REPUBLIC OF THE PHILIPPINES Supreme Court Manila ‘THIRD DIVISION, Sirs/Mesdames: Quoted hereunder, for your information, is a resolution of this Court dared OL Suly 2009: G.R. No. 184035 (Bank of Commerce and Philippine Investment One [SPY-AMC., Inc. vs. Spouses Jose Miguel Vasquez and Judith Duavit, et al.) - Considering that petitioners’ motion for reconsideration of the Resolution dated 17 November 2008 denying the petition for review on certiorari was denied with finality in the Resolution dated 21 January 2009, the Court resolves to NOTE WITHOUT ACTION the parties' Consolidated Joint Motion to Dismiss and Motion to Approve Compromise Agreement dated 24 April 2009. WITNESS the Honorable Consuelo Ynares-Santiago, Chairperson, Hon. Minita V. Chico-Nazario, Presbitero J. Velasco, Ir., Antonio Eduardo B. Nachura and Diosdado M. Peralta, Members, Third Division, this 1" day of July 2009 Very truly yours, LUCITA ABJELINA-SORIANO, Clerk of Court By: Asst. Gerk of Cour Atty. Rodrigo G. Moreno Al SIGUION REYNA MONTECILLO AND ONGSIAKO Counsel for Petitioners 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas, 1225 Makati City Atty. Alberto I! Borbon Reyes REYES RICOLCOL & ASSOCIATES Counsel for Respondents 159 Cambridge St. Provident Village Brgy, Jesus dela Pefia, Marikina City ‘The Presiding Judge Regional Trial Court, Branch 150, Makati City (Civil Case No, 98-280) 184035 28)REPUBLIC OF THE PHILIPPINES Supreme Court Manila THIRD DIVISION Sits/Mesdames: Quoted hereunder, for your information, is a resolution of this Court dated 17 November 2008: G.R. No. 184035 (Bank of Commerce and Philippine Investment One (SPV-AMC), Inc. vs. Spouses Jose Miguel Vasquez and Judith Duavit, et al.) — Acting on the petition for review on certiorari assailing the Decision dated 30 April 2008 and Order dated 01 August 2008 of the Regional Trial Court, Branch 150, Makati City in Civil Case No. 98-280, the Court resolves to DENY the petition for failure to observe the principle on hierarchy of courts. There is no showing of any special and important reasons or exceptional and compelling circumstances that would justify a disregard of the principle of the hierarchy of courts. [See: Sherwill Development Corporation vs Sitio Sto. Nifto Residents Association, Inc., et al., G.R. No. 158455, June 28, 2005, and Honoridez, et al. vs. Mahinay, et al., GR. No. 153762, August 12, 2005, SC E-Library] In any event, the petition failed to sufficiently show that the court a quo committed any reversible error in the challenged decision and order as to warrant the exercise by this Court of its discretionary appellate jurisdiction Very truly yours, LUCITA ABJELINA-SORIANO, Clerk of Court By: ae eL Co WILFREPO V. LAPEPAN Asst. Clerk of Coty, i Ally. Rodigo G. Morena SIGUION REYNA MONTECILLO AND ONGSIAKO Counsel for Petitioner 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas, 1226 Makati City Ay. Alberto Il Borbon Reyes REYES RICOLCOL & ASSOCIATES Counsel for Respondents (39 Cambridge St, Provident Villages Brgy. Jesus dela Petia, Matikina City ‘The Presiding“Indge Regional Trial Court Branch 150, Makati City (Civil Case No, 98-280) ‘The Judgment Division Supreme Court, Manila ayy PATLIPPINES ny TRIAL COURT i CAPTEAL JUDICIAL REOTON BRANCH 15° OF MARAIS pan OP COMMERCE and PETLEPPINE INVESTMENT one qgpyenmc) ENC 9-280 pecrstox mis is & complaint for Sus og Money filed by tBe nank of commerce against spouses Juan yiguel Vasase? a gudsth Duawit oP. sorongon, OF na Duvaz comporation vasques, Maxim jarch 2006, praintl ¢ Bank of Commerce ne (SPVRAMCY ERGs 1 a piaintife, naving qefendant Duvaz corporation piaintifé, second Amended compiaint dated 18 september 1998, i997, Duvaz corporation appiied fox 3 eT emedit Bine in the agazegate Pesos SRpes ,000,000-00- a go secure gegendant spouses guan oopape ite eee ted Apes 11, 3996- Miguel and contint negendant Duvaz corporation and ROR property Holéing® inc. wade varLous ‘ayaiiments from the credit Line evidenced by the eliowing eight ts) Promisory Mebes executed oP aigferent oecasions- PN NO ‘amount g7-aca- 2 339 636.87 errge3 — BLS,900,008 oo gyeago | 2821398 12 g7-101 y4an,272-94 gy-azi FAS ge , 162-00 97-122 22,054, 125.07 g7-215 3, 500,000.90 gi-1a7 £81998 900.86 PoLALBEsS 000,000 09on Feprusty tne merger > susl t be render patandsed ganvary ea in its obhig 42 phpi, 000, “a aivaient €o ewer! pension which ation iT 1998. nominal ey five 200.00 Pept| fhe Continuing Surety ‘aqreement executed on APS ut, 1996 Feured the paysent of RDR'S Meaebtedness to the Bank jnd not of Berendant. Duvaz, ComporgTho® 3, Whe WM ies and Exchange Commssion approved “fa RDR on February Sy 1997, abl ‘me from ROR, which appeared in its Viges, were assumed Py puvaz as the igen they were FeLeased feom their ‘of ROR under the Cont sing surety 5, 1997. Consequently HDR having lost of the merger, surviving obligation. agreement “aft legal personalit: set fos amounting to Php6S million were ex Geom septenber to Novesthor 1997 by defendant DP TDR which no Longer bad Any tegal personality egaily inexistent during ‘the time of Pre execution of said ROFSt- eenee, as sureties Of RDK under the continuing surety agreemant dated ‘ypril 11, 1996 they cannot be held Liable for the alleged indebtedness ineurred by Duvaz corporation under the subject Promissory Notes tinuing Surety agreement dated august 29,1997) Vasquez signed Was disapproved and never assumed validity and is Texected by Plain’ exsisten OM nat. assuming arguendd put without admitting CBR® they axe the sureties of Jefe Gent Duvaz, still: they cannot be made Tyable for the amount ee php7s,147,408.83 being demanded as of 12,1998. there were overpayments of penalty charges and the subject leans due te emiaweul and void e 6 interest rates imposed on DuVaZ'S joan The escalation clause °° interest rates contained 1% tne promissory noted UPOR which piaintife had anchored ts yeteral anczeases Of ‘interest rates made progressively, without priox notice £e gefendants from 188 to 28 nigh as 368 is we yiolatea the principle of mutuality between the parties based om essential equality ordained in article 1308 fhe re civil, Code and Aid Tot give authority £o% unilateral changes in the inte mgt rates. Moreover, the ondition. in the joan documents, particularly paragraph (1); 48 vested with the Maracter of a contract Be adhesion, thereby entitLing the perrower to protection against unjust impo: 7. Interest on the subject loans in the amount of php1g 895,003.76 bad DOME paia. In addition to the said amount, PhPipe.ee in its second Pended complaint, sovgnt payment of iar Phpi2 miiiicn by way ne penalty charges and additional qaterests over and shove the principal G. pending determination on the escalation and/or ihlega) excessive inter eecant of penalty that may Ot reasonably af at pepe under the circums tae opligat: Gneia not be determined OF is still pnbiquidated, WEbee: piadntige had no FGRE TO declare defendant Ne other defendants 3% sureties, in default 4° the the lean obligation in any event, they have qiability under the continuing Mnould only pe in the aggregate the amount of mant wh. suretysbip greprincipal sum of Php5SS million and such i accrue on RDE's indebtedness. erest as may properly By way of COUNTERCLAIM, the three individual defendants prayed that they be awarded Php2,000,000.00 each or the aggregate amount of Phps,000,000.00 as ‘moral damages; Php5,000,000.,00 as nominal damages; Php$00,000.00 as and for attorney's fees; Php200,000.00 as litigation expenses plus cost of suit. In ite Answer, defendant Duvaz Corporation sought the dismissal of the complaint; it also averred that plaintice had no right to declare it in default and from taking any action for collection on the loan agreement untal the issue on the validity ef the escalation clause on interest vates and appropriate adjustment on the interest and penalty payments have been determined. Defendant Duvaz also prayed that the interest rate the escalation clause contained in the promissory notes be declared null and void and order the adjustment of the interest and penalties paid on the principal lean obligation Duvaz Corporation also raised the following as Special and Agfixmative Defenses: a} the filing of the complaint is premature; b) it is not liable to plaintif£ in the. amount of Php72,147,408.83 as of January 12,1998 as claimed. That aside from the unconscionable penalty charges on the loan in question, it made overpayment on interests arising from the unlawful and void unilateral escalation of the interest rates. The escalation ause violated the principle of mutuality between the parties based on ossential equality ordained in Article 1308 of the Civil Code and did not give } authority for unilateral changes in the interest rates. That one of the conditions in the loan Gocuments invested the lean agreement with the ~h character of a contract of adhesion, entitling the : borrower te protection againat unjust imposition; c} Tt paid interest to the plaintiff in the amount of Phpl8,895,001.76. In addition, plaintiff in its second amended complaint, also sought payment of over Phpi3 miliien by way of additional interest and penalties over and above the principal. The amount of penalty that may be reasonably charged on the loan, if imposable at ali under the circumstances, has yet to he determined hence, the need to adjust the interest gates imposed on its loan obligation and the consequent: application of the excess interest and penalty payments to the principal obligation; the question of penalty charges, interest escalation and/or illegal excessive interest increases have to be ruled upon to determine the exact amount of the obligation hence, plainti€€ has mo right to deciare defendant as having defaulted in the payment of the Loan obligation.g a. a Vasquez; (2) to establish the intention pehind~the execation of the 1996 Continuing Suretyship Agreement and the execution of tee now Continuing Suretyship Agreement dated August 1997 which yas rejected by plaintifé Bank of Commerce; (4) te establish the “facts pertaining to the Bauk's wiilateral and unlawful | jmposition of the interest rate and interest rate increases or changes upon the loan ebligation of Duvaz Corporation without prior notice or consent of the defendants and the bank's attempt Pe rgoist fraud upon defendant corporation; (5) te establish the over payment of interest by defendant Duvaz to the pank; and (6) (yer Piet gurrounding the bank's violation of | cextasn panking Eigtuos and to establish the facts pertinent to their defenses. tn this case, defendants admitted the existence and due execution of Promissory Hotes No. SA97 464, (Exh. "B"} SA97/482 Yexh.7c") SAQ7/490 (Exh. "D")SA97/201. (Bxh."B") — SAS7/424. (Beh. "F") TL 7/122; (Bsh-"G");TE SAQ7/115 (ixh."H") and Th gng7/147 (Ezh."I"), subject matter of this case with total principal amount of Phpés million. Except o8 the issue of Orterest and penalty charges, defendants did not contest the principal amounts of the loan obligation covered by the eight ig) Promissory Notes. As such, there 13 no dispute regarding defendant Duvaz ©: i loan cbligation. Ag stated, the first issue to be resolved 35 whether or not defendant~spouses Judith Duavit vasquet and, Maxiniano B. Sorongen, dx. may be held liable to she plaintité for the amount claimed in the second amended complaint by reason Sigoretyahip Agreement dated April 11, 1996 and/or the Continuing Suretyship Agrecment dated August 29,1997. it imst be stressed that cefendants admitted rhe existence and due execution of the twin Suretyship Agreements. As such, they were bound by the temus and conditions thereof. The seet tion of the three defendant-sureties Enat they are no eticlaple under the April 11, 1996 Suretyship Agreement tnerne of the merger between RDR Property Holdings Ine. and puvaz corporation, deserves scant consideration. The language of Guretyship Agmeenent is unequivocal. Zt is provided therein that the same shall cemain in full force and effect until a i written notice of revocation shall have been made, No notice of sryocatien was ever made by defendants despite the merger and the execution of the august 29, 1997 Suretysn4p Agreenent. In the os that van obligation maybe extinguished Py another which stitutes it, it is necessary that it should be #0 expressly red ox that the old and the new be incompatible in ali sree ne execution of the new Suxetyship Agreement by gudith Fasquez dose not show that the April 11,1996 Suretyship Agreauant was abrogated. Tt only shows that. there was an eeting agreement reaffirmed by the new One. However, the Stability of the sureties should not exceed the amount agreed in che Suretysnip Agreement which they respectively signed. The Ghligation therefore of defendants | Tesh Miguel Vasquez and * Maximiane Soong yy. as sureties should not exceed wRps5,000,000.00 aa pagged in che Ti April 1996 Agreement white2’ gbligation should be up to endant Judith Duavit Vas: ghpss mallion pesos. Te next issue te be ved is whether or not the ates was unilaterally imposed escalation clause on the interest Fr: by the plainti€f on the alleged ‘obligation af Duvaz Coxporation Py ce ao, whether or not said act ie invalid. mhe eight Promissory Notes uniformly provide: to the maturity of this rat any time prior herein stipulated shall jean, the interest cate he subject to review and may be increased oF Gecreased hy the tendar, considering, = smeud Sthers: the prevailing financial and monetaxy ons, or the rate of interest and charges Sther banks or financial institution charge Wevotter to charge for similar accommodation# ’ Change in the maximum rates of interest by 21 08 by Ehe Monetary Board; and or the resulting profitability to the Lender or Bank of Commaxce . cf the aforequoted stipulation in the a not be denied that the Bank was priorly cathorized by defendant Corporation to either increase oF Gecrease interest rates. The act was net illegal having been Sgreed upon. Zt must be emphasized that obligations arising = nave the force of law between the contracting fxom contrat parties and should be complied with in good faith, Article 1159, Civil Code. In relation to the imediately preceeding discussion, the same principle will apply on the imposition of interest rates Which defendant Duvaz Corporation questioned for being Gzherbitant, excessive and without Pasi. the interest rates imposed by the Bank had defendant's imprimatur on the Promissory Notes, Defendant Duvaz Coxporation therefoxe cannot now claim teat the imposed interest rates were illegal layt. 1306 of the Civil Code provides = ny = x The contracting parties may establish such stipulations, clauses, texms and conditions provided they axe y may deem convenient morals, good customs, Loy & x x mé other issue te be reso: mit for, failure to pay he deciared in obligati pased on ‘the pieces of evidence presented: the following paynents were made on the subject Promissory Notes: mm No. Sh 97/464, the amount of pnp77,728.19 wae paid by degendant coxporatien on Novettibar & i997 under Official Receipt J0-B-92) ; No. 252999 (Exh~ PN No. SA 97/493, the amount of Php400,000.00 was paid by defendant corporation on November 10, 1997 evidenced Py official Receipt No. 253018 (Bxh. 70-B-93); on November 28, 1997, the amount of Php10,586.72 for interest was paid by the cozporation to the Bank under PN No- SA 97/490 per Official Receipt No. 253074 (Exh. 0-B-94) . No othe: payment was made thereafter. No request-letter address to the Bank questioning the interest rates imposed was presented by defendant corporation, Thus, the institution of the complaint was proper whe liabilities of defendant corporation and the three inaitigeat sureties having been Gstablished, the | next important issue for the court to consider is ine invocation by Ler ag of the provision of Article 1634 of the Civil Code, to wit oz x x when a credit. or other incorporeal wight in litigation is sold, the debtos shall have a right to extinguish it by reimbursing the Assignee for the price the latter paid therefor, ee “judicial costs incurred by din, and the interest on the price from the day, on which the game was paid x x x" go support their position, defendants averred that the sale by the Bank of the loan obligation subject matter of this case, categorized as Non-Performing Lean, to the Philippine Investment one {SPV-AMC) wea special, purpose vehicle, gave them the tight ag provided under Art, 1634, to extinguish the eredit by iunaing the aasignes For the price it paid therefor there no @igpate that ths loan obligation of he detendutts to tha ‘Bade Of Camere ov pelongs to the Sapstituted plaintiff, Philippine Tnvestment One (SPY-aMC) by syetue of the sale made pursuant to the Special vurpose Vehicle Ket. The Deed of Assignment dated Aprit 12, 2005, covering the oma which Ls the subject matter of this case, xeads : “PEED OF ASSIGNMENT" pursuant te the Non-Perfomming Loan Sale and Pm chase agreement dated april 5, 2008 ( the ‘Sa.e and Purchase hgzeenent”) by and between Philippine Tavestment One (ep ame) Ins., as Purchaser, and Bank of Commerce, as eee seuiar’}, and as confirmed by the certificate ae Glosing dated April 12, 2005 and executed by Sellex Ce muitanewusly herewith, for sufficient consideratten gs set forth in the Certificate of Closing: seller hereby absolutely sells, transfers, assigns, delivers, sets-over and conveys to Purchaser, on 3 without, serommse” basis, all of its rignt, title and anterest jn the following Loan:9 af: loan Identification By ObLigor Gross Value Unpaid principal Balance PNGTLSAST/101 Duvaz Corp. 141,272.94 161,272.94 PNETLSAI7/121 Duvaz Cop. 15,690,169.00 15, 690,169.00 PN}OLSA97/122 Duvaz Corp. 22,054,725.07 22,054, 725,07 EN 97/148 Duvaz Corp. 3,331,636.87 —3,331,636.87 BN# 97/146 _Buvaz Corp. 15,000,000.00 16,000,000 .00 PN 97/115 Duvac Corp. 3,500,000.00 . 3,500,000.00 BDLSAg/490 - Duvaz Corp, «282,196.12 282,196.12 TLSAS7/137 -Duvaz Corp. 5,.090,000.,09 __5, 000,000.00 TOTAL 6§,000,000.00 65,000,605.00 purther identified as loan #0005 in the Final Loan Schedule "A' to the Certification of Closing, as more fully described in the relevant entries of the Final oan fact Summary attached as Schedule "B" thereto, including the promissory note and all liens and socurity interests securing or in any manner related to the Loans, ng put without limitation, the relevant Loan Documents rated in the Loan Document Listing attached to the Certificate of Closing as Schedule *C" : mag Deed of Assignment shali be governed by all applicable provisions of the Sale and Purchase Agreement (including, without Limitation, all representations and warranties of Seller contained therein }. Defined items used but not otherwise defined herein hava the meaning Sale and Purchase Agreement.” paced on the Deed of Assignment, defendant Duvas couporation’s unpaid principal © balance amounted Fo PRBS 000,000.00. verily, Axticle 1634 of the Civil Code is applicable in thi vase. The credit is under litigation which has been sold fo Philippine Investment One. Categorically under the said provision of the Civil Code, the debtor has the opportunity to Peiease himself from tho indebtedness by returning to the payee/assignee whatever amount the Jatter paid to the assigno® for the acquisition of said indebtedness. qn addition, Section 13 of Republic Act No. 9182 otherwise known as The Special Purpose Vehicle (SPV) Act of 2002"makes applicable the provisions on subrogation and assignment of 2PPiite in the transfer of the Non-Performihg Liabilities of finaneial institution. Moreover, the debtors retirement of its Spligations at a reduced cost gives life to the policy of the State (Sec.2, pat.(e), B-A. 9182)" to help in the rahebixi tation St Gictressed businesses with end in view of contributing 'o Gconomic value added. Otherwise, if not applied in tis chsh, the Gntention of special Purpose Vehicle Act of 2002 will not pe Treained. 1t will frustrate the philosophy and equitable hind the legal right of redemption to prevent unjust tn the part of the assignee or Buyer of the credit~y 10 ~ : » 5 and to protect the Borrower by allowing him to pay only the mount which the creditor is willing to accept for the credit in order to promote the policy of the law to help in the rehabilitation of distressed businesses" (Arturo M. De Castro, The Legal Right of Redemption of the Borrower Under the Special Purpose Vehicle (SPV) Act of 2002, Journal of the Integrated Bar of the Philippines, Vol. XxIx, Mo. 1°). the court likewise finds’ applicable the provisions of article 1236 of the Civil Code which states that whoever pays for another may demand frem the debtor what he has paid. Tn this case, sines there was no document presented aside from the Deed Sf Assignment, to show how much Philippine Investment One purchased from the Bank of Commerce, the loan account subject Patter of this case despite the request of defendants and order pi the court dated January 28, 2008, it is imperative that Lgefendants be mado to pay plaintiff Philippine Investment one only the amount it paid the Bank of Commerce pureyant to Art. 41634 in relation to Article 1236 of the Civil Code 7 WHEREFORE, premises considered judgment is hereby rendered ln favor of plaintiff Philippine Investment One (SPV-AMC) Inc. and against defendants Duvaz Corporation, Spouses Juan Miguel Vasquez, and Judith Duavit Vasquez and Maximiano Sorongon, Js. prdsring them to jointiy and severally reimburse Philippine seeectment one (SPV-AMC) Inc. the amount it paid to the Bank of Commerce representing the consideration for the acquisition of the toan obligation of defendant Duvaz Corporation, plus the Bearued interest thereon from April 5, 2005, until fully paid plus judicial costs. The liability of defendants Juan Miguel Vasquez and Maximiano Sorongon,Jr.. shall not exceed PhpSS miliien pesoe yepresenting the maxinum amount they bound themselves to be liable under the Continuing Suretyship Agreement dated 11 April 1996 while defendant Judith puavit Vasquer shall be liable in the maxinum anount of PhpéS million pesos pursuant to the August 29,1997 Continuing Suretyship Agreement. 80 ORDERED. GIVEN this 30th day of April 2008 at the City of Makati, Philippines. EMA/rox flor