroneous. Art. 2180 pertains to the vicarious liability of an employer for
quasi-delicts that an employee has committed. Such provision of law does
not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the
Revised Penal Code in the instant case. Such liability on the part of the
employer for the civil aspect of the criminal act of the employee is based on
the conviction of the employee for a crime. Here, there has been no
conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers
Bank, the same is correct. Allied correctly claims in its petition that Producers
Bank should reimburse Allied for whatever judgment that may be rendered
against it pursuant to Art. 22 of the Civil Code, which provides: "Every person
who through an act of performance by another, or any other means, acquires
or comes into possession of something at the expense of the latter without
just cause or legal ground, shall return the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we ruled that
"[t]here is unjust enrichment when a person unjustly retains a benefit to the
loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment,
thus: "Under Article 22 of the Civil Code, there is unjust enrichment when (1)
a person is unjustly benefited, and (2) such benefit is derived at the expense
of or with damages to another."59
In the instant case, Lim Sio Wan’s money market placement in Allied Bank
was pre-terminated and withdrawn without her consent. Moreover, the
proceeds of the placement were deposited in Producers Bank’s account in
Metrobank without any justification. In other words, there is no reason that
the proceeds of Lim Sio Wans’ placement should be deposited in FCC’s
account purportedly as payment for FCC’s money market placement and
interest in Producers Bank.lavvphil With such payment, Producers Bank’s
indebtedness to FCC was extinguished, thereby benefitting the former.
Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan.
Based on the facts and circumstances of the case, Producers Bank should
reimburse Allied and Metrobank for the amounts the two latter banks are
ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be
considered as having been unjustly enriched. It must be remembered that
FCC’s money market placement with Producers Bank was already due and
demandable; thus, Producers Bank’s payment thereof was justified. FCC was
entitled to such payment. As earlier stated, the fact that the indorsement on
the check was forged cannot be raised against FCC which was not a part in
any stage of the negotiation of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect
of the entire controversy. Unfortunately, since summons had not been served
on Santos, the courts have not acquired jurisdiction over her.60 We,
therefore, cannot ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the
amount of the check plus 12% interest per annum, moral damages, attorney’s
fees, and costs of suit which Allied and Metrobank are adjudged to pay Lim
Sio Wan based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA
Decision in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision
in Civil Case No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as
follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED.
Judgment is rendered ordering and sentencing defendant-appellant Allied
Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully
paid. The moral damages, attorney’s fees and costs of suit adjudged shall
likewise be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the same
proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered
to pay Allied and Metrobank the aforementioned amounts. The liabilities of
the parties are concurrent and independent of each other.
SO ORDERED.
G.R. No. L-38745 August 6, 1975
LUCIA TAN, plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-
appellants.
Alaric P. Acosta for plaintiff-appellee.
Lorenzo P. de Guzman for defendants-appellants.
CASTRO, J.:
This appeal was certified to this Court by the Court of Appeals as involving
questions purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis
Occidental (Branch I) in an action instituted by the plaintiff-appellee Lucia Tan
against the defendants-appellants Arador Valdehueza and Rediculo
Valdehueza (docketed as civil case 2574) for (a) declaration of ownership and
recovery of possession of the parcel of land described in the first cause of
action of the complaint, and (b) consolidation of ownership of two portions
of another parcel of (unregistered) land described in the second cause of
action of the complaint, purportedly sold to the plaintiff in two separate
deeds of pacto de retro.
After the issues were joined, the parties submitted the following stipulation
of facts:
1. That parties admit the legal capacity of plaintiff to sue; that
defendants herein, Arador, Rediculo, Pacita, Concepcion and
Rosario, all surnamed Valdehueza, are brothers and sisters;
that the answer filed by Arador and Rediculo stand as the
answer of Pacita, Concepcion and Rosario.
2. That the parties admit the identity of the land in the first
cause of action.
3. That the parcel of land described in the first cause of action
was the subject matter of the public auction sale held on May
6, 1955 at the Capitol Building in Oroquieta, Misamis
Occidental, wherein the plaintiff was the highest bidder and
as such a Certificate of Sale was executed by MR. VICENTE D.
ROA who was then the Ex-Officio Provincial Sheriff in favor of
LUCIA TAN the herein plaintiff. Due to the failure of
defendant Arador Valdehueza to redeem the said land within
the period of one year as being provided by law, MR.
VICENTE D. ROA who was then the Ex-Officio Provincial
Sheriff executed an ABSOLUTE DEED OF SALE in favor of the
plaintiff LUCIA TAN.
A copy of the NOTICE OF SHERIFFS SALE is hereby marked as
'Annex A', the CERTIFICATE OF SALE is marked as 'Annex B'
and the ABSOLUTE DEED OF SALE is hereby marked as Annex
C and all of which are made as integral parts of this
stipulation of facts.
4. That the party-plaintiff is the same plaintiff in Civil Case No.
2002; that the parties defendants Arador, Rediculo and
Pacita, all Valdehueza were the same parties-defendants in
the same said Civil Case No. 2002; the complaint in Civil Case
No. 2002 to be marked as Exhibit 1; the answer as Exhibit 2
and the order dated May 22, 1963 as Exhibit 3, and said
exhibits are made integral part of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO
VALDEHUEZA have executed two documents of DEED OF
PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA
TAN of two portions of a parcel of land which is described in
the second cause of action with the total amount of ONE
THOUSAND FIVE HUNDRED PESOS (P1,500.00), Philippine
Currency, copies of said documents are marked as 'Annex D'
and Annex E', respectively and made as integral parts of this
stipulation of facts.
6. That from the execution of the Deed of Sale with right to
repurchase mentioned in the second cause of action,
defendants Arador Valdehueza and Rediculo Valdehueza
remained in the possession of the land; that land taxes to the
said land were paid by the same said defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a
complaint for injunction filed by Tan on July 24, 1957 against
the Valdehuezas, to enjoin them "from entering the above-
described parcel of land and gathering the nuts therein ...."
This complaint and the counterclaim were subsequently
dismissed for failure of the parties "to seek for the immediate
trial thereof, thus evincing lack of interest on their part to
proceed with the case.1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex
D" (dated August 5, 1955) was not registered in the Registry of Deeds, while
the Deed of Pacto de Retro referred to as "Annex E" (dated March 15, 1955)
was registered.
On the basis of the stipulation of facts and the annexes, the trial court
rendered judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff:
1. Declaring Lucia Tan the absolute owner of the property
described in the first cause of action of the amended
complaint; and ordering the herein defendants not to
encroach and molest her in the exercise of her proprietary
rights; and, from which property they must be dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo
Valdehueza jointly and severally to pay to the plaintiff, Lucia
Tan, on Annex 'E' the amount of P1,200, with legal interest of
6% as of August 15, 1966, within 90 days to be deposited with
the Office of the Court within 90 days from the date of service
of this decision, and that in default of such payment the
 property shall be sold in accordance with the Rules of Court
for the release of the mortgage debt, plus costs;
3. And as regards the land covered by deed of pacto de retro
annex 'D', the herein defendants Arador Valdehueza and
Rediculo Valdehueza are hereby ordered to pay the plaintiff
the amount of P300 with legal interest of 6% from August 15,
1966, the said land serving as guaranty of the said amount of
payment;
4. Sentencing the defendants Arador Valdehueza and
Rediculo Valdehueza to pay jointly and severally to the
herein plaintiff Lucia Tan the amount of 1,000.00 as
attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first
cause of action that there exists res judicata; and
That the lower court erred in making a finding on the second
cause of action that the transactions between the parties
were simple loan, instead, it should be declared as equitable
mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently
provides that a dismissal for failure to prosecute "shall have the effect of an
adjudication upon the merits," the Valdehuezas submit that the dismissal of
civil case 2002 operated, upon the principle of res judicata, as a bar to the
first cause of action in civil case 2574. We rule that this contention is
untenable as the causes of action in the two cases are not identical. Case 2002
was for injunction against the entry into and the gathering of nuts from the
land, while case 2574 seeks to "remove any doubt or cloud of the plaintiff's
ownership ..." (Amended complaint, Rec. on App., p. 27), with a prayer for
declaration of ownership and recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent
judgments,2 we hold that the failure of Tan, in case 2002, to secure an
injunction against the Valdehuezas to prevent them from entering the land
and gathering nuts is not inconsistent with her being adjudged, in case 2574,
as owner of the land with right to recover possession thereof. Case 2002
involved only the possession of the land and the fruits thereof, while case
2574 involves ownership of the land, with possession as a mere attribute of
ownership. The judgment in the first case could not and did not encompass
the judgment in the second, although the second judgment would encompass
the first. Moreover, the new Civil Code provides that suitors in actions to
quiet title "need not be in possession of said property.3
2. The trial court treated the registered deed of pacto de retro as an equitable
mortgage but considered the unregistered deed of pacto de retro "as a mere
case of simple loan, secured by the property thus sold under pacto de retro,"
on the ground that no suit lies to foreclose an unregistered mortgage. It
would appear that the trial judge had not updated himself on law and
jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil
Code and decisions of this Court circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary
requisite for the validity of a mortgage even as between the parties, but
under article 2125 of the new Civil Code (in effect since August 30,1950), this
is no longer so.4
If the instrument is not recorded, the mortgage is
nonetheless binding between the parties. (Article 2125, 2nd
sentence).
The Valdehuezas having remained in possession of the land and the realty
taxes having been paid by them, the contracts which purported to be pacto
de retro transactions are presumed to be equitable mortgages,5 whether
registered or not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff
affirmed that they remained in possession of the land and gave the proceeds
of the harvest to the plaintiff; it is thus argued that they would suffer double
prejudice if they are to pay legal interest on the amounts stated in the pacto
de retro contracts, as the lower court has directed, and that therefore the
court should have ordered evidence to be adduced on the harvest.
The record does not support this claim. Nowhere in the original and the
amended complaints is an allegation of delivery to the plaintiff of the harvest
from the land involved in the second cause of action. Hence, the defendants'
answer had none to affirm.
In submitting their stipulation of facts, the parties prayed "for its approval
and maybe made the basis of the decision of this Honorable Court. "
(emphasis supplied) This, the court did. It cannot therefore be faulted for not
receiving evidence on who profited from the harvest.
4. The imposition of legal interest on the amounts subject of the equitable
mortgages, P1,200 and P300, respectively, is without legal basis, for, "No
interest shall be due unless it has been expressly stipulated in writing."
(Article 1956, new Civil Code) Furthermore, the plaintiff did not pray for such
interest; her thesis was a consolidation of ownership, which was properly
rejected, the contracts being equitable mortgages.
With the definitive resolution of the rights of the parties as discussed above,
we find it needless to pass upon the plaintiffs petition for receivership. Should
the circumstances so warrant, she may address the said petition to the
court a quo.
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the
amounts of P1,200 and P300 mentioned in Annexes E and D shall bear
interest at six percent per annum from the finality of this decision; and (b) the
parcel of land covered by Annex D shall be treated in the same manner as
that covered by Annex E, should the defendants fail to pay to the plaintiff the
sum of P300 within 90 days from the finality of this decision. In all other
respects the judgment is affirmed. No costs.
G.R. No. 168782 October 10, 2008
SPOUSES JOVENAL TORING and CECILIA ESCALONA-TORING, petitioners,
vs.
SPOUSES ROSALIE GANZON-OLAN and GILBERT OLAN, and ROWENA
OLAN, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision1 and
Resolution,2 dated March 28, 2005 and June 30, 2005, respectively, of the
Court of Appeals in CA-G.R. CV No. 76831. The Court of Appeals affirmed the
Resolution3 dated June 10, 2002 of the Regional Trial Court, Branch 276,
Muntinlupa City, in Civil Case No. 00-137 which had ordered petitioners to
pay respondents the sum of P20,000,000 representing the total amount of
petitioners' loan and interest due.
The facts are as follows:
On September 4, 1998, petitioner Jovenal Toring obtained from respondents
a loan amounting to P6,000,000 at 3% interest per month. The loan was
secured by a mortgage on a parcel of land covered by Transfer Certificate of
Title No. T-27418,4 as evidenced by a Deed of Real Estate Mortgage5 dated
September 8, 1998.
On September 23, 1998, the parties executed a Deed of Absolute
Sale6 conveying the mortgaged property in favor of respondents.
Subsequently, respondents gave petitioners an exclusive option to
repurchase the land for P10,000,000. This was embodied in a document
denominated as an Option to Buy7 dated September 28, 1998. On this same
document, respondents acknowledged receipt of a total sum of P10,000,000
as consideration for the purchase of the land.8 The Option to Buy provided
that if the option is exercised after December 5, 1998, the purchase price shall
increase at the rate of P300,000 or 3% of the purchase price every month
until September 5, 1999 and thereafter at the rate of P381,000 or 3.81% of
the purchase price every month, with the fifth of every month as the cut-off
date for said increases.9
On July 28, 2000, petitioners filed a Complaint10 docketed as Civil Case No.
00-137 for reformation of instruments, abuse of rights and damages against
respondents. Petitioners prayed that the Deed of Absolute Sale dated
September 23, 1998 and Option to Buy dated September 28, 1998, be treated
as an equitable mortgage instead of a sale.
At the pre-trial, the parties made the following stipulations: (1) the principal
amount of <4strike>P10,000,000 has long become overdue; (2) no payment
has been made; (3) the parties had agreed on an equitable mortgage and not
a sale.11 The parties limited the issues on the amount of interest due and the
time of payment of the entire obligation. Thereafter, the court ordered the
parties to submit their respective position papers, but only respondents
complied. All other claims for damages were waived by the parties.12
On June 10, 2002, the trial court issued its Resolution, the pertinent portion
of which reads:
...the document of mortgage specified the interest at 3.81% per
month from the time it was obtained, and which was now estimated
to be P7,239,000.00. This sum should be added to the total loan of
TEN MILLION PESOS, . . .
xxxx
Therefore, judgment is rendered for defendants ROSALIE GANZON
OLAN and GILBERT OLAN [and] ROWENA GANZON since the loan is
not denied, directing spouses [p]laintiffs JOVENAL TORING and
CECILIA ESCALONA TORING, to pay the sum of TWENTY MILLION
PESOS within one month from receipt of this decision.
xxxx
It [i]s SO ORDERED.13 (Emphasis supplied.)
Petitioners appealed, contending that the trial court erred in awarding
interest. Petitioners stress that Article 160214 of the Civil Code governing
equitable mortgages provides that any money, fruits or other benefit to be
received by the vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury laws. Thus, there should have been no
award of interest.
On March 28, 2005, the Court of Appeals affirmed the trial court's ruling, as
follows:
WHEREFORE, the June 10, 2002 Resolution of the Regional Trial
Court, Branch 276, Muntinlupa City, is hereby AFFIRMED.
SO ORDERED.15
Their motion for reconsideration having been denied, petitioners now come
before us raising the sole issue:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED A REVERSIBLE ERROR IN DENYING PETITIONERS'
APPEAL AND IN AFFIRMING THE DECISION OF [THE] TRIAL COURT
DATED JUNE 10, 2002.16
Simply put, the issue is: Did the Court of Appeals err in sustaining the trial
court's ruling upholding the 3% and 3.81% stipulated monthly interest?
Petitioners contend that they are not liable to pay interest as the stipulated
monthly rates of 3% and 3.81%17 are unconscionable. Petitioners further
contend that the reformed instrument, i.e., the Option to Buy dated
September 28, 1998, did not mention any rate of interest chargeable to the
loan but rather, an escalation18 of the purchase price.
On the other hand, respondents maintain that petitioners are liable to pay
interest based on the Deed of Absolute Sale and Option to Buy executed by
the parties. Respondents assert that the P300,000 and P381,000 differences
per month as stated in the Option to Buy represents the 3% or 3.81% interest
to be charged on the loan. Respondents further assert that the 3% or 3.81%
interest is not usurious since Central Bank Circular No. 905-8219 removed the
ceiling on interest rates on secured and unsecured loans.
In resolving the issue in this controversy, we have agreed to focus our
attention on the basic provisions of statutes as well as the prior decisions of
this Court bearing on rates of interest on monetary obligations.
In a loan or forbearance of money, according to the Civil Code, the interest
due should be that stipulated in writing,20 and in the absence thereof, the
rate shall be 12% per annum.21
The first time that the parties in this case entered into a loan transaction was
on September 4, 1998 when petitioners obtained the P6,000,000 loan from
respondents. Based on the Deed of Real Estate Mortgage dated September
8, 1998 embodying the promissory note dated September 4, 1998, the parties
agreed on an interest rate of 3% per month.
The second and third times that the parties transacted were on September
23 and 28, 1998 when they executed the Deed of Absolute Sale and the
Option to Buy, respectively. These two documents were the instruments
reformed in Civil Case No. 00-137, where both parties agreed that the
transactions embodied therein were really that of an equitable mortgage.
The stipulation in a contract sharply escalating the repurchase price every
month is for the purpose of securing the return of money invested with
substantial profit or interest.22 Undoubtedly, the P300,000 and P381,000
successive increases stated in the Option to Buy represent the monthly
interest which respondents sought to recover from petitioners.
While the parties are free to stipulate on the interest to be imposed on
monetary obligations, the Court will temper interest rates if they are
unconscionable.23 Even if the Usury Law has been suspended by Central Bank
Circular No. 905-82, and parties to a loan agreement have been given wide
latitude to agree on any interest rate, we have held that stipulated interest
rates are illegal if they are unconscionable.24 Consequently, in our view, the
Court of Appeals erred in sustaining the trial court's decision upholding the
stipulated interest of 3% and 3.81%. Thus, we are unanimous now in our
ruling to reduce the above stipulated interest rates to 1% per month, in
conformity with our ruling in Ruiz v. Court of Appeals.25 For as well stressed
in that case:
... Nothing in the said circular [CB Circular No. 905, s. 1982] grants
lenders carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of their
assets.
Undeniably, in the present case, petitioners failed to pay the principal loan
on its maturity and upon demand by respondents, as well as the interest
payments thereafter. Indeed, petitioners cannot turn their backs on their
obligation; they have to comply with what is incumbent upon them. All other
claims for damages having been waived by the parties, petitioners are bound
to pay respondents the principal loan of P10,000,000, plus what we have
repeatedly held as the appropriate rate of interest of 1% per month, from
December 6, 199826 until fully paid.
WHEREFORE, the assailed Decision and Resolution dated March 28, 2005 and
June 30, 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 76831
are MODIFIED to the effect that the stipulated interest rate of 3% or 3.81%
per month on the subject equitable mortgage is hereby ordered REDUCED to
1% per month only. No pronouncement as to costs.
SO ORDERED.
G.R. No. 76518 July 13, 1990
IRENE P. RELUCIO, petitioner,
vs.
ZEIDA B. BRILLANTE-GARFIN and COURT OF APPEALS, respondents.
Orlando A. Martizano for petitioner.
Sivestre V. Garfin for private respondent.
RESOLUTION
FELICIANO, J.:
On 22 October 1979, private respondent Zeida B. Brillante-Garfin filed a
complaint in the lower court for specific performance with damages against
petitioner Irene P. Relucio, to compel the latter to: (a) execute, in compliance
with the Contract to Buy and Sell in question, a final deed of sale in favor of
the former over two (2) residential subdivision lots in the Mariano Village
Subdivision, Naga City; and (b) construct paved roads on the northern and
southern sides of the lots, as "necessary facilities, improvements,
infrastructures and other forms of development of the subdivision area."
Private respondent alleged that the lots, which have a total contract price of
P10,800.00, have already been paid for, as she had already paid P200.00 as
down payment, and had subsequently completed payment of 128 equal
monthly installments of P89.45 each amounting to P11,450.00; that as the
law allows the charging of interest only as monetary interest or as
compensatory interest, none of which have obtained in her case, as she had
never incurred in delay in the payment of installments due, the stipulated
interest of six percent (6%) per annum on the outstanding balance is null and
void; and that the amount of 650.00 representing overpayment be returned
to her.
Petitioner resisted the complaint, maintaining that private respondent,
contrary to the latter's allegations, is obliged to pay interest on the
installment payments of the unpaid outstanding balance even if paid on their
"due dates" per schedule of payments; that private respondent had actually
been in arrears in the amount of P4,269.40, representing such interest as of
June 1979, which therefore entitled petitioner to cancel the contract in
question. Petitioner then prayed for judicial affirmance of her Notarial Notice
of Cancellation over the said contract in question.
The lower court ordered petitioner:
1. To execute a deed of absolute sale of the two lots
described in the complaint in favor of the plaintiff to enable
the latter to secure the corresponding certificate of title in
her name within thirty (30) days from the finality of this
Decision;
2. To construct or cause the construction of roads on the
Northern and Southern sides of the said two lots in
accordance with the contract if any, and in conformity with
the City of Naga planning ordinance relative to this case;
3. The return to the plaintiff the excess payment of P650.00,
plus 6% interest per annum from the date of the filing of the
complaint; and
To pay to the plaintiff attorney's fees in the sum of P l,000.00
and the costs of suit. 1
The Court of Appeals affirmed in A.C.-GR CV No. 03194 by a
Decision 2 dated 17 July 1986.
Petitioner now comes to this Court, arguing that she has the right to rescind
the contract for private respondent's continued refusal to pay the monthly
installments on the contract price.
Two issues are presented for resolution in this petition: (1) whether or not
private respondent has fully paid the stipulated price in the contract so as to
be entitled lawfully to demand the execution of a deed of absolute sale in her
favor. This issue in turn will depend on the question of whether or not
petitioner may validly charge interest on installment payments,
notwithstanding that private respondent had been prompt in her monthly
payments; and (2) whether or not petitioner's notice of cancellation was valid
and effective.
Examination of the record shows that the questioned Contract to Buy and Sell
the subdivision lots provided for payment by private respondent of the sum
of P200.00 as downpayment, and that "the balance [of P10,600.00] shall be
paid in 180 monthly installments at P89.45 per month, including interest rate
at six percent (6%) per annum, until the purchase price is fully paid." 3 This
stipulation clearly specified that an interest charge of six percent (6%) per
annum was included in the monthly installment price: private respondent
could not have helped noticing that P89.45 multiplied by 180 monthly
installments equals P16,101.00, and not P10,600.00. The contract price of
P10,800.00 may thus be seen to be the cash price of the subdivision lots, that
is, the amount payable if the price of the lots were to be paid in cash and in
full at the execution of the contract; it is not the amount that the vendor will
have received in the aggregate after fifteen (15) years if the vendee shall have
religiously paid the monthly installments. The installment price, upon the
other hand, of the subdivision lots-the sum total of the monthly installments
(i.e., P16,101.00) typically, as in the instant case, has an interest component
which compensates the vendor for waiting fifteen (15) years before receiving
the total principal amount of P10,600.00. Economically or financially,
P10,600.00 delivered in full today is simply worth much more than a long
series of small payments totalling, after fifteen (15) years, P10,600.00. For the
vendor, upon receiving the full cash price, could have deposited that amount
in a bank, for instance, and earned interest income which at six percent (6%)
per year and for fifteen (15) years, would precisely total P5,501.00 (the
difference between the installment price of P16,101.00 — and the cash price
of P10,600.00) To suppose, as private respondent argues, that mere prompt
payment of the monthly installments as they fell due would obviate
application of the interest charge of six percent (6%) per annum, is to ignore
that simple economic fact. That economic fact is, of course, recognized by
law, which authorizes the payment of interest when contractually stipulated
for by the parties 4 or when implied in recognized commercial custom or
usage.
Vendor and vendee are legally free to stipulate for the payment of either
the cash price of a subdivision lot or its installment price. Should the vendee
opt to purchase a subdivision lot via the installment payment system, he is in
effect paying interest on the cash price, whether the fact and rate of such
interest payment is disclosed in the contract or not. The contract for the
purchase and sale of a piece of land on the installment payment system in
the case at bar is not only quite lawful; it also reflects a very wide spread
usage or custom in our present day commercial life.
Applying the foregoing analysis to the case at bar: when private respondent
started paying monthly installments in September 1968, the initial P89.45
was apportioned between the principal and the interest, with P53.00 5 being
allocated to service the interest charge and P36.45 6 being credited to the
principal. During the succeeding monthly payments, however, as the
outstanding balance on the principal gradually declined, the interest
component (in absolute terms) correspondingly fell while the component
credited to the principal increased proportionately, thus amortizing the
balance of the principal purchase prize as that balance gradually
declined. 7 This explains petitioner's theory of declining balance, which
unfortunately was not appreciated by both the trial and appellate courts.
Despite private respondent's failure to fully pay the stipulated price of the
two lots in question, petitioner, however, could not validly rescind the
contract not being lawfully entitled to do so. Petitioner failed to rebut private
respondents' allegations that the former had failed to introduce required
improvements in the subdivision; the former's bare allegation that the
improvements have already been donated to the city government was not
accepted by the trial court. Section 23 of Presidential Decree No. 957,
otherwise known as The Subdivision and Condominium Buyers' Protective
Decree, provides:
Section 23. Non-forfeiture of Payments. — No installment
payment made by the buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer,
after due notice to the owner or developer desists front
further payment due to the failure of the owner or developer
to develop the subdivision or condominium project
according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid. . . (Emphasis supplied)
In this respect, the trial court was correct in holding that petitioner
could not rescind the contract. As the law vests upon the buyer the
option to demand reimbursement of the total amount paid, or to
wait for further development of the subdivision, private respondent
who opted for the latter alternative by waiting for the proper
development of the site, may not be ousted from the subdivision. 8
ACCORDINGLY, the Court Resolved to GRANT the Petition due course and to
SET ASIDE and NULLIFY the Decision of the Court of Appeals. In lieu thereof,
a new Decision is hereby RENDERED requiring —
1. the petitioner to complete the necessary improvements
and developments in the subdivision area in accordance with
the approved subdivision plans and applicable provisions of
P.D. No. 957 as well as applicable implementing
administrative regulations and City of Naga zoning
ordinances, if any;
2. private respondent immediately to resume paying
installment payments under her Contract to Buy and Sell with
petitioner, subject to her right to proceed against petitioner
should petitioner fail again to comply with her obligations
under P.D. No. 957; and
3. petitioner to execute the Deed of Absolute Sale when
private respondent shall have fully paid the purchase price in
accordance with the mentioned Contract to Buy and Sell.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 101163 January 11, 1993
STATE INVESTMENT HOUSE, INC., petitioner,
vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.
Escober, Alon & Associates for petitioner.
Martin D. Pantaleon for private respondents.
BELLOSILLO, J.:
The liability to a holder in due course of the drawer of checks issued to
another merely as security, and the right of a real estate mortgagee after
extrajudicial foreclosure to recover the balance of the obligation, are the
issues in this Petition for Review of the Decision of respondent Court of
Appeals.
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security
for pieces of jewelry to be sold on commission, two (2) post-dated Equitable
Banking Corporation checks in the amount of Fifty Thousand Pesos
(P50,000.00) each, one dated 30 August 1979 and the other, 30 September
1979. Thereafter, the payee negotiated the checks to petitioner State
Investment House. Inc. (STATE).
MOULIC failed to sell the pieces of jewelry, so she returned them to the payee
before maturity of the checks. The checks, however, could no longer be
retrieved as they had already been negotiated. Consequently, before their
maturity dates, MOULIC withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency
of funds. On 20 December 1979, STATE allegedly notified MOULIC of the
dishonor of the checks and requested that it be paid in cash instead, although
MOULIC avers that no such notice was given her.
On 6 October 1983, STATE sued to recover the value of the checks plus
attorney's fees and expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the
checks because the jewelry was never sold and the checks were negotiated
without her knowledge and consent. She also instituted a Third-Party
Complaint against Corazon Victoriano, who later assumed full responsibility
for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the Third-
Party Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney's
fees.
STATE elevated the order of dismissal to the Court of Appeals, but the
appellate court affirmed the trial court on the ground that the Notice of
Dishonor to MOULIC was made beyond the period prescribed by the
Negotiable Instruments Law and that even if STATE did serve such notice on
MOULIC within the reglementary period it would be of no consequence as
the checks should never have been presented for payment. The sale of the
jewelry was never effected; the checks, therefore, ceased to serve their
purpose as security for the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute. Indubitably, they were
negotiable. After all, at the pre-trial, the parties agreed to limit the issue to
whether or not STATE was a holder of the checks in due course.1
In this regard, Sec. 52 of the Negotiable Instruments Law provides —
Sec. 52. What constitutes a holder in due course. — A holder
in due course is a holder who has taken the instrument under
the following conditions: (a) That it is complete and regular
upon its face; (b) That he became the holder of it before it
was overdue, and without notice that it was previously
dishonored, if such was the fact; (c) That he took it in good
faith and for value; (d) That at the time it was negotiated to
him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
Culled from the foregoing, a prima facie presumption exists that the holder
of a negotiable instrument is a holder in due course.2 Consequently, the
burden of proving that STATE is not a holder in due course lies in the person
who disputes the presumption. In this regard, MOULIC failed.
The evidence clearly shows that: (a) on their faces the post-dated checks
were complete and regular: (b) petitioner bought these checks from the
payee, Corazon Victoriano, before their due dates;3 (c) petitioner took these
checks in good faith and for value, albeit at a discounted price; and, (d)
petitioner was never informed nor made aware that these checks were
merely issued to payee as security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the
instruments free from any defect of title of prior parties, and from defenses
available to prior parties among themselves; STATE may, therefore, enforce
full payment of the checks.4
MOULIC cannot set up against STATE the defense that there was failure or
absence of consideration. MOULIC can only invoke this defense against STATE
if it was privy to the purpose for which they were issued and therefore is not
a holder in due course.
That the post-dated checks were merely issued as security is not a ground for
the discharge of the instrument as against a holder in due course. For the only
grounds are those outlined in Sec. 119 of the Negotiable Instruments Law:
Sec. 119. Instrument; how discharged. — A negotiable
instrument is discharged: (a) By payment in due course by or
on behalf of the principal debtor; (b) By payment in due
course by the party accommodated, where the instrument is
made or accepted for his accommodation; (c) By the
intentional cancellation thereof by the holder; (d) By any
other act which will discharge a simple contract for the
payment of money; (e) When the principal debtor becomes
the holder of the instrument at or after maturity in his own
right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible
grounds for the discharge of the instrument. But, the intentional cancellation
contemplated under paragraph (c) is that cancellation effected by destroying
the instrument either by tearing it up,5 burning it,6 or writing the word
"cancelled" on the instrument. The act of destroying the instrument must
also be made by the holder of the instrument intentionally. Since MOULIC
failed to get back possession of the post-dated checks, the intentional
cancellation of the said checks is altogether impossible.
On the other hand, the acts which will discharge a simple contract for the
payment of money under paragraph (d) are determined by other existing
legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231
of the Civil Code7 which enumerates the modes of extinguishing obligations.
Again, none of the modes outlined therein is applicable in the instant case as
Sec. 119 contemplates of a situation where the holder of the instrument is
the creditor while its drawer is the debtor. In the present action, the payee,
Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry
was returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her
liability by the mere expediency of withdrawing her funds from the drawee
bank. She is thus liable as she has no legal basis to excuse herself from liability
on her checks to a holder in due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is
of no moment. The need for such notice is not absolute; there are exceptions
under Sec. 114 of the Negotiable Instruments Law:
Sec. 114. When notice need not be given to drawer. — Notice
of dishonor is not required to be given to the drawer in the
following cases: (a) Where the drawer and the drawee are
the same person; (b) When the drawee is a fictitious person
or a person not having capacity to contract; (c) When the
drawer is the person to whom the instrument is presented
for payment: (d) Where the drawer has no right to expect or
require that the drawee or acceptor will honor the
instrument; (e) Where the drawer had countermanded
payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve
the checks when she returned the jewelry. She simply withdrew her funds
from her drawee bank and transferred them to another to protect herself.
After withdrawing her funds, she could not have expected her checks to be
honored. In other words, she was responsible for the dishonor of her checks,
hence, there was no need to serve her Notice of Dishonor, which is simply
bringing to the knowledge of the drawer or indorser of the instrument, either
verbally or by writing, the fact that a specified instrument, upon proper
proceedings taken, has not been accepted or has not been paid, and that the
party notified is expected to pay it.8
In addition, the Negotiable Instruments Law was enacted for the purpose of
facilitating, not hindering or hampering transactions in commercial paper.
Thus, the said statute should not be tampered with haphazardly or lightly.
Nor should it be brushed aside in order to meet the necessities in a single
case.9
The drawing and negotiation of a check have certain effects aside from the
transfer of title or the incurring of liability in regard to the instrument by the
transferor. The holder who takes the negotiated paper makes a contract with
the parties on the face of the instrument. There is an implied representation
that funds or credit are available for the payment of the instrument in the
bank upon which it is drawn.10 Consequently, the withdrawal of the money
from the drawee bank to avoid liability on the checks cannot prejudice the
rights of holders in due course. In the instant case, such withdrawal renders
the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the
checks.
Under the facts of this case, STATE could not expect payment as MOULIC left
no funds with the drawee bank to meet her obligation on the checks,11 so that
Notice of Dishonor would be futile.
The Court of Appeals also held that allowing recovery on the checks would
constitute unjust enrichment on the part of STATE Investment House, Inc.
This is error.
The record shows that Mr. Romelito Caoili, an Account Assistant, testified
that the obligation of Corazon Victoriano and her husband at the time their
property mortgaged to STATE was extrajudicially foreclosed amounted to
P1.9 million; the bid price at public auction was only P1 million.12 Thus, the
value of the property foreclosed was not even enough to pay the debt in full.
Where the proceeds of the sale are insufficient to cover the debt in an
extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the
deficiency from the debtor.13 The step thus taken by the mortgagee-bank in
resorting to an extra-judicial foreclosure was merely to find a proceeding for
the sale of the property and its action cannot be taken to mean a waiver of
its right to demand payment for the whole debt.14 For, while Act 3135, as
amended, does not discuss the mortgagee's right to recover such deficiency,
it does not contain any provision either, expressly or impliedly, prohibiting
recovery. In this jurisdiction, when the legislature intends to foreclose the
right of a creditor to sue for any deficiency resulting from foreclosure of a
security given to guarantee an obligation, it so expressly provides. For
instance, with respect to pledges, Art. 2115 of the Civil Code15 does not allow
the creditor to recover the deficiency from the sale of the thing pledged.
Likewise, in the case of a chattel mortgage, or a thing sold on installment
basis, in the event of foreclosure, the vendor "shall have no further action
against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary will be void".16
It is clear then that in the absence of a similar provision in Act No. 3135, as
amended, it cannot be concluded that the creditor loses his right recognized
by the Rules of Court to take action for the recovery of any unpaid balance
on the principal obligation simply because he has chosen to extrajudicially
foreclose the real estate mortgage pursuant to a Special Power of Attorney
given him by the mortgagor in the contract of mortgage.17
The filing of the Complaint and the Third-Party Complaint to enforce the
checks against MOULIC and the VICTORIANO spouses, respectively, is just
another means of recovering the unpaid balance of the debt of the
VICTORIANOs.
In fine, MOULIC, as drawer, is liable for the value of the checks she issued to
the holder in due course, STATE, without prejudice to any action for
recompense she may pursue against the VICTORIANOs as Third-Party
Defendants who had already been declared as in default.
WHEREFORE, the petition is GRANTED. The decision appealed from is
REVERSED and a new one entered declaring private respondent NORA B.
MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for the value of
EBC Checks Nos. 30089658 and 30089660 in the total amount of P100,000.00,
P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any
action for recompense she may pursue against the VICTORIANOs as Third-
Party Defendants.
Costs against private respondent. strained relationship between the parties, and his apparent reluctance to be
reinstated, computed only up to promulgation of this decision as follows:
SO ORDERED.
SEPARATION PAY
G.R. No. 189871 August 13, 2013
Date Hired = August 1990
DARIO NACAR, PETITIONER,
vs. Rate = ₱198/day
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS. Date of Decision = Aug. 18, 1998

DECISION Length of Service = 8 yrs. & 1 month

₱198.00 x 26 days x 8 months = ₱41,184.00

PERALTA, J.:
BACKWAGES
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, Date Dismissed = January 24, 1997
and the Resolution2 dated October 9, 2009 denying petitioner’s motion for
Rate per day = ₱196.00
reconsideration.
Date of Decisions = Aug. 18, 1998
The factual antecedents are undisputed.
a) 1/24/97 to 2/5/98 = 12.36 mos.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the
₱196.00/day x 12.36 mos. = ₱62,986.56
Arbitration Branch of the National Labor Relations Commission (NLRC)
against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed b) 2/6/98 to 8/18/98 = 6.4 months
as NLRC NCR Case No. 01-00519-97.
Prevailing Rate per day = ₱62,986.00
3
On October 15, 1998, the Labor Arbiter rendered a Decision in favor of
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20
petitioner and found that he was dismissed from employment without a valid
or just cause. Thus, petitioner was awarded backwages and separation pay in TOTAL = ₱95.933.76
lieu of reinstatement in the amount of ₱158,919.92. The dispositive portion
of the decision, reads:
xxxx
With the foregoing, we find and so rule that respondents failed to discharge
WHEREFORE, premises considered, judgment is hereby rendered finding
the burden of showing that complainant was dismissed from employment for
respondents guilty of constructive dismissal and are therefore, ordered:
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
To pay jointly and severally the complainant the amount of sixty-two
perforce constrained to grant complainant’s prayer for the payments of
thousand nine hundred eighty-six pesos and 56/100 (₱62,986.56) Pesos
separation pay in lieu of reinstatement to his former position, considering the
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 a Resolution17 granting the appeal in favor of the respondents and ordered
Respondents appealed to the NLRC, but it was dismissed for lack of merit in
the Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the
decision of the Labor Arbiter. Respondents filed a motion for reconsideration,
but it was denied.6
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, 2002.9 The 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
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 Resolution23 dated
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 Lines40 and 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. 161539 June 27, 2008
INTERNATIONAL CONTAINERTERMINAL SERVICES, INC., petitioner,
vs.
FGU INSURANCE CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
In a Decision dated July 1, 1999 in Civil Case No. 95-73532, the Regional Trial
Court (RTC) of Manila, Branch 30, ordered International Container Terminal
Services, Inc. (petitioner) to pay FGU Insurance Corporation (respondent) the
following sums: (1) P1,875,068.88 with 12% interest per annum from January
3, 1995 until fully paid; (2) P50,000.00 as attorney's fees; and (3) P10,000.00
as litigation expenses.1
Petitioner's liability arose from a lost shipment of "14 Cardboards 400 kgs. of
Silver Nitrate 63.53 FCT Analytically Pure (purity 99.98 PCT)," shipped by
Hapag-Lloyd AG through the vessel Hannover Express from Hamburg,
Germany on July 10, 1994, with Manila, Philippines as the port of discharge,
and Republic Asahi Glass Corporation (RAGC) as consignee. Said shipment
was insured by FGU Insurance Corporation (FGU). When RAGC's customs
broker, Desma Cargo Handlers, Inc., was claiming the shipment, petitioner,
which was the arrastre contractor, could not find it in its storage area. At the
behest of petitioner, the National Bureau of Investigation (NBI) conducted an
investigation. The AAREMA Marine and Cargo Surveyors, Inc. also conducted
an inquiry. Both found that the shipment was lost while in the custody and
responsibility of petitioner.
As insurer, FGU paid RAGC the amount of P1,835,068.88 on January 3,
1995.2 In turn, FGU sought reimbursement from petitioner, but the latter
refused. This constrained FGU to file with the RTC of Manila Civil Case No. 95-
73532 for a sum of money.
After trial, the RTC rendered its Decision dated July 1, 1999 finding petitioner
liable.
Petitioner appealed to the Court of Appeals (CA), which, in the assailed
Decision3 dated October 22, 2003, affirmed the RTC Decision. Petitioner filed
a motion for reconsideration which the CA denied in its Resolution dated
January 8, 2004.4
Hence, the present petition for review on certiorari under Rule 45 of the
Rules of Court, with the following assignment of errors:
1. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO APPLY
THE LIMITATION OF LIABILITY OF P3,5000 PER PACKAGE WHICH
LIMITS PETITIONER'S LIABILITY, IF ANY, TO A TOTAL OF
 ONLY P49,000.00 PURSUANT TO PPA ADMINISTRATIVE ORDER NO.
10-81.
2. THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE
MARINE OPEN POLICY DESPITE THE FACT THAT THE SAME WAS NO
LONGER IN FORCE AT THE TIME THE SHIPMENT WAS LOADED ON
BOARD THE CARRYING VESSEL.
3. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO DISMISS
THE COMPLAINT ON THE GROUND OF RESPONDENT'S FAILURE TO
OFFER THE INSURANCE POLICY IN EVIDENCE PURSUANT TO THIS
HONORABLE COURT'S DECISION IN HOME INSURANCE
CORPORATION VS. COURT OF APPEALS (225 SCRA 411) AND THE
FAIRLY RECENT DECISION IN WALLEM PHILIPPINES SHIPPING, INC.
AND SEACOAST MARITIME CORP. VS. PRUDENTIAL GUARANTEE AND
ASSURANCE, INC. AND COURT OF APPEALS, G.R. NO. 152158, 07
FEBRUARY 2003.
4. ASSUMING ARGUENDO THAT PETITIONER IS LIABLE, THE COURT
OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE AWARD OF 12%
INTEREST DESPITE THE FACT THAT THE OBLIGATION PURPORTEDLY
BREACHED DOES NOT CONSTITUTE A LOAN OF FORBEARANCE OF
MONEY AND DESPITE THE CLEAR GUIDELINES SET FORTH BY THIS
HONORABLE COURT IN EASTERN SHIPPING LINES, INC. VS. COURT OF
APPEALS. (234 SCRA 78).5
The rule in our jurisdiction is that only questions of law may be entertained
by this Court in a petition for review on certiorari. This rule, however, is not
ironclad and admits certain exceptions, such as when (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of
discretion; (4) the judgment is based on a misapprehension of facts; (5) the
findings of fact are conflicting; (6) there is no citation of specific evidence on
which the factual findings are based; (7) the findings of absence of facts are
contradicted by the presence of evidence on record; (8) the findings of the
CA are contrary to those of the trial court; (9) the CA manifestly overlooked
certain relevant and undisputed facts that, if properly considered, would
justify a different conclusion; (10) the findings of the CA are beyond the issues
of the case; and (11) such findings are contrary to the
admissions of both parties.6 In the present case, there is nothing on record
which will show that it falls within the exceptions. Hence, the petition must
be denied.
Petitioner posits that its liability for the lost shipment should be limited
to P3,500.00 per package as provided in Philippine Ports Authority
Administrative Order No. 10-81 (PPA AO 10-81), under Article VI, Section 6.01
of which provides:
Section 6.01. Responsibility and Liability for Losses and Damages;
Exceptions - The CONTRACTOR shall at its own expense handle all
merchandise in all work undertaken by it hereunder deligently [sic]
and in a skillful, workman-like and efficient manner; that the
CONTRACTOR shall be solely responsible as an independent
CONTRACTOR, and hereby agrees to accept liability and to promptly
pay to the shipping company consignees, consignors or other
interested party or parties for the loss, damage, or non-delivery of
cargoes to the extent of the actual invoice value of each package
which in no case shall be more than THREE THOUSAND FIVE
HUNDRED PESOS (P3,500.00) (for import cargo) x x x for each
package unless the value of the cargo importation is otherwise
specified or manifested or communicated in writing together with
the declared bill of lading value and supported by a certified packing
list to the CONTRACTOR by the interested party or parties before
the discharge x x x of the goods, as well as all damage that may be
suffered on account of loss, damage, or destruction of any
merchandise while in custody or under the control of the
CONTRACTOR in any pier, shed, warehouse facility or other
designated place under the supervision of the AUTHORITY x x
x.7 (Emphasis supplied)
The CA summarily ruled that PPA AO 10-81 is not applicable to this case
without laying out the reasons therefor.
PPA AO 10-81 is the management contract between by the Philippine Ports
Authority and the cargo handling services providers. In Summa Insurance
Corporation v. Court of Appeals,8 the Court ruled that:
In the performance of its job, an arrastre operator is bound by the
management contract it had executed with the Bureau of Customs.
 However, a management contract, which is a sort of a stipulation
pour autrui within the meaning of Article 1311 of the Civil Code, is
also binding on a consignee because it is incorporated in the gate pass
and delivery receipt which must be presented by the consignee
before delivery can be effected to it. The insurer, as successor-in-
interest of the consignee, is likewise bound by the management
contract. Indeed, upon taking delivery of the cargo, a consignee (and
necessarily its successor-in- interest) tacitly accepts the provisions of
the management contract, including those which are intended to
limit the liability of one of the contracting parties, the arrastre
operator.
However, a consignee who does not avail of the services of the
arrastre operator is not bound by the management contract. Such an
exception to the rule does not obtain here as the consignee did in
fact accept delivery of the cargo from the arrastre operator.9
While it appears in the present case that the RAGC availed itself of
petitioner's services and therefore, PPA AO 10-81 should apply, the Court
finds that the extent of petitioner's liability should cover the actual value of
the lost shipment and not the P3,500.00 limit per package as provided in said
Order.
It is borne by the records that when Desma Cargo Handlers was negotiating
for the discharge of the shipment, it presented Hapag-Lloyd's Bill of
Lading,10 Degussa's Commercial Invoice, which indicates that value of the
shipment, including seafreight charges, was DM94.960,00 (CFR
Manila);11 and Degussa's Packing List, which likewise notes that the value of
the shipment was DM94.960,00.12 It is highly unlikely that petitioner was not
made aware of the actual value of the shipment, since it had to examine the
pertinent documents for stripping purposes and, later on, for the discharge
of the shipment to the consignee or its representative. In fact, the NBI Report
dated September 26, 1994 on the investigation conducted by it regarding the
loss of the shipment shows that petitioner's Admeasurer Rosco Esquibal was
shown the Bill of Lading by Desma Brokerage's representative, Rey
Villanueva.13 Esquibal also stated that another representative of Desma
Brokerage, Joey Laurente, went to their office and furnished him a copy of
the "processed papers of the fourteen cartons of Asahi Glass cargoes."14
By its own act of not charging the corresponding arrastre fees based on the
value of the shipment after it came to know of such declared value from the
marine insurance policy, petitioner cannot escape liability for the actual value
of the shipment. The value of the merchandise or shipment may be declared
or stated not only in the bill of lading or shipping manifest, but also in other
documents required by law before the shipment is cleared from the piers.15
Petitioner insists that Marine Open Policy No. MOP-12763 under which the
shipment was insured was no longer in force at the time it was loaded on
board the Hannover Express on June 10, 1994, as provided in the
Endorsement portion of the policy, which states: "IT IS HEREBY DECLARED
AND AGREED that effective June 10, 1994, this policy is deemed
CANCELLED."16 FGU, on the other hand, insists that it was under Marine Risk
Note No. 9798, which was executed on May 26, 1994, that said shipment was
covered.
It must be emphasized that a marine risk note is not an insurance policy. It is
only an acknowledgment or declaration of the insurer confirming the specific
shipment covered by its marine open policy, the evaluation of the cargo and
the chargeable premium.17 It is the marine open policy which is the main
insurance contract. In other words, the marine open policy is the blanket
insurance to be undertaken by FGU on all goods to be shipped by RAGC during
the existence of the contract, while the marine risk note specifies the
particular goods/shipment insured by FGU on that specific transaction,
including the sum insured, the shipment particulars as well as the premium
paid for such shipment. In any event, as it stands, it is evident that even prior
to the cancellation by FGU of Marine Open Policy No. MOP-12763 on June 10,
1994, it had already undertaken to insure the shipment of the 400 kgs. of
silver nitrate, specially since RAGC had already paid the premium on the
insurance of said shipment.
Indeed, jurisprudence has it that the marine insurance policy needs to be
presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,18 the
Court stated that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very existence of an
insurance contract between Malayan Insurance and its consignee, ABB
Koppel, even prior to the loss of the shipment. In Wallem Philippines
Shipping, Inc. v. Prudential Guarantee and Assurance, Inc.,19 the Court ruled
that the insurance contract must be presented in evidence in order to
determine the extent of the coverage. This was also the ruling of the Court
in Home Insurance Corporation v. Court of Appeals.20
However, as in every general rule, there are admitted exceptions. In Delsan
Transport Lines, Inc. v. Court of Appeals,21 the Court stated that the
presentation of the insurance policy was not fatal because the loss of the
cargo undoubtedly occurred while on board the petitioner's vessel, unlike
in Home Insurance in which the cargo passed through several stages with
different parties and it could not be determined when the damage to the
cargo occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present case
occurred while in petitioner's custody. Moreover, there is no issue as regards
the provisions of Marine Open Policy No. MOP-12763, such that the
presentation of the contract itself is necessary for perusal, not to mention
that its existence was already admitted by petitioner in open court.22 And
even though it was not offered in evidence, it still can be considered by the
court as long as they have been properly identified by testimony duly
recorded and they have themselves been incorporated in the records of the
case.23
Finally, petitioner questions the imposition of a 12% interest rate, instead of
6%, on its adjudged liability. The ruling in Prudential Guarantee and
Assurance Inc. v. Trans-Asia Shipping Lines, Inc.,24 to wit:
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, inscribed
the rule of thumb in the application of interest to be imposed on
obligations, regardless of their source. Eastern emphasized beyond
cavil that when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, regardless of
whether the obligation involves a loan or forbearance of money, 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.
We find application of the rule in the case at bar proper, thus, a rate
of 12% per annum from the finality of judgment until the full
satisfaction thereof must be imposed on the total amount of liability
adjudged to PRUDENTIAL. It is clear that the interim period from the
finality of judgment until the satisfaction of the same is deemed
equivalent to a forbearance of credit, hence, the imposition of the
aforesaid interest.25 (Emphasis supplied)
is instructive. The CA did not commit any error in applying the same.
The Court notes, however, an apparent clerical error made in the dispositive
portion of the RTC Decision. While it appears that FGU paid RAGC the amount
of P1,835,068.88, as shown in the Subrogation Receipt,26 as prayed for in its
Complaint,27 the RTC awarded the sum of P1,875,068.88. Thus, a necessary
modification should be made on this score.
WHEREFORE, the petition is DENIED. The Decision dated October 22, 2003
and Resolution dated January 8, 2004 of the Court of Appeals are AFFIRMED,
with the modification that the award in the RTC Decision dated July 1, 1999
should be P1,835,068.88 instead of P1,875,068.88.
Costs against petitioner.
SO ORDERED.
G.R. No. 141811 November 15, 2001
FIRST METRO INVESTMENT CORPORATION, petitioner,
vs.
ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL
Q. SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION,
ALBERTO * M. LADORES, VICENTE M. DE VERA, JR., and FELIPE B.
SESE, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of
Appeals2 dated November 8, 1999 in CA-G.R. CV No. 53328 reversing the
Decision3 of the Regional Trial Court of Pasig City, Branch 159 dated June 2,
1994 in Civil Case No. 39224. Essentially, the Court of Appeals found and
declared that the fees provided for in the Underwriting and Consultancy
Agreements executed by and between petitioner First Metro Investment
Corp. (FMIC) and respondent Este del Sol Mountain Reserve, Inc. (Este del
Sol) simultaneously with the Loan Agreement dated January 31, 1978 were
mere subterfuges to camouflage the usurious interest charged by petitioner
FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner FMIC granted respondent Este
del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five
Hundred Pesos (P7,385,500.00) to finance the construction and development
of the Este del Sol Mountain Reserve, a sports/resort complex project located
at Barrio Puray, Montalban, Rizal.4
Under the terms of the Loan Agreement, the proceeds of the loan were to be
released on staggered basis. Interest on the loan was pegged at sixteen (16%)
percent per annum based on the diminishing balance. The loan was payable
in thirty-six (36) equal and consecutive monthly amortizations to commence
at the beginning of the thirteenth month from the date of the first release in
accordance with the Schedule of Amortization.5 In case of default, an
acceleration clause was, among others, provided and the amount due was
made subject to a twenty (20%) percent one-time penalty on the amount due
and such amount shall bear interest at the highest rate permitted by law from
the date of default until full payment thereof plus liquidated damages at the
rate of two (2%) percent per month compounded quarterly on the unpaid
balance and accrued interests together with all the penalties, fees, expenses
or charges thereon until the unpaid balance is fully paid, plus attorney's fees
equivalent to twenty-five (25%) percent of the sum sought to be recovered,
which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the
services of a lawyer were hired.6
In accordance with the terms of the Loan Agreement, respondent Este del Sol
executed several documents7 as security for payment, among them, (a) a Real
Estate Mortgage dated January 31, 1978 over two (2) parcels of land being
utilized as the site of its development project with an area of approximately
One Million Twenty-Eight Thousand and Twenty-Nine (1,028,029) square
meters and particularly described in TCT Nos. N-24332 and N-24356 of the
Register of Deeds of Rizal, inclusive of all improvements, as well as all the
machineries, equipment, furnishings and furnitures existing thereon; and (b)
individual Continuing Suretyship agreements by co-respondents Valentin S.
Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion,
Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated
February 2, 1978, to guarantee the payment of all the obligations of
respondent Este del Sol up to the aggregate sum of Seven Million Five
Hundred Thousand Pesos (P7,500,000.00) each.8
Respondent Este del Sol also executed, as provided for by the Loan
Agreement, an Underwriting Agreement on January 31, 1978 whereby
petitioner FMIC shall underwrite on a best-efforts basis the public offering of
One Hundred Twenty Thousand (120,000) common shares of respondent
Este del Sol's capital stock for a one-time underwriting fee of Two Hundred
Thousand Pesos (P200,000.00). In addition to the underwriting fee, the
Underwriting Agreement provided that for supervising the public offering of
the shares, respondent Este del Sol shall pay petitioner FMIC an annual
supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum
for a period of four (4) consecutive years. The Underwriting Agreement also
stipulated for the payment by respondent Este del Sol to petitioner FMIC a
consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos
(P332,500.00) per annum for a period of four (4) consecutive years.
Simultaneous with the execution of and in accordance with the terms of the
Underwriting Agreement, a Consultancy Agreement was also executed on
January 31, 1978 whereby respondent Este del Sol engaged the services of
petitioner FMIC for a fee as consultant to render general consultancy
services.9
In three (3) letters all dated February 22, 1978 petitioner billed respondent
Este del Sol for the amounts of [a] Two Hundred Thousand Pesos
(P200,000.00) as the underwriting fee of petitioner FMIC in connection with
the public offering of the common shares of stock of respondent Este del Sol;
[b] One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00) as
consultancy fee for a period of four (4) years; and [c] Two Hundred Thousand
Pesos (P200,000.00) as supervision fee for the year beginning February, 1978,
in accordance to the Underwriting Agreement.10 The said amounts of fees
were deemed paid by respondent Este del Sol to petitioner FMIC which
deducted the same from the first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in
accordance with a revised Schedule of Amortization, it appeared to have
incurred a total obligation of Twelve Million Six Hundred Seventy-Nine
Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos
(P12,679,630.98) per the petitioner's Statement of Account dated June 23,
1980,11 to wit:
 STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE, payment INC. of the alleged deficiency balance, despite individual demands sent
AS OF JUNE 23, 1980 to each of them,14 petitioner instituted on November 11, 1980 the instant
collection suit15 against the respondents to collect the alleged deficiency
PARTICULARS AMOUNT
balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred
Total amount due as of 11-22-78 per revised amortization Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) plus
schedule dated 1-3-78 P7,999,631.42
interest thereon at twenty-one (21%) percent per annum from June 24, 1980
Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to 2-22-79 until fully paid, and twenty-five (25%) percent thereof as and for attorney's
(92 days) fees and costs.
327,096.04
Balance 8,326,727.46
In their Answer, the respondents sought the dismissal of the case and set up
One time penalty of 20% of the entire unpaid obligations under several special and affirmative defenses, foremost of which is that the
Section 6.02 (ii) of Loan Agreement 1,665,345.49
Underwriting and Consultancy Agreements executed simultaneously with
Past due interest under Section 6.02 (iii) of loan Agreement: and as integral parts of the Loan Agreement and which provided for the
@ 19% p.a. from 2-22-79 to 11-30-79 (281 days) payment of Underwriting, Consultancy and Supervision fees were in reality
1,481,879.93
@ 21% p.a. from 11-30-79 to 6-23-80 (206 days) subterfuges resorted to by petitioner FMIC and imposed upon respondent
1,200,714.10
Este del Sol to camouflage the usurious interest being charged by petitioner
Other charges — publication of extra judicial foreclosure of REM
FMIC.16
made on 5-23-80 & 6-6-80 4,964.00
Total Amount Due and Collectible as of June 23, 1980 P12,679,630.98
The petitioner FMIC presented as its witnesses during the trial: Cesar
Valenzuela, its former Senior Vice-President, Felipe Neri, its Vice-President
Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real for Marketing, and Dennis Aragon, an Account Manager of its Account
estate mortgage on June 23, 1980.12 At the public auction, petitioner FMIC Management Group, as well as documentary evidence. On the other hand,
was the highest bidder of the mortgaged properties for Nine Million Pesos co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and Perfecto
(P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight Doroja, former Senior Manager and Assistant Vice-President of FMIC,
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos testified for the respondents.
(P3,188,630.75) was deducted therefrom, that is, for the publication fee for
the publication of the Sheriff's Notice of Sale, Four Thousand Nine Hundred After the trial, the trial court rendered its decision in favor of petitioner FMIC,
Sixty-Four Pesos (P4,964.00); for Sheriff's fees for conducting the foreclosure the dispositive portion of which reads:
proceedings, Fifteen Thousand Pesos (P15,000.00); and for Attorney's fees,
Three Million One Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Pesos WHEREFORE, judgment is hereby rendered in favor of plaintiff and
and Seventy-Five Centavos (P3,168,666.75). The remaining balance of Five against defendants, ordering defendants jointly and severally to pay
Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and to plaintiff the amount of P6,863,297.73 plus 21% interest per
Twenty-Five Centavos (P5,811,369.25) was applied to interests and penalty annum, from June 24, 1980, until the entire amount is fully paid, plus
charges and partly against the principal, due as of June 23, 1980, thereby the amount equivalent to 25% of the total amount due, as attorney's
leaving a balance of Six Million Eight Hundred Sixty-Three Thousand Two fees, plus costs of suit.
Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73)
on the principal amount of the loan as of June 23, 1980.13 Defendants' counterclaims are dismissed, for lack of merit.

Failing to secure from the individual respondents, as sureties of the loan of

respondent Este del Sol by virtue of their continuing surety agreements, the
Finding the decision of the trial court unacceptable, respondents interposed Petitioner moved for reconsideration of the appellate court's adverse
an appeal to the Court of Appeals. On November 8, 1999, the appellate court decision. However, this was denied in a Resolution18 dated February 9, 2000
reversed the challenged decision of the trial court. The appellate court found of the appellate court.
and declared that the fees provided for in the Underwriting and Consultancy
Agreements were mere subterfuges to camouflage the excessively usurious Hence, the instant petition anchored on the following assigned errors:19
interest charged by the petitioner FMIC on the loan of respondent Este del
Sol; and that the stipulated penalties, liquidated damages and attorney's fees THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY
were "excessive, iniquitous, unconscionable and revolting to the conscience," NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS
and declared that in lieu thereof, the stipulated one time twenty (20%) HONORABLE COURT WHEN IT:
percent penalty on the amount due and ten (10%) percent of the amount due
as attorney's fees would be reasonable and suffice to compensate petitioner a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY
FMIC for those items. Thus, the appellate court dismissed the complaint as AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND
against the individual respondents sureties and ordered petitioner FMIC to DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY
pay or reimburse respondent Este del Sol the amount of Nine Hundred SHOULD BE CONSIDERED AS A SINGLE CONTRACT.
Seventy-One Thousand Pesos (P971,000.00) representing the difference
between what is due to the petitioner and what is due to respondent Este del b] HELD THAT THE UNDERWRITING AND CONSULTANCY
Sol, based on the following computation:17 AGREEMENTS ARE "MERE SUBTERFUGES TO CAMOUFLAGE THE
USURIOUS INTEREST CHARGED" BY THE PETITIONER.
A: DUE TO THE [PETITIONER]
Principal of Loan P7,382,500.00 c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S
WITNESSES ON THE SERVICES PERFORMED BY PETITIONER.
Add: 20% one-time
Penalty 1,476,500.00 d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD
Attorney's fees 900,000.00 P9,759,000.00 WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY
Less: Proceeds of foreclosure Sale 9,000,000.00 PAID TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED
Deficiency P759,000.00 THE VALIDITY OF THE UNDERWRITING AND CONSULTANCY
AGREEMENTS.
B. DUE TO [RESPONDENT ESTE DEL SOL]
Return of usurious interest in the form of: e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS
Underwriting fee P 200,000.00 DUE TO EACH PARTY AFTER THE FORECLOSURE SALE", AS SHOWN IN
Supervision fee 200,000.00 PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE
Consultancy fee 1,330,000.00 SAKE OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN
Total amount due Este P1,730,000.00 STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT
REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND
ATTORNEY'S FEES AS SUPPOSEDLY "EXCESSIVE, INIQUITOUS AND
The appellee is, therefore, obliged to return to the appellant Este del
UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii]
Sol the difference of P971,000.00 or (P1,730,000.00 less
THE UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES
P759,000.00).
AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO
 CAMOUFLAGE THE USURIOUS INTEREST CHARGED" UPON THE
RESPONDENT ESTE BY PETITIONER.
f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND
THUS THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE
PETITIONER.
Petitioner essentially assails the factual findings and conclusion of the
appellate court that the Underwriting and Consultancy Agreements were
executed to conceal a usurious loan. Inquiry upon the veracity of the
appellate court's factual findings and conclusion is not the function of this
Court for the Supreme Court is not a trier of facts. Only when the factual
findings of the trial court and the appellate court are opposed to each other
does this Court exercise its discretion to re-examine the factual findings of
both courts and weigh which, after considering the record of the case, is more
in accord with law and justice.
After a careful and thorough review of the record including the evidence
adduced, we find no reason to depart from the findings of the appellate court.
First, there is no merit to petitioner FMIC's contention that Central Bank
Circular No. 905 which took effect on January 1, 1983 and removed the ceiling
on interest rates for secured and unsecured loans, regardless of maturity,
should be applied retroactively to a contract executed on January 31, 1978,
as in the case at bar, that is, while the Usury Law was in full force and effect.
It is an elementary rule of contracts that the laws, in force at the time the
contract was made and entered into, govern it.20 More significantly, Central
Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but
simply suspended the latter's effectivity.21 The illegality of usury is wholly the
creature of legislation. A Central Bank Circular cannot repeal a law. Only a law
can repeal another law.22 Thus, retroactive application of a Central Bank
Circular cannot, and should not, be presumed.23
Second, when a contract between two (2) parties is evidenced by a written
instrument, such document is ordinarily the best evidence of the terms of the
contract. Courts only need to rely on the face of written contracts to
determine the intention of the parties. However, this rule is not without
exception.24 The form of the contract is not conclusive for the law will not
permit a usurious loan to hide itself behind a legal form. Parol evidence is
admissible to show that a written document though legal in form was in fact
a device to cover usury. If from a construction of the whole transaction it
becomes apparent that there exists a corrupt intention to violate the Usury
Law, the courts should and will permit no scheme, however ingenious, to
becloud the crime of usury.25
In the instant case, several facts and circumstances taken altogether show
that the Underwriting and Consultancy Agreements were simply cloaks or
devices to cover an illegal scheme employed by petitioner FMIC to conceal
and collect excessively usurious interest, and these are:
a) The Underwriting and Consultancy Agreements are both dated January 31,
1978 which is the same date of the Loan Agreement.26 Furthermore, under
the Underwriting Agreement payment of the supervision and consultancy
fees was set for a period of four (4) years27 to coincide ultimately with the
term of the Loan Agreement.28 This fact means that all the said agreements
which were executed simultaneously were set to mature or shall remain
effective during the same period of time.
b) The Loan Agreement dated January 31, 1978 stipulated for the execution
and delivery of an underwriting agreement29 and specifically mentioned that
such underwriting agreement is a condition precedent30 for petitioner FMIC
to extend the loan to respondent Este del Sol, indicating and as admitted by
petitioner FMIC's employees,31 that such Underwriting Agreement is "part
and parcel of the Loan Agreement."32
c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One
Million Three Hundred Thirty Thousand Pesos (P1,330,000.00)33 as
consultancy fee despite the clear provision in the Consultancy Agreement
that the said agreement is for Three Hundred Thirty-Two Thousand Five
Hundred Pesos (P332,500.00) per annum for four (4) years and that only the
first year consultancy fee shall be due upon signing of the said consultancy
agreement.34
d) The Underwriting, Supervision and Consultancy fees in the amounts of Two
Hundred Thousand Pesos (P200,000.00), and one Million Three Hundred
Thirty Thousand Pesos (P1,330,000.00), respectively, were billed by
petitioner to respondent Este del Sol on February 22, 1978,35 that is, on the
same occasion of the first partial release of the loan in the amount of Two
Million Three Hundred Eighty-Two Thousand Five Hundred Pesos
(P2,382,500.00).36 It is from this first partial release of the loan that the said
corresponding bills for Underwriting, Supervision and Constantly fees were
conducted and apparently paid, thus, reverting back to petitioner FMIC the
total amount of One Million Seven Hundred Thirty Thousand Pesos
(P1,730,000.00) as part of the amount loaned to respondent Este del Sol.37
e) Petitioner FMIC was in fact unable to organize an underwriting/selling
syndicate to sell any share of stock of respondent Este del Sol and much less
to supervise such a syndicate, thus failing to comply with its obligation under
the Underwriting Agreement.38 Besides, there was really no need for an
Underwriting Agreement since respondent Este del Sol had its own licensed
marketing arm to sell its shares and all its shares have been sold through its
marketing arm.39
f) Petitioner FMIC failed to comply with its obligation under the Consultancy
Agreement,40 aside from the fact that there was no need for a Consultancy
Agreement, since respondent Este del Sol's officers appeared to be more
competent to be consultants in the development of the projected
sports/resort complex.41
All the foregoing established facts and circumstances clearly belie the
contention of petitioner FMIC that the Loan, Underwriting and Consultancy
Agreements are separate and independent transactions. The Underwriting
and Consultancy Agreements which were executed and delivered
contemporaneously with the Loan Agreement on January 31, 1978 were
exacted by petitioner FMIC as essential conditions for the grant of the loan.
An apparently lawful loan is usurious when it is intended that additional
compensation for the loan be disguised by an ostensibly unrelated contract
providing for payment by the borrower for the lender's services which are of
little value or which are not in fact to be rendered, such as in the instant
case.42 In this connection, Article 1957 of the New Civil Code clearly provides
that:
Art. 1957. Contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury shall be
void. The borrower may recover in accordance with the laws on
usury.
In usurious loans, the entire obligation does not become void because of an
agreement for usurious interest; the unpaid principal debt still stands and
remains valid but the stipulation as to the usurious interest is void,
consequently, the debt is to be considered without stipulation as to the
interest.43 The reason for this rule was adequately explained in the case
of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises44 where this Court
held:
In simple loan with stipulation of usurious interest, the prestation of
the debtor to pay the principal debt, which is the cause of the
contract (Article 1350, Civil Code), is not illegal. The illegality lies only
as to the prestation to pay the stipulated interest; hence, being
separable, the latter only should be deemed void, since it is the only
one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the
lender's right to receive back the principal amount of the loan. With respect
to the debtor, the amount paid as interest under a usurious agreement is
recoverable by him, since the payment is deemed to have been made under
restraint, rather than voluntarily.45
This Court agrees with the factual findings and conclusion of the appellate
court, to wit:
We find the stipulated penalties, liquidated damages and attorney's
fees, excessive, iniquitous and unconscionable and revolting to the
conscience as they hardly allow the borrower any chance of survival
in case of default. And true enough, ESTE folded up when the
appellee extrajudicially foreclosed on its (ESTE's) development
project and literally closed its offices as both the appellee and ESTE
were at the time holding office in the same building. Accordingly, we
hold that 20% penalty on the amount due and 10% of the proceeds
of the foreclosure sale as attorney's fees would suffice to
compensate the appellee, especially so because there is no clear
showing that the appellee hired the services of counsel to effect the
foreclosure, it engaged counsel only when it was seeking the
recovery of the alleged deficiency.
Attorney's fees as provided in penal clauses are in the nature of liquidated
damages. So long as such stipulation does not contravene any law, morals, or
public order, it is binding upon the parties. Nonetheless, courts are
empowered to reduce the amount of attorney's fees if the same is "iniquitous
or unconscionable."46 Articles 1229 and 2227 of the New Civil Code provide
that:
Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or
a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos
(93,188,630.75) for the stipulated attorney's fees equivalent to twenty-five
(25%) percent of the alleged amount due, as of the date of the auction sale
on June 23, 1980, is manifestly exorbitant and unconscionable. Accordingly,
we agree with the appellate court that a reduction of the attorney's fees to
ten (10%) percent is appropriate and reasonable under the facts and
circumstances of this case.
Lastly, there is no merit to petitioner FMIC's contention that the appellate
court erred in awarding an amount allegedly not asked nor prayed for by
respondents. Whether the exact amount of the relief was not expressly
prayed for is of no moment for the reason that the relief was plainly
warranted by the allegations of the respondents as well as by the facts as
found by the appellate court. A party is entitled to as much relief as the facts
may warrant 47
In view of all the foregoing, the Court is convinced that the appellate court
committed no reversible error in its challenged Decision.
WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision
of the Court of Appeals is AFFIRMED. Costs against petitioner. PN #
SO ORDERED. 8314-96-00083-3
8314-96-00085-0
G.R. No. 159912 August 17, 2007
8314-96-000292-2
UNITED COCONUT PLANTERS BANK, Petitioner,
vs.
SPOUSES SAMUEL and ODETTE BELUSO, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
which seeks to annul the Court of Appeals Decision1 dated 21 January 2003
and its Resolution2 dated 9 September 2003 in CA-G.R. CV No. 67318. The
assailed Court of Appeals Decision and Resolution affirmed in turn the
Decision3 dated 23 March 2000 and Order4 dated 8 May 2000 of the Regional
Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99-314, declaring
void the interest rate provided in the promissory notes executed by the
respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of
petitioner United Coconut Planters Bank (UCPB).
The procedural and factual antecedents of this case are as follows:
On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line
under a Credit Agreement whereby the latter could avail from the former
credit of up to a maximum amount of ₱1.2 Million pesos for a term ending on
30 April 1997. The spouses Beluso constituted, other than their promissory
notes, a real estate mortgage over parcels of land in Roxas City, covered by
Transfer Certificates of Title No. T-31539 and T-27828, as additional security
for the obligation. The Credit Agreement was subsequently amended to
increase the amount of the Promissory Notes Line to a maximum of ₱2.35
Million pesos and to extend the term thereof to 28 February 1998.
The spouses Beluso availed themselves of the credit line under the following
Promissory Notes:
Date of PN Maturity Date Amount Secured
29 April 1996 27 August 1996 ₱ 700,000
2 May 1996 30 August 1996 ₱ 500,000
20 November 1996 20 March 1997 ₱ 800,000
 The three promissory notes were renewed several times. On 30 April 1997,
the payment of the principal and interest of the latter two promissory notes
were debited from the spouses Beluso’s account with UCPB; yet, a
consolidated loan for ₱1.3 Million was again released to the spouses Beluso
under one promissory note with a due date of 28 February 1998.
To completely avail themselves of the ₱2.35 Million credit line extended to
them by UCPB, the spouses Beluso executed two more promissory notes for
a total of ₱350,000.00:
# Date of PN Maturity Date Amount Secured
The spouses Beluso, however, failed to make any payment of the foregoing
amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their
total obligation of ₱2,932,543.00 plus 25% attorney’s fees, but the spouses
Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed
the properties mortgaged by the spouses Beluso to secure their credit line,
which, by that time, already ballooned to ₱3,784,603.00.
On 9 February 1999, the spouses Beluso filed a Petition for Annulment,
Accounting and Damages against UCPB with the RTC of Makati City.

-00363-1 11 December 1997 28 February 1998 ₱ 200,000 On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of
-00002-4 2 January 1998 28 February 1998 ₱ 150,000 the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered declaring the interest

However, the spouses Beluso alleged that the amounts covered by these last
two promissory notes were never released or credited to their account and,
thus, claimed that the principal indebtedness was only ₱2 Million.
In any case, UCPB applied interest rates on the different promissory notes
ranging from 18% to 34%. From 1996 to February 1998 the spouses Beluso
were able to pay the total sum of ₱763,692.03.
From 28 February 1998 to 10 June 1998, UCPB continued to charge interest
and penalty on the obligations of the spouses Beluso, as follows:
rate used by [UCPB] void and the foreclosure and Sheriff’s Certificate of Sale
void. [UCPB] is hereby ordered to return to [the spouses Beluso] the
properties subject of the foreclosure; to pay [the spouses Beluso] the amount
of ₱50,000.00 by way of attorney’s fees; and to pay the costs of suit. [The
spouses Beluso] are hereby ordered to pay [UCPB] the sum of
₱1,560,308.00.5
On 8 May 2000, the RTC denied UCPB’s Motion for
Reconsideration,6 prompting UCPB to appeal the RTC Decision with the Court
of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:

# Amount Secured Interest Penalty Total WHEREFORE, premises considered, the decision dated March 23, 2000 of the
Regional Trial Court, Branch 65, Makati City in Civil Case No. 99-314 is hereby
-00363-1 ₱ 200,000 31% 36% ₱ 225,313.24
AFFIRMED subject to the modification that defendant-appellant UCPB is not
-00366-6 ₱ 700,000 30.17% 32.786% ₱ 795,294.72 liable for attorney’s fees or the costs of suit.7
(7 days) (102 days)
On 9 September 2003, the Court of Appeals denied UCPB’s Motion for
-00368-2 ₱ 1,300,000 28% 30.41% ₱ 1,462,124.54 Reconsideration for lack of merit. UCPB thus filed the present petition,
(2 days) (102 days)
submitting the following issues for our resolution:
-00002-4 ₱ 150,000 33% 36% ₱ 170,034.71
(102 days) I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH DECLARED VOID THE PROVISION ON INTEREST RATE
AGREED UPON BETWEEN PETITIONER AND RESPONDENTS
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE COMPUTATION BY
THE TRIAL COURT OF RESPONDENTS’ INDEBTEDNESS AND ORDERED
RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION
FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED EIGHT PESOS
(₱1,560,308.00)
III
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER OF THE
SUBJECT PROPERTIES DUE TO AN ALLEGED "INCORRECT COMPUTATION" OF
RESPONDENTS’ INDEBTEDNESS
IV
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF THE
TRUTH IN LENDING ACT
V by the branch head" is considered void, such a declaration would not ipso
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE DISMISSAL
OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM
SHOPPING8
Validity of the Interest Rates
The Court of Appeals held that the imposition of interest in the following
provision found in the promissory notes of the spouses Beluso is void, as the
interest rates and the bases therefor were determined solely by petitioner
UCPB:
FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND
ODETTE BELUSO (BORROWER), jointly and severally promise to pay to
UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg., Makati
Avenue, Makati City, Philippines, the sum of ______________ PESOS,
(P_____), Philippine Currency, with interest thereon at the rate indicative of
DBD retail rate or as determined by the Branch Head.9
UCPB asserts that this is a reversible error, and claims that while the interest
rate was not numerically quantified in the face of the promissory notes, it was
nonetheless categorically fixed, at the time of execution thereof, at the "rate
indicative of the DBD retail rate." UCPB contends that said provision must be
read with another stipulation in the promissory notes subjecting to review
the interest rate as fixed:
The interest rate shall be subject to review and may be increased or
decreased by the LENDER considering among others the prevailing financial
and monetary conditions; or the rate of interest and charges which other
banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the LENDER after due
consideration of all dealings with the BORROWER.10
In this regard, UCPB avers that these are valid reference rates akin to a
"prevailing rate" or "prime rate" allowed by this Court in Polotan v. Court of
Appeals.11 Furthermore, UCPB argues that even if the proviso "as determined
facto render the connecting clause "indicative of DBD retail rate" void in view
of the separability clause of the Credit Agreement, which reads:
Section 9.08 Separability Clause. If any one or more of the provisions
contained in this AGREEMENT, or documents executed in connection
herewith shall be declared invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired.12
According to UCPB, the imposition of the questioned interest rates did not
infringe on the principle of mutuality of contracts, because the spouses
Beluso had the liberty to choose whether or not to renew their credit line at
the new interest rates pegged by petitioner.13 UCPB also claims that assuming
there was any defect in the mutuality of the contract at the time of its
inception, such defect was cured by the subsequent conduct of the spouses
Beluso in availing themselves of the credit line from April 1996 to February
1998 without airing any protest with respect to the interest rates imposed by
UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel.14
We agree with the Court of Appeals, and find no merit in the contentions of
UCPB.
Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
We applied this provision in Philippine National Bank v. Court of
Appeals,15 where we held:
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on
their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence,
even assuming that the P1.8 million loan agreement between the PNB and
the private respondent gave the PNB a license (although in fact there was
none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do not bargain
on equal footing, the weaker party's (the debtor) participation being reduced
to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance
Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom
the courts of justice must protect against abuse and imposition.
The provision stating that the interest shall be at the "rate indicative of DBD
retail rate or as determined by the Branch Head" is indeed dependent solely
on the will of petitioner UCPB. Under such provision, petitioner UCPB has two
choices on what the interest rate shall be: (1) a rate indicative of the DBD
retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given
this choice, the rate should be categorically determinable in both choices. If
either of these two choices presents an opportunity for UCPB to fix the rate
at will, the bank can easily choose such an option, thus making the entire
interest rate provision violative of the principle of mutuality of contracts.
Not just one, but rather both, of these choices are dependent solely on the
will of UCPB. Clearly, a rate "as determined by the Branch Head" gives the
latter unfettered discretion on what the rate may be. The Branch Head may
choose any rate he or she desires. As regards the rate "indicative of the DBD
retail rate," the same cannot be considered as valid for being akin to a
"prevailing rate" or "prime rate" allowed by this Court in Polotan. The interest
rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus the prime rate
of Security Bank and Trust Company. x x x.16
In this provision in Polotan, there is a fixed margin over the reference rate:
3%. Thus, the parties can easily determine the interest rate by applying simple
arithmetic. On the other hand, the provision in the case at bar does not
specify any margin above or below the DBD retail rate. UCPB can peg the
interest at any percentage above or below the DBD retail rate, again giving it
unfettered discretion in determining the interest rate.
The stipulation in the promissory notes subjecting the interest rate to review
does not render the imposition by UCPB of interest rates on the obligations
of the spouses Beluso valid. According to said stipulation:
The interest rate shall be subject to review and may be increased or
decreased by the LENDER considering among others the prevailing financial
and monetary conditions; or the rate of interest and charges which other
banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the LENDER after due
consideration of all dealings with the BORROWER.17
It should be pointed out that the authority to review the interest rate was
given UCPB alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes. As worded in the
above provision, UCPB may give as much weight as it desires to each of the
following considerations: (1) the prevailing financial and monetary condition;
(2) the rate of interest and charges which other banks or financial institutions
charge or offer to charge for similar accommodations; and/or (3) the resulting
profitability to the LENDER (UCPB) after due consideration of all dealings with
the BORROWER (the spouses Beluso). Again, as in the case of the interest rate
provision, there is no fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the two
options of UCPB as to the interest to be imposed, as both options violate the
principle of mutuality of contracts.
UCPB likewise failed to convince us that the spouses Beluso were in estoppel.
Estoppel cannot be predicated on an illegal act. As between the parties to a
contract, validity cannot be given to it by estoppel if it is prohibited by law or
is against public policy.18
The interest rate provisions in the case at bar are illegal not only because of
the provisions of the Civil Code on mutuality of contracts, but also, as shall be
discussed later, because they violate the Truth in Lending Act. Not disclosing
the true finance charges in connection with the extensions of credit is,
furthermore, a form of deception which we cannot countenance. It is against
the policy of the State as stated in the Truth in Lending Act:
Sec. 2. Declaration of Policy. – It is hereby declared to be the policy of the
State to protect its citizens from a lack of awareness of the true cost of credit
to the user by assuring a full disclosure of such cost with a view of preventing
the uninformed use of credit to the detriment of the national economy.19
Moreover, while the spouses Beluso indeed agreed to renew the credit line,
the offending provisions are found in the promissory notes themselves, not
in the credit line. In fixing the interest rates in the promissory notes to cover
the renewed credit line, UCPB still reserved to itself the same two options –
(1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the
Branch Head.
Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals voided the
interest rates imposed by UCPB, both failed to include in their computation
of the outstanding obligation of the spouses Beluso the legal rate of interest
of 12% per annum. Furthermore, the penalty charges were also deleted in
the decisions of the RTC and the Court of Appeals. Section 2.04, Article II on
"Interest and other Bank Charges" of the subject Credit Agreement, provides:
Section 2.04 Penalty Charges. In addition to the interest provided for in
Section 2.01 of this ARTICLE, any principal obligation of the CLIENT hereunder
which is not paid when due shall be subject to a penalty charge of one percent
(1%) of the amount of such obligation per month computed from due date
until the obligation is paid in full. If the bank accelerates teh (sic) payment of
availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge
shall be used on the total principal amount outstanding and unpaid computed
from the date of acceleration until the obligation is paid in full.20
Paragraph 4 of the promissory notes also states:
In case of non-payment of this Promissory Note (Note) at maturity, I/We,
jointly and severally, agree to pay an additional sum equivalent to twenty-
five percent (25%) of the total due on the Note as attorney’s fee, aside from
the expenses and costs of collection whether actually incurred or not, and a
penalty charge of one percent (1%) per month on the total amount due and
unpaid from date of default until fully paid.21
Petitioner further claims that it is likewise entitled to attorney’s fees,
pursuant to Section 9.06 of the Credit Agreement, thus:
If the BANK shall require the services of counsel for the enforcement of its
rights under this AGREEMENT, the Note(s), the collaterals and other related
documents, the BANK shall be entitled to recover attorney’s fees equivalent
to not less than twenty-five percent (25%) of the total amounts due and
outstanding exclusive of costs and other expenses.22
Another alleged computational error pointed out by UCPB is the negation of
the Compounding Interest agreed upon by the parties under Section 2.02 of
the Credit Agreement:
Section 2.02 Compounding Interest. Interest not paid when due shall form
part of the principal and shall be subject to the same interest rate as herein
stipulated.23 and paragraph 3 of the subject promissory notes:
Interest not paid when due shall be added to, and become part of the
principal and shall likewise bear interest at the same rate.24
UCPB lastly avers that the application of the spouses Beluso’s payments in
the disputed computation does not reflect the parties’
agreement.1avvphi1 The RTC deducted the payment made by the spouses
Beluso amounting to ₱763,693.00 from the principal of ₱2,350,000.00. This
was allegedly inconsistent with the Credit Agreement, as well as with the
agreement of the parties as to the facts of the case. In paragraph 7 of the
spouses Beluso’s Manifestation and Motion on Proposed Stipulation of Facts
and Issues vis-à-vis UCPB’s Manifestation, the parties agreed that the amount
of ₱763,693.00 was applied to the interest and not to the principal, in accord
with Section 3.03, Article II of the Credit Agreement on "Order of the
Application of Payments," which provides:
Section 3.03 Application of Payment. Payments made by the CLIENT shall be
applied in accordance with the following order of preference:
1. Accounts receivable and other out-of-pocket expenses
2. Front-end Fee, Origination Fee, Attorney’s Fee and other expenses
of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.25
Thus, according to UCPB, the interest charges, penalty charges, and
attorney’s fees had been erroneously excluded by the RTC and the Court of
Appeals from the computation of the total amount due and demandable from
spouses Beluso.
The spouses Beluso’s defense as to all these issues is that the demand made
by UCPB is for a considerably bigger amount and, therefore, the demand
should be considered void. There being no valid demand, according to the
spouses Beluso, there would be no default, and therefore the interests and
penalties would not commence to run. As it was likewise improper to
foreclose the mortgaged properties or file a case against the spouses Beluso,
attorney’s fees were not warranted.
We agree with UCPB on this score. Default commences upon judicial or
extrajudicial demand.26 The excess amount in such a demand does not nullify
the demand itself, which is valid with respect to the proper amount. A
contrary ruling would put commercial transactions in disarray, as validity of
demands would be dependent on the exactness of the computations thereof,
which are too often contested.
There being a valid demand on the part of UCPB, albeit excessive, the spouses
Beluso are considered in default with respect to the proper amount and,
therefore, the interests and the penalties began to run at that point.
As regards the award of 12% legal interest in favor of petitioner, the RTC
actually recognized that said legal interest should be imposed, thus: "There
being no valid stipulation as to interest, the legal rate of interest shall be
charged."27 It seems that the RTC inadvertently overlooked its non-inclusion
in its computation.
The spouses Beluso had even originally asked for the RTC to impose this legal
rate of interest in both the body and the prayer of its petition with the RTC:
12. Since the provision on the fixing of the rate of interest by the sole will of
the respondent Bank is null and void, only the legal rate of interest which is
12% per annum can be legally charged and imposed by the bank, which would
amount to only about P599,000.00 since 1996 up to August 31, 1998.
xxxx
WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:
xxxx
2. By way of example for the public good against the Bank’s taking unfair
advantage of the weaker party to their contract, declaring the legal rate of
12% per annum, as the imposable rate of interest up to February 28, 1999 on
the loan of 2.350 million.28
All these show that the spouses Beluso had acknowledged before the RTC
their obligation to pay a 12% legal interest on their loans. When the RTC failed
to include the 12% legal interest in its computation, however, the spouses
Beluso merely defended in the appellate courts this non-inclusion, as the
same was beneficial to them. We see, however, sufficient basis to impose a
12% legal interest in favor of petitioner in the case at bar, as what we have
voided is merely the stipulated rate of interest and not the stipulation that
the loan shall earn interest.
We must likewise uphold the contract stipulation providing the compounding
of interest. The provisions in the Credit Agreement and in the promissory
notes providing for the compounding of interest were neither nullified by the
RTC or the Court of Appeals, nor assailed by the spouses Beluso in their
petition with the RTC. The compounding of interests has furthermore been
declared by this Court to be legal. We have held in Tan v. Court of
Appeals,29 that:
Without prejudice to the provisions of Article 2212, interest due and unpaid
shall not earn interest. However, the contracting parties may by stipulation
capitalize the interest due and unpaid, which as added principal, shall earn
new interest.
As regards the imposition of penalties, however, although we are likewise
upholding the imposition thereof in the contract, we find the rate iniquitous.
Like in the case of grossly excessive interests, the penalty stipulated in the
contract may also be reduced by the courts if it is iniquitous or
unconscionable.30
We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be
iniquitous considering the fact that this penalty is already over and above the
compounded interest likewise imposed in the contract. If a 36% interest in
itself has been declared unconscionable by this Court,31 what more a 30.41%
to 36% penalty, over and above the payment of compounded interest? UCPB
itself must have realized this, as it gave us a sample computation of the
spouses Beluso’s obligation if both the interest and the penalty charge are
reduced to 12%.
As regards the attorney’s fees, the spouses Beluso can actually be liable
therefor even if there had been no demand. Filing a case in court is the judicial
demand referred to in Article 116932 of the Civil Code, which would put the
obligor in delay.
The RTC, however, also held UCPB liable for attorney’s fees in this case, as
the spouses Beluso were forced to litigate the issue on the illegality of the
interest rate provision of the promissory notes. The award of attorney’s fees,
it must be recalled, falls under the sound discretion of the court.33 Since both
parties were forced to litigate to protect their respective rights, and both are
entitled to the award of attorney’s fees from the other, practical reasons
dictate that we set off or compensate both parties’ liabilities for attorney’s
fees. Therefore, instead of awarding attorney’s fees in favor of petitioner, we
shall merely affirm the deletion of the award of attorney’s fees to the spouses
Beluso.
In sum, we hold that spouses Beluso should still be held liable for a
compounded legal interest of 12% per annum and a penalty charge of 12%
per annum. We also hold that, instead of awarding attorney’s fees in favor of
petitioner, we shall merely affirm the deletion of the award of attorney’s fees
to the spouses Beluso.
Annulment of the Foreclosure Sale
Properties of spouses Beluso had been foreclosed, titles to which had already
been consolidated on 19 February 2001 and 20 March 2001 in the name of
UCPB, as the spouses Beluso failed to exercise their right of redemption which
expired on 25 March 2000. The RTC, however, annulled the foreclosure of
mortgage based on an alleged incorrect computation of the spouses Beluso’s
indebtedness.
UCPB alleges that none of the grounds for the annulment of a foreclosure
sale are present in the case at bar. Furthermore, the annulment of the
foreclosure proceedings and the certificates of sale were mooted by the
subsequent issuance of new certificates of title in the name of said bank.
UCPB claims that the spouses Beluso’s action for annulment of foreclosure
constitutes a collateral attack on its certificates of title, an act proscribed by
Section 48 of Presidential Decree No. 1529, otherwise known as the Property
Registration Decree, which provides:
Section 48. Certificate not subject to collateral attack. – A certificate of title
shall not be subject to collateral attack. It cannot be altered, modified or
cancelled except in a direct proceeding in accordance with law.
The spouses Beluso retort that since they had the right to refuse payment of
an excessive demand on their account, they cannot be said to be in default
for refusing to pay the same. Consequently, according to the spouses Beluso,
the "enforcement of such illegal and overcharged demand through
foreclosure of mortgage" should be voided.
We agree with UCPB and affirm the validity of the foreclosure proceedings.
Since we already found that a valid demand was made by UCPB upon the
spouses Beluso, despite being excessive, the spouses Beluso are considered
in default with respect to the proper amount of their obligation to UCPB and,
thus, the property they mortgaged to secure such amounts may be
foreclosed. Consequently, proceeds of the foreclosure sale should be applied
to the extent of the amounts to which UCPB is rightfully entitled.
As argued by UCPB, none of the grounds for the annulment of a foreclosure
sale are present in this case. The grounds for the proper annulment of the
foreclosure sale are the following: (1) that there was fraud, collusion,
accident, mutual mistake, breach of trust or misconduct by the purchaser; (2)
that the sale had not been fairly and regularly conducted; or (3) that the price
was inadequate and the inadequacy was so great as to shock the conscience
of the court.34
Liability for Violation of Truth in Lending Act
The RTC, affirmed by the Court of Appeals, imposed a fine of ₱26,000.00 for
UCPB’s alleged violation of Republic Act No. 3765, otherwise known as the
Truth in Lending Act.
UCPB challenges this imposition, on the argument that Section 6(a) of the
Truth in Lending Act which mandates the filing of an action to recover such
penalty must be made under the following circumstances:
Section 6. (a) Any creditor who in connection with any credit transaction fails
to disclose to any person any information in violation of this Act or any
regulation issued thereunder shall be liable to such person in the amount of
₱100 or in an amount equal to twice the finance charge required by such
creditor in connection with such transaction, whichever is greater, except
that such liability shall not exceed ₱2,000 on any credit transaction. Action to
recover such penalty may be brought by such person within one year from
the date of the occurrence of the violation, in any court of competent
jurisdiction. x x x (Emphasis ours.)
According to UCPB, the Court of Appeals even stated that "[a]dmittedly the
original complaint did not explicitly allege a violation of the ‘Truth in Lending
Act’ and no action to formally admit the amended petition [which expressly
alleges violation of the Truth in Lending Act] was made either by
[respondents] spouses Beluso and the lower court. x x x."35
UCPB further claims that the action to recover the penalty for the violation of
the Truth in Lending Act had been barred by the one-year prescriptive period
provided for in the Act. UCPB asserts that per the records of the case, the
latest of the subject promissory notes had been executed on 2 January 1998,
but the original petition of the spouses Beluso was filed before the RTC on 9
February 1999, which was after the expiration of the period to file the same
on 2 January 1999.
On the matter of allegation of the violation of the Truth in Lending Act, the
Court of Appeals ruled:
Admittedly the original complaint did not explicitly allege a violation of the
‘Truth in Lending Act’ and no action to formally admit the amended petition
was made either by [respondents] spouses Beluso and the lower court. In
such transactions, the debtor and the lending institutions do not deal on an
equal footing and this law was intended to protect the public from hidden or
undisclosed charges on their loan obligations, requiring a full disclosure
thereof by the lender. We find that its infringement may be inferred or
implied from allegations that when [respondents] spouses Beluso executed
the promissory notes, the interest rate chargeable thereon were left blank.
Thus, [petitioner] UCPB failed to discharge its duty to disclose in full to
[respondents] Spouses Beluso the charges applicable on their loans.36
We agree with the Court of Appeals. The allegations in the complaint, much
more than the title thereof, are controlling. Other than that stated by the
Court of Appeals, we find that the allegation of violation of the Truth in
Lending Act can also be inferred from the same allegation in the complaint
we discussed earlier:
b.) In unilaterally imposing an increased interest rates (sic) respondent bank
has relied on the provision of their promissory note granting respondent bank
the power to unilaterally fix the interest rates, which rate was not determined
in the promissory note but was left solely to the will of the Branch Head of
the respondent Bank, x x x.37
The allegation that the promissory notes grant UCPB the power to unilaterally
fix the interest rates certainly also means that the promissory notes do not
contain a "clear statement in writing" of "(6) the finance charge expressed in
terms of pesos and centavos; and (7) the percentage that the finance charge
bears to the amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation."38 Furthermore, the spouses
Beluso’s prayer "for such other reliefs just and equitable in the premises"
should be deemed to include the civil penalty provided for in Section 6(a) of
the Truth in Lending Act.
UCPB’s contention that this action to recover the penalty for the violation of
the Truth in Lending Act has already prescribed is likewise without merit. The
penalty for the violation of the act is ₱100 or an amount equal to twice the
finance charge required by such creditor in connection with such transaction,
whichever is greater, except that such liability shall not exceed ₱2,000.00 on
any credit transaction.39 As this penalty depends on the finance charge
required of the borrower, the borrower’s cause of action would only accrue
when such finance charge is required. In the case at bar, the date of the
demand for payment of the finance charge is 2 September 1998, while the
foreclosure was made on 28 December 1998. The filing of the case on 9
February 1999 is therefore within the one-year prescriptive period.
UCPB argues that a violation of the Truth in Lending Act, being a criminal
offense, cannot be inferred nor implied from the allegations made in the
complaint.40 Pertinent provisions of the Act read:
Sec. 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any
regulation issued thereunder shall be liable to such person in the amount of
₱100 or in an amount equal to twice the finance charge required by such
creditor in connection with such transaction, whichever is the greater, except
that such liability shall not exceed ₱2,000 on any credit transaction. Action to
recover such penalty may be brought by such person within one year from
the date of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is entitled
to a recovery, the creditor shall be liable for reasonable attorney’s fees and
court costs as determined by the court.
xxxx
(c) Any person who willfully violates any provision of this Act or any regulation
issued thereunder shall be fined by not less than ₱1,000 or more than ₱5,000
or imprisonment for not less than 6 months, nor more than one year or both.
As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the
violation of the said Act gives rise to both criminal and civil liabilities. Section
6(c) considers a criminal offense the willful violation of the Act, imposing the
penalty therefor of fine, imprisonment or both. Section 6(a), on the other
hand, clearly provides for a civil cause of action for failure to disclose any
information of the required information to any person in violation of the Act.
The penalty therefor is an amount of ₱100 or in an amount equal to twice the
finance charge required by the creditor in connection with such transaction,
whichever is greater, except that the liability shall not exceed ₱2,000.00 on
any credit transaction. The action to recover such penalty may be instituted
by the aggrieved private person separately and independently from the
criminal case for the same offense.
In the case at bar, therefore, the civil action to recover the penalty under
Section 6(a) of the Truth in Lending Act had been jointly instituted with (1)
the action to declare the interests in the promissory notes void, and (2) the
action to declare the foreclosure void. This joinder is allowed under Rule 2,
Section 5 of the Rules of Court, which provides:
SEC. 5. Joinder of causes of action.—A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an
opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules
on joinder of parties;
(b) The joinder shall not include special civil actions or actions
governed by special rules;
(c) Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be
allowed in the Regional Trial Court provided one of the causes of
action falls within the jurisdiction of said court and the venue lies
therein; and
(d) Where the claims in all the causes of action are principally for
recovery of money, the aggregate amount claimed shall be the test
of jurisdiction.
In attacking the RTC’s disposition on the violation of the Truth in Lending Act
since the same was not alleged in the complaint, UCPB is actually asserting a
violation of due process. Indeed, due process mandates that a defendant
should be sufficiently apprised of the matters he or she would be defending
himself or herself against. However, in the 1 July 1999 pre-trial brief filed by
the spouses Beluso before the RTC, the claim for civil sanctions for violation
of the Truth in Lending Act was expressly alleged, thus:
Moreover, since from the start, respondent bank violated the Truth in
Lending Act in not informing the borrower in writing before the execution of
the Promissory Notes of the interest rate expressed as a percentage of the
total loan, the respondent bank instead is liable to pay petitioners double the
amount the bank is charging petitioners by way of sanction for its violation.41
In the same pre-trial brief, the spouses Beluso also expressly raised the
following issue:
b.) Does the expression indicative rate of DBD retail (sic) comply with the
Truth in Lending Act provision to express the interest rate as a simple annual
percentage of the loan?42
These assertions are so clear and unequivocal that any attempt of UCPB to
feign ignorance of the assertion of this issue in this case as to prevent it from
putting up a defense thereto is plainly hogwash.
Petitioner further posits that it is the Metropolitan Trial Court which has
jurisdiction to try and adjudicate the alleged violation of the Truth in Lending
Act, considering that the present action allegedly involved a single credit
transaction as there was only one Promissory Note Line.
We disagree. We have already ruled that the action to recover the penalty
under Section 6(a) of the Truth in Lending Act had been jointly instituted with
(1) the action to declare the interests in the promissory notes void, and (2)
the action to declare the foreclosure void. There had been no question that
the above actions belong to the jurisdiction of the RTC. Subsection (c) of the
above-quoted Section 5 of the Rules of Court on Joinder of Causes of Action
provides:
(c) Where the causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in the Regional
Trial Court provided one of the causes of action falls within the jurisdiction of
said court and the venue lies therein.
Furthermore, opening a credit line does not create a credit transaction of loan
or mutuum, since the former is merely a preparatory contract to the contract
of loan or mutuum. Under such credit line, the bank is merely obliged, for the
considerations specified therefor, to lend to the other party amounts not
exceeding the limit provided. The credit transaction thus occurred not when
the credit line was opened, but rather when the credit line was availed of. In
the case at bar, the violation of the Truth in Lending Act allegedly occurred
not when the parties executed the Credit Agreement, where no interest rate
was mentioned, but when the parties executed the promissory notes, where
the allegedly offending interest rate was stipulated.
UCPB further argues that since the spouses Beluso were duly given copies of
the subject promissory notes after their execution, then they were duly
notified of the terms thereof, in substantial compliance with the Truth in
Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides
that the disclosure statement must be furnished prior to the consummation
of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended,
prior to the consummation of the transaction, a clear statement in writing
setting forth, to the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be
acquired;
(2) the amounts, if any, to be credited as down payment and/or
trade-in;
(3) the difference between the amounts set forth under clauses (1)
and (2)
(4) the charges, individually itemized, which are paid or to be paid by
such person in connection with the transaction but which are not
incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.
The rationale of this provision is to protect users of credit from a lack of
awareness of the true cost thereof, proceeding from the experience that
banks are able to conceal such true cost by hidden charges, uncertainty of
interest rates, deduction of interests from the loaned amount, and the like.
The law thereby seeks to protect debtors by permitting them to fully
appreciate the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at business
decisions. Upholding UCPB’s claim of substantial compliance would defeat
these purposes of the Truth in Lending Act. The belated discovery of the true
cost of credit will too often not be able to reverse the ill effects of an already
consummated business decision.
In addition, the promissory notes, the copies of which were presented to the
spouses Beluso after execution, are not sufficient notification from UCPB. As
earlier discussed, the interest rate provision therein does not sufficiently
indicate with particularity the interest rate to be applied to the loan covered
by said promissory notes.
Forum Shopping
UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in
RTC, Makati City) on the ground that the spouses Beluso instituted another
case (Civil Case No. V-7227) before the RTC of Roxas City, involving the same
parties and issues. UCPB claims that while Civil Case No. V-7227 initially
appears to be a different action, as it prayed for the issuance of a temporary
restraining order and/or injunction to stop foreclosure of spouses Beluso’s
properties, it poses issues which are similar to those of the present case.43 To
prove its point, UCPB cited the spouses Beluso’s Amended Petition in Civil
Case No. V-7227, which contains similar allegations as those in the present
case. The RTC of Makati denied UCPB’s Motion to Dismiss Case No. 99-314
for lack of merit. Petitioner UCPB raised the same issue with the Court of
Appeals, and is raising the same issue with us now.
The spouses Beluso claim that the issue in Civil Case No. V-7227 before the
RTC of Roxas City, a Petition for Injunction Against Foreclosure, is the
propriety of the foreclosure before the true account of spouses Beluso is
determined. On the other hand, the issue in Case No. 99-314 before the RTC
of Makati City is the validity of the interest rate provision. The spouses Beluso
claim that Civil Case No. V-7227 has become moot because, before the RTC
of Roxas City could act on the restraining order, UCPB proceeded with the
foreclosure and auction sale. As the act sought to be restrained by Civil Case
No. V-7227 has already been accomplished, the spouses Beluso had to file a
different action, that of Annulment of the Foreclosure Sale, Case No. 99-314
with the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one cause of
action is involved in the two civil actions, namely, the violation of the right of
the spouses Beluso not to have their property foreclosed for an amount they
do not owe, the Rules of Court nevertheless allows the filing of the second
action. Civil Case No. V-7227 was dismissed by the RTC of Roxas City before
the filing of Case No. 99-314 with the RTC of Makati City, since the venue of
litigation as provided for in the Credit Agreement is in Makati City.
Rule 16, Section 5 bars the refiling of an action previously dismissed only in
the following instances:
SEC. 5. Effect of dismissal.—Subject to the right of appeal, an order granting
a motion to dismiss based on paragraphs (f), (h) and (i) of section 1 hereof
shall bar the refiling of the same action or claim. (n)
Improper venue as a ground for the dismissal of an action is found in
paragraph (c) of Section 1, not in paragraphs (f), (h) and (i):
SECTION 1. Grounds.—Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on
any of the following grounds:
(a) That the court has no jurisdiction over the person of the defending
party;
(b) That the court has no jurisdiction over the subject matter of the
claim;
(c) That venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the same parties
for the same cause;
(f) That the cause of action is barred by a prior judgment or by the
statute of limitations;
(g) That the pleading asserting the claim states no cause of action;
(h) That the claim or demand set forth in the plaintiff’s pleading has
been paid, waived, abandoned, or otherwise extinguished;
(i) That the claim on which the action is founded is unenforceable
under the provisions of the statute of frauds; and
(j) That a condition precedent for filing the claim has not been
complied with.44 (Emphases supplied.)
When an action is dismissed on the motion of the other party, it is only when
the ground for the dismissal of an action is found in paragraphs (f), (h) and (i)
that the action cannot be refiled. As regards all the other grounds, the
complainant is allowed to file same action, but should take care that, this
time, it is filed with the proper court or after the accomplishment of the
erstwhile absent condition precedent, as the case may be.
UCPB, however, brings to the attention of this Court a Motion for
Reconsideration filed by the spouses Beluso on 15 January 1999 with the RTC
of Roxas City, which Motion had not yet been ruled upon when the spouses
Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence, there were
allegedly two pending actions between the same parties on the same issue
at the time of the filing of Civil Case No. 99-314 on 9 February 1999 with the
RTC of Makati. This will still not change our findings. It is indeed the general
rule that in cases where there are two pending actions between the same
parties on the same issue, it should be the later case that should be dismissed.
However, this rule is not absolute. According to this Court in Allied Banking
Corporation v. Court of Appeals45 :
In these cases, it is evident that the first action was filed in anticipation of the
filing of the later action and the purpose is to preempt the later suit or provide
a basis for seeking the dismissal of the second action.
Even if this is not the purpose for the filing of the first action, it may
nevertheless be dismissed if the later action is the more appropriate vehicle
for the ventilation of the issues between the parties. Thus, in Ramos v.
Peralta, it was held:
[T]he rule on litis pendentia does not require that the later case should yield
to the earlier case. What is required merely is that there be another pending
action, not a prior pending action. Considering the broader scope of inquiry
involved in Civil Case No. 4102 and the location of the property involved, no
error was committed by the lower court in deferring to the Bataan court's
jurisdiction.
Given, therefore, the pendency of two actions, the following are the relevant
considerations in determining which action should be dismissed: (1) the date
of filing, with preference generally given to the first action filed to be
retained; (2) whether the action sought to be dismissed was filed merely to
preempt the later action or to anticipate its filing and lay the basis for its
dismissal; and (3) whether the action is the appropriate vehicle for litigating
the issues between the parties.
In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an
action for injunction against a foreclosure sale that has already been held,
while Civil Case No. 99-314 before the RTC of Makati City includes an action
for the annulment of said foreclosure, an action certainly more proper in view
of the execution of the foreclosure sale. The former case was improperly filed
in Roxas City, while the latter was filed in Makati City, the proper venue of
the action as mandated by the Credit Agreement. It is evident, therefore, that
Civil Case No. 99-314 is the more appropriate vehicle for litigating the issues
between the parties, as compared to Civil Case No. V-7227. Thus, we rule that
the RTC of Makati City was not in error in not dismissing Civil Case No. 99-
314.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with
the following MODIFICATIONS:
1. In addition to the sum of ₱2,350,000.00 as determined by the
courts a quo, respondent spouses Samuel and Odette Beluso are also
liable for the following amounts:
a. Penalty of 12% per annum on the amount due46 from the
date of demand; and
b. Compounded legal interest of 12% per annum on the
amount due47 from date of demand;
2. The following amounts shall be deducted from the liability of the
spouses Samuel and Odette Beluso:
a. Payments made by the spouses in the amount of
₱763,692.00. These payments shall be applied to the date of
actual payment of the following in the order that they are
listed, to wit:
i. penalty charges due and demandable as of the time
of payment;
ii. interest due and demandable as of the time of
payment;
iii. principal amortization/payment in arrears as of
the time of payment;
iv. outstanding balance.
b. Penalty under Republic Act No. 3765 in the amount of
₱26,000.00. This amount shall be deducted from the liability
of the spouses Samuel and Odette Beluso on 9 February 1999
to the following in the order that they are listed, to wit:
i. penalty charges due and demandable as of time of
payment;
ii. interest due and demandable as of the time of
payment;
iii. principal amortization/payment in arrears as of
the time of payment;
iv. outstanding balance.
3. The foreclosure of mortgage is hereby declared VALID.
Consequently, the amounts which the Regional Trial Court and the
Court of Appeals ordered respondents to pay, as modified in this
 Decision, shall be deducted from the proceeds of the foreclosure
sale.

SO ORDERED.