22. PDCP v. IACG.R. No. 73198 213 SCRA 282

September 2, 1992

Case Analysis

I. Parties:Private Development Corporation of the Philippines (PDCP), petitioner.The Intermediate Appellate Court (IAC), public respondent and Ernesto C. Del Rosario, private

respondent.

Petitioner and private respondent, as President of a corporation (DATICOR), had a contractual relationship (because of a loan agreement) wherein petitioner was the creditor while respondent was the debtor.

II. Prior Proceeding:PDCP initiated extra-judicial foreclosure proceedings against a parcel of land owned by Del Rosario

and (another extra-judicial foreclosure) against parcels of land owned by the corporation (DATICOR) headed by same private respondent.

Court of First Instance (CFI) of Manila. The lower court ruled in favor of the petitioner. Said decision was appealed to the Intermediate Appellate Court.

However, pending CFI (Manila) resolution, Del Rosario sought a restraining order from another branch of the Regional Trial Court in Manila. Also, Del Rosario filed another civil case of writ of injunction in the Court of First Instance of Davao Oriental so as to prevent PCDP from foreclosing its DATICOR properties on Davao.

Intermediate Appellate Court (IAC). Set aside CFI’s decision. [OR overruled the trial court’s decision.]

To wit, the Intermediate Appellate Court: “××× declared void and of no effect the stipulations of interest in the loan agreement between

DATICOR and PDCP, as if the loan agreement is without stipulation as to payment of interest. ×××.”

Hence this appeal case in the SC.

III. Theories of the Parties:Petitioner’s contentions.

That DATICOR entered into a loan agreement by which it incurred an outstanding balance justifying the extra-judicial foreclosure proceedings.

That Del Rosario is not a party-in-interest in the case.That the cause of action of Del Rosario is barred by prescription and that there is a pending case

before the CFI Davao.

Private respondent’s contentions.That the stipulations on the interest of the loan agreement are contrary to law (being violative of the

Usury Law) therefore the loan agreement must be annulled. That PDCP’s extra-judicial foreclosure proceedings are not justified. PDCP must also be made liable

for damages.

IV. Objective of the Parties:Petitioner.

Granting of the extra-judicial foreclosure proceedings to satisfy the unpaid outstanding balance in the loan agreement.

Private respondent.Annulment of the loan agreement and be awarded damages.

V. Key Facts: Davao Timber Corporation (DATICOR) and Private Development Corporation of the Philippines

(PDCP) entered into a loan agreement in foreign currency and in peso. It was stipulated in the loan agreement, that the foreign currency loan was to be pain with an

interest rate of eleven and three-fourths (11-¾%) per cent per annum on the disbursed amount of the foreign currency; and the peso loan at the rate of twelve (12%) per cent per annum on the disbursed amount of the peso loan outstanding, commencing on the several dates on which disbursements of the proceeds of loan are made.

The loans were originally secured by a first mortgage executed by Ernesto del Rosario, President of DATICOR, in his personal capacity, and his sister, as third party mortgagors on a parcel of land which they owned in common. The land was later on partitioned by the siblings.

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Thereafter, PDCP executed a partial release of mortgage on the parcel of land owned by del Rosario’s sister and caused the DATICOR to execute an additional mortgage of five parcel of land consisting prime industrial lands with buildings thereon. DATICOR also executed a Deed of Chattel Mortgage on the machineries and equipment attached to the land in Davao Oriental as added security for said loan.

Additional fees and charges were added to the loan interest so that, according to PDCP, DATICOR still has an outstanding balance of almost Php 11 million despite paying Php 3 million of the original Php 4.4 million loan.

PDCP then initiated extra-judicial foreclosure proceedings against the mortgage properties of DATICOR.

Private respondent then filed a complaint against the PDCP for violation of the Usury Law, annulment of contract and damages with prayer for the issuance of a writ of preliminary injunction the Court of First Instance (Manila) and Court of First Instance (Davao).

In the course of the trial, PDCP contended that DATICOR entered into a loan agreement by which it incurred an outstanding balance justifying the extra-judicial foreclosure proceedings, that Del Rosario is not a party-in-interest in the case, that the cause of action of Del Rosario is barred by prescription and that there is a pending case before the CFI Davao.

VI. Issues Identified by the Court:Whether or not the assailed loan agreement is valid.Whether or not petitioner’s contentions are valid.

VII. Holdings:

No, the loan agreement is contrary to law hence it is null and void.

The loan agreement was entered into when the prevailing law applicable is Usury Law, as amended by P.D. No. 116.

Petitioner’s contentions are not valid.

As to the contention that Del Rosario is not a party-in-interest in the case:“Del Rosario mortgaged his properties in his personal capacity to secure the debt of DATICOR. As

such, the creditor, PDCP, may proceed against Del Rosario or DATICOR or both of them simultaneously for the payment of the loan or for the performance of obligation. In fact, PDCP filed for the foreclosure of the real properties belonging to Del Rosario.”

As to the contention that the cause of action of Del Rosario is barred by prescription and that there is a pending case before the CFI Davao:

“Article 1957 of the Civil Code provides: ‘××× contracts and stipulations under any cloak or device whatever, intended to circumvent the law against usury shall be void.’ Furthermore, Article 1410 provides: ‘The action or defense for the declaration of the inexistence of a contract does not prescribe.’ The aforesaid articles therefore state that all usurious stipulations are void and as such, action to annul such usurious stipulations does not prescribe.”

The principle of litis pendencia is not applicable to the case at bar. The first case (CFI Manila) was against a natural person (Del Rosario), while the second (CFI Davao), against a juridical person (DATICOR). “Clearly, there is no identity of parties, hence litis pendencia cannot apply.”

VIII.Ratio Decidendi:“The usury law ×××, as amended by Presidential Decree 116, fixed all interest rates for all loans with

maturity of more than 360 days at twelve (12%) per cent per annum including premiums, fines and penalties.

It is to be noted that PDCP was charging penalties at the rate of two (2%) per cent per month or an effective rate of twenty four (24) per cent per month on the peso loan and one-half (1/2%) per cent per month or an effective (nalingawan garu su word na rate) six (6%) per cent per annum on the foreign currency loan. It is therefore very clear that PDCP has been charging and imposing interests in violation of the prevailing usury laws.”

IX. Disposition:

The decision appealed from is affirmed in toto.

OR

Intermediate Appellate Court decision that it “××× declared void and of no effect the stipulations of interest in the loan agreement between DATICOR and PDCP, as if the loan agreement is without stipulation as to payment of interest. ×××” is affirmed.

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