Credit Transactions

Prof. William M. Varias

II. Interest and the usury law (Arts. 1956-1961,2209, 2212,2213, Central Bank Circular no. 416, act no 2655)

Usury (/ˈjuːʒəri/ [1] [2] ) is today the practice of making unethical or immoral monetary loans that unfairly enrich the lender. A loan may be considered usurious because of excessive or abusive interest rates or other factors. Historically in Christian societies, and in many Islamic societies today, simply charging any interest at all can be considered usury.[3][4][5] Someone who practices usury can be called a usurer, but a more common term in contemporary English is loan shark.

Date Issued: 01.21.2004

Number: 0416

CIRCULAR NO. 416Series of 2004

Pursuant to Monetary Board Resolution No. 1843 dated 18 December 2003, approving the amendment to the guidelines on the adoption of the risk-based capital adequacy framework under Circular No. 280 dated 29 March 2001, as amended, the provisions of the Manual of Regulations for Banks are hereby amended as follows:

1.   Subsection X116.2 is amended to reflect (1) the reduction in the risk weight of multilateral development banks from 20% to 0%; and (2) to remove loans to exporters to the extent guaranteed by the Guarantee Fund for Small and Medium Enterprises (GFSME) from the list of 0% risk weighted assets, as follows:

“ x x x

0% risk weight –

(1)  Cash on hand;

(2)  Claims on or portions of claims guaranteed by or collateralized by securities issued by -

i.   Philippine national government and BSP; and

ii.   Central governments and central banks of foreign countries with the highest credit quality as defined in Subsec. X116.3;

(3)  Claims on or portions of claims guaranteed by or collateralized by securities issued by multilateral development banks;

(4)  Loans to the extent covered by hold-out on, or assignment of deposits/deposit substitutes maintained with the lending bank;

(5)  Loans or acceptances under letters of credit to the extent covered by margin deposits;

(6)  Portions of special time deposit loans covered by Industrial Guarantee and Loan Fund (IGLF) guarantee;

(7)  Real estate mortgage loans to the extent guaranteed by the Home Guaranty Corporation (HGC);

(8)  Loans to the extent guaranteed by the Trade and Investment Development Corporation of the Philippines (TIDCORP);

(9)  Foreign currency notes and coins on hand acceptable as international reserves; and

(10) Gold bullion held either in own vaults, or in another’s vaults on an allocated basis, to the extent it is offset by gold bullion liabilities;

20% risk weight –

(1)  Checks and other cash items;

(2)  Claims on or portions of claims guaranteed by or collateralized by securities issued by non-central government public sector entities of foreign countries with the highest credit quality as defined in Subsec. X116.3;

(3)  Claims on or portions of claims guaranteed by Philippine incorporated banks/quasi-banks with the highest credit quality as defined in Subsec. X116.3;

(4)  Claims on or portions of claims guaranteed by foreign incorporated banks with the highest credit quality as defined in Subsec. X116.3;

(5)  Loans to exporters to the extent guaranteed by Small Business Guarantee and Finance Corporation (SBGFC): Provided, That loans to exporters to the extent guaranteed by the Guarantee Fund for Small and Medium Enterprises (GFSME) outstanding as of the date of the effectivity of the merger of the SBGFC and the GFSME shall continue to have a zero percent risk weight: Provided, further, That the zero percent risk weight shall not apply to loans renewed after the merger of the SBGFC and the GFSME.

(6)  Foreign currency checks and other cash items denominated in currencies acceptable as international reserves; and

(7)  Claims on Philippine incorporated banks, which claims obtain and maintain credit ratings of at least equal to that of the Philippine national government from a BSP recognized international credit rating agency;

x  x  x.”

2.   Subsection X116.3 is amended to expand the list of multilateral development banks assigned a zero percent risk weight, as follows:

“x  x  x

u. Multilateral development banks. These refer to the World Bank Group comprised of the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), the Asian Development Bank (ADB), the African Development Bank (AfDB), the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IADB), the European Investment Bank

(EIB);the Nordic Investment Bank (NIB); the Caribbean Development Bank (CDB), the Council of Europe Development Bank (CEDB) and such others as may be recognized by the BSP.

x x x”

This Circular shall take effect fifteen (15) days after its publication either in the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:

 

RAFAEL B. BUENAVENTURAGovernor

ACT NO. 2655

ACT NO. 2655 - AN ACT FIXING RATES OF INTEREST UPON LOANS AND DECLARING THE EFFECT OF RECEIVING OR TAKING USURIOUS RATES AND FOR

OTHER PURPOSES 

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 express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted.   

Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions.

In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is also authorized to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.

Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or personal, or choses in action, a higher rate of interest or greater sum or value, including commissions, premiums, fines and penalties, for the loan or renewal thereof or forbearance of money, goods, or credits, where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly registered, or by any document conveying such real estate or an interest therein, than twelve per centum per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or forbearance is granted: Provided, That the rate of interest under this section or the maximum rate of interest that may be prescribed by the Monetary Board under this section may likewise apply to loans secured by other types of security as may be specified by the Monetary Board.

Sec. 3. No person or corporation shall directly or indirectly demand, take, receive or agree to charge in money or other property, real or personal, a higher rate or greater sum or value for the loan or forbearance of money, goods, or credits where such loan or forbearance is not secured as provided in Section two hereof, than fourteen per centum per annum or the maximum rate or rates prescribed by the Monetary Board and in force at the time the loan or forbearance is granted.

Sec. 4. No pawnbroker or pawnbroker's agent shall directly or indirectly stipulate, charge, demand, take or receive any higher rate or greater sum or value for any loan or forbearance than two and one-half per centum per month when the sum lent is less than one hundred pesos; two per centum per month when the sum lent is one hundred pesos or more, but not exceeding five hundred pesos; and fourteen per centum per annum when it is more than the amount last mentioned; or the maximum rate or rates prescribed by the Monetary Board and in force at the time the loan or forbearance is granted. A pawnbroker or pawnbroker's agent shall be considered such, for the benefits of this Act, only if he be duly licensed and has an establishment open to the public.

It shall be unlawful for a pawnbroker or pawnbroker's agent to divide the pawn offered by a person into two or more fractions in order to collect greater interest than the permitted by this section.

It shall also be unlawful for a pawnbroker or pawnbroker's agent to require the pawner to pay an additional charge as insurance premium for the safekeeping and conservation of the article pawned.

Sec. 4-a. The Monetary Board may eliminate, exempt from, or suspend the effectivity of, interest rate ceilings on certain types of loans or renewals thereof or forbearances of money, goods, or credit, whenever warranted by prevailing economic and social conditions.

Sec. 4-b. In the exercise of its authority to fix the maximum rate or rates of interest under this Act, the Monetary Board shall be guided by the following:

1. The existing economic conditions in the country and the general requirements of the national economy;

2. The supply of and demand for credit;

3. The rate of increase in the price levels; and

4. Such other relevant criteria as the Monetary Board may adopt.

Sec. 5. In computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement: Provided, That whenever compound interest is agreed upon, the effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary Board, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall draw six per centum per annum interest or such rate as may be prescribed by the Monetary Board. No person or corporation shall require interest to be paid in advance for a period of more than one year: Provided, however, That whenever interest is paid in advance, the effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by the Monetary Board.

Sec. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance, shall have paid or delivered a higher rate or greater sum or value than is hereinbefore allowed to be taken or received, may recover the whole interest, commissions, premiums penalties and surcharges paid or delivered with costs and attorneys' fees in such sum as may be allowed by the court in an action against the person or corporation who took or received them if such action is brought within two years after such payment or delivery: Provided, however, That the creditor shall not be obliged to return the interest, commissions and premiums for a period of not more than one year collected by him in advance when the debtor shall have paid the obligation before it is due, provided such interest, and commissions and premiums do not exceed the rates fixed in this Act.

Sec. 7. All covenants and stipulations contained in conveyances, mortgages, bonds, bills, notes, and other contracts or evidences of debts, and all deposits of goods or other things, whereupon or whereby there shall be stipulated, charged, demanded, reserved, secured, taken, or received, directly or indirectly, a higher rate or greater sum or value for the loan or renewal or forbearance of money, goods, or credits than is hereinbefore allowed, shall be void: Provided, however, That no merely clerical error in the computation of

interest, made without intent to evade any of the provisions of this Act, shall render a contract void: Provided, further, That parties to a loan agreement, the proceeds of which may be availed of partially or fully at some future time, may stipulate that the rate of interest agreed upon at the time the loan agreement is entered into, which rate shall not exceed the maximum allowed by law, shall prevail notwithstanding subsequent changes in the maximum rates that may be made by the Monetary Board: And Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of this Act and said purchase was not a part of the original usurious transaction. In any case, however, the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and, in case of litigation, also the costs and such attorney's fees as may be allowed by the court.

Sec. 8. All loans under which payment is to be made in agricultural products or seed or in any other kind of commodities shall also be null and void unless they provide that such products or seed or other commodities shall 6e appraised at the time when the obligation falls due at the current local market price: Provided, That unless otherwise stated in a document written in a language or dialect intelligible to the debtor and subscribed in the presence of not less than two witnesses, any contract advancing money to be repaid later in agricultural products or seed or any other kind of commodities shall be understood to be a loan, and any person or corporation having paid otherwise shall be entitled in case action is brought within two years after such payment or delivery to recover all the products or seed delivered as interest, or the value thereof, together with the costs and attorney's fees in such sum as may be allowed by the court. Nothing contained in this section shall be construed to prevent the lender from taking interest for the money lent, provided such interest be not in excess of the rates herein fixed.

Sec. 9. The person or corporation sued shall file its answer in writing under oath to any complaint brought or filed against said person or corporation before a competent court to recover the money or other personal or real property, seeds or agricultural products, charged or received in violation of the provisions of this Act. The lack of taking an oath to an answer to a complaint will mean the admission of the facts contained in the latter.

Sec. 9-a. The Monetary Board shall promulgate such rules and regulations as may be necessary to implement effectively the provisions of this Act.

Sec. 10. Without prejudice to the proper civil action violation of this Act and the implementing rules and regulations promulgated by the Monetary Board shall be subject to criminal prosecution and the guilty person shall, upon conviction, be sentenced to a fine of not less than fifty pesos nor more than five hundred pesos, or to imprisonment for not less than thirty days nor more than one year, or both, in the discretion of the court, and to return the entire sum received as interest from the party aggrieved, and in the case of non-payment, to suffer subsidiary imprisonment at the rate of one day for every two pesos: Provided, That in case of corporations, associations, societies, or companies the manager, administrator or gerent or the person who has charge of the management or administration of the business shall be criminally responsible for any violation of this Act.   

Sec. 11. All Acts and parts of Acts inconsistent with the provisions of this Act are hereby repealed.

Sec. 12. This Act shall take effect on the first day of May, nineteen hundred and sixteen.

ENACTED, February 24,1916.

Cases:

1. Siga-An vs. Villanueva,   576 SCRA 696   , January 20, 2009

Case Title : SEBASTIAN SIGA-AN, petitioner, vs. ALICIA VILLANUEVA, respondent.Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

Syllabi Class : Interests ; 

Syllabi:

1. Obligations and Contracts;  Interests ;  Words and Phrases ;  Interest is a compensation fixed by the parties for the use or forbearance of money, and this is referred to as monetary interest;Interest may also be imposed by law or by courts as penalty or indemnity for damages, and this is called compensatory interest;  Article 1956 of the Civil Code refers to monetary interest; Monetary interest shall be due only if it has been expressly stipulated in writing.-

—Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law.

2. Interests; Where the obligation arose from a quasi-contract of solutio indebiti and not from a loan or forbearance of money, the interest of 6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the attorney’s fees, to be computed from the time of the extrajudicial demand up to the finality of the Decision.-

—In Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994), that 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 rate of 6% per annum. We further declared that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed equivalent to a forbearance of credit. In the present case, petitioner’s obligation arose from a quasi-contract of solutio indebiti and not from a loan or forbearance of money. Thus, an interest of

6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the attorney’s fees, to be computed from the time of the extrajudicial demand on 3 March 1998, up to the finality of this Decision. In addition, the interest shall become 12% per annum from the finality of this Decision up to its satisfaction.

3. Same;  Attorney’s Fees ; In awarding attorney’s fees, the trial court must state the factual, legal or equitable justification for awarding the same.-

—Jurisprudence instructs that in awarding attorney’s fees, the trial court must state the factual, legal or equitable justification for awarding the same. In the case under consideration, the RTC stated in its Decision that the award of attorney’s fees equivalent to 25% of the amount paid as interest by respondent to petitioner is reasonable and moderate considering the extent of work rendered by respondent’s lawyer in the instant case and the fact that it dragged on for several years. Further, respondent testified that she agreed to compensate her lawyer handling the instant case such amount. The award, therefore, of attorney’s fees and its amount equivalent to 25% of the amount paid as interest by respondent to petitioner is proper.

4. Same; In a quasi-contract, such as solutio indebiti, exemplary damages may be imposed if the defendant acted in an oppressive manner, such as when the creditor defendant acted oppressively by pestering debtor to pay interest and threatening to block the latter’s transactions with a government office if she would not pay interest.-

—Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he pestered respondent to pay interest and threatened to block her transactions with the PNO if she would not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the award of exemplary damages is appropriate. The amount of P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so as to deter petitioner and other lenders from committing similar and other serious wrongdoings.

5. Damages; Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion of the court according to the circumstances of each case, which discretion is limited by the principle that the amount awarded should not be palpably excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court.-

—Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and

similar injury. Respondent testified that she experienced sleepless nights and wounded feelings when petitioner refused to return the amount paid as interest despite her repeated demands. Hence, the award of moral damages is justified. However, its corresponding amount of P300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant and should be equitably reduced. Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion of the court according to the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court. To our mind, the amount of P150,000.00 as moral damages is fair, reasonable, and proportionate to the injury suffered by respondent.

6. Same;  Same ;  Solutio Indebiti ; The principle of solutio indebiti applies in case of erroneous payment of undue interest.-

—Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another. The principle of solutio indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest.

7. Same;  Same ; The interest under Arts. 2209 and 2212 of the Civil Code may be imposed only as a penalty or damages for breach of contractual obligations-

—it cannot be charged as a compensation for the use or forbearance of money.—There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. All the same, the interest under these two instances

may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest. The case at bar involves petitioner’s claim for monetary interest.

Division: THIRD DIVISION

Docket Number: G.R. No. 173227

Counsel: Voltaire Francisco B. Banzon

Ponente: CHICO-NAZARIO

Dispositive Portion:

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December 2005, is hereby AFFIRMED with the following MODIFICATIONS: (1) the amount of P660,000.00 as refundable amount of interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the amount of P300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00); (3) an interest of 6% per annum is imposed on the P335,000.00, on the damages awarded and on the attorney’s fees to be computed from the time of the extrajudicial demand on 3 March 1998 up to the finality of this Decision; and (4) an interest of 12% per annum is also imposed from the finality of this Decision up to its satisfaction. Costs against petitioner.

2. GSIS vs. Court of Appeals,   145 SCRA 311   , October 30, 1986

Case Title : THE GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner-appellant, vs. HONORABLE COURT OF APPEALS, NEMENCIO R. MEDINA and JOSEFINA G. MEDINA, respondents-appellants.Case Nature : PETITION for ceriiorari, to review the decision of the Court of Appeals.

Syllabi Class : Civil Law|Credit Transactions|Mortgage|Rule in the interpretation ofcontract that if the terms there of are clear|the literal meaning of the stipulations shatt control|Interest 

Syllabi:

1. Civil Law;  Credit Transactions ;  Mortgage ;  Rule in the interpretation ofcontract that if the terms there of are clear, the literal meaning of the stipulations shatt control; Exception-

It is a basic and fundamental rule in the interpretation of contract that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of the stipulations shall control but when the words appear contrary to the evident intention of the parties, the latter shall prevail over the former. In order to judge the intention of the parties, their contemporaneous and subsequent acts shall be principally considered. (Sy v. Court of Appeals, 131 SCRA 116; July 31,1984).

2. Civil Law;  Credit Transactions ;  Mortgage ; Amendment ofmortgage contract, never intended to completely supersede the original mortgage contract-

As correctly stated by the GSIS in its brief (Rollo, pp. 162–166), a careful perasa! of the title, preamble and body of the Amenelment of Real Estate Mortgage dated July 6, 1962, taking into account the prior, contemporaneous, and subsequent acts of the parties, ineluctably shows that said Amendment was never intended to completely supersede the mortgage contract dated April 4,1962.

3. Civil Law;  Credit Transactions ;  Mortgage ; Intention of the parties to be bound by the unaffected provisions of the mortgage contract-

In fact the intention of the parties to be bound by the unaffected provisions of the mortgage contract of April 4, 1962 expressed in umnistakable language is clearly evident in the last provision of the Amendment of Real Estate Mortgage dated July 6,1962.

4. Civil Law;  Credit Transactions ; Usury Law, applicable only to interest by way of compensation for use or forbearance of money.-

As to whether or not the interest rates on the loan accounts of the Medinas are usurious, it has already been settled that the Usury Law applies only to interest by way of compensation f or the use or forbearance of money (Lopez v. Hernaez, 32 PhiL 631; Bachrach Motor Co. v. Espiritu, 52 PhiL 346; Equitabie Banking Corporation v. Liwanag. 32 SCRA 293, March 30, 1970).

5. Civil Law;  Credit Transactions ;  Interest ; Stipulation about payment ofadditional rate of interest partakes ofthe nature of a penalty clause.-

In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits the agreement upon a penalty apart from the interest. Should there be such an agreement, the penalty does not include the interest, and as such the two are different and distinct things which may be demanded separately. Reiterating the

same principle in the later case of Equitable Banking Corp. (supra), where this Court held that the stipulation about payment of such additional rate partakes of the nature of a penalty clause, which is sanctioned by law.

6. Civil Law;  Credit Transactions ; Sheriffs certificate of sale, not intended to operate as an ubsolute transfer of the property.-

There is merit in GSIS' contention that the Sheriff s Certificate of Sale is merely provisional in character and is not intended to operate as an absolute transfer of the subject property, but merely to identify the property, to show the price paid and the date when the right of redemption expires (Section 27, Rule 39, Rules of Oourt, Francisco, The Revised Rules of Court, 1972 VoL, IV-B, Part I, p. 681). Hence the date of the foreclosed mortgage is not even a material content of the said Certificate. (Rollo, p. 174)

Division: SECOND DIVISION

Docket Number: No. L-52478

Counsel: Coronel Law Office, Alberto C. Lerma collaborating counsel

Ponente: PARAS

Dispositive Portion:

PREMISES CONSIDERED, the decision of the Court of Appeals, in CA-G.R. No. 62541-R Medina, et aL v. Government Service Insurance System, et aL is hereby REVERSED and SET ASIDE, and a new one is hereby RENDERED, affirming the validity of the extra-judicial foreclosure of the real estate mortgages of the respondent-appeilee spouses Medina dated April 4,1962, as amended on July 6,1962, and February 17,1963.

3. Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board,   688 SCRA 530   , January 15, 2013

Case Title : ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B. OLAGUER, petitioners, vs. BANGKO SENTRAL MONETARY BOARD, represented by its Chairman,

GOVERNOR ARMANDO M. TETANGCO, JR., and its incumbent members: JUANITA D. AMATONG, ALFREDO C. ANTONIO, PETER FAVILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE and CESAR V. PURISIMA, respondents.Case Nature : SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

Syllabi Class : Usury Law|Interest Rates 

Syllabi:

1. Remedial Law;  Special Civil Actions ;  Certiorari ; A petition for certiorari being an extraordinary remedy, the party seeking to avail of the same must strictly observe the procedural rules laid down by law, and non-observance thereof may not be brushed aside as mere technicality.-

—The decision on whether or not to accept a petition for certiorari, as well as to grant due course thereto, is addressed to the sound discretion of the court. A petition for certiorari being an extraordinary remedy, the party seeking to avail of the same must strictly observe the procedural rules laid down by law, and non-observance thereof may not be brushed aside as mere technicality. As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal exercising judicial or quasi-judicial functions. Judicial functions are exercised by a body or officer clothed with authority to determine what the law is and what the legal rights of the parties are with respect to the matter in controversy. Quasi-judicial function is a term that applies to the action or discretion of public administrative officers or bodies given the authority to investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their official action using discretion of a judicial nature.

2. Usury Law;  Interest Rates ;  Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not against the law; In a usurious loan with mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor to pay the debt due. The debt due is considered as without the stipulated excessive interest, and the legal interest of 12% per annum will be added in place of the excessive interest formerly imposed.-

—It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. As held in Castro v. Tan, 605 SCRA 231 (2009): The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of

public or private morals. Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the right to set up their illegality as a defense be waived. Nonetheless, the nullity of the stipulation of usurious interest does not affect the lender’s right to recover the principal of a loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor to pay the debt due. The debt due is considered as without the stipulated excessive interest, and a legal interest of 12% per annum will be added in place of the excessive interest formerly imposed.

3. Statutes;  Implied Repeals ; Repeals by implication are not favored, because laws are presumed to be passed with deliberation and full knowledge of all laws existing pertaining to the subject.-

—The rule is settled that repeals by implication are not favored, because laws are presumed to be passed with deliberation and full knowledge of all laws existing pertaining to the subject. An implied repeal is predicated upon the condition that a substantial conflict or repugnancy is found between the new and prior laws. Thus, in the absence of an express repeal, a subsequent law cannot be construed as repealing a prior law unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws. We find no such conflict between the provisions of Act 2655 and R.A. No. 7653.

4. Same; Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-a of the Usury Law, as amended, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forebearance 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.-

—A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries. Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns loans by banks

and other financial institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.

5. Usury Law;  Central Bank (CB) Circular No. 905 ;  Central Bank (CB) Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity;  that a Central Bank (CB) Circular cannot repeal a law, for only a law can repeal another law;  that by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective; and Usury Law has been legally non-existent in our jurisdiction.-

—The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, 299 SCRA 481 (1998), citing several cases, CB Circular No. 905 “did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity”; that “a [CB] Circular cannot repeal a law, [for] only a law can repeal another law”; that “by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective”; and “Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.”

6. Same;  Same ;  Same ; In Prof. David v. Pres. Macapagal-Arroyo, 489 SCRA 160 (2006), the Supreme Court summarized the requirements before taxpayers, voters, concerned citizens, and legislators can be accorded a standing to sue.-

—In Prof. David v. Pres. Macapagal-Arroyo, 489 SCRA 160 (2006), the Court summarized the requirements before taxpayers, voters, concerned citizens, and legislators can be accorded a standing to sue, viz.: (1) the cases involve constitutional issues; (2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional; (3) for voters, there must be a showing of obvious interest in the validity of the election law in question; (4) for concerned citizens, there must be a showing that the issues raised are of transcendental importance which must be settled early; and (5) for legislators, there must be a claim that the official action complained of infringes upon their prerogatives as legislators.

7. Same;  Civil Procedure ;  Locus Standi ;  Words and Phrases ; Locus standi is defined as a right of appearance in a court of justice on a given question.-

—Locus standi is defined as “a right of appearance in a court of justice on a given question.” In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that “every action must be prosecuted or defended in the name of the real party in interest,” who is “the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit.” Succinctly put, a party’s standing is based on his own right to the relief sought.

Division: EN BANC

Docket Number: G.R. No. 192986

Counsel: Nathaniel A. Lobigas

Ponente: REYES, J.

Dispositive Portion:

WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.

4. Tan vs. Court of Appeals,   367 SCRA 571   , October 19, 2001

Case Title : ANTONIO TAN, petitioner, vs. COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES, respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Loans|Evidence|Interest Rates|Penal Clauses|Words and Phrases|Equity|Formal Offer of Evidence|Pleadings and Practice 

Syllabi:

1. Loans;  Interest Rates ;  Penal Clauses ; Interests and penalties may both be awarded where the promissory note expressly provides for the imposition of both in cases of default.-

We find no merit in the petitioner’s contention. Article 1226 of the New Civil Code provides that: In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. In the case at bar, the promissory note (Exhibit “A”) expressly provides for the imposition of both interest and penalties in case of default on the part of the petitioner in the payment of the subject restructured loan.

2. Loans;  Interest Rates ;  Penal Clauses ;  Words and Phrases ; The New Civil Code permits an agreement upon a penalty apart from the monetary interest, and if

the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such, the two are different and distinct from each other and may be demanded separately; The penalty charge is also called penalty or compensatory interest.-

Penalty on delinquent loans may take different forms. In Government Service Insurance System v. Court of Appeals, this Court has ruled that the New Civil Code permits an agreement upon a penalty apart from the monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such the two are different and distinct from each other and may be demanded separately. Quoting Equitable Banking Corp. v. Liwanag, the GSIS case went on to state that such a stipulation about payment of an additional interest rate partakes of the nature of a penalty clause which is sanctioned by law, more particularly under Article 2209 of the New Civil Code which provides that: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time of default by the petitioner. There is no doubt that the petitioner is liable for both the stipulated monetary interest and the stipulated penalty charge. The penalty charge is also called penalty or compensatory interest.

3. Loans;  Interest Rates ;  Penal Clauses ; The compounding of the penalty or compensatory interest is sanctioned by and allowed pursuant to Article 1959 of the New Civil Code.-

Having clarified the same, the next issue to be resolved is whether interest may accrue on the penalty or compensatory interest without violating the provisions of Article 1959 of the New Civil Code, which provides 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. According to the petitioner, there is no legal basis for the imposition of interest on the penalty charge for the reason that the law only allows imposition of interest on monetary interest but not the charging of interest on penalty. He claims that since there is no law that allows imposition of interest on penalties, the penalties should not earn interest. But as we have already explained, penalty clauses can be in the form of penalty or compensatory interest. Thus, the compounding of the penalty or compensatory interest is sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the New Civil Code.

4. Loans;  Interest Rates ;  Penal Clauses ;  Equity ; Equity cannot be considered where there is a contractual stipulation in the promissory note whereby the

borrower expressly agreed to the compounding of interest in case of failure on his part to pay the loan at maturity, and since the said stipulation has the force of law between the parties and does not appear to be inequitable or unjust, the said written stipulation should be respected.-

The petitioner seeks the elimination of the compounded interest imposed on the total amount based allegedly on the case of National Power Corporation v. National Merchandising Corporation, wherein we ruled that the imposition of interest on the damages from the filing of the complaint is unjust where the litigation was prolonged for twenty-five (25) years through no fault of the defendant. However, the ruling in the said National Power Corporation (NPC) case is not applicable to the case at bar inasmuch as our ruling on the issue of interest in that NPC case was based on equitable considerations and on the fact that the said case lasted for twenty-five (25) years “through no fault of the defendant.” In the case at bar, however, equity cannot be considered inasmuch as there is a contractual stipulation in the promissory note whereby the petitioner expressly agreed to the compounding of interest in case of failure on his part in pay the loan at maturity. Inasmuch as the said stipulation on the compounding of interest has the force of law between the parties and does not appear to be inequitable or unjust, the said written stipulation should be respected.

5. Loans;  Interest Rates ;  Penal Clauses ;  Equity ; Inasmuch as the borrower has made partial payments which showed his good faith, a reduction of the penalty charge from two percent (2%) per month on the total amount due, compounded monthly, until paid can indeed be justified under Article 1229 of the New Civil Code—the Court finds the continued monthly accrual of the 2% penalty charge on the total amount due to be unconscionable inasmuch as the same appeared to have been compounded monthly.-

There appears to be a justification for a reduction of the penalty charge but not necessarily to ten percent (10%) of the unpaid balance of the loan as suggested by petitioner. Inasmuch as petitioner has made partial payments which showed his good faith, a reduction of the penalty charge from two percent (2%) per month on the total amount due, compounded monthly, until paid can indeed be justified under the said provision of Article 1229 of the New Civil Code. In other words, we find the continued monthly accrual of the two percent (2%) penalty charge on the total amount due to be unconscionable inasmuch as the same appeared to have been compounded monthly. Considering petitioner’s several partial payments and the fact he is liable under the note for the two percent (2%) penalty charge per month on the total amount due, compounded monthly, for twenty-one (21) years since his default in 1980, we find it fair and equitable to reduce the penalty charge to a straight twelve percent (12%) per annum on the total amount due starting August 28, 1986, the date of the last Statement of Account (Exhibits “C” to “C-2”). We also took into consideration the offers of the petitioner to enter into a

compromise for the settlement of “his debt by presenting proposed payment schemes to respondent CCP. The said offers at compromise also showed his good faith despite difficulty in complying with his loan obligation due to his financial problems. However, we are not unmindful of the respondent’s long overdue deprivation of the use of its money collectible from the petitioner.

6. Evidence;  Formal Offer of Evidence ;  Pleadings and Practice ; A letter that has not been formally offered cannot be considered evidence of either party.-

The letter dated September 28, 1988 alleged to have been sent by the respondent CCP to the petitioner is not part of the formally offered documentary evidence of either party in the trial court. That letter cannot be considered evidence pursuant to Rule 132, Section 34 of the Rules of Court which provides that: “The court shall consider no evidence which has not been formally offered x x x.” Besides, the said letter does not contain any categorical agreement on the part of respondent CCP that the payment of the interest and surcharge on the loan is deemed suspended while his appeal for condonation of the interest and surcharge was being processed.

Division: SECOND DIVISION

Docket Number: G.R. No. 116285

Counsel: Arturo S. Santos, Government Corporate Counsel

Ponente: DE LEON, JR.

Dispositive Portion:

WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION in that the penalty charge of two percent (2%) per month on the total amount due, compounded monthly, is hereby reduced to a straight twelve percent (12%) per annum starting from August 28, 1986. With costs against the petitioner.

5. Rizal Commercial Banking Corporation vs. Court of Appeals,   289 SCRA 292   , April 20, 1998

Case Title : RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioners, vs. COURT OF APPEALS and GOYU & SONS, INC., respondents., RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY GO, respondents., MALAYAN INSURANCE, INC., petitioner, vs. GOYU & SONS, INC., respondent.Case Nature : PETITIONS for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Civil Law|Insurance Law|Mortgages|Interests 

Syllabi:

1. Civil Law;  Insurance Law ;  Mortgages ;  It is settled that a mort-gagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit; The intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity.-

—It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity.

2. Same;  Same ;  Interests ;  The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties; Court fails to find justification for the Court of Appeals’ outright deletion of the payment of interest as agreed upon in the respective promissory notes.-

—The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges and penalties despite express stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find justification for the Court of Appeals’ outright deletion of the payment of interest as agreed upon in the respective promissory notes. This constitutes gross error.

3. Same;  Same ; For an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent.-

—For an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not be inflicted unless the evidence and circumstances show that such refusal was willful and without reasonable cause as the facts appear to a reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO wantonly and in bad faith delayed the release of the proceeds.

4. Same;  Same ; Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made.-

—The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by GOYU’s other creditors up to the extent of the GOYU’s outstanding obligation in RCBC’s favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of GOYU’s obligation with RCBC, the interest of GOYU in the subject policies had been transferred to RCBC effective as of the time of the endorsement.

5. Same;  Same ;  Same ; It is basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching creditors.-

—Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial Court, since it has been determined that RCBC has the right to the insurance proceeds, the subject matter of intervention is rendered moot and academic. Respondent Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance policies. It is basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching creditors.

Division: SECOND DIVISION

Docket Number: G.R. Nos. 128833, 128834, and 128866

Counsel: Siguion Reyna, Montecillo & Ongsiako, Rodolfo P. del Prado, Manuel Melotindos, Linda Eustaquio-Lim

Ponente: MELO

Dispositive Portion:

WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and SET ASIDE, and a new one entered:The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein arrived at. Respondent Sebastian’s right as attaching creditor must yield to the preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance policies as first mortgagee.

6. First Fil-Sin Leanding Corporation vs. Padillo,   448 SCRA 71   , January 12, 2005

Case Title : FIRST FIL-SIN LENDING CORPORATION, petitioner, vs. GLORIA D. PADILLO, respondent.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Obligations and Contracts|Loans|Attorney’s Fees 

Syllabi:

1. Obligations and Contracts;  Loans ;  Interest Rates ; When the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.-

—Perusal of the promissory notes and the disclosure statements pertinent to the July 22, 1997 and September 7, 1997 loan obligations of respondent clearly and unambiguously provide for interest rates of 4.5% per annum and 5% per annum,

respectively. Nowhere was it stated that the interest rates shall be applied on a monthly basis. Thus, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract. It is only in instances when the language of a contract is ambiguous or obscure that courts ought to apply certain established rules of construction in order to ascertain the supposed intent of the parties. However, these rules will not be used to make a new contract for the parties or to rewrite the old one, even if the contract is inequitable or harsh. They are applied by the court merely to resolve doubts and ambiguities within the framework of the agreement.

2. Same;  Same ;  Attorney’s Fees ; Attorney’s fees are not automatically awarded to every winning litigant.-

—With regard to the attorney’s fees, the CA correctly deleted the award in favor of petitioner since the trial court’s decision does not reveal any explicit basis for such an award. Attorney’s fees are not automatically awarded to every winning litigant. It must be shown that any of the instances enumerated under Art. 2208 of the Civil Code exists to justify the award thereof. Not one of such instances exists here. Besides, by filing the complaint, respondent was merely asserting her rights which, after due deliberations, proved to be lawful, proper and valid.

3. Same;  Same ;  Same ; A 1% penalty per day of delay is highly unconscionable.-

—As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of delay is highly unconscionable. Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, or if it is iniquitous or unconscionable.

4. Same;  Same ;  Same ; In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default.-

—The same promissory note provides that “x x x any and all remaining amount due on the principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid.” The CA thus properly imposed the legal interest of 12% per annum from the time the loans matured until the same has been fully paid on February 2, 1999. As decreed in Eastern Shipping Lines, Inc. v. Court of Appeals, “in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default.”

5. Same;  Same ;  Same ;  Same ; As between two parties to a written agreement, the party who gave rise to the mistake or error in the provisions of the same is estopped from asserting a contrary intention to that contained therein.-

—Petitioner even admitted that it was solely responsible for the preparation of the loan documents, and that it failed to correct the pro forma note “p.a.” to “per

month.” Since the mistake is exclusively attributed to petitioner, the same should be charged against it. This unilateral mistake cannot be taken against respondent who merely affixed her signature on the pro forma loan agreements. As between two parties to a written agreement, the party who gave rise to the mistake or error in the provisions of the same is estopped from asserting a contrary intention to that contained therein. The checks issued by respondent do not clearly and convincingly prove that the real intent of the parties is to apply the interest rates on a monthly basis. Absent any proof of vice of consent, the promissory notes and disclosure statements remain the best evidence to ascertain the real intent of the parties.

6. Same;  Same ;  Same ;  Reformation of Contracts ; When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord.-

—Reformation cannot be resorted to as the documents have not been assailed on the ground of mutual mistake. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord. His omission cannot be arbitrarily supplied by the courts by what their own notions of justice or equity may dictate.

Division: FIRST DIVISION

Docket Number: G.R. No. 160533

Counsel: Law Firm of R.V. Domingo and Associates

Ponente: YNARES-SANTIAGO

Dispositive Portion:

WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of Appeals in CA-G.R. CV No. 13 In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2)  When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5)  When the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff ’s plainly valid, just and demandable claim; (6) In actions for

legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen’s compensation and employer’s liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11)  In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. In all cases, the attorney’s fees and expenses of litigation must be reasonable. 75183 is AFFIRMED with the MODIFICATION that the interest rates on the July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from petitioner First Fil-Sin Lending Corporation be imposed and computed on a per annum basis, and upon their respective maturities, the interest rate of 12% per annum shall be imposed until full payment. In addition, the penalty at the rate of 12% per annum shall be imposed on the outstanding obligations from date of default until full payment.

7. Integrated Realty Corporation vs. Philippine National Bank,   174 SCRA 295   , June 28, 1989

Case Title : INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS, respondents., OVERSEAS BANK OF MANILA, petitioner, vs. COURT OF APPEALS, INTEGRATED REALTY CORPORATION, and RAUL L. SANTOS, respondents.Case Nature : PETITIONS for certiorari to review the decision of the Court of

Syllabi Class : Civil Law|Banking|Credit Transactions|Pledge|Deed of Assignment|Loans|Obligations and Contracts|Default|Damages|Interest on Deposits 

Syllabi:

1. Civil Law;  Credit Transactions ;  Pledge ;  Deed of Assignment ; The deed of assignment in the instant case is actually a pledge.-

For all intents and purposes, the deed of assignment in this case is actually a pledge. Adverting again to the Court’s pronouncements in Lopez, supra, we quote therefrom: “The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have absolute, its object and character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security. It

has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge.”

2. Civil Law;  Credit Transactions ;  Pledge ; Requisites of a Contract of Pledge.-

The facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement was complied with by the execution of the deed of assignment in favor of PNB.

3. Civil Law;  Credit Transactions ;  Loans ; A contract of simple loan or mutuum is created when Santos invested his money in time deposit with petitioner-bank.-

Thus, when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in the performance of its obligation, OBM should be held liable for damages. When respondent Santos invested his money in time deposits with OBM, they entered into a contract of simple loan or mutuum, not a contract of deposit.

4. Civil Law;  Obligations and Contracts ;  Default ;  Damages ; Legal interest in the nature of damages for non-compliance with an obligation to pay a sum of money is recoverable even if not expressly stipulated in writing.-

While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code he has the right to recover

damages resulting from the default of OBM, and the measure of such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial demand is made, which latter mode of demand was made by PNB, after the maturity of the certificates of time deposit, on March 1, 1968. The measure of such damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon in the certificates of deposit which is six and one-half percent (6-1/2%). Such interest due or accrued shall further earn legal interest from the time of judicial demand.

5. Banking;  Interest on Deposits ; The bank’s obligation to pay interest on the deposit ceases the moment its operation is completely suspended by the Central Bank.-

On the issue of whether OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business, the answer is in the negative. We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, that: “It is a matter of common knowledge which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

Division: SECOND DIVISION

Docket Number: G.R. No. 60705, G.R. No. 60907

Ponente: REGALADO

Dispositive Portion:

WHEREFORE, judgment is hereby rendered, ordering:

8. Bataan Seedling Association, Inc. vs. Republic,   383 SCRA 590   , July 02, 2002

Case Title : BATAAN SEEDLING ASSOCIATION, INC. and CARLOS VALENCIA, petitioners, vs. REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES, respondent.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Civil Law|Usury Law|Interests|Damages 

Syllabi:

1. Civil Law;  Usury Law ;  Interests ; The word “forbearance” is defined, within, the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable.-

Interest at the rate of 12% per annum is imposable if there is no stipulation in the contract. Herein subject contract does not contain any stipulation as to interest. However, the amount that is due the respondent does not represent a loan or forbearance of money. The word “forbearance” is defined, within, the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable. The contract between petitioner and respondent is a Community Based Reforestation Contract by virtue of which petitioner undertook the reforestation of a fifty-hectare open/ denuded forest land. The amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) due to respondent, represents the balance of the mobilization fund which petitioner is obliged to return because of its failure to fully comply with its undertaking to plant the entire area with seedlings within the period contracted for reforestation. Under the reforestation contract, the fund released to petitioner was supposed to be returned to respondent upon completion of the project or deducted from the periodic releases of money. Clearly therefrom, the amount of Fifty Six Thousand

Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) was neither a loan nor forbearance of money.

2. Civil Law;  Usury Law ;  Interests ; In the absence of stipulation, the legal interest is six percent (6%) per annum on the amount finally adjudged by the Court.-

Thus, the above-quoted paragraph II, sub-paragraph 1, applies to the present case. In the absence of stipulation, the legal interest is six percent (6%) per annum on the amount finally adjudged by the Court.

3. Civil Law;  Damages ; Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.-

The Court finds the award of Fifty Thousand Pesos (P50,000.00) as exemplary damages to be excessive and should therefore be reduced to Twenty Thousand Pesos (P20,000.00). Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.

Division: FIRST DIVISION

Docket Number: G.R. No. 141009

Counsel: Saludo, Agpalo, Fernandez & Aquino, The Solicitor General

Ponente: AUSTRIA-MARTINEZ

Dispositive Portion:

WHEREFORE, the petition is partly GRANTED and the assailed Decision is AFFIRMED with the following MODIFICATIONS:

9. Catungal vs. Hao,   355 SCRA 29   , March 22, 2001

Case Title : SPS. ERNESTO and MINA CATUNGAL, petitioners, vs. DORIS HAO, respondent.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Actions|Ejectment|Unlawful Detainer|Damages|Words and Phrases|Judicial Notice|Requisites|Burden of Proof|Estoppel|Appeals|Rules of Summary Procedure|Interests 

Syllabi:

1. Actions;  Ejectment ;  Unlawful Detainer ;  Damages ;  Words and Phrases; The plaintiff in an ejectment case is entitled to damages caused by his loss of the use and possession of the premises; Damages in the context of Section 17, Rule 70 of the 1997 Rules of Civil Procedure is limited to “rent” or fair rental value or the reasonable compensation for the use and occupation of the property.-

We cannot allow the respondent to insist on the payment of a measly sum of P8,000 for the rentals of the first floor of the property in question and P5,000.00 for each of the second and the third floors of the leased premises. The plaintiff in an ejectment case is entitled to damages caused by his loss of the use and possession of the premises. Damages in the context of Section 17, Rule 70 of the 1997 Rules of Civil Procedure is limited to “rent” or fair rental value or the reasonable compensation for the use and occupation of the property. What therefore constitutes the fair rental value in the case at bench?

2. Actions;  Ejectment ;  Unlawful Detainer ;  Judicial Notice;  Requisites ;  Words and Phrases ; Judicial knowledge may be defined as the cognizance of certain facts which a judge under rules of legal procedure or otherwise may properly take or act upon without proof because they are already known to him, or is assumed to have, by virtue of his office.-

We find that the RTC correctly applied and construed the legal concept of judicial notice in the case at bench. Judicial knowledge may be defined as the cognizance of certain facts which a judge under rules of legal procedure or otherwise may properly take or act upon without proof because they are already known to him, or is assumed to have, by virtue of his office. Judicial cognizance is taken only of those matters that are “commonly” known. The power of taking judicial notice is to be exercised by courts with caution; care must be taken that the requisite notoriety exists; and every reasonable doubt on the subject should be promptly resolved in the negative. Matters of judicial notice have three material requisites: (1) the matter must be one of common and general knowledge; (2) it must be well and authoritatively settled and not doubtful or uncertain; and (3) it must be known within the limits of jurisdiction of the court.

3. Actions;  Ejectment ;  Unlawful Detainer ;  Judicial Notice ; It is settled jurisprudence that courts may take judicial notice of the general increase in rentals of lease contract renewals much more with business establishments.-

The RTC rightly modified the rental award from P13,000.00 to P40,000.00, considering that it is settled jurisprudence that courts may take judicial notice of the general increase in rentals of lease contract renewals much more with business establishments. Thus, We held in Manila Bay Club Corporation vs. Court of Appeals: It is worth stressing at this juncture that the trial court had the authority to fix the reasonable value for the continued use and occupancy of the leased premises after the termination of the lease contract, and that it was not bound by the stipulated rental in the contract of lease since it is equally settled that upon termination or expiration of the contract of lease, the rental stipulated therein may no longer be the reasonable value for the use and occupation of the premises as a result or by reason of the change or rise in values. Moreover, the trial court can take judicial notice of the general increase in rentals of real estate especially of business establishments like the leased building owned by the private respondent.

4. Actions;  Ejectment ;  Unlawful Detainer ;  Burden of Proof ; The burden of proof to show that the rental demanded is unconscionable or exorbitant rests upon the lessee.-

The Court of Appeals failed to justify its reduction of the P40,000.00 fair rental value as determined by the RTC. Neither has respondent shown that the rental pegged by the RTC is exorbitant or uncon- scionable. This is because the burden of proof to show that the rental demanded is unconscionable or exorbitant rests upon private respondent as the lessee. Here, respondent neither discharged this burden when she omitted to present any evidence at all on what she considers to be fair rental value, nor did she controvert the evidence submitted by petitioners by way of testimonies of the real estate broker and petitioner Mina Catungal.

5. Actions;  Ejectment ;  Unlawful Detainer ;  Estoppel ; Where a party did not oppose the Metropolitan Trial Court’s referral of the other party’s motion for reconsideration to the Regional Trial Court, he is estopped from insisting in the Supreme Court that the petition should be denied on the ground that the Motion for Reconsideration filed before the MeTC is a prohibited pleading and hence could not be treated as a notice of appeal.-

When the MeTC referred petitioners’ motion to the RTC for its disposition, respondent could have opposed such irregularity in the proceeding. This respondent failed to do. Before this Court, respondent now insists that the petition should be denied on the ground that the Motion for Reconsideration filed before the MeTC is a prohibited pleading and hence could not be treated as a notice of appeal. Respondent is precluded by estoppel from doing so. To grant respondent’s prayer will not only do injustice to the petitioners, but also it will make a mockery of the

judicial process as it will result in the nullity of the entire proceedings already had on a mere technicality, a practice frowned upon by the Court.

6. Actions;  Ejectment ;  Unlawful Detainer ;  Appeals ; The “peculiar circumstances attendant to ejectment cases warrant departure” from the presumption that a party who did not interject an appeal is satisfied with the adjudication made by the lower court.-

The Court of Appeals in the assailed Decision correctly observed that the “peculiar circumstances attendant to the ejectment cases warrant departure” from the presumption that a party who did not interject an appeal is satisfied with the adjudication made by the lower court: As regard the issue on the propriety of the increase in the award of damages/rentals made by the RTC, the Court notes that, while respondent spouses did not formally appeal the decision in the ejectment cases, their motion for reconsideration assailing the clarificatory order reducing the award of damages/rentals was, by order of the MTC, referred to the RTC for appropriate action. Reason for such action is stated in the Order of May 7, 1997, thus: x x x Hence, while the entrenched procedure in this jurisdiction is that a party who has not himself appealed cannot obtain from the appellate court affirmative relief other than those granted in the decision of the lower court, the peculiar circumstances attendant to the ejectment cases warrant a departure therefrom. The rule is premised on the presumption that a party who did not interpose an appeal is satisfied with the adjudication made by the lower court. Respondent spouses, far from showing satisfaction with the clarificatory order of March 3, 1997, assailed it in their motion for reconsideration which, however, was referred to the RTC for appropriate action in view of the appeal taken by the petitioner. Clearly, the increase in the damages/rentals awarded by the MTC was an issue the RTC could validly resolve in the ejectment cases.

7. Actions;  Ejectment ;  Unlawful Detainer ;  Rules of Summary Procedure; Simply because the case was one for ejectment does not automatically mean that the same was triable under the Rules of Summary Procedure.-

Respondent, argues that ejectment cases are tried under the Revised Rule on Summary Procedure, hence, the motion for reconsideration filed by petitioner was a prohibited pleading and could not take the place of the required notice of appeal. The argument by respondent is misleading. Simply because the case was one for ejectment does riot automatically mean that the same was triable under the Rules of Summary Procedure. At the time of the filing of the complaint by petitioner in 1989, said Rules provide: x x x In their complaint, petitioners prayed, among others, for rentals for the period covering June 1988 to April 1989, at a rate of P20,000.00 for the first floor alone, as well as P10,000.00 for attorney’s fees. Clearly, considering the amount of rentals and damages claimed by petitioners, said case before the MeTC was not governed by the Rules on Summary Procedure. Said case

was governed by the ordinary rules where the general proposition is that the filing of a motion for reconsideration of a final judgment is allowed. In the interest of substantial justice, in this particular case, we rule that the MeTC did not err in treating the motion for reconsideration filed by petitioner as a notice of appeal.

8. Actions;  Ejectment ;  Unlawful Detainer ;  Appeals ; Section 19, Rule 70, on execution pending appeal, also applies even if the lessor appeals such as where judgment was rendered in his favor but he appealed since he was not satisfied with the increased rentals granted by the trial court.-

In order to avoid further injustice to a lawful possessor, an immediate execution of a judgment is mandated and the court’s duty to order such execution is practically ministerial. In City of Manila, et al. vs. CA, et al. We held that “Section 8 (now Section 19), Rule 70, on execution pending appeal, also applies even if the plaintiff-lessor appeals where, as in that case, judgment was rendered in favor of the lessor but it was not satisfied with the increased rentals granted by the trial court, hence the appeal x x x.”

9. Actions;  Ejectment ;  Unlawful Detainer ;  Interests ; Back rentals being equivalent to a loan or forbearance of money, the interest due thereon is twelve percent (12%) per annum from the time of extra-judicial demand.-

The Court also awards interest in favor of petitioners. In Eastern Shipping Lines, Inc. vs. Court of Appeals, we gave the following guidelines in the award of interest: x x x 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. The back rentals in this case being equivalent to a loan or forbearance of money, the interest due thereon in twelve percent (12%) per annum from the time of extra-judicial demand on September 27, 1988.

Division: FIRST DIVISION

Docket Number: G.R. No. 134972

Counsel: Gancayco, Balasbas and Associates, Napoleon Uy Galit

Ponente: KAPUNAN

Dispositive Portion:

WHEREFORE, premises considered, judgment is hereby rendered in favor of petitioners by REINSTATING the decision of the RTC, with modifications, and ordering respondent to further PAY:

10. Banco Filipino Savings and Mortgage Bank vs. Court of Appeals,   332 SCRA 241   , May 30, 2000

Case Title : BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioners, vs. THE HON. COURT OF APPEALS, and CALVIN & ELSA ARCILLA, respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Banks and Banking|Actions|Judgments|Loans|Interest Rates|Prescription|Pleadings and Practice|Escalation Clauses|Doctrine of Stare Decisis 

Syllabi:

1. Banks and Banking;  Loans ;  Interest Rates ;  Prescription ; Under Article 1150 of the Civil Code, the time for prescription of all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought.-

—Petitioner’s claim that the action of the private respondents has prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. Thus, the period of prescription of any cause of action is reckoned only from the date the cause of action accrued. And a cause of action arises when that which should have been done is not done, or that which should not have been done is done. The period should not be made to retroact to the date of the execution of the contract on January 15, 1975 as claimed by the petitioner for at that time, there would be no way for the respondents to know of the violation of their rights.

2. Judgments;  Doctrine of Stare Decisis ; While a judgment in a case cannot bind persons who were not parties thereto, the doctrine enunciated therein is that a

judicial decision forms part of the legal system of the land, a precedent which must be adhered to under the doctrine of stare decisis.-

—Petitioner’s argument that the Banco Filipino case cannot be applied to the present case since the respondents were not intervenors therein is flawed. Only the judgment in said case cannot bind the respondents as they were not parties thereto, however, the doctrine enunciated therein is that a judicial decision forms part of the legal system of the land. It forms a precedent, which must be adhered to under the doctrine of stare decisis. Thus, even if the respondents were not parties to the above-mentioned case, the doctrine enunciated therein may be applied to the present case.

3. Banks and Banking;  Loans ;  Interest Rates ;  Escalation Clauses ; Central Bank Circular 494, although it has the force and effect of law, is not a law and is not the law contemplated by the parties which authorizes the petitioner to unilaterally raise the interest rate of the loan.-

—In Banco Filipino Savings & Mortgage Bank vs. Navarro, which involved a similar escalation clause, we ruled that Central Bank Circular 494, although it has the force and effect of law, is not a law and is not the law contemplated by the parties which authorizes the petitioner to unilaterally raise the interest rate of the loan. Consequently, the reliance by the petitioner on Central Bank Circular 494 to unilaterally raise the interest rates on the loan in question was without any legal basis.

4. Actions;  Pleadings and Practice ; It is the material allegations in the complaint, not the legal conclusions made therein or the prayer that determines the relief to which the plaintiff is entitled.-

—Anent the second issue as to whether the respondents are entitled to recover the alleged overpayments of interest, we find that they are despite the absence of any prayer therefore. This Court has ruled that it is the material allegations of fact in the complaint, not the legal conclusion made therein or the prayer that determines the relief to which the plaintiff is entitled. It is the allegations of the pleading which determine the nature of the action and the Court shall grant relief warranted by the allegations and the proof even if no such relief is prayed for. Thus, even if the complaint seeks the declaration of nullity of the contract, the Court of Appeals correctly ruled that the factual allegations contained therein ultimately seek the return of the excess interests paid.

5. Same;  Same ;  Same ;  Same ; The cause of action for annulment of loan contract based on unilateral increased rate of interest accrues only from date of receipt of the statement of account showing such increased rate of interest.-

—The Court of Appeals therefore correctly found that respondents’ cause of action accrued on October 30, 1978, the date they received the statement of account

showing the increased rate of interest, for it was only from that moment that they discovered the petitioner’s unilateral increase thereof.

Division: THIRD DIVISION

Docket Number: G.R. No. 129227

Counsel: Francisco A. Rivera, Julio O. Lopez

Ponente: GONZAGA-REYES

Dispositive Portion:

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 45891 is AFFIRMED and the instant petition is hereby DENIED.

11. Consolidated Bank and Trust Corporation vs. Court of Appeals,   356 SCRA 671   , April 19, 2001

Case Title : THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs. THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Evidence|Loans|Corporation Law|Banks and Banking|Letters of Credit|Interest Rates|Compensation|Floating Rates of Interest|Trust Receipts Law 

Syllabi:

1. Evidence; Findings of fact by the Court of Appeals, especially if they affirm factual findings of the trial court will not be disturbed by the Supreme Court, unless these findings are not supported by evidence.-

On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals, we stress the time-honored rule that findings of fact by the Court of Appeals, especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless these findings are not supported by evidence.

2. Loans;  Banks and Banking ;  Letters of Credit ;  Interest Rates;  Compensation ; It would be onerous to compute interest and other charges on the face value of the letter of credit which a bank issued, without first crediting or setting off the marginal deposit which the borrower paid to it—compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.-

Petitioner’s contention that the marginal deposit made by respondent Corporation should not be deducted outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued interests and other charges. However, to sustain petitioner on this score would be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and other charges on the face value of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the respondent Corporation paid to it. Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.

3. Loans;  Banks and Banking ;  Letters of Credit ;  Interest Rates ;  Floating Rates of Interest;  Trust Receipts Law ; A stipulation for a floating rate of interest in a letter of credit in which there is no reference rate set either by it or by the Central Bank, leaving the determination thereof to the sole will and control of the lender bank is invalid; While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be a reference rate upon which to peg such variable interest rates.-

Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the trust receipt agreement of the parties fixing the interest rate states: I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of 1% per month until the amount/s or installment/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid. We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner. While it may be acceptable, for practical reasons given the fluctuating

economic conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be a reference rate upon which to peg such variable interest rates.

4. Loans;  Trust Receipts Law ; Where the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into, the transaction in question is a simple loan and not a trust receipt agreement.-

The recent case of Colinares v. Court of Appeals appears to be foursquare with the facts obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted. In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent Corporation’s Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982. Further, the oil was used up by respondent Corporation in its normal operations by August, 1982. On the other hand, the subject trust receipt was only executed nearly two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982.

5. Loans;  Trust Receipts Law ; Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal amount of P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of funds on the part of the borrower, which are the gravamen of a trust receipt violation.-

Respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the same, as shown by the various receipts issued by petitioner acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore, respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More importantly, at no time did title over the oil pass to petitioner, but directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was executed.

6. Corporation Law; It is hornbook law that corporate personality is a shield against personal liability of its officers—a corporate officer and his spouse cannot be

made personally liable under a trust receipt where he entered into and signed the contract clearly in his official capacity.-

We are not convinced that respondent Gregory T. Lim and his spouse should be personally liable under the subject trust receipt. Petitioner’s argument that respondent Corporation and respondent Lim and his spouse are one and the same cannot be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice President of respondent Corporation. We stress the hornbook law that corporate personality is a shield against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be made personally liable since respondent Lim entered into and signed the contract clearly in his official capacity as Executive Vice President. The personality of the corporation is separate and distinct from the persons composing it.

Division: FIRST DIVISION

Docket Number: G.R. No. 114286

Counsel: Delos Reyes, Bañaga, Briones and Associates, Gil Venerando R. Racho

Ponente: YNARES-SANTIAGO

Dispositive Portion:

WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.

12. Mendoza vs. Court of Appeals,   359 SCRA 438   , June 25, 2001

Case Title : DANILO D. MENDOZA, also doing business under the name and style of ATLANTIC EXCHANGE PHILIPPINES, petitioner, vs. COURT OF APPEALS, PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA and BAYANI A. BAUTISTA, respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Civil Law|Contracts|Estoppel|Interest 

Syllabi:

1. Civil Law;  Contracts ; Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract.-

Nowhere in those letters is there a categorical statement that respondent PNB had approved the petitioner’s proposed five-year restructuring plan. It is stretching the imagination to construe them as evidence that his proposed five-year restructuring plan has been approved by the respondent PNB which is admittedly a banking corporation. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract. If anything, those correspondences only prove that the parties had not gone beyond the preparation stage, which is the period from the start of the negotiations until the moment just before the agreement of the parties.

2. Civil Law;  Contracts ;  Estoppel ; Essential elements to establish promissory estoppel.-

The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise reasonably expected to induce action or forebearance; (2) such promise did in fact induce such action or forebearance; and (3) the party suffered detriment as a result.

3. Civil Law;  Contracts ;  Estoppel ; A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable.-

For petitioner to claim that respondent PNB is estopped to deny the five-year restructuring plan, he must first prove that respondent PNB had promised to approve the plan in exchange for the submission of the proposal. As discussed earlier, no such promise was proven, therefore, the doctrine does not apply to the case at bar. A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable. It does not operate to create liability where it does not otherwise exist.

4. Civil Law;  Contracts ;  Interest ; The unilateral determination and imposition of increased interest rates by respondent bank is violative of the principle of mutuality of contracts.-

It appears that respondent bank increased the interest rates on the two (2) subject Promissory Notes Nos. 127/82 and 128/82 without the prior consent of the petitioner. The petitioner did not agree to the increase in the stipulated interest rate of 21% per annum on Promissory Note No. 127/82 and 18% per annum on

Promissory Note No. 128/82. As held in several cases, the unilateral determination and imposition of increased interest rates by respondent bank is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.

5. Civil Law;  Contracts ;  Interest ; No one receiving a proposal to change a contract to which he is a party is obliged to answer the proposal, and his silence per se cannot be construed as an acceptance.-

It has been held that no one receiving a proposal to change a contract to which he is a party is obliged to answer the proposal, and his silence per se cannot be construed as an acceptance. Estoppel will not lie against the petitioner regarding the increase in the stipulated interest on the subject Promissory Notes Nos. 127/82 and 128/82 inasmuch as he was not even informed beforehand by respondent bank of the change in the stipulated interest rates.

Division: SECOND DIVISION

Docket Number: G.R. No. 116710

Counsel: Law Firm of Tanjuatco & Partners, The Chief Legal Counsel

Ponente: DE LEON, JR.

Dispositive Portion:

WHEREFORE, the petition is hereby DENIED. The challenged Decision of the Court of Appeals in CA-G.R. CV No. 38036 is AFFIRMED with modification that the increase in the stipulated interest rates of 21% per annum and 18% per annum appearing on Promissory Notes Nos. 127/82 and 128/82 respectively is hereby declared null and void.

13. First Metro Investment Corporation vs. Este Del Sol Mountain Reserve, Inc.,   369 SCRA 99   , November 15, 2001

Case Title : 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.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Appeals|Loans|Actions|Evidence|Usury Law|Contracts|Administrative Law|Parol Evidence|Attorney’s Fees|Pleadings and Practice 

Syllabi:

1. Appeals;  Evidence ; Inquiry upon the veracity of the Court of Appeals’ factual findings and conclusion is not the function of the Supreme Court for the Court is not a trier of facts.-

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 reexamine the factual findings of both courts and weigh which, after considering the record of the case, is more in accord with law and justice.

2. Loans;  Usury Law ;  Contracts ;  Administrative Law ; 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, cannot be made to retroactively apply to a contract executed earlier 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; A Central Bank Circular cannot repeal a law, only a law can repeal another law.-

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. 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. 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. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.

3. Loans;  Usury Law ;  Contracts ;  Parol Evidence ; 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.-

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. 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.

4. Loans;  Usury Law ;  Contracts ; 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.-

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. 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.

5. Loans;  Usury Law ; 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, and the debt is to be considered without stipulation as to the interest.-

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. The reason for this rule was adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises 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.

6. Loans;  Usury Law ; The amount paid as interest under a usurious agreement is recoverable by the debtor, since the payment is deemed to have been made under restraint, rather than voluntarily.-

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.

7. Loans;  Usury Law ;  Attorney’s Fees ; Courts are empowered to reduce the amount of attorney’s fees if the same is iniquitous or unconscionable.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’sfeesifthesameis“iniquitous or unconscionable.” Articles 1229 and 2227 of the New Civil Code provide that: x x x In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) 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.-

8. Actions;  Pleadings and Practice ; Whether the exact amount of the relief was not expressly prayed for is of no moment where the relief was plainly warranted by the allegations of the party 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.-

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.

Division: SECOND DIVISION

Docket Number: G.R. No. 141811

Counsel: Perez & Calima Law Offices, Misa Law Offices, Paterno C. Pajares, Quasha, Ancheta, Peña & Nolasco

Ponente: DE LEON, JR.

Dispositive Portion:

WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

14. Frias vs. San Diego-Sison,   520 SCRA 244   , April 03, 2007

Case Title : BOBIE ROSE V. FRIAS, represented by her Attorney-in- fact, MARIE F. FUJITA, petitioner, vs. FLORA SAN DIEGOSISON, respondent.Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

Syllabi Class : Civil Law|Interest Rates|Contracts|Damages|Attorney’s Fees|Contracts|Obligations|Damages 

Syllabi:

1. Civil Law;  Contracts ; The general rule is that if the terms of an agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail.-

—The Memorandum of Agreement executed between the petitioner and respondent on December 7, 1990 is the law between the parties. In resolving an issue based upon a contract, we must first examine the contract itself, especially the provisions thereof which are relevant to the controversy. The general rule is that if the terms of an agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail. It is further required that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.

2. Attorney’s Fees; Attorney’s fees as part of the damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded

every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.-

—Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorney’s fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. The award of attorney’s fees is the exception rather than the general rule. As such, it is necessary for the trial court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. The matter of attorney’s fees cannot be mentioned only in the dispositive portion of the decision. They must be clearly explained and justified by the trial court in the body of its decision. On appeal, the CA is precluded from supplementing the bases for awarding attorney’s fees when the trial court failed to discuss in its Decision the reasons for awarding the same. Consequently, the award of attorney’s fees should be deleted.

3. Damages; The entitlement to moral damages having been established, the award of exemplary damages is proper.-

—The entitlement to moral damages having been established, the award of exemplary damages is proper. Exemplary damages may be imposed upon petitioner by way of example or correction for the public good. The RTC awarded the amount of P100,000.00 as moral and exemplary damages. While the award of moral and exemplary damages in an aggregate amount may not be the usual way of awarding said damages, no error has been committed by CA. There is no question that respondent is entitled to moral and exemplary damages.

4. Contracts;  Obligations ;  Damages ; Moral damages may be awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in bad faith.-

—We agree with the findings of the trial court and the CA that petitioner’s act of trying to deprive respondent of the security of her loan by executing an affidavit of loss of the title and instituting a petition for the issuance of a new owner’s duplicate copy of TCT No. 168173 entitles respondent to moral damages. Moral damages may be awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in bad faith. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud.

5. Same; The interest rate of 25% per annum awarded by the Court of Appeals to a P2 million loan is fair and reasonable.-

—In Bautista v. Pilar Development Corp., 312 SCRA 611 (1999), we upheld the validity of a 21% per annum interest on a P142,326.43 loan. In Garcia v. Court of Appeals, 167 SCRA 815 (1988), we sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the CA to a P2 million loan is fair and reasonable.

6. Interest Rates; The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.-

—The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor.

Division: THIRD DIVISION

Docket Number: G.R. No. 155223

Counsel: Ernesto L. Pineda, J.V. Natividad and Associates

Ponente: AUSTRIA-MARTINEZ

Dispositive Portion:

WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of attorney’s fees is DELETED.

15. Carpo vs. Chua,   471 SCRA 471   , September 30, 2005

Case Title : SPOUSES DAVID B. CARPO and RECHILDA S. CARPO, petitioners, vs. ELEANOR CHUA and ELMA DY NG, respondents.Case Nature : PETITIONS for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Civil Law|Remedial Law|Loans|Usury Law|Appeals|Writ of Possession 

Syllabi:

1. Civil Law;  Loans ;  Usury Law ; A usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest.-

The Court’s ultimate affirmation in the cases cited of the validity of the principal loan obligation side by side with the invalidation of the interest rates thereupon is congruent with the rule that a usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest.

2. Civil Law;  Loans ;  Usury Law ; Since the mortgage contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract.-

The Court’s wholehearted affirmation of the rule that the principal obligation subsists despite the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all of which the main obligation was upheld and the offending interest rate merely corrected. Hence, it is clear and settled that the principal loan obligation still stands and remains valid. By the same token, since the mortgage contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract.

3. Remedial Law;  Appeals ; It is axiomatic that an interlocutory order cannot be challenged by an appeal but is susceptible to review only through the special civil action of certiorari.-

Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we cannot agree with petitioners who insist that it may be assailed only through an appeal perfected within fifteen (15) days from receipt thereof by respondents. It is axiomatic that an interlocutory order cannot be challenged by an appeal, but is susceptible to review only through the special civil action of certiorari. The sixty (60)-day reglementary period for special civil actions under Rule 65 applies, and respondents’ petition was filed with the Court of Appeals well within the period.

4. Remedial Law;  Writ of Possession ; The purchaser in a foreclosure sale is entitled as a matter of right to a writ of possession regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure proceedings.-

We also affirm the Court of Appeals’ ruling to set aside the RTC orders enjoining the enforcement of the writ of possession. The purchaser in a foreclosure sale is entitled as a matter of right to a writ of possession, regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure proceedings. An injunction to prohibit the issuance or enforcement of the writ is entirely out of place.

Division: SECOND DIVISION

Docket Number: G.R. Nos. 150773 & 153599

Counsel: David C. Naval, Gilbert P.E. Morandarte

Ponente: TINGA

Dispositive Portion:

WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against petitioners.

16. Ligutan vs. Court of Appeals,   376 SCRA 560   , February 12, 2002

Case Title : TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents.Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.

Syllabi Class : Obligations and Contracts|Penalty Clauses|Words and Phrases|Interests|Attorney’s Fees|Novation|Requisites 

Syllabi:

1. Obligations and Contracts;  Penalty Clauses ;  Words and Phrases ; A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation; Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be

equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.-

A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.

2. Obligations and Contracts;  Penalty Clauses ; The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective.-

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals, just an example, the Court has tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular performance is made by the debtor. The stipulated penalty might even be deleted such as when there has been substantial performance in good faith by the obligor, when the penalty clause itself suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it.

3. Obligations and Contracts;  Penalty Clauses ;  Interests ; The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty, and a penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded; What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest.-

Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts

below. In any event, the interest stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded. What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank’s existence.

4. Obligations and Contracts;  Attorney’s Fees ; Where the rate of attorney’s fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts as well, an award of 10% attorney’s fees is reasonable.-

Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney’s fees for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of attorney’s fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of 10% attorney’s fees to be reasonable.

5. Obligations and Contracts;  Novation ;  Requisites ; In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point incompatible with each other; When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms.-

Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point incompatible with each other. An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the terms of payment or adding com- patible covenants or where the old contract is merely supplemented by the new one. When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a mere commodatum to lease of things, or from negotiorum

gestio to agency, or from a mortgage to antichresis, or from a sale to one of loan; (2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor or the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the new obligation.

Division: THIRD DIVISION

Docket Number: G.R. No. 138677

Counsel: Florimond C. Rous, Castro, Biñas, Samillano & Mangrobang

Ponente: VITUG

Dispositive Portion:

WHEREFORE, the petition is DENIED.

17. Eastern Shipping Lines, Inc. vs. Court of Appeals,   234 SCRA 78   , July 12, 1994

Case Title : EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.Case Nature : PETITION for review of a decision of the Court of Appeals.

Syllabi Class : Common Carriers|Damages|Obligations|Presumption of Fault|Arrastre Operator|Interest Rates|Interests in the Concept of Actual and Compensatory Damages 

Syllabi:

1. Common Carriers;  Obligations ;  Presumption of Fault ; When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that requisite diligence, and there need not be an express finding of negligence to hold it liable.-

The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be applied to this case.

2. Common Carriers;  Obligations ;  Arrastre Operator ; Carrier and arrastre operator liable in solidum for the proper delivery of the goods to the consignee.-

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman’s Fund Insurance Co. vs. Metro Port Service, Inc. (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus: “The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., et al., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee.”

3. Common Carriers;  Obligations ;  Arrastre Operator ; The Supreme Court is not implying, however, that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule.-

4. Damages;  Interest Rates ; Rules of thumb for future guidance in the award of damages and interest rates.-

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.

5. Damages;  Interest Rates ; When an obligation is breached, the contravenor can be held liable for damages.-

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.

6. Damages;  Interest Rates ;  Interests in the Concept of Actual and Compensatory Damages; In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.-

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.

7. Damages;  Interest Rates ;  Interests in the Concept of Actual and Compensatory Damages; In case of other obligations, the interest on the amount of damages may be imposed at the discretion of the court at the rate of 6% per annum.-

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.

8. Damages;  Interest Rates ;  Interests in the Concept of Actual and Compensatory Damages; When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest 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.-

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.

Docket Number: G.R. No. 97412

Counsel: Alojado & Garcia and Jimenea, Dala & Zaragoza, Zapa Law Office

Ponente: VITUG

Dispositive Portion:

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the courta quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

18. Nacar vs. Gallery Frames,   703 SCRA 439   , August 13, 2013

Case Title : DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents.Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

Syllabi Class : Interest Rates|Monetary Board 

Syllabi:

1. Labor Law;  Termination of Employment ;  Illegal Dismissals ; 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.-

—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. 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.

2. Same; When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, shall be 6% per annum from such finality until its satisfaction.-

—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.

3. Same; 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.-

—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.

4. Same;  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; 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 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.

5. Same;  Monetary Board ; The Bangko Sentral ng Pilipinas-Monetary Board 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.-

—In the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary Board, 688 SCRA 530 (2013), 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.”

6. Interest Rates; 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 Lines vs. Court of Appeals, 234 SCRA 78 (1994), 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.—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 Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994) 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.

7. Same;  Same ;  Same ; Article 279 of the Labor Code 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.-

—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.

Division: EN BANC

Docket Number: G.R. No. 189871

Counsel: Carlo A. Domingo

Ponente: PERALTA, J.

Dispositive Portion:

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.

19. Estores vs. Supangan,   670 SCRA 95   , April 18, 2012

Case Title : HERMOJINA ESTORES, petitioner, vs. SPOUSES ARTURO and LAURA SUPANGAN, respondents.Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

Syllabi Class : Civil Law|Interest Rates 

Syllabi:

1. Civil Law;  Interest Rates ; The general rule is that the applicable rate of interest “shall be computed in accordance with the stipulation of the parties.” Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).”-

—Anent the interest rate, the general rule is that the applicable rate of interest “shall be computed in accordance with the stipulation of the parties.” Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).” In this case, the parties did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

2. Same;  Same ; The phrase “forbearance of money, goods or credits” is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code.-

—In Crismina Garments, Inc. v. Court of Appeals, 304 SCRA 356 (1999), “forbearance” was defined as a “contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable.” This definition describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, “forbearance of money, goods or credits” will have no distinct definition from a loan. We believe however, that the phrase “forbearance of money, goods or credits”

is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code. Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan.

Division: FIRST DIVISION

Docket Number: G.R. No. 175139

Counsel: Fidel Angelito I. Arias

Ponente: DEL CASTILLO, J.

Dispositive Portion:

WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The award of attorney’s fees is further reduced to P50,000.00.

iii. TRUTH IN LENDING ACT RA 3765 (1963)

REPUBLIC ACT No. 3765

AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH EXTENSIONS OF CREDIT.

Section 1. This Act shall be known as the "Truth in Lending Act."

Section 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.

Section 3. As used in this Act, the term

(1) "Board" means the Monetary Board of the Central Bank of the Philippines.

(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation of claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect.

(3) "Finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit as the Board may be regulation prescribe.

(4) "Creditor" means any person engaged in the business of extending credit (including any person who as a regular business practice make loans or sells or rents property or services on a time, credit, or installment basis, either as principal or as agent) who requires as an incident to the extension of credit, the payment of a finance charge.

(5) "Person" means any individual, corporation, partnership, association, or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof, or any other government, or of any of its political subdivisions, or any agency of the foregoing.

Section 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.

Section 5. The Board shall prescribe such rules and regulations as may be necessary or proper in carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain such classifications and differentiations as in the judgment of the Board are necessary or proper to effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the enforcement of this Act, or any rule or regulation issued thereunder.

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 P100 or in an amount equal to twice the finance charged required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 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.

(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any regulation contained in this Act or any regulation thereunder shall affect the validity or enforceability of any contract or transactions.

(c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,00 or more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both.

(d) No punishment or penalty provided by this Act shall apply to the Philippine Government or any agency or any political subdivision thereof.

(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto.

Section 7. This Act shall become effective upon approval.

Approved: June 22, 1963

1.

United Coconut Planters Bank vs. Beluso,   530 SCRA 567   , August 17, 2007

Case Title : UNITED COCONUT PLANTERS BANK, petitioner, vs. SPOUSES SAMUEL and ODETTE BELUSO, respondents.Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

Syllabi Class : Obligations and Contracts|Attorney’s Fees|Foreclosure of Mortgage|Loans|Actions|Loans|Principle of Mutuality|Estoppel|Truth in Lending Act|Interest|Compounded Interest|Penalties|Default|Annulment of Foreclosure Sale|Pleadings and Practice|Prescription|Joinder of Causes of Action|Due Process|Venue|Credit Lines|Words and Phrases|Motions to Dismiss 

Syllabi:

1. Obligations and Contracts;  Loans ;  Principle of Mutuality ; 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.-

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, 196 SCRA 536 (1991), 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.

2. Obligations and Contracts;  Loans ;  Principle of Mutuality ; A 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 the lender; 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.-

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.

3. Obligations and Contracts;  Loans ;  Estoppel ; Estoppel cannot be predicated on an illegal act.-

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.

4. Obligations and Contracts;  Loans ;  Truth in Lending Act ; Not disclosing the true finance charges in connection with the extensions of credit is a form of deception which we cannot countenance.-

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.

5. Obligations and Contracts;  Loans ; Default commences upon judicial or extrajudicial demand, and the excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount.-

Default commences upon judicial or extrajudicial demand. The ex- cess 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.

6. Obligations and Contracts;  Loans ;  Interest ; The Court sees sufficient basis to impose a 12% legal interest in favor of the lender in the case at bar, as what was voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn interest.-

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.

7. Obligations and Contracts;  Loans ;  Interest ;  Compounded Interest ; The contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new 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, 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.

8. Obligations and Contracts;  Loans ;  Interest ;  Penalties ; 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; If a 36% interest in itself has been declared unconscionable by the Supreme Court, what more a 30.41% to 36% penalty, over and above the payment of compounded 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. 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, 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%.

9. Attorney’s Fees;  Default ; Filing a case in court is the judicial demand referred to in Article 1169 of the Civil Code, which would put the obligor in delay; 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 the Court sets off or compensate both parties’ liabilities for attorney’s fees.-

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 1169 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. 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.

10. Foreclosure of Mortgage;  Annulment of Foreclosure Sale ; The grounds for the proper annulment of the foreclosure sale are the following: (1) that there was fraud, collusion, accident, mutual mis-take, 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.-

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 an-nulment 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.

11. Loans;  Truth in Lending Act ;  Pleadings and Practice ; The allegation that the promissory notes grant the lender 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.”-

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. 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.” 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.

12. Loans;  Truth in Lending Act ;  Prescription ; As the penalty provided under the Truth in Lending Act depends on the finance charge required of the borrower, the borrower’s cause of action would only accrue when such finance charge is required.-

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 P100 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 P2,000.00 on any credit transaction. 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.

13. Loans;  Truth in Lending Act ;  Pleadings and Practice ;  Joinder of Causes of Action; 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; In the case at bar, 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.-

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 P100 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 P2,000.00 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.

14. Loans;  Truth in Lending Act ;  Pleadings and Practice ;  Joinder of Causes of Action;  Due Process ;Due process mandates that a defendant should be sufficiently apprised of the matters he or she would be defending himself or herself against.-

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.

15. Actions;  Venue ; 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.-

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.

16. Loans;  Credit Lines ;  Words and Phrases ; 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.-

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.

17. Loans;  Truth in Lending Act ; Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be furnished prior to the consummation of the transaction.-

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 Lend-ing Act clearly provides that the disclosure statement must be furnished prior to the consummation of the transaction.

18. Loans;  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.-

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.

19. Actions;  Pleadings and Practice ;  Venue ;  Motions to Dismiss ; 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) of Section 1, Rule 16, 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; While it is 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, the first action may nevertheless be dismissed if the later action is the more appropriate vehicle for the ventilation of the issues between the parties.-

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 Appeals, 259 SCRA 371 (1996): 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.

Division: THIRD DIVISION

Docket Number: G.R. No. 159912

Counsel: Balbin and Associates, Stephen C. Arceño

Ponente: CHICO-NAZARIO

Dispositive Portion:

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the following MODIFICATIONS: